YOUR GOALS,OUR COMMITMENT.

April 2024

Global Stewardship Report
For the reporting period 1st January to 31st December 2023
For Professional Investors – Marketing Communication

Foreword
If anyone doubted
the need for better
stewardship of ourplanet, last year should
surely have convinced
them. 2023 broke several
environmental and social
records. It witnessed thehottest year on recordby some margin. This
heat was accompanied by climate-related events
all around the globe, from the most devastating
fire season in Canada and the worst drought in the
Amazon, to the highest-ever monsoon rainfall inparts of Japan, China, South Korea and India.
Against this background, we believe that stewardshipis becoming an imperative for the asset management
industry. The generations now growing up will notthank us if our risk-adjusted investment returns arebought at the expense of a degraded planet. It is nolonger possible to separate the search for returns
from its cost in environmental and social terms.
We outlined in our 2022 report how Nikko AssetManagement has been on the front foot in rising
to this challenge. From creating the world’s first
dedicated green bond fund in conjunction with theWorld Bank in 2010, to playing a leading role in the
introduction of Japan’s version of the Stewardship
Code in 2014 and my appointment as the first femalepresident of a Japanese financial institution in 2022,
Nikko has been a pioneer. Last year was a further
milestone in our journey. As I said then, among my toppriorities were further growing our newly established
Global Sustainable Investment team, advancing
our ESG integration and stewardship activities andincreasing the number of women in senior roles. We
have made advances in all these areas.

Backed by our enlarged and streamlined ESG
resources – and our Global Head of Sustainable
Investment – we have significantly deepened our
engagement with companies on a range of ESG
issues, as is demonstrated by our case studies thisyear. They show the steady progress we have madein guiding more of our investee companies to adopt
better ESG practices, particularly in Asia. We havealso been more active in backing climate change
resolutions at shareholder meetings and, consciousof the fragmentation of various ESG labellingstandards and regulations, we have undertaken
an extensive internal project to develop our own,internal ESG AUM classification framework.
Advancing the role of women is something I havechampioned throughout my career. We have morework to do on this, but we can report solid progress.
Women now make up nearly two-fifths of our total
staff and approaching a quarter of our management
positions. We continue to actively promotewomen and other groups that have experienced
discrimination in the past, and are doing so in a
number of ways.
On the wider stage, we continue to take an active partin several industry groups promoting sustainability
and better corporate practices. I was, for instance,very pleased to be involved in the establishment of
the Japan Chapter of the Glasgow Financial Alliancefor Net Zero and participate in a discussion about how
Japan is to reach net zero by 2050.
Our stewardship journey continues and 2023 saw
us take some big strides along that path. Aware of
the prints we leave behind, we know we still have a
way to go, but the work we have put in to build oursustainability capabilities and the progress we havemade in integrating ESG into our business in 2023
bodes well for the future.

Stefanie Drews, Group President

Contents
Signatories’ purpose, investment beliefs, strategy and culture enable stewardship thatcreates long-term value for clients and beneficiaries leading to sustainable benefits for the
economy, the environment and society.

04

Signatories’ governance, resources and incentives support stewardship.

12

Principle

Signatories manage conflicts of interest to put the best interests of clients andbeneficiaries first.

18

Principle

Signatories identify and respond to market-wide and systemic risks to promote a wellfunctioning financial system.

21

Principle

Signatories review their policies, assure their processes and assess the effectiveness of theiractivities.

30

Principle

Signatories take account of client and beneficiary needs and communicate the activities andoutcomes of their stewardship and investment to them.

34

Principle

Signatories systematically integrate stewardship and investment, including material
environmental, social and governance issues, and climate change, to fulfil their responsibilities.

41

Signatories monitor and hold to account service providers.

50

Signatories engage with issuers to maintain or enhance the value of assets.

55

Signatories, where necessary, participate in collaborative engagement to influence issuers.

66

Signatories, where necessary, escalate stewardship activities to influence issuers.

70

Signatories actively exercise their rights and responsibilities.

75

Principle

1

Principle

2

3

4

5

6

7

Principle

8

Principle

9

Principle

10

Principle

11

Principle

12

4Back to contents

Principle

1

Signatories’ purpose, investment beliefs, strategy and culture enable stewardship that creates
long-term value for clients and beneficiaries leading to sustainable benefits for the economy,
the environment and society.

Statement of purpose
Signatories’ purpose, investment beliefs, strategy and culture enable stewardship that creates long-term value for clientsand beneficiaries leading to sustainable benefits for the economy, the environment and society.

Context
With its origins in Japan, the Nikko
Asset Management Group (“Nikko
AM Group”) is today one of Asia’s
largest independent asset managers,
with USD 228.7 billion1 assets undermanagement (“AUM”, as at 31
December 2023). Headquarteredin Japan, which is home to a large
proportion of both our clients andour AUM, we also manage assets
from a number of offices around theworld, including the UK. We combine
a global perspective with our Asianroots to create sophisticated anddiverse investment solutions to meet
our clients’ needs. These needs differ,depending on whether the client isretail or institutional. But for all types,
our guiding strategy is to ascertain
the purpose for which their assets
are being managed and then to steer
them towards the outcomes that best
meet that purpose. In doing so, we
put stewardship at the heart of ouractivities and the distinctive values
that our Japanese heritage brings.

A breakdown of our AUM by asset class and client domicile is shown in thefollowing charts.2
Assets under Management by asset class*Japanese Equity 52.0%
Other Equity 14.1%
Fixed Income 8.3%
Money Market 13.3%
Multi-Asset 5.8%
Alternatives/Others 6.4%

Assets under Management by client domicile*

Japanese culture values harmony,both with nature and with otherpeople, putting less emphasis on
the individual and more on society
than in Western traditions. We havetherefore grown up over the past
60 years infused with the belief that
we must be good corporate citizens.
Our approach to stewardship andengagement has evolved against thatbackground and it informs the way
we have addressed our response to
the UK Stewardship Code.

Japan 91.2%
Asia ex-Japan 3.5%
North America 0.2%
Australia/New Zealand 2.4%
Other 0.1%
EMEA 2.5%*As of 31 December 2023
1 As of 31 December 2023. Consolidated assets under management and sub-advisory of Nikko AM Group, including subsidiaries but excluding
minority affiliates and minority joint ventures.
2 Totals may not sum due to rounding of data at source. “Multi-asset” funds are made up of equity and fixed income assets. The stewardship of eachof these assets is addressed individually in this report. “Alternatives” constitutes REITs, equity long/short and infrastructure funds. Infrastructure
represents 0.8% of group AUM and is managed by external managers. These managers are subject to Nikko AM’s external manager due diligenceprocess, which includes a review of ESG policies.

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Locations of our investment teams
Edinburgh
Global Equity

Tokyo (Head office)Japan Equity, Fixed Income,
Alternatives, ETFs, Money Market

New York
Thematic Equities

LondonHong Kong

Global Fixed Income,Money Market

China Equity,
ETFs

AucklandSingapore

New Zealand Equity,
Fixed Income

Asia ex-Japan Equity,
Asia Fixed Income, China
Equity, Multi-Asset, ETFs

Equities

Fixed Income

The Nikko AM Group has a presencein 11 countries, with our in-house
investment teams located in seven of
our offices in four continents. Together
we provide high-conviction asset
management from across our global
network, as well as across a range ofactive equity, fixed income and multiasset strategies, with a complementary
range of passive strategies, including
some of Asia’s largest exchange-tradedfunds (“ETFs”).

Multi-Asset

Alternatives

ETFs

Money Market

UK breakdown by asset class*Japanese Equity 32%
Global Equity 32%
Global Fixed Income 20%
Money Market 16%

While most of our AUM and clients are
based in Asia, our long-term businessgoal is to offer best-in-class investment
solutions for clients worldwide.
We implement cross-border delegation
arrangements whereby the locallycontracted Nikko AM Group officemanages business development,
supported by local client servicing
teams, with portfolio management
delegated to the respective regional
Nikko AM entity where the relevant
investment expertise is based. For
example, the AUM of our UK entity,
accounting for approximately 7% of theGroup total (as at 31 December 2023),
represents assets managed on behalfof a range of clients who are accessing
the investment capabilities of both our
local and global investment teams. A
breakdown of the AUM of our UK entity
as at 31 December 2023 is provided in
the charts opposite.

UK breakdown by client domicile*

Japan 28%
Asia ex-Japan 13%
Europe 23%
Australia/New Zealand 3%
UK 8%
Middle East 23%
North America 2%*As of 31 December 2023

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Code of ethics
We believe in a sense of responsibility,
stressing stability and harmony. We
believe in promoting respect for ourenvironment, for our community andfor other people. As active owners we
recognise the value of building longterm relationships built on trust andrespect for the companies in which
we invest to promote better outcomesfor our clients, the economy, theenvironment and society. In doing so,
we strive to be better global citizens.
Below we outline our values in thecontext of our investment beliefs,
culture and engagement and, in theactivity section, explain how theseenable effective stewardship. These
values are encapsulated in our Group
Code of Ethics, which commits us to
upholding: our fiduciary duty to our clients,
 the integrity of capital markets, our responsibilities toenvironmental conservation, and our social responsibility.
The Code is reviewed by the Nikko
AM Group Board of Directors (moredetails of the review process aredescribed in our response to Principle5) and attested to annually by all
employees globally. It acknowledges
that, as a fiduciary, we owe our clientsa duty of loyalty and care. When
acting in a fiduciary capacity, allemployees must act for the benefitof our clients, placing their interests
before the interests of the Group, athird party or their own. Employees
must also act with reasonable careand diligence and exercise prudent
judgement in the performance of
their duties. The Code provides
guidance and sets standards in a
number of specific areas, including
our duties to regulators and the

public, to upholding the integrityof financial markets, to ethicalbusiness practices, fair competition,and our environmental and social
responsibilities, and also governs our
personal trading.
At the heart of our culture is thebelief that, as stewards of our clients’money, we have a duty to provide
the right investment solutions tomeet their goals. To do this requires
us to understand their investment
objectives, risk appetite, sustainability
ambitions, regulatory and accounting
frameworks, as well as the widersocial and environmental climate inwhich we all live.

Environmental, socialand governance andwider global growthstrategy
We strongly believe thatenvironmental, social and governance(“ESG”) considerations are inherent tolong-term corporate value creationand contribute to the realisation ofsustainable economic growth. In
light of this, we view ESG issues as anintegral part of our fiduciary duty toclients and endeavour to incorporate
ESG principles in all our investment
processes.
ESG has been a historical area of focus
for Nikko AM. We launched Japan’s
first socially-responsible investment
fund in 1999 and the Global Green
Bond Fund in conjunction with theWorld Bank in 2010. This fund was
relaunched in 2023 and now invests
in corporate issuance alongside
holdings in Sovereign, Supranationaland Agency bonds, particularly
seeking out investments that aresupportive of the transition to a net
zero economy, such as renewableenergy, sustainable transportation,and green building materials. The

growing call to action on climatechange, the environment andimportant social issues has also
shaped the direction of travel for our
firm’s wider global growth plans our Global Sustainable Investment
team has been embedded in
our investment structure and isfully connected across our global
offices, enabling us to deliver
ESG outcomes for our clients andmeet high international standards(further details on the resourcing
and governance of this department
can be found under Principle 2).
Contributing to our wider global
growth plans, in November 2023
we agreed to acquire a minority
stake (completed in January 2024) inOsmosis (Holdings), a UK researchbased quantitative investment
manager focused on delivering
better risk-adjusted investment
returns with better environmental
outcomes, Osmosis’ focus on resource
efficiency and delivering positiveenvironmental impact forming afoundation for our partnership.
Our approach to ESG integration
is outlined in more detail underPrinciple 7. Our policies on
ESG, responsible investing andstewardship are available on
our website under the following
headings: Fiduciary and ESG
Principles, Commitment to
Responsible Investment, Position
Statement on Climate Change, Task
Force on Climate-Related Financial
Disclosures, Sustainability Report,
Engagement and Stewardship
Strategy, and Stewardship
Activities Report and Selfassessment.
As part of our commitment tomeeting international standards, weare continually improving many of
our existing frameworks, policies anddisclosures.

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CultureInvestment beliefs

Our diverse, inclusive and collaborative culture is a key competitive advantage
and supports our ability to generate differentiated insights. Our staff members
come from a rich diversity of backgrounds, with language capabilities covering
all the main Asian and European languages. Our workforce includes 30
nationalities working together with the common purpose of protecting andgrowing the assets of our customers in a way that best meets their long-term
investment goals.

Nikko AM has both a fiduciary role
towards its clients and a responsibility
towards society. Our corporate
culture, ESG strategy and Code of
Ethics help foster the long-termvalue and sustainable growth
characteristics required to deliver
these commitments. Engagement
is a key factor in the stewardshipof our clients’ assets. We find that
constructive dialogue with ourinvestee companies helps foster theirlong-term value and sustainablegrowth characteristics, improving both
returns for clients and managements’accountability to society and theenvironment. This requires in-depth
knowledge of the companies and theenvironment in which they operate,
as well as wider considerations ofsustainability consistent with ourinvestment management strategies.
Further information on the role ofengagement in maintaining andenhancing the value of assets can befound under Principle 9.

Our team meetings encourage widespread participation, drawing on thecollective intellect, experience and cultural and gender diversity of our teams
and each individual’s experience to question the market consensus. Combinedwith common values based on mutual respect, our teams are well-constructed
to meet the challenge of investing in diverse and fast-moving global andregional markets. As a global business committed to the values of diversity,
equity and inclusion, it is appropriate that our approach to governance reflects
not only the Western paradigm but also the standards of other parts of theworld. For instance, when the Chairman of Nikko AM Group, Nishida Yutaka,
visited the Nikko AM New Zealand offices in 2023, he received training in Maori
perspectives on the world. It was evident that the Maori outlook had similarities
with the Japanese world view in terms of their focus on the collective rather than
the individual and the emphasis on the long-term. We believe these principles
infuse our respect for diversity and the rights of our fellow workers as set out in
our Code of Ethics.
Our investment teams have autonomy to implement their own investment
philosophies and processes in the markets and asset classes in which theyspecialise. To support them, we are making investments in both our sustainable
investment and stewardship teams and, as mentioned above, developing andbuilding the resources we devote to ESG. This is discussed in more detail underPrinciple 2.

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ActivityStrengthening
stewardship

Staff diversity andinclusion

In line with our commitment tocontinuous improvement, during2023 we took steps to ensure that ourinvestment approaches, strategy andculture continued to foster effective
stewardship. This included thefurther enhancement of people andintegration capabilities to ensure that
we continue to be able to provide
strong solutions to our clients.

We set up our first Diversity andInclusion (“D&I”) Working Group in2015 and we currently have four
D&I working groups, operatinginternationally, supported by
the Corporate Sustainability
department—Women’s, LGBTQ,Disabilities, and Racial Equality—
where employees plan initiatives
and events to promote diversity.
For instance, our working groupfor people with disabilities helps
to provide a better working
environment for such employees. It
also works to enhance employees’
understanding of each other’s needs
and encourages cross-departmental
co-operation.

As an integral part of thedevelopment of our climate strategy,
we strengthened our reporting
under the Taskforce on Climaterelated Financial Disclosures(“TCFD”), enhancing our climate
scenario analysis capabilities andsupporting our progress towards
our net zero carbon commitments.
The revised TCFD report presents a
deeper explanation of how Nikko
AM identifies, manages and governs
climate risks and opportunities. It also
includes a more thorough top-down
analysis of various climate scenarios.
Further information about this work
can be found in our TCFD report.

We have a Diversity and Inclusion
Policy, underlining the firm’s
commitment to embracing diversity
and creating a work environment
free from discrimination andharassment. In it we state that Nikko
AM Group embraces and encourages
individual differences amongst staff
and has a zero-tolerance policy
towards discrimination of any kind.
These principles apply, amongst
other things, to our practices
and policies on recruitment andselection, compensation andbenefits, professional development
and training, promotions, transfers,social and recreational programmes,
redundancies and terminations.
It aims to ensure that: all staff treat each other withrespect;
 teamwork and participation are
inclusive, allowing all groups andperspectives to be represented;
 a healthy work/life balance ispromoted and encouraged
through flexible work schedules;
 both we and our employees
contribute to our communities
and develop programmes that
support them.

Support for our diversity andinclusion initiatives comes from thehighest levels of the organisation,with particular focus from Stefanie
Drews, Nikko AM Group Director
and President. Ms Drews has
been a champion of diversity andsustainability issues within thecompany since joining in 2014 as
Head of Institutional Marketing andProposition. She has been an internal
campaigner on matters of equality as
she has moved through the ranks ofthe organisation, working to fostera culture based on talent and merit.
She continues to be a vocal championof sustainability and diversity issues,
both within the organisation andpublicly.
Ms Drews is particularly keen to boost
the number of women in senior roles.
We are certainly improving in termsof staff diversity, but we need tokeep up the momentum to achieve
our goals. Currently, women makeup 39% of our total staff and occupy
23% of our management positions
globally. We are actively trying toraise the numbers, backed by our
2021 commitment to ensuring thatat least 30% of all our managerial
positions are occupied by women by
2030. We are a member of the 30%
Club Japan Investor Group, whichaims to have 30% of all board seatsof TOPIX 100 companies occupied by
women by 2030. Currently, female
representation on our Group Board
stands at 33%. We do not believe thatdiversity should stop at the global
board. Further down the scale, wehave regional action plans to achieve
our goal of raising the percentage
of female managers. Initiatives
to improve diversity now stretch
across many areas of the group,
including recruitment, the working
environment, talent development
and culture building. In 2023, we
further developed our training
programmes aimed at employees atdifferent levels of the organisation.

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We are also actively seeking to create
more welcoming working conditions
for LGBTQ+ employees. We are an
official member of LGBT Finance,
an organisation set up by financial
institutions in Japan to support
LGBTQ+ individuals. This initiative
enjoys very visible grassroots support
from our employees and very
engaged sponsorship from our senior
management. In 2023, for the fifth
year running, Nikko AM Group wasawarded a gold award in the Pride
Index, created by Work With Pride,a non-profit-making organisationthat helps companies and otherorganisations adopt and promote
LGBTQ+-related diversity andinclusion initiatives. Nikko AM Group
was also the first Japanese fundmanager to become part of the LGBT
Great initiative, receiving a bronze
award. LGBT Great is a group oforganisations in the financial services
industry with a shared vision of
making it a trusted place for LGBTQ+
talent, clients and investors.
Last year, the Group launched a
programme involving employee
speakers from across the firm to raiseawareness about racial equality. We
also conducted several employee
education seminars on supporting
people with disabilities, including
a series of sign language lessons.
Since late 2022, we have made a text
interpretation service available to ouremployees with hearing disabilities,
which allows them to participate ininternal online events. As a firm, we
also sponsor the Japan Wheelchair
Rugby Federation and employ
wheelchair rugby athletes, two ofwhom are on the Japan nationalteam.
As part of our efforts to promote
and implement best practices in theinvestment management industry,
our Tokyo headquarters actively
participates in an industry-wide
network called Asset Management
Women’s Forum, an initiative toempower women and enhancefemale leadership in our industry.

Investing in Future Talent
We realise how important it is tonurture future talent in this industry,so we aim to participate in initiatives
to make the fund management
industry relevant and interesting foryoung people.
Several members of our Global
Equities team are mentors and judges
in the annual Growing Future Assets
Competition, run by Future Asset,a group dedicated to improving
the education of girls in Scotland
about investment management.
The competition involves teams ofgirls making an investment pitch towin prizes for themselves and theirschool. There were more than 100
teams entered in 2023 and each had
to prepare an investment report on
a company by answering questions
about the industry, the company
and how to value it, presented via
a short video which was pitched toa live panel of judges. We hope ourinvolvement with Future Asset will
help girls in Scotland to leave school
understanding that investment
management is relevant to everyone,
can have a positive impact, and offers
fulfilling career opportunities.

We are also signatories to the UKbased Progress Together. This is thefirst body of its kind to promotesocio-economic diversity andprogression in the UK financial
services sector, particularly at a seniorlevel. As a member firm, Nikko AM
Group has committed itself to startcollecting employee data and sharing
them (anonymised) with Progress
Together to help it strengthen its
benchmarking capability. Following
our initial submission in 2022, ourdata were combined with those ofother Progress Together member
firms to produce the first official
snapshot of social economic data
for the UK financial services industry
in 2023, in the hope of encouraging
wider participation in 2024. The
report revealed that socio-economic
background is more likely to affecta person’s career progression in
financial services than gender or
ethnicity. Details of the full report canbe found here.
In Singapore, our team held its
Teens@Work Programme in 2023 forchildren of employees for the firsttime since 2019. This allows young
people to learn both hard and soft
skills that will serve them well into
their adult years.

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Investments

EquityFixed income

Our main instrument for translating
our investment beliefs, strategy andculture into effective stewardshipis our investment teams. They havedifferent approaches and different
opportunities to exercise stewardship,
which are described below and in therest of this report, specifically underPrinciple 7.

The rights of an equity shareholder,particularly in terms of voting andaccess to companies, allow us to
implement our investment beliefs
and carry out our stewardship
responsibilities in many ways
other than making an investment
decision. These are discussed
further throughout the report,with our engagement and voting
activity covered in particular underPrinciples 9, 10, 11 and 12. One way
stewardship influences our actions isthe discussions our investment teams
have with clients and prospects about
their priorities and obligations. The
looming spectre of climate change
is a concern for many and is one of
the topics we have in the front ofour minds, not only during internaldeliberations in respect of our own
net zero ambitions and targets,but also in our engagements withinvestee companies and increasingly
in our voting deliberations. We areinvesting in tools that enhance ourability to report on greenhouse gas
emissions and fulfil the evolving
regulatory requirements that ourclients face, for example in respect ofobligations under the TCFD.

Fixed income is an area where it canbe more difficult to have a direct
influence on the direction of investee
companies. A bondholder lacks thevoting rights that accompany equity
ownership, however bond holders
may choose not to participate in
new issues or to divest holdings of acompany as a way of expressing theirdispleasure at corporate behaviour.
It is also important to engage withmanagement to encourage positivechanges where we as stewards see
areas of improvement for a company.
Our teams have been active in
extending our stewardship activities
in a number of fixed income areas
during the year, which are discussed
further throughout the report. In
certain cases, we have also been able
to combine forces with our equity
management colleagues to increase
our leverage over companies. Some
examples can be found in casestudies under Principles 4, 9 and 11.

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Outcome
We believe this year’s report reflects
progress in our efforts to cultivate aculture of stewardship. Having put
in place a robust infrastructure toembed sustainability, diversity andsound governance in all that we do,
2023 was a year of consolidationand growth. The best evidenceof our progress will be found in
our case studies illustrating eachPrinciple, which we believe show a
growing determination to do theright thing, whether it is us, ourclients or the companies in which weinvest. The progress of our investee
companies is particularly evident in
Asia, as sustainability is increasingly
becoming a priority.
Where we have identified failings
at investee companies, we believe
we have been more effective in ourinterventions, whether on our own
or collectively with other investors.
In part this is because we havestrengthened our ESG integration
but we also sense a wind of change
amongst investee company
management.
We realise that we are often arelatively small investor in somevery large companies and so our
influence is limited. However, wehave been increasingly active in ourparticipation in industry initiatives
and conferences on major issues,
which are often stewardship related.
Further information on these will befound in our responses to Principles 4,
7 and 10.

Given our Japanese heritage andlarge Japanese and Asian asset
base, we approach our businessfrom a different standpoint to asset
managers that have a European
or North American background.
Stewardship is built into Japaneseculture, but often approaches it froma different perspective than Western
societies. We have brought theseeastern traditions of stewardshipwith us as we have expanded, firstfrom Japan itself to the wider Asianinvestment market and then to therest of the world. We believe there
is room for both approaches butreconciling them can prove bothchallenging and exhilarating. It means
we can never stand still in our efforts
to widen and improve our approachto stewardship.
Our clients’ feedback is one of the
key indicators of the success ofour stewardship activities. We takefeedback from both our retail andinstitutional clients very seriously,
as we describe in detail underPrinciple 6 and other sections of
this report, they help guide how wemanage their assets and the type of
assets we use. We know that manyclients are keen to ensure that theirinvestment returns are generated in a
principled and sustainable way. As we
describe later on, this can result in us
adjusting our approach or launchingproducts that better suit our clients’requirements. This, we believe, is a
key part of stewardship, while also
helping to improve the long-term
returns for clients and bringing
sustainable benefits to the economy,
the environment and society. We
recognise that we can always domore, but the feedback we receive
and our client retention suggeststhat we are being effective in serving
the best interests of our clients andbeneficiaries.

We believe the policies and activities
described in this report reflect ourcontinuing commitment to fiduciary
duty and our effectiveness inembedding stewardship across theorganisation. As discussed earlier, we
think this year’s report shows thatcommitment is steadily growing,whether it be on our part, that of ourclients or that of the companies inwhich invest. There is still a long way
to go, but we are now seeing several
initiatives put in place over the last
few years starting to bear fruit. Thesevery positive signs encourage us toexpand our stewardship efforts. We
know this is a marathon, not a sprint,
but we believe our Japanese heritageof stewardship and long-termhorizons make us particularly wellfitted to succeed.

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Principle

Signatories’ governance, resources and incentives support stewardship.

2

Activity
We regard fiduciary and ESG
principles as paramount guides infulfilling our duties as stewards of ourclients’ assets. In implementing theseprinciples, corporate governance iscritical. Our fiduciary and stewardship
responsibilities are overseen by the
Nikko AM Group Board of Directors,
including Non-Executive Director
and Chairman Yoichiro Iwama,
Director and Executive Chairman
Yutaka Nishida, and Director andGroup President, Stefanie Drews. Ourcommitment to gender diversity isreflected in the composition of ourGroup Board, where three out ofnine members are female, while ourcommitment to independence isensured by having 75% of the Group
Board made up of outside directors.

team, whose details can be foundunder the leadership section of our
website. Over the year, the GEC has
expanded to further represent Nikko
AM Group’s regional offices, increase
diversity and welcome the next
generation of leaders.

The Nikko AM Group Board delegates
responsibility for day-to-day decisionmaking to our Global Executive
Committee (“GEC”), comprising
members of the senior management

The chart below is a simplified
representation of our group
governance structure.

Yoichiro Iwama
Outside Director and Chairmanof the Board of Directors

Stefanie Drews
Group President

Yutaka Nishida
Executive Chairman

Nikko AM Group GovernanceGroup Board of Directors
Independent Directors

Global Executive
Committee

Risk OversightCommittee

Compliance OversightCommittee
Employees

Board of Statutory
Auditors
Audit andSupervisory
Committee

Product
Committee
Control functions

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

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Stewardship Governance StructureGroup Board of Directors
Independent Directors

Global Executive Committee

Global Stewardship functions

Subsidiary-specific Stewardship functions

ESG Global Steering Committee

Local Board of Directors
Independent Directors

Stewardship and Voting
Rights Policy Oversight Committee

Local Proxy Voting Oversight

Independent Directors

Global Sustainable
Investment Department

Governance of stewardship activities
operates at both the global andlocal subsidiary level. The overall
oversight of our ESG activities is
the responsibility of the ESG Global
Steering Committee. It oversees
the integration of ESG within
investment teams, sets policy anddevelops strategy, makes external
disclosures and recommends ESGrelated initiatives and participationin external bodies. The ESG Global
Steering Committee is governedby the GEC but, in addition, reports
directly to the Group Board. It ischaired by the Global Head ofInvestment and members are theheads of our investment teams
worldwide, who are in charge of
stewardship implementation in theirindividual investment processes(including ESG integration, company
engagement and proxy voting, whereapplicable). It is further supported by
the dedicated expertise of the Global

Local Stewardship Oversight

Sustainable Investment team, which
is described in more detail under“ESG resources” below. As well as its
monitoring and guidance activities,
the Steering Committee drives
our implementation of the United
Nations-supported Principles for
Responsible Investment (“PRI”).
Our Global Head of Sustainable
Investment, Natalia Rajewska, isbased in Singapore and reports
directly to Group President Stefanie
Drews and Chief Investment
Officer Hiroshi Yoh to ensure that
ESG matters have appropriatesenior leadership oversight. The
five underlying functions of the
Sustainable Investment team report
directly to the Global Head of
Sustainable Investment.
Ms Rajewska’s core priorities centre
around shaping our sustainable
investment strategy, building Nikko
AM Group’s Global Sustainable
Investment team and working

closely with investment teams andother business functions in all theregions to strengthen the firm’s ESG
capabilities and provide insight onbroader ESG topics. This missionof strengthening the firm’s ESG
capabilities is supported by seniorleadership, with both Ms Drews
and Mr Nishida having specific key
performance indicators, extended
for the second consecutive year, tocontinuously improve the group’s ESG
implementation, demonstrating a
top-down readiness to put principle
into practice. In addition to theregular ESG updates, in January2024 Ms Rajewska presented to
Nikko AM Group Board of Directors
the achievements made across ESG
activities in 2023.
Further details on subsidiary-levelgovernance and ESG resources aredescribed in the sections below.

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Subsidiary-level governance
Each Nikko AM Group subsidiary has
an independent executive team led
by a regional head who reports to theGroup President and is responsible
for formulating and executing targets
and plans decided by the Group
Board and GEC in line with local
regulations and customs. The global
and local stewardship oversightframework is illustrated in the chart
above. There are differences in detailas to how these processes operate
at subsidiary level, depending on
the make-up of particular oversightplatforms. For example, some regions
have dedicated committees, such as
the Japan Stewardship and Voting
Rights Policy Oversight Committeeor the UK ESG and Stewardship
Oversight Committee, which feed
into both the Global ESG Steering
Committee as well as respective

local boards, whereas other regions
report directly to the Global ESG
Steering Committee via theirregional members. The differences
between local stewardship oversightframeworks are often attributable
to different regulatory requirements
in some regions. As examples,
we outline the Japanese and UK
approaches below.

Stewardship oversight of Japanese investment functions
As Japan represents such a substantial part of the business, we devote a great deal of resources to its
governance and stewardship. The Stewardship and Voting Rights Policy Oversight Committee monitors andsupervises our engagement with Japanese investee companies and proxy voting. Four of the committee’sseven members are from outside the Nikko AM Group, making it highly independent. It reports directly to theGroup Board on matters such as the governance of our stewardship activities and conflicts of interest. Directly
answering to the Oversight Committee is the Stewardship and Proxy Voting Committee, which is responsible
for formulating specific policy, providing guidance on stewardship activities and is also responsible for
updating our Group Proxy Voting Policy.
Oversight of proxy voting at our Japanese entity

Board of Directors

ReportOversight

Stewardship and Voting Rights Policy Oversight Committee

ReportOversight

Stewardship and Proxy Voting Committee

Our Japan Sustainable Investment department (previously known as the Active Ownership Group) was set up in2017 to enhance the firm’s ability to, firstly, make judgements on how to exercise voting rights and implement
stewardship activities in our Japanese portfolios, and secondly, conduct engagements with Japanese companies
not already covered by sector analysts in actively managed portfolios. As a result, even stocks that are held onlyin passive portfolios are subject to engagement.
The department was fully incorporated into the Global Sustainable Investment team in early 2023, when it also
increased the breadth of its scope to (i)cover all asset classes managed by our Japanese investment teams and(ii) to act as a central ESG hub for our Japan office.

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Stewardship oversight of UK investment functions
Another example is our UK entity which is responsible for stewardship activities in the UK in collaboration
with the Global Sustainable Investment team. Our review and adoption process for ESG regulations andstandards now works in three layers. The initial stage involves a dedicated team scanning the horizon for
ESG requirements that might affect the group. Any that are highlighted are then reviewed and assessed by a
dedicated working group comprising key business functions. Lastly, requirements, impact assessments andrecommendations are presented to a board committee dedicated to ESG and stewardship.

ESG resources
Our Global Sustainable Investment team is split into five functions:Global Stewardship Investment Department Governance StructureGroup President

Chief Investment Officer

Global Head of Sustainable Investment

Regional ESG
Specialists

Research andIntegration

 Regional ESG Specialists: theseare our ESG “all-rounders” whowork closely with the regional
investment teams supporting
their ESG integration andstewardship efforts. They also
work closely with our otherfunctions, such as client services
and product development, toensure that we deliver the best
outcomes for our clients acrossthe entire value chain.
 Research and Integration: thisfunction, which was expanded
in 2023, is responsible forsupporting our investment teams
and ESG specialists with subject
matter expertise, while ensuring
we continuously improve our
integration efforts.

Stewardship

Data &
Reporting Stewardship: this function,
which is still being developed,
supports and co-ordinates our
firm-wide stewardship efforts. It
aims to continuously improve ourstewardship activities, including
engagement, proxy voting and
ESG research and their respective
disclosures.
 Data and Reporting: this function
is dedicated to sourcing, storing,
validating and disseminating ESG
data globally, as well as providing
support with ESG data analytics
and reporting.

ESG Regulation

 ESG Regulation: this function
is responsible for identifying,assessing, determining andsupporting our approach to
ESG regulations and standards
globally, with a focus on
regulations in EMEA.
In 2023, the Global Sustainable
Investment team added three newroles: a global ESG Integration Lead
located in Singapore and two ESG
Specialists located respectively inTokyo and London.

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Stewardship resources
Seniority, experience,
qualifications, training anddiversity
It is our global network of more than
200 investment professionals, with
their wide breadth of experience,
which is at the forefront of ourstewardship activities, aided by our
Global Sustainable Investment team.
As an organisation, we are committed
to sustainable and responsible
investing and our portfolio managers,
analysts and governance specialists
all share in this commitment.
They apply this philosophy byimplementing different stewardship
perspectives in their day-to-day
activities and by practising active
ownership.
They are compensated using amethodology that is intended to aligntheir interests and motivation withthe outcomes of client portfolios.
Annual evaluations are based on
quantitative measures such as
the long-term returns of client
portfolios (for example, weighted
portfolio returns for investment
staff, or performance of securities
recommended for analysts), but also
the qualitative aspects of individual
as well as group performance (forexample, quality of analysis andcontribution to the team).
We have a strong emphasis on
internal training as stewardship is the
responsibility of our entire workforce.
All employees have an annual training
plan that includes topics such asconflicts of interest, personal trading
and our code of ethics. Investment
employees across the firm’s global
network are encouraged to undertake
responsible investment training via
an online course offered by the PRI
Academy as part of our continuing
focus on implementing the PRI’s six
Principles for Responsible Investment.
The training concentrates on how ESG
issues affect business and investment
decision-making through the useof financial modelling and in-depthcase studies. Considering time andcommitment constraints, we do not
ask investment employees to conduct

this extensive training every year, butinstead encourage them to take it atleast once. In 2023, 17 employees of
Nikko AM investment staff enrolled
because they either newly joined
the firm or wished to receive moreadvanced training.
Our long commitment to ESG isreflected in the fact that we launched
Japan’s first socially-responsible
investment fund as long ago as 1999.
We now practise deep and direct
ESG integration across the firm,
where every investment team anddepartment integrates ESG directly
into its work. We have a number ofsystems, platforms and forums thatallow our global investment teams
to share research analysis on eventsand issues, especially those that may
not always be covered in the media.
During the year we have invested inpeople and integration capabilities toensure that we are able to provide thelevel of service required to meet theneeds of our clients. This investment
has ranged from ESG-specificresources, training in stewardshipthemes and client communications,through to the means to engage andmonitor company engagements on alarger scale.

Systems, analysis and service
providersInstitutional Shareholder Services(“ISS”) is used to execute our proxyvoting, which we consider a key
activity in fulfilling our stewardship
responsibilities. ISS also provides
research and customised voting
recommendations based on our
voting and responsible investment
policies, although the ultimate
decision on how we vote is taken
in-house. Our interaction with ISS is
discussed in more detail under our
responses to Principles 8 and 12.
Our Data and Reporting team helps
provide consistency, accuracy andimproves the coverage of our ESG
data, as well as expands our analytics
capabilities. The team works with avariety of stakeholders across thefirm, focusing on analysing andintegrating data we acquire from ourprimary ESG data provider for use

by investment and client reporting
teams. This work has included
enhancing our ability to identify
and assess climate-related risks andopportunities, which links with ourwork with the TCFD. It is explainedin more detail under Principle 1 and
7 and in our TCFD report. The teamalso works on a variety of regulatory
reports, plays a key functionin providing data to prove ourcompliance with the EU’s Sustainable
Finance Disclosure Regulation andhas been charged with developing
leading ESG data capabilities to meet
our evolving needs.
Data from external service providers
are used as one input in ourinvestment decision-making process
to supplement our proprietary
analyses. We use a wide range ofdata from a combination of public
disclosures (issuers’ annual andsustainability reports etc.) for the
purpose of research, as well as
through direct engagement andcommunication with companies
and external ESG analysts and data
providers, such as MSCI ESG, ISS,
Bloomberg and Good Bankers.
Having access to multiple sourcesof data can be useful in allowing
us to cross-check our assumptions.
However, we recognise thatthird-party data providers haveshortcomings, including a lack ofconsistency arising from differencesin methodology, and we therefore
treat this data as supplementary to
our proprietary research in our active
strategies, as outlined in Principle 8.
The members of our wider Global
Sustainable Investment teamcollaborate closely and co-ordinate
activity with investment teams andother key business stakeholders,such as sales and sales support staff.
Amongst other things, the team’s
duties include conducting ESG
research and integrating it into ourinvestment processes. This means ESG
analysts are embedded in investment
teams, supported by an integration
specialist to ensure that we take aproactive approach to capturing andintegrating regulatory and market
standards in relation to ESG.

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OutcomeAs a group we are committed toactive stewardship. Our governancestructures and stewardshipprocesses address several areas,
including the management ofconflicts of interest, engagementin active and passive investment
management, our sustainability
efforts and information disclosure.
As stewardship needs andexpectations are continuously
evolving, we continue to adapt
and fine-tune our responsibilities
and activities as stewards of ourclients’ capital. This means ensuringthat we have the right resources,
governance and incentives in place
to support our responsibilities tothe economy, the environmentand society. We understand that
effective stewardship requires
continuous improvement, andwe aim to critically evaluate
our approach and implement
meaningful changes wherever
and whenever required. We
think that our investment in ESG
resources over the last few years
demonstrates our commitment togood stewardship.

17

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Signatories manage conflicts of interest to put the best interests of clients andbeneficiaries first.

Principle

3

Context
We always seek to put the interest of
our clients first in all our activities. We
aim to identify all actual or potential
conflicts of interest and maintain andoperate arrangements to minimise thepossibility of conflicts giving rise to amaterial risk of damage to the interestsof our clients. We have establisheda Group Conflict of Interest Control
Policy (addendums to which can beapplied at the subsidiary level in linewith local requirements), which has
been designed to prevent us fromprejudicing the interests of clients inthe conduct of our business and isreviewed at least annually. Potential
new conflicts are considered as part ofany new business development and/or
business process changes.
In addition, group subsidiaries
maintain their own conflicts ofinterest registers which record
potential conflicts that have come tolight during their activities and themeasures taken to resolve them. Eachregister is regularly reviewed andapproved by the relevant subsidiaryboard of directors.

More details about how our conflictsof interest policies operate can befound in the Activity section below.
However, in general, when identifying
the types of conflict of interest that
may arise, we take into account, as aminimum, whether we or any of ourdirectors, managers or employees or aperson directly or indirectly linked to
the firm:
 is likely to make a financial gain,
or avoid a financial loss, at theexpense of a client; has an interest in the outcome of aservice provided to a client or of atransaction carried out on behalf ofa client which is distinct from theclient’s interest in that outcome; has a financial or other incentive tofavour the interest of one client orgroup of clients over the interestsof another;

Responsibility for controllingtransactions and other conduct likely
to give rise to conflicts of interest
is managed by our compliancedepartments. More details about how
conflicts are handled can be found in
the Activity section below. Together,
the group compliance heads arecharged with maintaining the conflictsof interest control framework andperiodically verifying its effectiveness,
as well as continuously striving to
improve it. They are also responsible
for communicating all aspects ofconflict control to employees througheducation and training programmes.
They are immediately answerable
either to the board of directors of therelevant subsidiary or, if the incident
occurs in Japan, to the Compliance
Oversight Committee, part of the
Global Executive Committee.

 carries on the same business as theclient; and/or
 receives or will receive from aperson other than the client an
inducement in relation to a service
provided to the client, in the formof monetary or non-monetary
benefits, other than the standard
commission or fee for that service.

Our Corporate Structure

Sumitomo Mitsui Trust Holdings, Inc.

Nikko Asset Management Co., Ltd.

Related Group Companies

Nikko AM Group Subsidiaries

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One area where conflicts can arise is
as a result of our ownership, where
there is the potential to treat a relatedgroup company more favourably
than an unconnected company.
Nikko AM Group is ultimately
owned by Sumitomo Mitsui TrustHoldings, which is a large Japanese
conglomerate with interests in,amongst other things, banking,pension administration, real estate,stock transfer, custody services, andasset management.

Nikko AM Group has subsidiaries in
the UK, Luxembourg, the US, Hong
Kong, Singapore, New Zealand andhas a branch office in Germany andassociates in China, Malaysia andAustralia. An up-to-date list of relatedgroup companies is maintained in
the appendix of the Group Conflictof Interest Control Regulations. In
addition, the names of related groupcompanies, as well as that of ourpublicly-listed parent, are kept on a
restricted list at local subsidiaries tohelp prevent any potential conflicts.
Other possible conflicts are listed in
the table below.

Activity
Examples of potential conflicts of interest related to stewardship that may arise and how we manage them are summarisedin the table below.
Conflict

ExampleManagement

Related groupcompanies

In undertaking business with related group
Both we and our related group companies
companies, we may treat them more favourably have standards embedded in policies andthan we would unrelated companies.
procedures to avoid and manage conflicts ofinterest.

Fair allocation

When acting on behalf of more than one client, We have fair allocation policies and a robust
investments may be executed in a way thatcompliance monitoring framework in place tofavours one or more clients to the disadvantage oversee their implementation.
of others.

Proxy voting

We may have a business or other interest
which may be seen to influence or bias how we
exercise our voting rights.

Our Proxy Voting Policy is designed to ensurethat all votes are cast in the best economic
interest of clients. We assess our voting conduct
every quarter at a regional level and publish
an annual summary of our firm-wide voting
activity on our website.

Outsidedirectorships

Employees who have access to portfolio
management or proxy voting activities and are
directors of an outside firm or firms, or directors
who hold similar positions with another firmor firms, may be able to use their position
and information obtained from either firm forfinancial gain or the avoidance of loss.

All employees are required to seek complianceand senior management approval for any
outside directorships which they may hold.
Employees who have oversight of othercompanies are excluded from agenda items
where Nikko AM’s stewardship activities
involving such companies are discussed.

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An example of our quarterly monitoringis the work of our Japan Stewardshipand Voting Rights Policy OversightCommittee, which meets every threemonths to review votes on individual
proposals from investee companies
that might trigger a conflict of interest.
A regular item on the committee’s
agenda is reviewing votes involving
related group companies andconfirming that there is no bias infavour of the related group company.
In addition, the committee also judges
the exercise of voting rights involving
our parent company, publicly-listed
customers, business partners, andfinancial institutions that sell our
products. In doing so, the committee isaided by advice from our proxy voting
agency, ISS.

OutcomeNo actual conflicts of interest arose
during the year that prevented us
from performing our stewardship
activities in line with the bestinterests of our clients. In 2023,
there was one addition to and
one removal from the list of
related group companies which ismaintained in the appendix of theGroup Conflict of Interest Control
Regulations.
Our policy and practice formanaging conflicts of interest aregoverned by the management
framework and supervisionfunctions described above and form
part of our everyday stewardship
activities. We believe that thisthorough management of conflictsof interest helps to maintain thetrust of both clients and investee
companies and allows us to
conduct our stewardship activities
in the most effective way possible.

In 2023, the Japan Stewardshipand Voting Rights Policy OversightCommittee reviewed proxy voting
decisions related to 118 companies
for conflicts of interest (120 votes intotal including both AGMs and EGMs).
There were no instances where thecommittee deemed that there was bias
in the way that votes had been cast.
We firmly believe that such reviewsof individual votes help us to increase
the transparency of our stewardship
activities and minimise conflicts ofinterest when we exercise our voting
rights. We believe that having thereasons for our voting decisions
reviewed by the independent oversightframeworks helps us manage potential
conflicts of interest and facilitates
constructive engagement with investee
companies. For more on our voting
activities, see Principle 12.

In 2023, our UK entity identified a
new and highly relevant area forpossible conflicts of interest in the
shape of “greenwashing”. This iswhere a business makes false or
misleading claims about its adherence
to ESG principles and/or the ESG
performance of its products andservices. Greenwashing is of growing
importance, given the increasing
appetite for sustainable products inboth the UK and the rest of the world.
To manage potential greenwashingrisks in our disclosures and othercommunications, any materials due
for external consumption are subject
to a robust compliance review process
before publication and/or distribution.
We also update marketing proceduresand provide training for staff on aregular basis. This review frameworkensures that any materials are clear,fair and not misleading.

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Principle

4Signatories identify and respond to market-wide and systemic risks to promote awell-functioning financial system.

Activity
As an asset manager, we are reliant
on our ability to invest in liquid,transparent and functional markets.
Market-wide and systemic risks directly
affect the value of the assets that weinvest in, therefore, as a fiduciary,
one of our key responsibilities is to
manage these risks in order to improveoutcomes for our clients. As long-term
investors, it is in our interest to support
and advance initiatives that aim to
reduce market-wide and systemicrisks and, as responsible stewards,
we recognise both the responsibility– and the opportunity – we have inpromoting well-functioning, stable
markets in the interest of the wider
economy, environment and society.
A core part of our philosophy is that
our investment professionals are
best positioned to identify marketwide and systemic risks throughtheir research and engagements. The
natural corollary of this is that they
then have the freedom to follow theirown high-conviction approaches indealing with these risks, supported by
the infrastructure and resources of thewider organisation.

Our fundamental research issupplemented by external sources
which enhance our overall
understanding of the investment
landscape. External sources include
contacts with market-makers andrelated participants, dialogue withcompanies, sell-side research,
independent research vendors,
roadshows, presentations, conferences
and rating agencies.
Research is shared globally throughinformal information-sharing
platforms, as well as through moreformal regular meetings to discuss
views, build synergies, debate andrefine ideas. Research notes arerecorded and distributed acrossgeographies and asset classes. Our
teams also share unique and timely
analysis on important macroeconomic
and political issues, especially thosethat may not always be covered in the
media. Ad-hoc meetings may also beorganised between offices to discussurgent market news and/or importantdevelopments.

Further, we have our Global Investment
Committee (“GIC”) which consists ofsenior investment representatives fromthe group’s investment teams andmeets remotely on a quarterly basis
to set the group’s house view on theeconomy and markets for the coming
year. The GIC chair and global strategist
develops six global macroeconomic
scenarios ahead of each committee
meeting. Scenarios reflect how theeconomy and the markets will beaffected by the different ways in which
political and economic events develop.
They contain differing forecasts for
economic growth, central bank policy
rates, inflation and financial market
conditions for each of the world’s
major regions over the coming year.
GIC members are presented with thescenarios at each meeting and after
thorough deliberation and, if necessary,adjustment of the scenarios, members
will vote for one, which then becomes
the house view. The other scenarios
are often used for risk analysis. While
Nikko AM Group’s investment teams
determine independently which inputs
to use in their investment decisions,the house view provides them with avaluable resource.

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Back to contentsGroup Risk Management Framework

Global Executive Committee

Risk Oversight Committee

Chief Risk Officer (CRO)
Global Head of Risk Management

Enterprise Risk Management Department

Managing portfolio risks
In addition to the GIC, one of the key
defences we have against systemicrisks is our Group Investment Risk
Management department. It operates
independently of the investment
management division, with a separate
reporting line to the Global Executive
Committee via the Chief Risk Officer.
The department oversees our risk
management framework, keeping
track of our exposure to a numberof risks, including market risk,
counterparty risk and liquidity risk,in order to ensure our portfolios arealigned to meet the best interests ofour clients.
A number of measures, such as
scenario analysis and stress testing,are used to monitor exposure and theresilience of our portfolios to market
shocks. In addition to these routine
measures, ad-hoc stress tests are runin response to developing market
risks. These stress tests may covershort- or long-term time horizons
and use various macroeconomic
and firm-specific assumptions.
For example, for our Asia Ex-Japan

Investment Risk Management Department

equity and fixed income, we apply an
investment risk management process
to the monitoring of greenhouse gas
emissions in, primarily, discretionary
accounts. This process is performedby the Investment Risk department,
which monitors the carbon emissionof each portfolio against its applicablebenchmark every month basedon agreed measurements andthresholds. Should a portfolio exceed
its threshold, the Investment Risk
department alerts the portfolio
manager who subsequently evaluates
the holdings. We do not exclude any
company purely based on high carbon
emissions but rather we evaluate thecompany’s plans for the transition to
net zero.
Additionally, as further detailed in our
TCFD report, we assess our portfolios
for both transition and physical risks
under multiple climate scenarios,
drawing on MSCI’s climate value at risk(“CvaR”) model. We acknowledge thatthe understanding of and, hence, theprocess of assessing climate-relatedrisks and its impact is constantly
evolving and we will update ourapproach accordingly as time
progresses.

The Group’s Risk Oversight committee
reviews the firm-wide stress test andscenario analyses and their impact
on the firm’s business at its quarterly
meetings. Once risks are identified,
we have a responsibility as an active
manager to mitigate them in orderto achieve the best outcomes for ourclients. Actions taken will depend on
the nature of the risk, the asset classof the strategy and also the style ofthe individual investment team, but
may range from a review of portfolio
holdings to ensure their suitability forthe given market environment, to arotation into other instruments. During
periods of market upheaval, we may
also increase liquidity in our portfolios,
either by increasing cash balancesor by switching into more liquid
instruments. This could be to provide
a buffer to market volatility or to giveus the ability to deploy cash whenbuying opportunities emerge, or both.
We must also remain alert to the needto ensure that liquidity is sufficient tomeet client redemptions.

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Managing emerging
and systemic risks
Emerging systemic risks and theirimpact on companies and industries
are discussed at regular investment
meetings. Financial markets faced
a number of challenges in 2023
– geopolitical tensions, banking
crises, global inflationary trends, aswell as the ever-present hazards ofclimate change, to name just a few.
The impact of each challenge varies
depending on the nature of theasset class and the make-up of eachindividual portfolio. This means thatthe way that each investment teamresponds to these challenges varies
as they try and position portfolios toensure the best outcomes.
In our passive portfolios for example,
our operations team rebalances
portfolios frequently to ensure
they maintain a low tracking error
versus the respective benchmark
and to keep transaction costs to aminimum. For active fixed income
portfolios, we hold monthly
meetings to review the foreignexchange and interest rate outlook,and quarterly “horizon-scanning”
meetings which consider longterm market issues without the
distraction of having to consider
products or issuers. These meetings
are led by our Global Fixed Income
team specifically to address
fundamental challenges to thesmooth functioning of global fixedincome markets and what we can doto mitigate them.
Systemic risks come in many forms
and require many different methods
to deal with them. The banking crisis
that engulfed several banks in thefirst half of 2023 was one that could
have had devastating effects on
our clients. Our case study “Dealing
with the fall-out from a banking
crisis” illustrates how two of our fixedincome teams dealt with it in very
different ways.

Case study:
Dealing with the fall-out from a banking crisis(fixed income)Issue: Last year saw the biggest upheaval in the banking sector since
the Global Financial Crisis in 2007-08. Several major banks collapsedor had to be rescued. Notable amongst them were the US bank
Silicon Valley Bank Financial Group, and the Swiss “global systemicallyimportant bank” (“G-SIB”) Credit Suisse.
Although controversy and bad news had surrounded Credit Suisse
since 2020, the immediate catalyst for the crisis was the troubles andultimate collapse of the US Silicon Valley Bank in March, which led
to heavier scrutiny of weaker banks. This raised questions as to thecontinued viability of the Swiss bank, prompting the authorities tostep in to orchestrate a merger between Credit Suisse and its close
rival UBS to contain the fallout. The merger announcement shocked
the world, being the first collapse of a G-SIB, i.e. a bank too big to fail.
Activity: How these events were dealt with by our fixed income teams
provides a good illustration of our approach to market-wide risks. First
we focus on how we dealt with the fall-out in the currency and bondmarkets.
Currencies: Our fixed income risk scorecard (see below) is used togauge risk in both the bond and currency markets. It was instrumental
in helping the Global Fixed Income team to monitor the impact on
currencies and interest rates ahead of and during the banking crisis.
The collapses led to a crisis of confidence in the entire banking sector,
with customers pulling more than USD 1 billion of deposits fromregional banks over the course of March 2023, regardless of bank asset
quality.
We determined that, while confidence and profitability had beenknocked, there did not appear to be a solvency crisis in the sector.
In terms of interest rates, the team increased exposures to sterling
relative to the euro and the Norwegian krone to reflect relative
valuations.

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Fixed income risk scorecard
Qualitative
Duration (1 Min to 5 Max)

Quantitative
FX (1 Max to 5 Min)FX (over) Under

Duration

T-1M∆

FX (over)
Under

RSI(30)FX Rank

0.0

2.5

0.0

-0.4%

46.7

10

10yr
Bond
over
(Under)
0.69%

3.8

4.0

0.0

8.1%

45.0

3

1.68%

4.0

3.8

4.0

0.0

8.0%

36.8

4

0.0

3.5

0.0

3.0

0.5

-3.2%

55.2

4.0

(1.0)

2.5

7.0

2.5

0.0

4.6%

1.5

3.5

0.0

3.0

2.4

3.0

0.0

3.0

4.0

3.0

0.0

2.5

8.4

2.5

2.5

3.5

2.5

0.0

3.5

6.5

4.0

EUR – core

3.5

4.5

3.5

0.0

2.5

4.8

3.0

EUR –
periphery

3.0

3.0

0.0

JPY

2.0

4.5

2.0

0.0

2.5

0.0

EM

2.9

3.3

2.9

0.0

3.0

3.7

MYR

2.5

3.0

2.5

0.0

3.0

6.0

3.0

MXN

4.0

4.0

4.0

0.0

3.5

0.0

3.5

PLN

3.0

4.0

3.0

0.0

3.5

7.4

SGD

3.0

2.0

3.0

0.0

3.0

5.6

CNY

2.0

2.0

0.0

ILS

3.0

3.0

0.0

Median
Team
View

Quant

T-1

∆

AverageTeam Quant
View

USD

4.0

2.5

4.0

0.0

2.5

AUD

4.0

2.0

4.0

0.0

4.0

NZD

4.0

2.5

4.0

0.0

GBP

3.5

3.0

3.5

CAD

3.0

5.0

SEK

3.5

CHF
NOK

RSI(30)

Factor
Rank

51.6

10

50.0

13

1.01%

53.4

11

12

0.28%

45.8

8

48.9

6

-0.64%

46.7

1

10.9%

45.3

2

2.09%

45.9

14

0.0

2.0%

46.7

7

0.00%

0.0

6

-0.5

12.2%

44.8

1

0.16%

49.7

7

-0.5

1.8%

45.3

8

-0.46%

46.4

2

2.5

0.0

-4.6%

46.56

13

0.42%

47.3

3

2.92

0.1
0.0

-0.1%

45.86

9

0.45%

54.2

9

0.0

-7.4%

50.63

14

-0.24%

72.1

4

3.5

0.0

5.2%

43.87

5

-0.01%

54.9

5

3.0

0.0

-2.5%

47.93

11

1.61%

44.3

12

3.0

3.0

0.0

2.0

2.0

0.0

Bonds: Our Asia Fixed Income team took a particularinterest in the events leading up to the March crisis
given Credit Suisse’s active role in the Singapore
dollar bond market. This scrutiny raised concerns overthe bank’s poor risk management and potential fordisappointment and, as a result, the team took early
action to divest all its positions in Credit Suisse bonds*.

failures and whether a bail-out similar to that at Credit
Suisse could be repeated. The team concluded thatbank regulators in Asia were more investor friendly,
as many issued statements in the wake of the crisis
reaffirming the need to respect the pecking order ofcapital instruments when handling a bank resolution
or bail-out.

However, the crisis also had wider ramifications. The
nature of the bail-out proved controversial. Banks holdso-called additional tier 1 (“AT1”) bonds to give them
additional financial capital to absorb losses in timesof distress by being written down to zero. Normally,
even holders of AT1 bonds would rank ahead of equity
shareholders in a company collapse but, under theterms of the merger deal with UBS imposed by the
Swiss authorities, equity shareholders were able toretain some value by virtue of being given UBS shares,
while holders of Credit Suisse convertible AT1 bonds
had their investments written down to nought.

Overall, the impact on our bond universe was lesssevere than in Europe and the US as authorities in theregion have well-established frameworks and laws inplace to ensure the orderly management of the bankresolution process.

This had implications in the US, where the loss ofconfidence in banks threatened to have a contagion
effect. After the risks came to light, the team assessed
the stance of financial regulators and the possible
impact on our portfolios of further collapses. The
team also revisited the offering documents for manyof the banks’ capital instruments to discover whichbonds were most at risk in the event of losses or

Outcome: Our analysis, combined with thestatements of regulators on the treatment of AT1
instruments in a bank resolution reinforced our viewthat what happened at Credit Suisse did not set a
precedent. It was a unique outcome and should not
be the base case for banks in other jurisdictions.
Other AT1s saw their prices recover as the market
digested the events surrounding the crisis, with
AT1s of Asian banks being the quickest to rebound,particularly in Singapore and South Korea, in linewith our expectations. Our assessment gave us
the conviction to retain our existing exposure.
Subsequently, the new issuance market for AT1s
has returned, with investors again showing strong
appetite for such instruments.

* Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, nor constitute a
recommendation to buy or sell.

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Climate change
We recognise climate change as oneof the greatest challenges the global
community faces. It is a prime example
of a market-wide, systemic risk andone which we consider it is our
fiduciary duty to address in managing
our clients’ assets.
At a corporate level, with the help of a
UK-based consultant, Carbon Footprint
Limited, we measure greenhousegas emissions from the Nikko AM
Group’s corporate operations basedon firm-wide energy consumption
and transportation data. We offset
greenhouse gas emissions from ouroperations through an equivalentamount of carbon credits fromprojects that are certified to reducecarbon emissions.

1

Collaboration with other stakeholders:
We work with other stakeholders to help develop solutions and support global
initiatives to address the issue, such as the UN Paris Agreement to limit carbon
emissions and the UN Sustainable Development Goals. In Asia, we collaborate
with other fund managers to combat climate change, of which more details
can be found under Principle 10. As set out under Principles 1 and 7, we havealso committed ourselves to environmental initiatives such as Net Zero AssetManagers initiative (“NZAMi”) and TCFD. Other collective initiatives in which weare involved are described towards the end of this section.

Case Study:
Helping to lift the veil on corporate emissions(equity and fixed income)For several years, we have been a member of CDP, an international nonprofit organisation that aims to improve climate-related disclosures,
working through two of its initiatives, the Non-Disclosure Campaign(“NDC”) and the Science-Based Targets initiative (“SBTi”). We participate
because we believe companies need to apply higher standards oftransparency and disclosure if we are to tackle some of the most important
areas that society faces, such as climate change, biodiversity and thewider environment. In 2023, we served as the lead investor in engaging
two companies under the NDC. This included a call with a renewable
power generation company in Japan in August, when we emphasised
the importance of disclosure. We were happy to see that this company
subsequently disclosed its carbon emissions data for the first time.

2

Addressing climate-related portfolio risks:
We see climate-related factors as both a key ESG risk and a potential opportunity for the companies in which we invest.
Climate change is therefore factored into the investment processes of our teams across asset classes to ensure ourinvestments are aligned to properly address both the risks and the opportunities.

Zeroing in on climate hot spots in the Global Equity portfolio (equity)
In our 2022 response to the Stewardship Code, we included a survey made by our Global Equity team of companies
in our Global Equity strategy to determine whether their managements understood the implications of ourcommitment to supporting and contributing to a low-carbon future.
In the light of the responses, in 2023 we focused on the hotspots in the portfolio, i.e. those companies with thehighest carbon intensities or those in sectors most exposed to climate change risks, even if their carbon footprint
might be relatively low. Through this process we identified a number of engagement priorities where there wereparticular areas for improvement.
Such priorities were specific to each company as we wanted to ensure that our engagements added value toboth the company and our investment thinking. We adjusted our expectations according to the importance ofeach company’s carbon footprint. For example, we engaged with one company even though it already had anambitious climate strategy compared with its peers (such as having targets verified by the UN-backed Science
Based Targets initiative and targets linked to board-level remuneration etc.). However, we believed it was a priority
for engagement as by far the largest emitter of greenhouse gases in our portfolio and therefore demanded higher
expectations and a higher degree of scrutiny.

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Case study:
Anticipating the ramifications of climate change in New
Zealand (fixed income)Issue: Climate change is a market risk that is going to be with us for theforeseeable future. In New Zealand, as in many other locations, climatechange is a market risk that is resulting in more extreme weather ona regular basis. In January 2023, Auckland, New Zealand’s largest city,
experienced catastrophic floods caused by heavy rainfall. This wasfollowed in February 2023 by a cyclone that led to significant flooding
and landslides across the North Island. Both events resulted in large andwidespread damage to property. Should such weather become moreregular and more extreme, bond holders will increasingly face risks due
to losses on uninsured or under-insured property and loss of income
while damaged assets are unusable.
Activity: The New Zealand Fixed Income team reviewed potential
sectoral risk exposures across its holdings. Risks were deemed to be any
assets that could be significantly damaged by weather events or where
insurance might not be sufficient to mitigate potential losses, suchas securitised vehicle and equipment loans and the companies thatprovide such finance. To better understand and manage these risks, theteam asked all issuers and primary financiers of these types of assets a
set of questions seeking to ascertain whether: full insurance is a requirement for finance or leases;
 there is a mechanism to ensure borrowers or lessees do not let theirinsurance lapse and that the finance provider is a notified party onsuch insurance policies; and there are risk management systems to ensure insurance ismaintained as loans age.
Outcome: This exercise allowed the team to better understand our
exposure to extreme weather events, giving us comfort that no undue
risk currently exists. However, the team acknowledged that risks
could increase in the future. The team will continue to stay abreast ofdevelopments in this space to determine whether intervention may benecessary.

Collaboration topromote wellfunctioning markets
An important way in which we
promote well-functioning financial
markets is through our participation
in industry bodies and forums,
which help us to identify andaddress market and systemic risks
and ensure that our processes,
policies and procedures remain
relevant. Amongst other activities,
we publish thought leadership
articles and engage with a wide
range of stakeholders, including
clients, members of the investment
management industry, policy
makers and civil society. Each of
our subsidiaries is a member of
the applicable local regulatory andindustry bodies and is often actively
involved in local collaborations or
consultations. These include: The Investment Association (“IA”)
in the UK. Members of our UK
subsidiary have joined the IA’s
peer-to-peer knowledge sharing
forums, such as the Net Zero
Forum, the SFDR Implementation
Forum (concerning the EU’s
Sustainable Finance Disclosure
Regulation) and the TCFD
Implementation Forum.
 The New Zealand Corporate
Governance Forum, composed ofhigh-level institutional investors
such as sovereign wealth funds,
which aims to influence theformulation of governance rules
and takeover practices.
 Several Singapore consultationsin 2023, including one on thephasing-out of coal-fired power
stations conducted by the
Monetary Authority of Singapore(“MAS”), the MAS consultation
on its proposed Guidelines on
Transition Planning for Banksand other financial institutions,a roundtable with Indonesia’s
government ministries, and theConsultation on Turning Climate
Ambition into Action as a resultof the recommendations of the
Sustainability Reporting Advisory
Committee.

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 The PRI Nature Reference Group.
Members of the Global Sustainable
Investment team joined thisgroup looking to improve theirunderstanding of biodiversity- andnature-related risk, participating
in several calls in 2023 with theother investors to discuss Nikko AM
Group’s position on nature-relatedrisks, experiences in engaging on
nature-related risks and topics aswell as the challenges faced, andwhat clients are asking on nature
and/or biodiversity (if any). Thesemeeting feature presentations,peer-to-peer sharing, and small
group discussions, outputs ofwhich the Global Sustainable
Investment team then uses forinternal education on naturerelated risks.
 A consultation meeting organisedby the Japan Stewardship Forum,an institutional investor group.
Members of the Japan Sustainable
Investment department joined six
other Japanese asset management
firms and provided feedback on
the current state of regulation withregards to stewardship in Japan,
its limitations and how alternative
approaches would help to advancestewardship activities in theJapanese market. This consultation
was part of a wider considerationby the Financial System Council,
which compiled a draft report to bepassed into law during the current
parliamentary session. The aim isderegulation to allow domestic
institutional investors in passive
fund management to conductengagement activities virtually
without restriction.
Additional to industry initiatives,
members of the Japan Sustainable
Investment department, in
collaboration with Dr Ryohei
Yanagi, a visiting professor at the
Waseda University Graduate Schoolof Accountancy, and our Senior
Quantitative Analyst, Kyoji Hasegawa,
have conducted a collaborative
research project analysing theimpact of corporate ESG initiatives
on shareholder value, how it haschanged and likely future returns.

This research has used a wide rangeof Japanese companies not found inprevious studies. The results provide
valuable suggestions for improving
the predictive power of investment
models, stewardship activities and
ESG initiatives to increase shareholder
value at investee companies. We
plan to use the findings to refine ourexisting investment models and thefindings will also be published in a
Japanese journal for practitioners.
Our senior officers are also active
participants in national andinternational bodies promoting betterfunctioning markets and wider issues.
In 2023, these included:
Yoichiro Iwama, the Chairman of
our Group Board and Non-Executive
Director, continued to serve as amember of The Council of Experts
Concerning the Follow-up of Japan’s
Stewardship Code and Japan’s
Corporate Governance Code, which
made recommendations about
revising the two corporate codes.
Under Mr Iwama’s supervision as
Outside Director and Chairman of theGroup Board, we continue to strive forthe highest standards of governanceand stewardship.
Stefanie Drews, Group President,
participated in the Japan Chapterof the Glasgow Financial Alliancefor Net Zero (“GFANZ”) Asia-Pacific
Network established in June 2023. The
intention is that the Network should
support local financial institutions insharing knowledge and best practicein developing net-zero transition
plans as they work to decarbonise theeconomy and seize transition-related
opportunities, which will help catalyse
and accelerate the change needed forJapan to meet its domestic net-zerogoal. The Japan Chapter also aims to
support financial institutions in theirwork with relevant public and private
stakeholders on other policies andinitiatives necessary to deliver a justtransition. We contributed to the Japan
Chapter by providing feedback on a
draft response to the GFANZ Global
consultative paper on transition
finance. Key points of this feedback
were included in the final report.

Eleanor Seet, the President of ourSingapore subsidiary, is deputy chairof the Executive Committee of theInvestment Management Associationof Singapore (“IMAS”), a representative
body of investment managers
spearheading the development of
the industry in that country. IMAS
partnered with the Singapore Green
Finance Centre to introduce an
inaugural course on climate change
management, aligned with theInstitute of Banking and Finance’s
Sustainable Finance Technical Skills
and Competencies. Ms Seet is alsoa member of the IMAS Conference
Organising Committee, whichorganises networking events suchas the IMAS-Bloomberg Investment
Conference & Masterclass 2023, whichstrengthened collaboration with the
UK’s IA.
Phillip Yeo, Joint Global Head of
ETF Business, is part of the IMAS
Development Committee whichdevelops events to enhance
membership engagement, advocacy
and education, such as roundtables
between chief investment officers andchief operating officers. These forums
are designed to promote in-depth
discussions on pertinent topics, suchas digital assets, fund tokenisation,
ESG investments, and cyber resilienceand security.
Natalia Rajewska, Global Head of
Sustainable Investment, is part of
the IMAS ESG Working Group. This
actively advances the ESG agenda
through a series of masterclasses
and through participation in various
industry initiatives, such as the MAS’s
Green Finance Industry Taskforce andits Singapore Funds Industry Group.
She is also a member of Bloomberg’s
Women in Climate, which is a crossindustry collaboration of female
leaders on climate change, includingfrom companies, financial institutions,multinational organisations,
government and academia, withthe aim of making climate change acentral topic of discussion for theirorganisations.

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Simon Haines, Head of Legal, Risk
and Compliance at our New Zealandsubsidiary, chairs the Boutique
Investment Group (“BIG”), a collectionof New Zealand fund managers
who share knowledge and criticalthinking on regulatory, complianceand governance issues affecting our
sector. In early 2023, BIG met Mindful
Money, a charity and one of the mostpopular platforms for providing
retail customers with information on
portfolio holdings. As a result, it wasagreed that fund managers shouldbe able to explain their case on the
Mindful Money website, allowing
users of the website to understanddifferences of opinion on holdings
between the Mindful Money analysis
and that of the fund manager. Longer
term, BIG and Mindful Money are also
considering moving toward more
standardised language. We believethat these initiatives can help improveunderstanding amongst investors
without requiring new regulation.
Nikko AM Group staff participated ina number of conferences and panel
discussions during the year, providing
keynote speakers for several. For
instance:
IMpower Incorporating FundForum:
Ms Drews spoke on two panels
providing a Japanese and moregeneral Asian point of view ofthe major trends shaping theasset management industry, as
well as the growth dynamics andstrategic challenges faced by asset
management companies. Other
senior colleagues participated in the
Women Mean Business digital panel,
discussed best practice ESG acrossthe value chain and spoke on a panel
about what the new universe of green
bonds needs to look like for us toreach net zero and other sustainable
development goals.

Bloomberg Key Account Summit:
Ms Drews spoke at an internal, off-therecord event with 20 of Bloomberg’s
buy-side client-facing staff from its
offices in Tokyo, Hong Kong andSingapore. This gave Bloomberg staff
a chance to put questions directly to
our senior management. For Nikko
AM, it was an opportunity to explain
our firm’s position in the global asset
manager landscape, try to shape how
Bloomberg services our firm and otherclients, and further enhance the strong
relationship we have with Bloomberg.
This already includes the Bloomberg
Women’s Buy-side Network,
Bloomberg Philanthropies and othersustainability efforts.
Asia Research & Engagement:
Ms Rajewska, our Global Head of
Sustainable Investment, spoke
at a press event on catalysing
decarbonisation in Asia and achieving
sustainable outcomes in the region.
She shared insights on how we
integrate sustainability into ourinvestment processes, address climatechange and other aspects of ESG,
overcome challenges in ESG data
and the importance of tailoring ESG
analysis to Asian portfolios.
PRI in Person: Ms Rajewska spoke ata panel session on bridging the ESG
skills gap. The panel, through drawing
on latest research and case studies,
explored the importance of internal
ESG training in helping organisations
to realise the benefits of responsible
investment strategies.
PSE Investor Relations Workshop:
Deborah Loke, ESG Specialist based in
Singapore, participated in a workshop
organised by the Philippine Stock
Exchange involving investor relations
officers from companies listed in
the Philippines on ways to enhancesustainability reporting.

The Sustainable Finance 2023
Conference of the Association
for Financial Markets in Europe:
The former Global ESG Data andReporting Lead, participated in a panel
discussion looking at the role that
financial institutions play in ensuring
better outcomes for both our people
and our planet through effective due
diligence.
Other initiatives we support,
participate in or are signatories toinclude: The Asian Utilities Engagement
Programme of the Asia Investment
Group on Climate Change (“AIGCC”,
further details can be found underPrinciple 10);
 CDP;
 Climate Action 100+ (“CA100+”,
further details can be found underPrinciple 10);
 Global Investor Statement toGovernments on the Climate Crisis;
 International Corporate
Governance Network; Nature Action 100 (“NA100”,
further details can be found underPrinciple 10);
 Net Zero Asset Managers initiative;
 PRI;
 TCFD; The Investor Agenda;
 Women’s Empowerment Principles; LGBT Great.

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OutcomeOverall, we believe both our processes
and our actions demonstrate that
we have remained effective in
identifying and addressing marketwide and systemic risks during theyear. We believe our case studies
show that our investment teams havebeen both responsive and creativein reacting to these risks, whether
it is using sophisticated tools tomonitor evolving threats to our fixedincome portfolios, identifying andmanaging areas of our Global Equity
most vulnerable to climate change
or working with policy-makers andregulators in their work of maintaining
smooth-functioning and responsiblyrun markets.

In addressing these risks, our guiding
principle is always to put our clientsfirst. This means positioning clients’portfolios to ensure the best outcomes
for them. We are a small player ina large investment market but, by
ensuring our clients’ assets are directed
responsibly, we can play our part inensuring that their capital is directed
intelligently and ethically in support
of well-functioning markets and agreener future.
On a wider front, one of the more
useful ways of identifying new
systemic risks and dealing withexisting ones is to debate them withother industry participants. We havethoroughly involved ourselves in awide range of industry initiatives,addressing a multitude of new
threats and opportunities, from
ESG investment developments andtightened regulation, to improving
data and encouraging more useof digital technology to tackle ESG
threats.

One area where it is less easy to judge
progress in the short run is climatechange. This is due to the long-term
nature of the risks that this poses anduncertainty about future policy andtechnological innovations. We willcontinue to enhance our strategies
and methods to monitor and calculate
the climate effects of our investment
strategies, while developing
approaches that minimise global
warming. In doing so, we will continue
to engage with other stakeholders in
our effort to promote well-functioning
markets.

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.

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Principle

5Signatories review their policies, assure their processes and assess the effectivenessof their activities.

Activity
Risk governance andoversight

Policy and procedure
review

At a group level, responsibilities forour risk governance and oversight are
split according to the “three lines ofdefence” model:

All of our policies and processes,
including our stewardship policies, aresubject at least annually to a review
and assurance process to ensure thatthey remain appropriate and effective.
The review process varies dependingon the substance of the policy, but inprinciple it is as follows: creation anddrafting (for new policies), revisionby the applicable department, and,if relevant, review by the appropriate
committee, then review by either
the subsidiary board, in the case of
local policy, or the Global Executive
Committee and Group Board, in thecase of global policy.

 First line of defence: Front officebusiness units and individuals
identify and manage risks in theirbusiness function that could
threaten the achievement of theirobjectives. They accept risks within
assigned limits of risk exposure andare responsible and accountablefor identifying, assessing andcontrolling the risks of theiroperations.
 Second line of defence: The
support functions, such as Risk
Management and Compliance,
assess and oversee risk at thefirm level, developing andmaintaining risk frameworks,
including firmwide policies. Eachof these support functions, inclose relationship with the front
office business units, ensures thatthe risks of the business havebeen appropriately identified andmanaged.
 Third line of defence: The
Internal Audit function provides
independent and objective
confirmation of the design andeffectiveness of internal controls,
i.e. it independently assesses theeffectiveness of the processes
created in the first and second linesof defence and provides assurance
for these processes.

To address the growing developmentof the global ESG regulatory
landscape, frameworks and processes
are continuously reviewed andimproved. The key group policies thatare applied to stewardship activities
are listed below, with any changes
made during 2023 detailed in the
Outcome section. (We have notdetailed policies less directly related to
stewardship, but they follow the same
review process described above.) Group Code of Ethics and BusinessConduct
 Group Diversity and Inclusion
Policy Group Commitment to Responsible
Investing Group Conflict of Interest Control
Regulations
 Group Engagement and
Stewardship Strategy
 Group Proxy Voting Policy Group Best Execution Policy Group Trading Policy Group Environmental Policy
 Regulations on Engagement andCompliance Regarding Fiduciary/
ESG Principles
An illustration of our regular review
process was the change we madein our internal guidelines on crossshareholdings, which is explained in
the case study below.

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Case study:
Untying cross-shareholdings with tighter rules (equity)
Issue: Cross-shareholdings, where one public company holds a significant stake in another and vice versa,
have been a controversial business custom for years in Japan, and to some extent in other countries such as
Germany. The practice has been blamed in part for the slow pace of corporate governance reforms in theseareas. Critics argue that investments in crossholdings are often an inefficient use of capital that could be used
for the expansion of the business. Moreover, by reducing the number of shares traded in the public market,
they help protect the firm from takeover and may induce managers to act more for their own benefit than forthat of third-party shareholders.
Activity: For many years, our Japan Sustainable Investment department has been actively encouraging thephasing out of cross-shareholdings in Japan through engagement, a policy that has also been followed in ourgroup-wide proxy voting guidelines. Implementing this policy change has been an operational challenge inthe past due to the lag in disclosing cross-shareholdings. However, following consultation with clients andextensive internal discussion, we elected to strengthen our stance on this topic by applying a quantitative
measure to our proxy voting policy. As a result, we now vote against the re-election of directors if the firm has
cross- shareholdings (holdings in a separate entity) totalling 20% or more of its net assets, although this rule
may be varied if appropriate plans for reducing the holding have been put in place.
Outcome: The change was made in the March 2023 revision of the voting criteria. In the remainder of 2023,
our Japan Sustainable Investment team voted against the appointment of directors for 127 companies,
where the on-balance amount of cross holding shares had exceeded 20% of their consolidated net assets
without clear guidance for a reduction plan. An example of how we implemented this policy change can beseen in our case study “Shining a light on returns at a big Japanese ceramics to solar group” under Principle
7. The overall Japanese market has also observed significant progress towards the phasing out of crossshareholding during the last calendar year, notably at Toyota group and in the construction sector, wherecompanies have previously been resolute in maintaining the practice.

31

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Internal and external
assurance
In terms of audit and assurance, wehave a number of internal checks andbalances provided by, for instance,oversight committees that include
independent non-executive directors,
as well as our compliance department.
Our policy is to audit each division
every two years, with a follow-up
to ensure implementation of any
corrective action identified as a resultof the audit. There were no substantial
internal audit issues raised during 2023.
Various stewardship activities areaudited by outside bodies. At themost basic level, they include ourexternal financial auditors, who audit
our annual accounts, but we arealso assessed by a number of otherindependent auditors. For instance,
under the auditing standards SSAE18(for the US) and ISAE3402 (for the restof the world), independent auditors
assess our control procedures andtheir effectiveness, service delivery,
information security and controls overdata privacy. No substantial matterswere raised during the 2023 external
and independent audit.
As signatories of the UN-backed
Principles for Responsible Investment(“PRI”), we are externally rated
through our annual assessmentby the organisation. This covers
a range of stewardship-related
activities, including our responsible
investment policy, coverage andobjectives, conflicts of interest policy,
governance and human resources,
performance management andrewards, personal development andtraining, collaboration and promotionof responsible investment. Our
submission follows extensive internal
reviews and is ultimately approvedby the Nikko AM Board, to whom thefinal rating is also reported. The PRI
assessment is designed to provide
us with feedback to support our
understanding and development ofresponsible investment, which we
subsequently process and integrate
into our activities, where applicable.

Our collaboration with industry
organisations ensures that we stay
up to date on the range of issues thatare important to investors and thewider market and keeps our policies
and processes refreshed. As well as
the PRI, these organisations include
the regulatory and collaborative
investment initiatives of which our
subsidiaries are members, as set out in
Principles 4 and 10, respectively.

Ensuring reportingis fair, balanced andunderstandable
All external material, including regular
reports to clients, is produced locallyand reviewed by the local compliancedepartment. Stewardship reportingthat may be relevant only at local
levels to meet requirements of local
codes, separate to this report, are also
produced locally. Whilst any externalmaterial follows a robust internal
review and approval process, wedeem the ultimate judges of whether
our reporting is fair, balanced andunderstandable to be our clients, withwhom we work closely. For instance,
we have had relationships spanning
decades with many of our institutional
clients. Reporting has therefore
evolved over time, not only in line withmarket norms – including an increased
emphasis on ESG – but also as a resultof our knowledge of clients’ specificrequirements. Further detail on how
we communicate with clients andthe process by which they assess ourreporting is included under Principle 6.

Stewardship code(s)To produce this year’s response to
the UK Stewardship Code, we havebrought together a number of teams
from across the firm, including our
Global Sustainable Investment team,compliance, operations, members of
our client services and investment
teams. We have used both internaland external resources to make it asinformative and accessible as possible.
It has been reviewed by our local
UK ESG and Stewardship OversightCommittee, as well as being reviewed
and approved by the UK and Group
Boards, the Global ESG Steering
Committee and signed off by ourGroup President, Stefanie Drews.
At the moment, individual codes,
such as those for the UK, Japan and
New Zealand, are reviewed separatelyby the relevant group companies
and applicable responses are either
produced individually or this global
report is utilised whilst not referring
explicitly to other code’s principles.
We have changed the title of thisyear’s report from “Nikko AssetManagement Group Response to the
UK Stewardship Code 2020” to “Nikko
Asset Management Stewardship
Report” to fully showcase the report’s
global coverage.

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Outcome
We believe the combination ofinternal checks and balances, external
assurance and audits and ourwidespread involvement in industry
and regulatory bodies ensures that ourpolicies, procedures and processes are
subject to continuous and rigorous
review. To be effective, such review has
to result in action to ensure that ourpolicies, procedures and processes are
kept up to date and effective. Keepingthat in mind, we have made a numberof changes to key policies that apply
to stewardship activities as a result of
our review and assurance processes
during the year: The Global Executive Committee
Charter has been revised to reflect
the inclusion of representativesof each of Nikko AM Group’s
regional offices, as explained underPrinciple 2.
 The ESG Global Steering
Committee Charter has beenrevised to formally reflect theestablishment of the Global
Sustainable Investment team.
The formation of this department
was detailed in depth in last year’s
report and its current structure is
described under Principle 2.
 The appendix of related groupcompanies in the Group Conflictof Interest Control Regulations has
been amended to reflect recentchanges.
 Subsidiaries have added local
policies and addendums to theGroup Conflict of Interest Control
Regulations, with the changes
to local versions during 2023
explained in more detail underPrinciple 3.

 The Japan Stewardship and Proxy
Voting Committee Rules havebeen extended to include theHead of the Fixed Income FundManagement department and the
Co-Heads of the Japan Sustainable
Investment department. The
formal inclusion of fixed income
management in the traditionallyequity-focused Stewardshipand Proxy Voting Committee
reflects our progress in expanding
stewardship considerations to all
asset classes.
 Standards for Exercising Voting
Rights on Japanese Stocks havebeen amended to revise theguidelines on voting against,
including the re-election of
directors if the firm has crossshareholdings totalling 20% ormore of its net assets (as outlinedin the case study “Untying crossshareholdings with tighter rules”
above), and also to set out specificconsiderations such as emission
reduction targets, TCFD disclosuresand board independence
assessments. Further, effectivein April 2024, the Standards
for Exercising Voting Rights on
Japanese Stocks have been further
amended to codify our approach
to climate shareholder resolutions.

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Principle

6Signatories take account of client and beneficiary needs and communicate the activities andoutcomes of their stewardship and investment to them.

Context
A breakdown of our AUM (as at 31 December 2023) by asset class and client domicile is shown under Principle 1. Below wefurther present AUM by client segment3 and by geography of the managed holdings.

Assets under Management by Segment*

Assets under Management by Geography of Assets*

Retail 32%

Japan 56%

Institutional 22%

Asia ex-Japan 3%

ETFs 47%

Australia/New Zealand 1%
North America 2%
EMEA 2%Global 21%
Other (incl. Emerging Market) 2%
Money Market) 13%*As of 31 December 2023

Keeping in touch with clients is abasic duty of any asset manager andis a vital part of good stewardship.
However, different clients havedifferent requirements. The largest
segment of our client base is inJapan, mainly investing in equities.
Where we have retail clients, accessto our products is through collective
investment schemes via third-party
distributors and we have to adopt
a different approach when talking
to this segment compared with ourinstitutional investors. The former
require easy-to-digest material thatis clear, brief and well presented. The
latter expect more direct, sometimes
more technical and certainly morecustomised communication, with theamount and timing determined by ourcontractual relationships.

Investment time horizons
Whether they are retail or institutional,
we believe most of our clients are best
served taking a medium- to long-termview of their investments. We are notdogmatic about what this means inpractice, but broadly view this as aholding period of three to five years for
medium-term investing and ten years
or more for long-term holders. For
retail investors, we would argue thisfits their need for long-term savingsand best allows them to ride out thefluctuations in financial markets, thus
maximising the value they can obtainfrom investing in securities. The sameconsiderations apply to the majorityof our institutional strategies, which
are typically aimed at pension funds,
insurance companies, banks, andsovereign wealth funds, which havelong-term horizons.
Of course, this overarching philosophy
must be tempered by circumstances:
political and economic events may
require us to curtail our typicalholding periods to reduce risks forclients. In contrast, as detailed in
our TCFD report, referred to underPrinciple 7, we also have to look tomuch longer time horizons when we
consider climate-related risks andopportunities, in particular thoserelating to 2030 and 2050 net zerocarbon commitments. Finally, it
should be noted that more than 13%
of our groupwide AUM at the endof December 2023 was held in cash
equivalents or money market funds,
which typically have a shorter holding
period of less than a year.
These perspectives are reflected in ourcommunications with clients, which
tend to focus on trying to explain longterm economic and market trends,
including demographic shifts and thefate of globalisation in a less open
world. They are reflected too in ourpolicy of integrating climate change
and other ESG considerations into theinvestment process.
We believe that our combination of
products and strategies aligns wellwith the needs of our clients.

3 The ETFs relate to a number of funds replicating equity benchmarks. Owing to the structure of these vehicles, it is not possible for us to know theunderlying ownership of the funds and therefore we are unable to classify them as owned by either institutional or retail investors.

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Activity
Accountability to our clients is at theheart of our fiduciary principles andcommunication is therefore crucial. For
all clients, this means providing easyto-understand materials that explain
our investment approach, productrisk characteristics and fees, as well as
tools that help them understand theirinvestments and the risks involved.
For example, with the increased
emergence and fragmentation ofvarious ESG labelling standards andregulations across markets, we haveundertaken an extensive internal
project to develop our own ESG
AUM classification framework. This
framework helps us ensure we have asingle method of classifying our AUM
into different sustainable investment
categories, ensuring further reporting
consistency and alignment. Further,
for any external communications,
we have robust compliance review
processes in place at each location toensure any material is clear, fair andnot misleading.
As is stated in the Context section
above, a large segment of our AUM
is managed for retail investors via
intermediaries and, in terms ofgeographical location, the majorityof our clients are based in Japan.
We have therefore focused on ourcommunication with Japanese
investors in the retail investors sectionthat follows below.

Retail investors
We run a large number of mutual
funds4 which are sold through banks
and other distributors to retail as wellas institutional investors in Japan. We
therefore put a great deal of effort into
timely, understandable and accessible
communications with Japanese retailinvestors. As we do not sell directly tothem, our communications efforts areprimarily directed at our distributors:
banks, brokers and, increasingly,internet-based groups.
We provide a wide range of
information to distributors andJapanese retail buyers of investment
funds, not only concerning thespecific funds in question but also
related to broader themes, such as the
economy and markets. Our aim withour communications aimed at retailinvestors is to ensure they understandwhat is happening with their own
investments and the reasons, while
fostering a deeper understanding ofmarkets and investment trends.

4 Comprehensive Risk Information on Mutual Funds

Realising that there are wide
differences in the level of financial
sophistication amongst our
retail investors, we tailor ourcommunications to the differing
audiences within the group. Thus weprovide videos on our website aimed
at both distributors and end investors.
For example, we might support a
particular fund with:
 videos aimed at first-time viewers
to promote the fund; videos that explain the concept of
the fund in more detail; regular videos and other materials
that keep clients up to date withperformance and underlying
factors that affect the fund.
We also put a great deal of effort into
webinars, online educational courses
and training for distributors and end
investors, an effort we have stepped
up since the onset of the pandemic.
Under our Nikko AM Fund Academy
brand, we provide what we deem tobe essential fund-related knowledge
and information for our retail investors
and distributors, and also for noncustomers.

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Regular information material produced under the Nikko AM Fund Academy brand
Item

Frequency

Additional Information

Rakuyomi (easy 5-minute briefing)

2-3 times weekly

Koyomi (quick soundbites)

Monthly

Gokuyomi (deep dive)

Ad-hocMarket 5 Minutes

Monthly

Weekly Market

WeeklyData Watch

WeeklyFollow-up Memo

Ad-hocGlobal REIT Weekly

WeeklyMonthly Market

Monthly

JAPAN in Motion

Quarterly

Nikko AM Newsletter

Ad-hoc3 in 2023

CHINA INSIGHT

Ad-hoc16 in 2023

KAMIYAMA Reports (market update reports by our Chief Strategist Naoki Kamiyama)Ad-hoc15 in 2023

KAMIYAMA Seconds! (quick updates by Naoki Kamiyama)Ad-hoc47 in 2023

4 in 2023

4 in 2023

Seeking retail client views
This is not just about us talking andour clients listening. We take the viewsof our distributors seriously as they arein frequent contact with their clientsand are therefore a key conduit inpassing retail investors’ views back to
us. This feedback is an important guidefor us, both in the material we provide
for distributors and in the design of
new products. There are several ways
in which we seek the views of both
distributors and, in some cases, retailinvestors directly.
A significant amount of effort in
the Tokyo-based retail business isspent on an extensive programmeof seminars conducted by around 40
dedicated personnel. These seminars
are planned and organised for roughly
200 participants at a time. They can bedivided into: on-site seminars for retail investors,
where a distributor invites its
customers to one of its branches,and study sessions for sales
representatives of distributors.
In both cases, speakers from Nikko AM
Group visit the financial institution to
give presentations which last typicallyfor about 60 minutes. In the 2023
calendar year, we have held seminars
both online and in person. The
content of these seminars and investor
feedback is subsequently reported to
relevant managers by the in-housecustomer relationship management
system, enabling them to stay abreastof recent developments and changes
in investors’ and distributors’ views.
We organise regular events under
the umbrella of the Nikko AM
Product Strategy Academy targetingthe product planning teams ofour distributors. In addition toproviding information on existingproducts, we also present ideas for
new products that are expected tomeet future investor needs. Theseare valuable opportunities for open
communication with our distributors,
enabling us to receive candid views
directly from the teams responsible
for fund marketing. For instance,
we poll participants after the many
presentations on new product ideas.
Those that receive strong support inthese votes are often then realisedin new fund launches. In 2023,

Nikko AM Group held two ProductStrategy Academy gatherings which
attracted 160 participants from 100
financial institutions in March and
140 participants from 90 financial
institutions in November.
To gather all this feedback, our staff inTokyo regularly contact distributors’
headquarters and local branches.
This information is then added toviews gathered directly from retailinvestors who have contacted ourcall centre team and is shared with
relevant Nikko AM Group staff via thecustomer relationship management
system. In addition, there is an internal
process so that particularly importantcomments and any strong views of
our distributors, are brought to theattention of senior sales managers
without delay.

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Institutional investors
It is our policy as a group to tailor
the frequency and method ofcommunication with institutional
clients to meet their specificrequirements. These are typically
discussed and agreed as part ofnegotiations when the investment
management agreement is set up,
but the heart of our communications
with institutional clients is our direct
discussions. Our sales directors andclient services teams work with clients
to confirm the required content andtiming of all regular client reports.
Before these meetings, we typicallysubmit information on a range of
topics. Information may include ourstewardship policy, proxy voting
policy, implementation framework,
company engagements and theireffect, and third-party assessments of
our ESG integration and stewardship
activities, for example, the latest
Principles for Responsible Investment
assessment.

With most of our institutional clients,
we schedule investment reviews
at least annually, but can arrange
ad-hoc meetings as required on
subjects such as proxy voting,company engagement and otherstewardship activities. As well as thenormal discussions and reports on
performance, we provide explanationsof a wide range of investment-related
topics in answer to client queries.
Outside of a client’s regularperformance reviews, we take aproactive approach to ensuring clientsare kept up to date with important
information affecting their portfolios,
including any changes to theirmandates or significant market events
which may affect performance. Further
information on our engagement policy
with investee companies is available
under Principle 9.

To meet clients’ ever-widening listof requirements, we are also able toprovide reports on carbon intensity
and other carbon-related disclosures,
ESG scores and related information
for the companies in which we invest.
This is a two-way process, with clients
often asking us to provide them withadditional information or to present
it in a certain format. Illustrating how
we meet these needs are the twocase studies that follow, “How client
feedback improved their carbon
intensity reporting” and “Streamlining
our reporting of ESG issues to clients”.

Case Study:
How client feedback improved their carbon intensity reporting (equity)
Issue: We were contacted by one of our clients seeking additional reporting on the carbon intensity of holdingsin their portfolio managed by the Japan Equity team. Our client services and investment teams met the client andfound out that the request came as a result of a carbon-related commitment it had itself made in respect of its
investments.
Activity: To meet its requirements, we were able to provide the client with details of the current carbon intensity– as well as future likely reductions in intensity – for firms in the portfolio, in the strategy’s investable universe inJapan. We also explained how this would compare for different asset classes and regions.
Having gained an understanding of the purpose of the reporting, we discussed with the client our reporting
template for the portfolio, clarifying certain data points it required. In the light of this we pointed out some areas
where interpretation of the data would need to be conducted with an awareness of the context, as different
sources or calculation methodologies could affect the results.
Outcome: The result of this exercise was that we have introduced a new reporting provision for this client
whereby we report data on the carbon intensity of the portfolio holdings. The new format enables the client toassess their carbon impact across their entire investment portfolio, monitor trends and identify areas requiring
further analysis. For its part, the client told us they appreciated the information and insight we were able toprovide.

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Case Study:
Streamlining our reporting of ESG issues to clients (equity)
Issue: During one of our quarterly ESG reviews, a key UK institutional client told us they wanted more
information on the engagements between our investment team and the companies held in the investment
portfolio. In particular, they wanted to know the key objectives and outcomes of these meetings and to provide
the information in a similar format to our stock case studies, of which we produce a couple every quarter. Theirultimate aim was to collate standardised information from all their asset managers. This would allow them toproduce useful measures and data to fulfil their fiduciary responsibilities, while aligning with the requirementsof the UK Stewardship Code.
Activity: Previously we had been providing clients with a summary of the meetings held with each company
in the form of minutes. Following this feedback, the investment team worked with the Global Sustainable
Investment team to enhance the way we drafted our quarterly ESG report for this particular strategy. The result
was a more succinct, structured and user-friendly format for these engagement reports. They are now broken
down by ESG topic, objective, status, engagement dates and activity.
Outcome: The client welcomed the new format and the way that each engagement is split into sections helped
them in their aim of standardising reports. As a result of this exercise, we have adopted this approach across allquarterly ESG reports produced for institutional clients invested in this strategy.

We typically explain our voting
decisions in some detail, including
how we dealt with specific proposals
and, in particular, where we voted
against management proposals. We
also discuss occasions where views
within the firm differed and howinternal consensus was reached.
Further information on our proxyvoting policy and how we voted canbe found under Principle 12. How
we cast our proxy votes and thenumber of company engagements
we undertook during the year are
disclosed on our website.
In addition, we hold regular corporate
sustainability meetings with clients,
typically on an annual basis, toreport on our broader sustainability
initiatives that encompass not
only investments but also otheractivities at the corporate level.
Such discussions often involve an
exchange of ideas as to what asset
managers and asset owners can andshould do to fulfil their fiduciary
responsibilities and contribute to thebetterment of society.

We are always keen to understandthe investment and stewardshipprinciples our clients wish us to adopt
when managing their assets and, in
return, we explain the firm’s policies
and approach to implementation.
Should there be any misalignment
between the two views, we try toreconcile the differences with theaid of the Stewardship and Proxy
Voting Committee’s secretariat orother relevant specialists. Our aim
is to be flexible when making any
necessary amendments to the policy.
For instance, when required by equity
clients, we will adopt their policies
on proxy voting or engagements.
For segregated mandates, where
possible, we are happy to implement
client-supplied lists of investments
to be restricted or excluded and will
tailor our investment approach tomeet their specific requirements.

These discussions help to confirm
that we and our institutional clients
understand each other and that
their views are accurately sharedwith all the relevant people in thefirm, particularly the investment
teams. In order to maintain close
communication with our institutional
clients, we focus on face-to-faceinteraction via online and/or offline
meetings although we also use othermethods of communication. Ourclient-facing personnel spare noeffort in seeking detailed feedback,confirming whether explanations
given at meetings are sufficientand generally ensuring that clients’
expectations and requirements havebeen met.

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Our compliance department provides
an independent check on whether
investment portfolios are adhering toclients’ investment policies and therelevant guidelines. Where necessary,
it will discuss its review findings andany operational issues that need to beaddressed with the investment teams,
local management and head office.
Our non-Japanese investment teams
maintain an active dialogue with
our Japanese clients via our Tokyobased Client Service team. We supply
monthly investment positioning
and performance reports, as wellas market outlook updates. The
Client Service team offers the first
response to client requests about
their portfolios and many of theseare subsequently fed through to theteams on the ground for a further
response. Portfolio managers typically
visit Japan on a regular basis and, in
addition to updating clients on theirportfolios during investor meetings,
they will also offer educational
workshops. For example, our Global
Fixed Income team offers seminars
on European markets and the Danish
mortgage bond market to clientsand prospective clients. Some clients
have also sent their representatives
to London as a means of learning
about the market and its day-to-day
workings. These contacts strengthen
our dialogue with clients and ourunderstanding of their needs, withthe latest seminar being held in
October 2023.

OutcomeGiven that our largest client base is in the intermediary segment, it is harderfor us than some other asset managers to assess the effectiveness of ourcommunications with the retail market. However, we take comfort from the highrankings we regularly receive in the three most influential independent industry
surveys in Japan (see below). These third-party endorsements of our retail
communications provide testimony to our success in getting our message acrossto retail clients.
We increasingly use retail client feedback to shape and drive ourcommunications, for example by addressing specific points of concern in thereports that we produce. Both our distributor network and our call centre teamare essential in garnering, understanding and making use of this feedback.
While we cannot know directly what our retail clients feel about our retail
communications efforts, we regularly receive favourable endorsementfrom third parties. For instance, in 2023:







For the fifth year
in a row, we wereplaced first in theannual mutualfund company
satisfaction survey
conducted by Rating
and Investment
Information, Japan’slargest rating agency.

We were similarlyranked number one
for the fifth year inlast year’s branding
survey by Nikkin,
the Japanese news
agency.

We were also placed
second in the latest
asset manager
branding survey
by MaDo, a major
financial publicationin Japan.

We believe the results of these surveys represent a weighty vote ofconfidence from intermediaries and commentators in the quality of ourcustomer support, as well as how and what we communicate to themarket.

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In terms of institutional clients, we
make it a regular point at our client
meetings to ask whether clientsfeel that they still understand theinvestment strategy we adopt for themand whether it continues to meet theirneeds. Beyond that, we are constantly
seeking clients’ comments on thescope and quality of the services
we provide, as well as their degreeof satisfaction with our investment
results. This can be through separate
feedback sessions or during thecourse of the regular portfolio
and operational review meetings
conducted by our Client Service teams.
Some of our institutional clients also
formally evaluate their third-party
managers, such as ourselves, andassign scores. We always value such
feedback from clients as it enables
us to more objectively evaluate theeffectiveness of the service we provide
and highlight areas where we can
improve.

We are very ready to make changes
to the strategies we employ basedon client views to better meet theirneeds, for instance, by strengthening
our ESG integration, using additional
investment techniques (e.g.
derivatives) or enhancing our internal
engagement platform to bothconsolidate and better manage ourengagement activities. It goes without
saying that we also constantly strive toenhance the regular reporting of ourinvestment or stewardship activities tomeet clients’ demands.

There may have been instances
during the year where breaches ofclients’ investment policies occurred,for instance, due to external factors
outside of our control, such as market
movements. In all such instances, we
immediately addressed the situation
by clarifying the cause, taking
the necessary remedial steps andimplementing preventative measures.
We also provided a full explanation
to our clients, in line with regulatory
requirements and best practice and, if
necessary, made additional efforts toeliminate any future ambiguity in theinterpretation of clients’ investment
and proxy voting policies.

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Principle

7Signatories systematically integrate stewardship and investment, including
material environmental, social and governance issues, and climate change, to fulfil
their responsibilities.

Context
As we stated under Principle 1, we
strongly believe that stewardship,including fiduciary and ESG
considerations, are inherent tolong-term corporate value creationand contribute to the realisation ofsustainable economic growth. We
therefore see ESG issues as an integral
part of our fiduciary duty to clients andincorporate ESG principles in all ourinvestment processes.
We do not adopt a one-size-fits-all
approach to integration. The main
responsibility for implementing ourfiduciary duties falls on our investment
teams and they are given a remit toact in the best interests of our clients
within the global and local governanceframeworks provided by the Group.
This means that our ESG integrationand engagement processes arebespoke to each investment team,allowing each to choose the methods
most appropriate and effective forthem. 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.
Allowing for asset class and regional
differences, our Global ESG Steering
Committee via the Global Sustainable
Investment team is responsible
for monitoring and improving theinvestment teams’ implementationof stewardship principles. Whilst the
local approaches may differ, this global
process ensures there is consistency
across the firm. We believe that it
results in a structure that enables us toserve the best interests of our clients.

ESG issues are rarely the only
consideration when making
investment decisions, but anunderstanding of them informs theinvestment process and gives ourinvestment teams a more roundedview of companies. In applying
ESG policies and procedures totheir particular circumstances,
our investment teams consider anumber of factors, including theenvironment, climate change, humanrights and labour standards, talentmanagement, product safety, diversity,board structure and independence,alignment of remuneration,transparency of ownership andcontrol, and accounting. An acceptable
ESG standard is never the soledeterminant for investment, however,where materially negative ESG issues
are identified and we do not believethat corrective measures will betaken, the relevant investment teamwill take appropriate action which
may include excluding the company
from investment consideration. For
existing holdings, an indication ofmaterial deterioration in ESG factors
may lead to a rating downgrade andsubsequent sale from the portfolio.
This is not a one-off exercise but rather
a process of continuous assessment.
ESG considerations are applied
before investing, while holding an
investment and before selling. In
addition to our own policies andconsiderations, certain issues may be
given priority because of feedback
from our institutional clients, either at
the inception of a mandate or as the
mandate evolves over time.

Ensuring service
providers have received
clear and actionable
criteria
We also maintain an active dialogue
with our service providers, making clear
to them our ESG priorities. For example,
during our annual review with ISS,
which provides us with analysis forproxy voting resolutions, we share
any updates to our responsible
investment and voting policies. The
service level agreement with ISS
defines the relationship at a grouplevel, but each subsidiary works directlywith ISS to tailor its local platform toaccommodate any criteria required,including those relating to ESG.
Since the creation of the ESG datateam, we have focused on improving
the availability, as well as thequality, of the data being used byinvestment teams. A primary focus
has been to ensure that our data
are accurate, timely and consistentacross all investments covered. One
important service provider which
we currently use for the provision of
ESG data analysis is MSCI. As part of acontinuing internal project, 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 todecide how to use the data in practice.
We also engage with MSCI when we
see errors and try to resolve them in atimely manner. We go into more detailabout this under Principle 8.

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In addition to liaising with MSCI, theESG data team contacts our portfolio
companies to verify the data being
supplied by third parties, and toencourage climate-related disclosureand target setting in line with SBTi (theScience Based Targets Initiative), which
is further discussed later in this report.
We would view success here as being
confirmation that the ESG data usedin our analysis and client reporting
accords with what we are receiving on
the ground from companies and in the
public domain. Further information
on how we interact with and hold toaccount our service providers can befound in our responses to Principles 8
and 12.

While these are the outlines of ourapproach, we do not seek to regulate
how each investment team puts
principle into practice in their own
investment processes. However, in
all cases we do believe that active
dialogue and the exercise of voting
rights on climate change, whereappropriate, can lead to positive
outcomes for investee companies, ourclients and our firm. We participate
in relevant collaborative corporate
engagement activities, such as theinvestor-led CA100+, to communicate
our expectations to investee
companies (see Principle 10 for moreon our collaborative engagement
activities).

Climate change

We generally do not apply blanket
exclusions of investments basedon climate change factors unlessdirected by our clients. We preferactive engagement and the exercise
of voting rights, which we see as
more effective in upholding ESG andstewardship standards, whether it
be for our clients, for the broader
economy or for the environment.
We believe that exclusions based on
formulaic filters to determine climate
risks can be inflexible at times andin some cases may fail to capture
the future potential of companies to
respond to the transition to a lowcarbon economy.

Amongst ESG issues, we recognise
climate change as the greatest the
global community faces. We therefore
consider that addressing it is afiduciary principle when managing
our clients’ assets. We reinforced ourcommitment to this principle andoutlined our approach to climatechange in 2019, when we published
our Position Statement on Climate
Change.
The current position statement
contains the four building-blocks of
our approach:1Enhance in-house
analytical capabilities

2

Collaborate with
the investmentcommunity3

Conduct active
stewardship

4

Report on our
activities

We believe that thorough researchand vigorous debate within theteams, alongside direct engagementwith companies to get a first-handappreciation of the issues, are still thebest ways to evaluate ESG factors andjudge their impact on investment
outcomes. We also recognise thatclimate-related impacts are complex
and uncertain, so we need to keep
abreast of scientific findings andinformation, and how regulators andstakeholders are responding to them.
While we take account of our own
climate change principles in our
portfolios, we also work with clientsto provide low-carbon investment
solutions aligned with their specificinvestment beliefs. For example, our
Global Green Bond Fund is a lowcarbon collective investment thatinvests primarily in securities that
finance climate change mitigation
and adaptation projects. We also havea Hydrogen Fund, managed by our
Global Equity team, which enables ourclients to participate in the financingof the hydrogen economy and thetransition away from fossil fuels.
Having signed up to implement therecommendations of the TCFD, we
encourage our investee companies totake the following steps:
 identify material climate changerisks and opportunities in a rangeof scenarios (including where theglobal temperature rise is kept
below 2°C) over appropriate time
horizons;
 integrate material climate changerisks and opportunities into theiroverall business strategy and risk
management; disclose the management policies
and processes they have designed
to meet the goals – and resulting
performance – that emerge fromthe above activities.

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Activity
The investment teams in our activelymanaged strategies identify attractive
stocks through in-depth bottomup research, based on their own
philosophy and approach. ESG factors
and the risks and opportunities theypresent for the stock or bond are
integrated into this process, providing
additional considerations to be taken
into account in investment selection.
ESG factors are thus rooted in
our investment philosophies andprocesses and not treated as being
part of a separate exercise. We
strongly believe that attention to ESG
factors is a part of good investment
discipline – core to any business andinherent in its long-term creationof value, while contributing to therealisation of wider sustainableeconomic growth. Given this view,
we endeavour to incorporate ESG
considerations across all asset classes
and geographies.

Having said that, different asset
classes have different dynamics, withvaried geographies and industry
sectors adding to the complexity.
Each of our investment teams istherefore allowed to view ESG
implementation through its own
lens, leading to diverse approaches
across the organisation. Whatever
the approach, we strive to apply all
ESG policies to the highest standard,
continually seeking improvement andinnovation.
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.

ESG specialists support theinvestment teams as part of our aimof having all investment professionals
integrate ESG into their investment
processes to the fullest extent. They
also build 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 and in our UK subsidiary,
the regional investment teams
are required to present their ESG
implementation activities to the local
board.
The table below gives a brief
overview of the approach taken to
ESG integration across the various
asset types and geographies that wemanage.

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Asset Class

How we integrate ESG and stewardship responsibilities into the investment process

Japanese
Equities

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 workof 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 andintroduced CSV stock price analysis in 2021. This latest addition to the process allows us tocalculate a fair price for the stock based on CSV evaluation, further enhancing the investment
process. The CSV evaluation currently comprises 12 factors grouped into three categories — ESG,
competitiveness and financial strength.
ESG
Human Resources
Carbon Neutrality
Environmental & Social
Management Implementation
Resilience

MarketCompetitiveness
Financial
Shareholder Returns
Financial Discipline

Entry Barriers
Brand Equity
R&D/CAPEX
Cost Advantage
Market Growth Potential

In terms of ESG engagement with company managements, we have six key themes:
Environment: Biodiversity and Action for a Decarbonised Society,Social: Diversity, Human Capital and Productivity and Human Rights,
Governance: Effective Governance.
See Principle 9 for more on our approach to engagement.
A key part of our engagement with companies is the exercise of voting rights. We can and do
use these rights to reinforce our views on any of the issues outlined above. That could mean,
for instance, voting against board appointments where a company faces serious risks related
to climate change or sustainability, and/or where management initiatives to address them aredeemed insufficient and the situation is not improving.
In terms of our wider stewardship responsibilities, we may also vote against management where
we think a company is lagging in other areas, such as governance or financial performance.
Respective examples of this can be found below in the following case studies: “Engagement leads
to dividends and diversity at a Japanese media group” and “Shining a light on returns at a big
Japanese ceramics to solar group”.
Global Equities

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 acompany’s corporate governance, social practices, the environmental sustainability of its products
or services and its capacity to fund its growth and ESG commitments.
Our investment team engages with investee companies to help promote better ESG practices
if we believe there is room for standards to improve. This includes ESG controversies identified
by the Global Equity team. Proxy voting is executed in the interests of our clients in line with our
proxy voting guidelines.

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Asset Class

How we integrate ESG and stewardship responsibilities into the investment process

Asia ex-Japan
Equities andChina Equities

ESG analysis is incorporated into company research, security selection and portfolio construction.
Our ESG “materiality map” focuses on the material ESG issues and opportunities for each of thecompanies we cover. The materiality matrix is based on ESG factors defined by the International
Sustainability Standards Board (“ISSB”) (formerly known as Sustainability Accounting Standards
Board (“SASB”) and MSCI.
As part of our in-house proprietary ESG-scoring methodology, individual companies are rated
against a number of ESG pillars and the results aggregated with fundamental analysis toprovide a company-level score. ESG-focused research is also used to identify areas for company
engagement and improvement. For how this applies in practice, see our case study “Raisingsustainability standards at a major palm oil producer”.

New Zealand
Equities

The team seeks to understand how industry and company ESG factors may affect investments
and, ultimately, client portfolios. ESG factors are considered as one aspect of the overall analysis
to build a picture of the risks and opportunities faced by a company. Portfolio companies with low
ESG scores are targeted for engagement in an effort to improve their performance in weak areasor where it would be beneficial for stakeholders.
We are also proactive in finding and addressing wider issues affecting New Zealand companies,
such as regular and severe weather events (see our case study “Anticipating the ramifications ofclimate change in New Zealand“ under Principle 4). As part of this effort, we have launched the
Nikko AM Freedom Fund, which donates all fees and returns to the Tearfund charity. Tearfund
works through partnerships in some of the poorest parts of the world. Together with thesepartners, it helps to combat human trafficking and slavery, while tackling poverty and injusticethrough sustainable development.
More generally, we engage with companies where we think managements are not acting in thebest interests of shareholders, who are ultimately our clients. A case in point is described in ourcase study “Loss of conviction after strong board and company engagement”.

Japan Fixed
IncomeIn the Japan Fixed Income team, we believe ESG considerations are key factors when analysing
qualitative risks that cannot be covered exhaustively by financial analysis. Our credit analysts
consider ESG factors in addition to the fundamentals of each issuer. ESG factors are integrated
into investment decisions for the industries and issuers we cover. Our Japan Sustainable
Investment department also provide support on items such as ESG engagements.

Global Fixed
IncomeThe majority of fixed income assets managed by the investment team are in investment gradebonds from issuers ranging from international bodies like the World Bank, to governments andlarge companies. The scale of these organisations and the limited rights of bondholders restricts
our influence over their ESG policies. However, particularly in the case of corporate credit, ESG
factors are considered to the extent that they are deemed material to the investment case and inline with our clients’ risk appetite and perspectives on ESG investing. In relation to our holdings insovereign entities and major banks, we maintain an active dialogue with issuers on ESG themes asa means of building our insight and market intelligence.
We use a proprietary ESG platform to aggregate ESG data in order to enhance our ESG evaluationof sovereign, supranational, agency and corporate issuers. This tool allows us to compute ESG
rankings based on the variables we think are the most relevant for each fixed income field orsector and gives us full control over the data sources we use, allowing for multiple data feeds.
In particular, we use our proprietary assessment process for measuring the sustainability ofissuers in our Global Green Bond Fund. This bottom-up review process is framed around three key
elements: the issuer’s sustainability strategy; the pre-issuance bond framework; and the postissuance allocation and impact report. We illustrate the exhaustive due diligence we undertake
before selecting candidates for the Green Bond Fund in the case study in Principle 9 “Keeping itbright green at Iberdrola*”.

* Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, nor constitute a
recommendation to buy or sell.

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Asset Class

How we integrate ESG and stewardship responsibilities into the investment process

Asia Fixed
IncomeESG analysis is incorporated into all company research as part of our bottom-up fundamental
analysis and portfolio construction. This research is based on our ESG Materiality Map whichanalyses companies using ESG factors based on those defined by the ISSB and MSCI, but
adapted to reflect conditions in Asia. ESG-focused research is also used to identify areas for issuer
engagement and improvement.
We have also developed a proprietary ESG sovereign-rating model that uses public datafrom sources such as the World Bank, the United Nations, and the European Commission
Emissions Database for Global Atmospheric Research. In this sovereign-rating model, we use
21 indicators that broadly cover all three areas of ESG. These include GHG emissions (per capita
and proportional to GDP), an index of human development, and a measure of government
effectiveness.

New ZealandFixed Income

The team seeks to understand how industry and company ESG factors may affect investments
and, ultimately, client portfolios. ESG factors are incorporated into the due diligence process
to provide an overall picture of the risks and opportunities faced by issuers. Following
investment, the team engages with portfolio companies with low ESG scores in an effort to seek
improvements that would be beneficial to stakeholders.

Multi Asset

ESG integration is conducted from both a top-down and bottom-up perspective. The bottom-up
approach relies on our teams of ESG specialists and research analysts, whose processes form partof the fundamental research process. The top-down approach entails the use of norms-based
screening methods to identify companies that breach ESG safeguards, such as the United Nations
Global Compact principles, or OECD Guidelines.
For existing holdings, where a company is involved in controversy, or is identified to havebreached a social safeguard, further due diligence is conducted before deciding whether the
position should be sold.

Passive andQuantitative

Our Japan-based Investment Technology Fund Management team consists of the Passive FundManagement team and the Quantitative Investment Management & Development team. The
Passive Fund Management team provides passive management products for a wide range of asset
classes while The Quantitative Investment Management & Development team offers quantitative
active strategies and smart beta strategies for domestic Japanese and international equities.
The team believes that since ESG factors can impact shareholder value over time and in awide variety of ways, it is important to understand them both theoretically and empirically.
They therefore conduct in-depth research on individual environmental, social and governancecomponents of ESG investment using a quantitative approach and also drawing on the expertiseof our Global Sustainable Investment team. The findings of this research are used to integrate ESG
considerations into existing products as well as to develop new products.

Money Markets

ESG and stewardship considerations are taken into account as part of the issuer selection process
to the extent that they are deemed material to the investment case and in line with our clients’risk appetites.

OutcomeFurther demonstrations of the practical outcomes of our integration of stewardship – and particularly ESG considerations –into our investment activities is through some examples. We have therefore included additional case studies in this section
as well as throughout this submission.

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Case Study:
Engagement leads to dividends and diversity at a Japanese media group (equity)
This large Japanese media group focuses on a wide range of content businesses.
Issue: We were dissatisfied with the absence of women on the board and the low level of dividends.
Activity: To register our disapproval of the company’s policies, we voted against the directors at the AGM in June
2022. We then engaged with the company in October of the same year, encouraging it to increase the pay-out
ratio and to appoint a female director. We gave warning that we would again oppose the company proposals toelect directors at the next AGM if there was no action.
Outcome: At the shareholders’ meeting in June 2023 we voted in favour of the proposal for the election of
directors as the total payout ratio now met our requirements and a female director had been newly appointed tothe board. The vote passed with 88% in favour.

Case Study:
Shining a light on returns at a big Japanese ceramics to solar group (equity)
This large Japanese group produces a wide range of products, from industrial ceramics and semiconductor
devices to solar energy and medical equipment.
Issue: The company’s financial results have been sluggish for some years. A new president has overseen
an aggressive investment in growth and a multi-year organisational restructuring programme since theearly 2020s. Sales growth has picked up in recent years, but a point of contention with us has remained thecompany’s poor return on equity.
We proposed several improvements in discussions with the chairman, including the introduction of returnon invested capital as a key performance indicator for management. He agreed to take this back to the board
for consideration. But a major factor in the poor capital efficiency at the group has been a stake in a large
telecommunications company co-founded by the firm that has grown over time. This accounted for 46% ofshareholder equity at the end of March 2022.
Action: The large holding is classified by us as a strategic shareholding, which is an area where we have recently
tightened our standards (see Principle 5). Between March 2022 and March 2023, we held eight meeting withthe group, including three with the president, where we explained that we were changing our voting policy. In
future, we would vote against directors if cross shareholdings or strategic holdings in their company exceeded
20% of net assets.
In March 2023, we told the president that if a suitable plan to reduce the dominant holding was presented it
would be taken into consideration when casting our votes. Unfortunately, the proposal unveiled in May wasdisappointing, with a planned reduction in the stake of only just over 5% of book value by March 2026.
While we generally favoured the president’s positive impact on the company, we made the difficult decision tovote against both him and the chairman at the AGM. We believed that a more aggressive approach to reducing
the dominant shareholding was necessary in order to improve capital efficiency and would be in the bestinterests of shareholders.
Outcome: At the AGM, both the chairman and the president were reappointed but with low approval ratingsof 66% and 65% respectively. At the briefing in November 2023 for the second-quarter results, the president
announced that the company would be reviewing its policy for the large shareholding. The president ascribedthe decision to the lower-than-expected shareholder approval ratings received by the two senior directors at
the AGM, which we consider a positive outcome. Nonetheless, we will continue to follow up and engage as partof our continuing efforts to monitor the company.

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Case Study:
Raising sustainability standards at a major palm oil producer (equity)
First Resources* is one of the leading palm oil producers in Indonesia. Its core businesses include palm oil
plantations, mills and refining.
Issue: First Resources is no stranger to contention, having gained bad publicity for its approach to biodiversity anddeforestation. In the light of this, part of our enhanced due diligence process was to engage with First Resources inorder to hear its side of the story and how it is seeking to improve in both areas.
Environmental Pillar (50%)
NatureCapitalPollution &WasteManagement

GHG Emissions
from Operations

ClimateChangeSocial Pillar (30%)

Governance Pillar (20%)

Environmental
Opportunities

Human
CapitalProduct
Liability

SocialOpportunities

Corporate
Governance

Water

Toxic Emissions& WasteClean Tech

LabourManagement

Product Safety &Quality

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

Beneficial Ownership Assessment(Individual, SOE or Capital Market)

GHG Emissions
from Products /Customers

Land &
Biodiversity

Packaging
Material & Waste

Green Building

LabourDevelopment

Privacy & Data
Security

Physical Risk

Resource
Management

Electronic Waste

Renewables

Health & Safety

Responsible
Investment

Supply Chain
Management

Financial System
Instability

Financing
Environmental
ImpactPrimary Risks: Issues which can put a company out of business.
Secondary Risks: Issues which can have a material impact on shareholder returns.
Opportunities: Issues which can lead to a material enhancement
in shareholder returns.
Pre-Defined General Secondary Risks: Climate Change and ESG-GovernanceCorporate
Behaviour

Minority Interest
Alignment

Business Ethics& Fraud

Opportunities
in Health &Wellbeing

Principal-Agency
Alignment

Anti-Competitive
Practices

Community
Development

Board

Corruption &Instability

Pay

Past Transactions

Accounting
Practices

Transparency &Disclosure

Company

Benchmark

Carbon/Market Cap (Ton/m USD)

283.0

160.0

Carbon/Total Sales (Ton/m USD)

377.3

241.9

Impact on per mil Investment (USD)-4,566.5

Carbon Footprint

Governance
Opportunities
Ownership &Management
ChangeActivity: Our Asia Equity team met First Resources in March 2023 to discuss, amongst other things, a recent
sustainability/ESG report from MSCI. The meeting reaffirmed our understanding of the company’s sustainability
policies and processes, particularly concerning biodiversity. We discussed this and other matters which had been
resolved in 2020 but whose resolution had not been recorded by MSCI, although it continues to be the subject ofconversations with the company. We also learned that the company would shortly be publishing its sustainability
report for 2022, focusing on climate change strategy and progress towards full certification by the Roundtable on
Sustainable Palm Oil (“RSPO”) lobby group.
From our point of view, First Resources’ own operations are on track in terms of its sustainability commitments
and it has also been responsive in addressing past controversies. We noted that 34% of its operations received
RSPO certification in 2022, more than double the 15% achieved in 2020. While this is still a long way short of the
77% coverage achieved by rivals Wilmar International*, we think First Resources will be able to meet Wilmar’s
standard in the next year. We also believe that the company’s MSCI sustainability score should improve over the
next two years. Overall, although far from perfect, we do not believe First Resources is worse than average and, in
terms of its own processes, it is on track to further its sustainability performance.
We further engaged with the company in December. We learned that they are looking to expand into
downstream businesses such as using waste cooking oil to produce fuel. This would be a substantial investment
of USD 300 million over the period 2025-2026. Aside from the strong investment case, the investment would help
reduce the palm oil and cooking oil waste that the company generates, amounting to around 40,000 tonnes a
year, while improving the company’s sustainability credentials. A decision will be made by the end of 2024.
Outcome: We will continue to monitor and engage with the company on its progress towards greater
biodiversity and more sustainable land use, as well as the project to develop biofuels.

* Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, nor constitute a
recommendation to buy or sell.

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Case Study:
Loss of conviction after strong board and company engagement (equity)
This company, formerly held in our New Zealand Equity strategy, develops and sells specialist software andequipment and had strong growth aspirations in the North American market.
Issue: In February and April 2022, first the company’s chief finance officer and then its chief executive resigned.
These departures came soon after an equity capital issue in which we had participated the previous year toacquire a firm that offered, according to the investee company, complementary technology and synergy gains
in the North American market. However, the resignations were a clear sign to us that the integration was notprogressing as smoothly as expected.
Our concerns deepened when full-year results for 2022 revealed a 16% drop in earnings, continued cashburn, increased cost inflation and struggles in the North American market. These factors, together with theresignations and the lack of progress with the North American growth strategy, raised enough concerns for theNZ equity team to engage with the company.
Activity: The board had communicated to us that the process for replacing the CEO was well advanced, and apreferred candidate had been identified. When the company then decided to appoint an internal candidate, we
felt that our faith in the communications from the company about the CEO recruitment was misplaced. We arestill not confident as to the reason why the preferred external candidate was not appointed.
Our engagement with the board culminated in a letter expressing our concern, but ultimately we were notsatisfied with the response.
Outcome: Our engagement resulted in a loss of confidence in the company and its board, notably in relation to
the North American growth strategy, the possible need for further capital and uncertainty over the level and thetiming of financial outcomes for the company. As a result, in June 2023 we sold our holding.

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Principle

8Signatories monitor and hold to account service providers.

Activity
A number of outside service providers
help us in the stewardship of theassets we manage. These include
MSCI, Bloomberg, ISS, Good Bankers
and IR Japan for ESG information
and analysis. We also have regularmeetings with external ESG analysts
to improve our understanding of how
they engage with companies and toenhance the quality of the research
we receive. The quality and depth ofreports and insights are considered, as
well as the effectiveness of the vendor
in providing us with the necessary
insights to fulfil our stewardshipobligations on behalf of our clients.
Although there is value in the data
provided by our third-party providers,
we mostly treat it as supplemental
to our own analyses, particularly forour active strategies, and believe any
enhancement depends on how the
information is incorporated into theinvestment process. A large portion of
our AUM are in Japanese equities andother asset classes where coverage by
third-party providers is still evolving.
We find that there are data gaps anddelays while, at times, we disagreewith the analyses or ratings evenwhen they are available. We therefore
do not rely exclusively on these
services. Additionally, we conduct all
engagement with investee companies
ourselves and the decisions on how
we vote proxies are ultimately madeinternally.
When engaging with any external
service provider, we undertakean initial due diligence analysis,
after which the provider is subject
to ongoing monitoring and due

diligence, following a risk-based
approach, with the level of scrutiny
depending on the type of vendor. Eachdepartment that owns the relationshipwith the applicable external service
provider undertakes an annual reviewof the cost, effectiveness and usageof the services received. Vendors arealso subject to anti-money- launderingand adverse media screening checks.
In our UK subsidiary, the template
now includes additional questions on
ESG and modern slavery. Monitoringmeans maintaining appropriate levelsof regular contact and may include
regular performance assessment.
The areas covered in the initial due
diligence are illustrated in the diagram
below.

How we monitor service providers

Internal control system
Information security system

Management stability, industry standing, corporate culture, organisational structure

Public accreditations, licences, certifications by private certification bodies
Quality, technical capabilities, environmental friendliness and track record in consigned
business or similar business and reputation thereof
Outsourcing fees and payment conditions
Emergency measures, Business Continuity Management (BCM), Business Continuity Plans (BCP)51

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Monitoring our main
ESG data vendor
The ESG data team focuses on
improving both the quality andavailability of ESG data being used byinvestment teams. Our primary focus
has been to ensure that our data is
accurate, timely and consistent acrossall investments covered by us.
As we rely on one large data provider,
MSCI, for a significant portion of ourdata, we engage with it as required
to improve the accuracy and usabilityof the data. These engagements
may be general queries about data
sets or they may concern specificdata quality issues. Although data
quality issues did continue to arisein 2023, there has been an overall
improvement in data quality and this,combined with strategies alreadyin place to allow us to by-pass data
points that our ESG data team felt
were inaccurate, has led to a marked
decrease in the number of individualenquiries to the data vendor.

Overriding MSCI to improve reported
emissions data
An MSCI update to the greenhouse gas emissions data reported for
a company held in one of our Japanese Equity portfolios increased
by approximately 300% in September 2023. This jump caused a 6-7%
rise in the fund’s Weighted Average Carbon Intensity, a standardised
measure of emissions. On investigation, we discovered that MSCI had
switched from using published data for the company’s emissions to an
estimated number. To resolve the issue, our ESG data team corrected thefigures from data published by the company and data from Bloomberg
and Factset. The team then overrode the estimated numbers with thisdata, which it considered to be more accurate. When MSCI corrected its
estimate in December 2023, our ESG data team removed the override.

The majority of queries raised are now in relation to ad-hoc methodology issues. For instance, we got in touch withthe data provider to ensure that it had become a signatory to the Code of Conduct for ESG Ratings and Data
Products launched last year by two industry bodies, the International Regulatory Strategy Group and the International
Capital Markets Association. The Code aims to foster a trusted, efficient and transparent market by introducing clear
standards for ESG ratings and data products providers and clarifying how such providers can interact with wider market
participants. On another occasion, members of our Global Sustainable Investment team participated in the MSCIESG Ratings Consultation Roundtable in Singapore, where we and other industry participants provided feedback on
proposed ratings methodology changes.

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Case Study:
Correcting faulty MSCI analysis at a Singapore
conglomerate (equity)
Sembcorp Industries* is a Singapore-based conglomerate withbusinesses in energy and urban development.
Issue: In July 2023, MSCI reported a rise to 45% in the proportionof Sembcorp Industries’ revenue coming from thermal coal power
generation. This was in spite of Sembcorp selling off its last two
thermal coal assets in India (“SEIL”) in Jan 2023 as part of its transition
strategy to zero carbon energy and writing down its Chongqing
Songzao coal plant in China.
Activity: The Asia Equity team contacted Sembcorp after the MSCI
report to clarify the revenue contribution from thermal coal power
generation, given its importance to the energy transition both forthe firm as a whole and our clients. The company told us that the
number reported by MSCI was wrong. It said that the percentage
revenue from thermal coal should be zero after writing down the
Chongqing Songzao assets, which now make no contribution toearnings, and the sale of SEIL in January 2023.
We then approached MSCI to clarify its methodology and how
it derived the figure of 45% revenue from thermal coal power
generation. MSCI said that, according to its “Treatment of
Discontinued Operations – Power” methodology, it still included SEIL
as a contributor to revenue from thermal coal power generation.
As Sembcorp did not break out revenue from thermal coal power
generation separately, MSCI’s methodology sought to estimate suchrevenue by comparing it with the installed coal-fired capacity in theannual report, which included both the Chongqing Songzao plants
and SEIL.
However, we pointed out that their approach was faulty as:1) Sembcorp had taken a full write-down on Chongqing Songzao in
2021 so it should have been clear that there would be no revenue
contribution in 2023;

Monitoring our proxyvoting service provider
An example of a service provider weuse extensively for our stewardship
activities is ISS, which we use to
carry out proxy voting on our behalf.
For the majority of resolutions, uponreceipt of voting recommendations
from ISS, the portfolio manager oranalyst responsible for the security
in question looks at the report andconducts further research where any
issues have been flagged.
ISS has benchmark policy guidelines
which are regularly updated. It ispart of our annual review process
to combine the review of theseguidelines with that of our own
proxy voting policy. We then liaise
with ISS if its guidelines do notmatch our expectations. Further,members of our Global Sustainable
Investment team responded to ISS’sannual Global Benchmark Policy
Survey, to provide constructive
feedback and the firm’s view on anumber of global environmental
and social topics, in light of evolving
regulations, guidelines, standards,
and frameworks, particularly
regarding climate change.
Some examples of how we use theadvice we receive from ISS can befound in the case studies below andthroughout this document (notably
under Principle 12).

2) MSCI had already included SEIL in its previous calculations
using the “Treatment of Discontinued Operations – Power”
methodology and therefore the contribution from SEIL had been
included twice.
After discussions and a review, MSCI agreed with our points andrevised Sembcorp’s percentage revenue from thermal coal power
generation to just under 17%, but only taking into consideration thesale of SEIL as per their discontinued operations methodology.
Outcome: We communicated the outcome to both an interested
client and Sembcorp. We will continue to engage our data providers
where we deem that further clarification is required to improve theoverall quality of data.

* Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, nor constitute a
recommendation to buy or sell.

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Case Study:

Case Study:

Trying to keep the lid on pay at
Macquarie Group* (equity)

We vote against advice and forexperience at an Indian drugs maker(equity)

This Australian group is the world’s largest investor
in infrastructure and is also involved in businesses
ranging from energy to telecoms.
Issue: Best practice for shareholder-friendly
remuneration formulas at large, global, financial
institutions should include pre-set and transparent
thresholds, target and maximum goals. In
Macquarie’s case, however, individual profit shareawards – which comprise the vast majority of
key executive management remuneration – arediscretionary. Moreover, the process for determining
profit shares lacks important investor-friendly
features and disclosures and continues to rely onvague financial and non-financial factors. As a result,it remains unclear how rigorous the individual
performance hurdles and associated outcomes are.
The Australian Corporations Act requires listedcompanies to include an audited remuneration
report in the annual report, and to put the
remuneration report to a shareholder vote at theAGM. In this instance, previously-identified concerns
about remuneration have continued into 2023. The
remuneration of the chief executive and, notably,
the Head of Commodities and Global Markets Group
increased significantly last year, despite a mixed
performance from the business, with one-year total
shareholder return going backwards.
Activity: In light of these factors, there was a
misalignment between pay and performance, whichmeant we did not feel it was appropriate to support
the remuneration report. The Global Equity team
therefore voted against, which was in line with the
ISS recommendation.
Outcome: Despite our vote and the ISS
recommendation, the vote carried with 80.2% voting
for the proposal.

This Indian company, Sun Pharmaceuticals*, is
one of the world’s biggest producers of genericpharmaceuticals.
Issue: The board’s proposal to appoint Sanjay
Asher as a non-executive director was opposedby ISS on the grounds that he already serves on
at least six company boards and would therefore
not have enough time to devote to his role at thecompany.
Activity: The Asia Equity team disagreed with
the ISS analysis on a number of grounds:
 Firstly, we believed there was “inherentbias” in the claim that he would not haveenough time. He is extremely well equipped
as senior partner at Crawford Bayley & Co.,
India’s oldest law firm, where he specialises
in corporate and commercial law, mergers& acquisitions, joint ventures, private equity
and capital markets. He is also a qualified
chartered accountant.
 His experience on other boards will bringoutside expertise in several areas which
would overcome any concerns about his
being overburdened with responsibilities.
 His appointment to the board can be seen
as a positive change since audit and tax
transparency have not been strong points of
Sun Pharmaceuticals in the past.
We concluded that, given his career credentials,
appointing Asher to the board did notcompromise us as a shareholder and wetherefore voted against the ISS recommendation.
Mr Asher was subsequently appointed to theboard with 80.3% of votes cast in favour of thisappointment.

* Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, nor constitute a
recommendation to buy or sell.

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Outcome
The expectations of regulators and ourclients in regard to the reporting of
our activities grow all the time, which
in turn raises our expectations of theservice providers we use to provide
the data that ensures we can meetthese requirements. Although wehave made progress in our ability tocollate and process ESG data, we arefar from content with the depth andquality of some of the information
we are receiving. In some instances,
we have found that the information
published is dated or inaccurate; inothers, coverage is so poor as to makereporting effectively meaningless and,in yet others, the methodologies andassumptions used to draw conclusions
are not clearly defined.

In line with our commitment totransparency, we continue to pointout these limitations in our external
communications. For example, ourlatest TCFD report, which heavily relieson third party data for climate scenario
analysis, details the limitations andchallenges we found applying thirdparty data.
Where data fails to meet our minimum
standards as evaluated by our ESG
data team (which is independent
from our investment teams), we feed
our concerns back to the relevant
service provider as part of our dayto-day operations. Unfortunately,
this does not always result in records
being updated. To cope with these

deficiencies, we have developed
internal processes to override data
received from the vendor. In the main,
though, we continue to rely on ourclose knowledge of the companies inwhich we invest to correct erroneous
data to ensure that our investment
theses and reports are as up to date as
possible.

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Principle

9Signatories engage with issuers to maintain or enhance the value of assets.

Activity
As an asset manager we recognisethat engagement and stewardshipare part and parcel of our fiduciary
duty. Active engagement with ourcompanies is built into our investment
processes and plays an integral role infulfilling our commitments as a goodsteward of the capital that our clients
have entrusted us with. Our strategy
as outlined here should be read in
conjunction with our Commitment to
Responsible Investing and the Nikko
AM Group Proxy Voting Policy.

While the general approach outlined
here applies to all discretionary
accounts, it will be adapted tocircumstances. For example, Japaneseculture approaches engagementfrom a different perspective toWestern societies, since public
engagement to influence change isviewed as discordant and can disrupt
relationships built up over many
years. Furthermore, our influenceis limited by the significant portionof our Japanese equity AUM held in
passive portfolios (as shown in the pie
charts under Principle 6) as we do nothave the same ability to divest theseassets. That said, our Japan Sustainable
Investment department is working
actively to influence positive change attarget companies on core ESG themes,
even where they are held only inpassive portfolios5. This is a multi-year
project.

We have also made further progressin Japan on our engagement activities
in 2023 beyond equities. The Japan
Sustainable Investment department
now works with investment teams
across all of our asset classes inJapan, which has translated into
closer collaboration with our Japan
Fixed Income and Japan Investment
Technology teams on stewardship
activities.
The map below gives the proportionof the firm’s total ESG engagements
undertaken across our different
regions in 20236. We compare this to
the relevant proportion of total AUM
in each client domicile. The charts that
follow provide a further breakdownof ESG engagement by theme andinvestment team respectively.

EMEA
North America

3% of Engagement
3% of AUM by Client Domicile

1% of Engagement
0.2% of AUM by Client Domicile

Japan
74% of Engagement
91% of AUM by Client Domicile

Asia ex-Japan
17% of Engagement
4% of AUM by Client Domicile

New Zealand
6% of Engagement
2% of AUM by Client Domicile

Totals may not sum due to rounding of data at source
5 Our passive portfolios are managed by the Passive Fund Management team, which is part of the Japan Investment Technology team, providing
passive management products for a wide range of asset classes.
6 The breadth of total number of engagements (as at 31 December 2023) is greater than the ESG engagements reflected here.

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Firmwide ESG Engagement by ThemeESG Engagement by Investment Team

Environmental 34.7%

Japan Equity 67%

Social 24.8%

Japan Fixed Income 7%

Governance 40.5%

Global Equity 2%
Global fixed Income 0%
US Equity 1%
New Zealand Equity 4%
New Zealand Fixed Income 2%
Asia ex-Japan Equity 12%
Asia ex-Japan Fixed Income 5%

Engagement objectives
We engage with our investee
companies on their strategy,
operations and financial decisions,as well as their performance andmanagement with respect tomaterial environmental, social andgovernance issues. The purpose of
our engagements is to help themattain and sustain high returns andcreate value, while becoming andremaining good corporate citizens.
In carrying out our purpose, we seek
to understand managements’ stanceand strategy on important issues, set
milestones where appropriate andmonitor subsequent performance.
The aim of this monitoring andguiding process is to shape corporate
behaviour and influence positivechange by encouraging policies suchas enhanced ESG disclosure and best
ESG practice.
Three overarching principles guide ourengagements:
 Materiality: our engagements
are driven by material factors,
especially ESG factors.
 Intentionality: we establish clear
objectives and expectations for our
engagements.
 Effectiveness: we engage ina constructive, positive andpragmatic manner.

Engagement methods
and execution
Our engagement methods vary, basedon the needs of the situation. They
include: one-to-one company dialogues,
including on-site visits, management calls and roadshows, written communications, collaborative engagements.
In some parts of Asia, one-to-one
engagements are often the mostconstructive and culturally appropriate
way to build trust, on the basis that
confidentiality can bring better results
than open confrontation. Mindful ofthese important regional nuancesand our commitment to constructive,
positive and pragmatic engagements,
we carefully select our engagement
methods, whilst being committed tosupporting collaborative engagements
where appropriate. For more on
collaboration, see Principle 10.

Regardless of the method ofengagement, we always seek to have a
dialogue with the key decision makers,
including founders, chairs, chief
executives, chief financial officers andexecutive directors, as well as others
whose duties include sustainability
and investor relations. If these moreconsensual approaches fail to achieve
our desired ends, or there are more
serious failings by a company, we may
escalate the matter. This could involve
collaboration with other investors.
These approaches are discussed in
more detail under Principles 10 and 11.
As we have described elsewhere in thisreport, ESG is fully integrated into ourinvestment process, with investment
teams engaging with companies on
relevant ESG issues both before andduring the period of investment (andsometimes afterwards: see our casestudy “Sustained investor pressure
continues to pay off at major Asian
property group”).
Our regional ESG specialists also
perform engagements under thebanner of collective action on aparticular theme, for example,
climate change in relation to our
responsibilities under the Net Zero
Asset Managers initiative and Climate
Action 100+. However, ultimately, it is
the analysts and portfolio managers
in our investment teams who areresponsible for assessing the ESG
risks and opportunities that inform
portfolio buy and sell decisions andengaging with the companies they
cover.

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Several key issues decide how weprioritise companies for engagement,
which can differ by region and asset
class. Some of the factors that may beconsidered for prioritisation are:
 the size of holding and/or our
influence, a poor ESG score or the scope for
improvement, the nature of the issue and/or theseverity of the breach, materiality, a voting event, our ESG thematic priorities,
 the client’s priorities,
 the company’s openness todialogue.
The results of our engagements
supplement our investment analysis,risk management frameworks
and, consequently, our investment
decisions. Our principal objective,
however, is to seek commitments fromcompany managements that they willaddress any material concerns raisedby our investment team and Global
Sustainable Investment team as aresult of our engagement.

Engagement byasset class
The type of engagement undertaken
depends in part on the asset class inquestion, as well as its geographicallocation. Below we outline theapproach adopted in some of the main
asset classes we manage.

Japan Equity
Our Japanese equity investment
teams have a deep understanding of
local markets and the intricacies ofJapanese corporate culture, whichhelps us develop relationships with thecompanies in which we invest. Sourcesof information extend beyond written
forms, such as financial statements,
sell-side research and local news flow,
with managers placing an emphasison direct contact with company
management, including site visits. Our
local presence in Tokyo, where we are
one of the largest asset managers inJapan and where the market generally
tends to be under-researched bynon-domestic peers, helps facilitate
dialogue with companies. Over theyears, we have been able to establish
strong local relationships, providing
us with unique insights, investment
opportunities that might haveotherwise been overlooked and theability to undertake unusually farreaching stewardship.
A key focus of the Japan Sustainable
Investment department is to work withportfolio managers and analysts in our
research teams to engage with large
and mid-sized firms specifically on ESG
issues. The priorities when deciding
which firms to engage with are basedon several stewardship considerations,
including, amongst other things, key
ESG themes (such as climate change,
DE&I and corporate governance),
corporate earnings, asset efficiency
and shareholder return.

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Our ESG priorities for Japanese companies
The Japan Sustainable Investment department has established ESG priorities for engagement with our Japaneseequity investments, which we believe will contribute to better investment returns in the medium- to long-term.
They are listed below, along with the background to each one:

Environment – Action for a decarbonised society
The shift toward a decarbonised society is creating growth opportunities for companies with environmentallyfriendly technologies. At the same time, decarbonisation and other such changes put companies at risk ofpotential cost rises, while their brand power may be damaged if they fail to take sufficient action. This is making
decarbonisation increasingly important as a driving force behind future corporate value. We use our engagement
to urge firms to address these changes, for example by allocating business resources to related fields andpreparing for the associated risks. Our analyses of companies’ actions in this area are pivotal to our assessmentsof their corporate value.

Social – Human capital and productivity
The way companies use human capital is clearly important for their medium- to long-term earnings and corporate
value, and it will become increasingly crucial as populations age further and birth rates continue to fall. Following
the Covid-19 pandemic, changes to work regimes and the need for flexible responses to similar environmental
changes have also driven improvements in corporate sustainability. Deepening our engagement with and analysis
of companies, focusing on personnel strategies and systems, as well as labour productivity, are other ways in which
we are helping to enhance corporate value.

Governance – Effective governanceThanks in part to the Corporate Governance Code, Japanese companies have made great strides in developing
their governance frameworks. We continue to urge companies to increase their corporate value even further
through sustained development and enhancement of their governance frameworks. Our engagement covers theappropriateness of their long-term vision and management strategies, their ability to put these plans into practice,and the effectiveness of their oversight and advisory functions.
In 2023, we have further expanded these three ESG themes by adding the following additional topics:
 Environment: Biodiversity
 Social: Diversity
 Social: Human rights
The revised list is published and maintained on our website as Nikko AM’s Key ESG Themes.

In 2022, the Japan Sustainable
Investment department established an
engagement platform for information
sharing to enable the wider Equity
Fund Management department tocarry out engagement in a systematicand effective manner and encourage
collaboration between fund managers
and sector analysts. At the end of 2022,
the department had identified 187
Japanese companies that they wish
to engage on material issues. During
the 2023 calendar year, meetings took

place with 94% of these companies,of which 25% took place with senior
management and 14.5% haveprogressed beyond the initial stages ofengagement.
Also during 2023 – and following client
feedback and extensive discussions
between subject matter experts
within the team – we introduced
mid- to long-term key performanceindicators for our ESG priority areas.
Combined with a systematic stage-by-stage monitoring process, this,
we believe, will enhance the way
we monitor and measure the effectsof our engagements. After eachengagement, a report is created to
track progress and is shared internally.
Feedback is also provided to active
investment portfolio managers. Some
illustrations of how we engage with
our Japanese portfolio companies
can be found in our case studies that
follow and throughout this document.

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Global Equity
When appropriate, our Global
Equity team engages with investee
companies to help us understandhow their opportunities and risks,
including ESG, are being managed.
These meetings can occur at any
point in the investment process– from initial research, through toportfolio inclusion and sometimes
even after the holding has beensold. These discussions provide us
with an opportunity to develop our
knowledge of each business andindustry, and to take a view on thequality of management teams andtheir strategies, especially on ESG
issues. We engage to promote better
ESG practices if we believe there isroom for standards to improve, forexample by encouraging enhanced
ESG disclosure and performancein line with best ESG practice. And
we believe that engagement is acontinuous process, as is illustrated
by our case study opposite.

Case Study:
Keeping clear of conflict minerals at an IT
company (equity)
Hexagon* is a global provider of design, measurement andvisualisation technologies held in our Global Equity portfolios.
Issue: The company had previously been highlighted by MSCI as
having below-average disclosures and procedures for auditing
suppliers which might be involved in sourcing raw materials fromcontroversial parts of the world. Following our engagement, wereported steady improvement at the company in last year’s response
and this is an update.
Activity: The Global Equities team started involving itself in thecompany in 2021 and 2022, when we discussed the problems
associated with sourcing minerals from countries where there
is fighting or human rights abuses, so-called “conflict minerals”.
Subsequently, MSCI raised its ESG rating for the company and we werepleased to see that the company was making progress with its audit ofsuppliers.
Our engagement continued into 2023 to ensure the company wasmaintaining its commitment to supplier audits. In April, the company
published its Sustainability Report, with an update. The company had
previously set a target of auditing 100% of suppliers in risk countries
by 2023 (75 in total). At the end of 2022, the number of risk suppliers
had reduced to 56 and 11 of those audits were completed. The reportconfirmed that the company stood by its goal of auditing all suppliers
by the end 2023. In August, we held a regular company call with
Hexagon’s CEO and investor relations team, with further updates
promised later in the year.
Outcome: At a presentation in December, Hexagon’s Head of
Sustainability gave an update on the company’s sustainability efforts.
During this, she reiterated the commitment of auditing 100% of
suppliers by the year end and confirmed they were “almost finishingon ticking that one off”. Subsequently, at Hexagon’s full year resultspresentation in January 2024, it was confirmed that the commitment
had been fulfilled.
As a result of all this effort, the company’s processes to ensure thatraw materials are sourced from areas free from conflict are now better
than is typical in its industry and MSCI scores it above the industry
average on controversial sourcing. We consider our engagement on
this particular issue is complete, although the company’s sustainability
efforts will continue to be monitored through the Future Quality
process used by our Global Equity team to evaluate investments.

* Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, nor constitute a
recommendation to buy or sell.

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Global Fixed Income
In our Global Fixed Income portfolios,
most of our AUM are in sovereignor other investment grade bonds
and money market instruments. We
also hold small shares of issuanceby major banks and some leading
corporates. We maintain an active
dialogue with issuers and see this asa means of building our insight andmarket intelligence.
With respect to corporate credit,
our Global Fixed Income portfolio
managers and research analysts
engage with the companies in which
we invest. These discussions cover
the firms’ corporate earnings andfinancial strategies, as well as othernon-financial information, including
their management policies, businessstrategies and material ESG matters,
as part of an assessment of corporate
value that ultimately informs ourinvestment decisions. Where wehave identified company-specific or
systemic risks, we may raise theseconcerns through meetings, site visits,
conference calls or correspondence inorder to gain assurance that risks arebeing managed.
We prioritise engagements based on
our holding and the bond issue inquestion. The level of engagement
depends on the asset class and thegeographical region. Given our
relatively small exposure to corporate
bonds and emerging markets, weare realistic about the practicallimits to our influence and we avoid
situations where we might end up in
corporate actions which would tie-up
disproportionate resources and time.
However in our Green Bond Fund(which was relaunched in Octoberof 2023 and now has the ability toinvest in corporate issues as well assovereign, supranational and agency
bonds, or SSAs), engagement is a key
feature. We use it to resolve issues
that may have arisen as part of thedue diligence process, particularly inregards to any potential harm that
may arise as a result of the investment,
both in relation to the issuer or the useof the proceeds. An example of one
such engagement is the case study
opposite.

Case Study:
Keeping it bright green at Iberdrola* (fixed income)This is a multinational electric utility company based in Spain. It is
one of the largest electricity companies in the world and one of theworld’s largest producers of wind power.
Issue: While performing due diligence on a bond issued by thecompany for possible inclusion in our Global Green Bond fund, wecame across a historical controversy involving the company. This
related to the environmental and social impact of hydro-electric
plants it built in Brazil, notably the Teles Pires dam. The company
had been criticised for its lack of consultation with indigenous
populations during the dam’s construction.
The Teles Pires Dam is no longer held by Iberdrola and during its
ownership it had reportedly undertaken mitigation measures tocompensate for the damage done to the surrounding environment
and indigenous people. Nonetheless, we wished to ensure thatlessons had been learned, that suitable processes were being
followed to ensure no breaches of the principles of the UN Global
Compact, and that our investment would not be funding projects
that did significant harm to other environmental or social objectives.7
We therefore decided that the investment would require enhanced
due diligence and contacted the company in December of 2023 toarrange a call to discuss the situation with members of their investor
relations team in early January 2024.
Activity: The company was very transparent with us about thecontroversies it had faced and also the work it has done to address
the social and environmental aspects of its Brazilian dam projects.
The company has put in place a systematic stakeholder engagement
project and has conducted its own major in-depth assessments
rather than relying on the state to reduce similar risks in the future. It
also confirmed that remedial measures in relation to the dam werecarried over to the new owner when the project was acquired byanother company. Furthermore, we were told that Iberdrola is notplanning any major new hydro-electric projects in South America
and it provided us with a detailed and timely report on the social andenvironmental impacts and mitigation activities related to those of
dam projects in Brazil that remain active.
Outcome: Following our dialogue with the company, we are
comfortable with the measures it has taken in terms of reducing theenvironmental and social risks associated with its hydro projects.
We have therefore downgraded the status of our investment from
“Enhanced Due Diligence Required” to “Monitor”. No further action isrequired at this stage.

7 The principle of ‘‘do no significant harm” is a key element in the European Union’s sustainablefinance legislation.
* Reference to individual stocks is for illustration purpose only and does not guarantee theircontinued inclusion in any portfolio, nor constitute a recommendation to buy or sell.

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Asia ex-Japan Equity
A core part of our Asia ex-Japanequity team’s fundamental analysis
is in understanding and scoring
companies on material ESG risk andreturn factors. We have integrated
ESG analysis into our wholeinvestment process, with individual
analysts responsible for their own
proprietary ESG scoring. Our belief
is that strong and/or improving
ESG fundamentals are essential
for achieving sustainable higher
returns.
The highly complex, fast-moving
Asian markets demand an active
approach. While we start with themateriality assessment and will lookat independent third-party ESG
rating providers (e.g., MSCI) as a data
source for post analysis verification,lack of consistent and verifiable datais generally an issue in most of Asia,
hence we prioritise active company
engagement and qualitative
assessments by our investment
analysts.
We believe our investment analysts
are best placed to assess what
is most material to investment
returns in terms of risks andopportunities for their sectors,
and it is they who conduct ESG
research on the companies.
The team uses engagementwith the management teams ofcompanies to carry out thoroughESG analysis, as well as to express
the team’s opinion in its capacity
as investment manager acting on
behalf of clients. Governance andlabour rights are two problems thathave been highlighted at several
Asian companies. The case study
that follows shows how we areattempting to tackle these issues
with our engagements.

Case Study:
Improving clarity at a Korean pharmaceuticalgroup (equity)
This is a South Korean company that engages in the development,
manufacture and distribution of biopharmaceuticals.
Issue: The Asia Equity team have noted a number of poor governancepractices at the company over several years:
 there have been a large number of transactions with a relatedcompany controlled by the chairman and founder;
 the accounts are characterised by aggressive accounting for
inventories, questionable revenue recognition, and problematic
capitalisation of research and development expenditure; generally, the company is poor at disclosing information.
We engaged with the company to better understand their governancepractices, provide feedback and push for improvements.
Activity: Our initial engagements in 2022 focused on the longrunning investigation by the Financial Supervisory Service, South
Korea’s financial regulator, and the proposed merger of three relatedcompanies. This followed disquiet over the high levels of relatedparty transactions with a sister company and alleged accounting
irregularities, including the overestimation of development costs andthe failure to reflect inventory valuation losses.
As a shareholder, we supported the merger as it would remove relatedparty transactions and improve transparency. We provided feedback
and recommendations to the company as part of the engagement
process. We noted a big improvement in its communications withinvestors about immediate plans and future strategy. We hope this will
make investors less hesitant to take a longer-term view of the company.
We also impressed on the company the importance of ESG to us andother investors and clients.
Korean companies do not generally score well on ESG. We showed thecompany MSCI’s ESG reports, which it seemed unaware of. There were
two areas where it had been marked down:
 Governance. The high level of related-party transactions wasan immediate red flag. The merger should solve the problem,
improving transparency and governance.
 Human capital. The public perception of the company is nothigh in terms of how it treats its workforce and builds and retains
talent. It needs to do more in explaining its policies and approach
towards nurturing and advancing its staff, including management
development, training, grievance reporting, and engagement
surveys.
Outcome: The long-awaited merger finally took place at the turn of
the year. We believe that will go a long way in clearing up some of
the accounting and transparency issues. However, we will continue toengage with the company on its governance practices and continue toprovide feedback on the steps it can take to improve.

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Asia ex-Japan Fixed Income

Elevating nature at a major Korean steel maker (fixedincome and equity)

Carbonemissions,
opportunities
in Clean Tech

Health &Safety,Product
Safety andQuality

Governance:
HIGH

POSCO Holdings* is a South Korean holding company that owns
several businesses and listed companies involved in steel, tradingand electric vehicle battery materials, amongst other activities. It is
held in both fixed income portfolios. The image below illustrated
the ESG themes considered by the investment team to be material
to the company analysis.

Social:MODERATE

When meeting companies, theteam engages the management
to understand its ESG positionand likely changes in the future.
Most of the team’s engagement iscentred on understanding what the
management’s view is of ESG, aswell as encouraging the companies
to consider ESG best practice.
For those lagging in terms of ESG(for example, on greenhouse gas
emissions targets), the team willattempt to engage on a deeper
level. Where possible, if a particularcompany is held (or is a prospective
investment) in both equity and fixedincome portfolios, representatives
from both teams (as well as the ESG
Specialist) will jointly engage inorder to increase the impact of theengagement. This is well illustrated
by our case study “Elevating nature
at a major Korean steel maker”. As
active stewards of our clients’ capital,
we also occasionally throw the net
beyond our portfolios to engage
with companies whose securities
we might buy in the future. A casein point is our engagement over
several years with the company
highlighted in the case study:“Sustained investor pressure
continues to pay off at major Asian
property group”.

Case Study:

Environment:
HIGH

As part of the ESG-integrated
process, our credit analysts
undertake active engagements withour companies on the downside andupside risks of ESG factors and how
they may affect their operations orhelp to drive sustainable returns
over time.

Ownership,
Corruption& Instability,
Board

Issue: The group’s listed subsidiary POSCO International has
been criticized for contributing to deforestation in New Guinea.
It has since announced a policy of “no deforestation, no peatland,no exploitation”, but has not committed itself to the disclosures
recommended by the Taskforce on Nature-related Financial
Disclosures (“TNFD”), a corporate initiative to promote morenature-friendly business. This despite the rest of the POSCO groupjoining TNFD and the fact that POSCO International’s business has
significant importance to biodiversity.
The POSCO group has laid out a carbon reduction roadmap to reachnet zero in 2050. Nonetheless, the group’s short-term targets failto match the ambitions of the SBTi, a UN-backed group pushingcompanies to adopt a clearly-defined path towards reducing
emissions in line with the Paris Agreement goals. We wanted toengage with POSCO to better understand its carbon-reduction
strategy and to push it to sign up to international sustainability
targets.
Activity: Representatives of our Asia Fixed Income team met
POSCO in September 2023 and discussed several key ESG issues. We
highlighted our concerns about POSCO International’s biodiversity
management practices and asked if it would be signing up to TNFD.
We also touched on POSCO’s overall sustainability practices and its
intentions in respect of SBTi, the opportunities in green steel, and its
efforts to mitigate physical risks and adapt to climate change.
During the meeting, the POSCO representatives indicated thatthey understood the incongruity of POSCO International not beinga signatory to TNFD while the group was. The group itself has abiodiversity policy and during our meeting we learned that POSCOInternational would be reporting over the course of 2023 and 2024
on how its operations are adhering to best practice on safeguarding
biodiversity. The subsidiary has taken on an expert to look at
biodiversity and will start reporting on this on an annual basis.

* Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, nor constitute a
recommendation to buy or sell.

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We noted that only one of POSCO’s subsidiaries
was aligned with the SBTi and asked if POSCO
was looking to extend that across the group.
The company representatives blamed its limited
adherence to the SBTi on a lack of government
subsidies to reduce the cost of decarbonisation.
We followed up this meeting with queries
about how the group was aiming to mitigate
physical risk in the wake of Typhoon Hinnamnor
in September that resulted in $330 million ofdamage. The company said it was assessing
coastal flooding risk at nine of its existing steel
manufacturing sites, while designs for new sites
will incorporate plans to elevate factories above
the projected sea-level for 2100.
We noted that, as part of its plans to reducecarbon intensity, POSCO is looking at hydrogen
reduction steelmaking, which uses 100%hydrogen to make “direct reduced iron” in aprocess that produces no carbon emissions. The
group is also shifting fuel supplies from coal
to natural gas, which will generate 30% lesscarbon emissions compared with current steel
production.
Outcome: We will continue to monitor thegroup to review its progress in signing up for
TNFD disclosures or findings other ways toreduce its biodiversity risks. We will also continue
to monitor POSCO’s* carbon reduction strategy.
It is early days, but we believe that having
both equity and fixed income representatives
involved in engagement makes the company
more responsive to our requests.

* Reference to individual stocks is for illustration purpose only and does not guarantee theircontinued inclusion in any portfolio, nor constitute a recommendation to buy or sell.

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Case Study:
Sustained investor pressure continues to pay off at major Asian property group (fixedincome)This is a large privately-owned fund manager
specialising in real estate, with operations spanning
China, Japan and Europe. Although we sold the
publicly-listed bonds in 2022, we continue to monitor
the company.
Issue: As we discussed in our 2022 response to the
Stewardship Code, the company has traditionally
had minimal green building targets, with only asmall portion of its portfolio classified as sustainable.
Given its private status, the company is subject toa significantly lower standard of governance thanpublicly-listed rivals, with fewer restrictions on relatedparty transactions and controls over dividend policy. It
also has minimal reporting requirements.
Activity: Although we are no longer bondholders,
we are keen to see the company improve its green
credentials to allow us to invest in the future. We
therefore wanted to engage with management to see
if it would increase green building representation inits portfolio. We also wanted it to improve disclosuresand transparency, especially regarding significant
transactions and related-party transactions.
In May 2021, during a green bond group investor
call, we pointed out that the existing green building
assets was a low proportion of its overall portfolio.
When asked by us, the company said it had no specifictargets for the portfolio’s sustainability. We also argued
that a proposal to introduce limits on equity dividends
to protect bondholders was ineffective given that, as a
private company, it could easily pass cash around thegroup in the form of inter-company loans.

In May and August 2022, we engaged on multiple
occasions to push for more disclosure, particularly
in relation to significant inter-company loans andrelated-party transactions over the previous year.
Management, however, was only willing to disclose
minimal details, stating that more would be revealed
at a later date. We felt that this was not acceptable,
given the size, opaqueness and impact of thesetransactions, and we sold out of the bonds shortly
afterwards.
Despite no longer being an investor, we continued
to engage with the company in 2023 via emails andgroup calls. This included giving support for the new
related-party transactions committee that was set
up in October 2022 in response to pressure frominvestors, although we continued to push for stronger
controls on related-party transactions.
Outcome: We believe that our sustained pressure
has led to steady progress at the company. In 2021,
following our criticisms, the company modified
its bond structure terms to ensure inter-company
loans were also covered by the limits on dividends.
The following year, the company announced its firstenvironmental target, namely that all new property
developments should meet the requirements of
the Global Real Estate Sustainability Benchmark,an internationally-recognised standard for ESG
performance in property. Then in 2023, following theestablishment of the new related-party transactionscommittee, we noted that the company had
significantly reduced related-party transactions.
We will continue to monitor the company for further
progress on disclosures and related-party transactions
protections to determine whether we want to invest
again in the future.

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Outcome
The engagement process is amarathon, not a sprint. And, as
discussed earlier, we tend to be asmaller institutional investor outside
Japan, with correspondingly lessinfluence over companies. However,we think that the last year has
shown marked progress in our
engagement with the management ofcompanies, both within and beyond
our portfolios. This is well illustrated
by the case studies throughout thisyear’s report. Several have shownthat our persistence and willingness
to take a stand have paid off, withmanagements and boards that had
been reluctant to adopt sustainable
practices or good governancechanging their ways followingintervention by investors. We arealso seeing good results where ourequity and fixed income teams cancollaborate to effect change for the
better.

We realise that we have been helped
in our engagements by being one
amongst a number of investors who
have brought pressure to bear oncompanies. Nonetheless, we think weare providing very effective support
and, on occasion, leading the way
in getting the corporate world to do
the right thing. Actions speak louder
than words, and we believe ourengagement activity in 2023 is someof the best proof we can show of ourcommitment to stewardship.

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Principle

10Signatories, where necessary, participate in collaborative engagement to influence issuers.

Activity
In our view there are some instanceswhere one-to-one company
engagements deliver insufficient
progress, collaborative initiatives
with like-minded investors canincrease shareholders’ influence oncompanies’ corporate behaviourand ESG performance. Whilst weare seeing increasing investor
collaboration efforts in many regions,this engagement method is stillin relatively uncharted territory
in some parts of the world. For
example, in parts of Asia, one-toone engagements can be viewed
as more constructive and culturally
appropriate to build trust. In Japan(which accounts for the majority of
our equity assets under management)
we are mindful that collaborative
engagements can be more difficult
due to local regulations concerning
joint and large shareholdings, whereby
severe sanctions may be imposed
if reporting requirements have notbeen met. We therefore participate
in such engagements only after
taking into careful consideration any
potential ramifications. However, as
stated under Principle 4, we havebeen engaging under the Japan
Stewardship Forum and shared our
feedback on the current state ofregulation with regards to stewardshipin Japan, its limitations and how
alternative approaches would help toadvance stewardship activities in theJapanese market. With anticipatedchanges ahead, we hope that market
participants, including ourselves, will
be able to engage with companies
more freely.
Our involvement in collaborative
engagements, often working withother stakeholders such as industry
partners and academics, allows
us to deepen our understandingof particular ESG topics, issuers’
ESG performance and industry
best practice. To date, most of ourengagements have been restricted toa single asset class as there has been
limited cross-over of equity and fixedincome holdings and our engagements
are typically conducted by asset-specificportfolio managers and analysts.
However, in some regions we have been
starting to combine engagements toincrease our leverage at companies
where we have equity and fixedincome holdings in the same company.
Examples included engagements
we led during the year with a coupleof companies as part of an initiative
launched by CDP that aims to improvecompanies’ climate-related disclosures.
In both cases, both our equity and
fixed income teams were involved. (Formore on this, see our case study underPrinciple 4, “Helping to lift the veil on
corporate emissions”). For an example
where our equity and fixed income
teams internally collaborated, see thecase study “Elevating nature at a major
Korean steel maker” in Principle 9, as
well as “Joining forces to force change
at a Japanese automation group” underPrinciple 11.
Our regional investment offices
select the most suitable and effective
methods for their collaborative
engagement. Generally speaking,however, we use the following criteria
to determine whether to join common
cause with other shareholders: whether the initiative is consistent
with the particular issues wewant raised and our responsible
investment policy;
 whether the initiative is likely tobe successful, taking account of,for instance, past results and otherparticipants in the initiative; whether the cost, time and effort
involved is commensurate with theanticipated effect; and whether the organisation
sponsoring the initiative is
one with which we want to be
associated.

Outcome
We have made significant progressand dialled up our active participationin various collaborative engagements
in 2023. We continued ourcollaborative engagements underindustry initiatives such as CA100+
and the AIGCC, became an investor
participant in NA100 and publicly
supported an initiative led by the
Dutch Association of Investors for
Sustainable Development (“VBDO”),
all of which are illustrated in the casestudies below. In addition, under thebanner of CA100+, we took the active
lead role in a long-term engagementwith a Japanese machinery
manufacturer, with multiple company
engagements having taken place in
2023. As this engagement is scheduled
to continue in multiple phases until
2030, we look forward to reporting on
its progress in greater detail in futurereports. Beyond these examples, we
continue to be an active member ofa number of industry groups pushingfor better stewardship, notably on
climate change, whose purpose andorigins were outlined in last year’s
response.

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Case Study:
Paving the way to lower emissions at India’s biggest cement company (equity and
fixed income)Our 2022 response to the Stewardship Codehighlighted our collaborative engagement with
UltraTech Cement* to illustrate our support for
CA100+, an investor-led initiative to ensure that theworld’s largest corporate greenhouse gas emitterstake necessary action on climate change. Last year saw
further positive developments in this engagement.
Issue: UltraTech Cement is one of the 170 companies
that is being targeted by CA100+. The Indiancompany is one of the world’s largest cement
producers outside China, with business operations
across Asia. It is also one of the world’s biggest
emitters of greenhouse gases and is operating in asector – cement – where emissions are hard to abate.
The company has been proactive in addressing
the transition to zero carbon. For instance, it is afounding member of the Global Cement and Concrete
Association (“GCCA”), a signatory to the GCCA Climate
Ambition 2050 and is committed to the Net Zero
Concrete Roadmap announced by GCCA. It has also
had its near-term targets verified as in line with global
warming of well below 2°C by 2032 by SBTi. The
company also has commitments to EP100 and RE100,
two lobby groups promoting the move to zero carbon.
Activity: UltraTech Cement has been part of CA100+’s
focus list since 2020 and we started participating in
UltraTech’s engagement group in 2022 as a supporting
investor. Since our last response to the Stewardship
Code in 2022, we had another collaborative
engagement call with UltraTech in November 2023.
The call centred on the company’s decarbonisation
efforts in 2023. Analysts from both our Asia Equity and
our Asia Fixed Income team have been participating in
the collaborative engagement.
The investor group questioned UltraTech why its 2050
net zero carbon target is not validated by the SBTi.
The company’s response was that its target is basedon a two-degree pathway whereas SBTi only validates
pathways that are aligned with a cut of 1.5 degrees.
UltraTech said it would be looking at aligning with the
SBTi but was conscious that it needed to balance themore demanding emissions target against the cement
requirements of customers. It is looking at three ways
to reduce emissions: investing in renewable energy; improving resource efficiency;
 substituting traditional fuel with biomass to
reduce emissions.
As part of the GCCA, the company has embarked
on multiple pilot projects to determine what
technologies would be suitable to support its
decarbonisation goals.
The investor group wanted to find out what were thenext steps in UltraTech’s plans to scale up its use ofgreener power sources to meet its target of raising
the proportion of renewables from 19% in the 2023
financial year to 100% of electricity requirements by
2050. To reduce its reliance on thermal coal, UltraTech
is developing a number of solar energy farms, hassigned renewable energy power purchase agreements
and is looking at waste heat recovery systems.
The company said that, at the time of our meeting,its power consumption from renewables was closer
to 30%. By 2026, the aim is to raise that to 50-60%,
using both renewables and heat recovery. However,the company noted that wind is not a readily available
source of power generation in India, although it has
tried to acquire some wind power in coastal areas.
UltraTech’s decarbonisation roadmap extends beyond
renewables in part because various regions of India
face implementation problems caused by the limited
availability of renewable power. The company’s
decarbonisation strategy therefore covers four strands:
 improving operational efficiency, notably in clinker
processes;
 diversifying the business; reducing dependency on thermal fuel, whichamounts to 30% of company emissions; moving towards zero carbon.
Outcome: Our call was well received by the company,
which asked for our feedback on its progress andareas where we think it can improve. As well as our
input, the company has been looking at what global
peers are doing in terms of decarbonisation. We
will continue to engage UltraTech and review thedevelopment of its decarbonisation strategy.

* Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, nor constitute a
recommendation to buy or sell.

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Case Study:
Powering change at Indonesia’s dominant electricity supplier (fixed income)In 2022, Nikko AM Group joined the Asian Utilities
Engagement Programme (“AUEP”) of the AIGCC, an
industry body trying to raise awareness among investors
about global warming. An example of our collaboration
with the AIGCC under this engagement programme
concerned Perusahaan Listrik Negara (“PLN”)*, whosebonds we own in our Asia Fixed Income portfolios.
The state-owned company is the dominant power
generation, transmission and distribution provider inIndonesia, accounting for close to 70% of electricity
power production. PLN is also the sole buyer forIndonesia’s independent power producers.
Issue: With a total installed capacity of around 45.9GW,
close to 90% of PLN’s production is powered by thermal
sources, exposing PLN to high risk in the transition
to zero carbon. Not surprisingly, the company scores
poorly among Asia-Pacific utilities for both absolute andrelative carbon emissions. In addition, PLN’s governancecontinues 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 engaging with the board and senior
management to secure several commitments which
we outlined in detail in our 2022 Stewardship Coderesponse. Broadly these cover greenhouse gas emissions,
corporate disclosure, physical risks, engaging with policy
makers and corporate governance.
Activity: The early phase-out of coal in its power
generation capacity has been a heavily discussed topic
with PLN during our engagements. It requires support
on an international scale, such as that provided by
the Asian Development Bank’s public-private Energy
Transition Mechanism (“ETM”) framework.
Since our participation in AIGCC’s AUEP engagements,
which we reported in the 2022 response, we have had
two further collaborative meetings with PLN in 2023:
In May we received an update on the progress of PLN’stransition planning for zero carbon which allowed us
to explore whether it was ambitious enough and what
limitations it faces. We also learned that the company
was working with the Indonesian Ministry of Energy
and Mineral Resources to finalise the early retirementof several of its thermal coal-fired power plants. We
also discussed the potential financing structures thatmight be available for PLN to help underwrite the early
shutdown process.
In June we had a roundtable discussion with thecompany on Indonesia’s transition to net zero which

also involved other AUEP investors and representatives
from Indonesian government ministries, including the
Ministry of Finance. During the meeting, Indonesia’s
net zero transition plan was explained, with discussions
covering PLN’s involvement as a state-owned utility, thefinancing required for early phase out of PLN’s thermal
coal plants and investor expectations. Investors provided
feedback on what they are looking for in transition
planning and provided several ideas about potential
financing structures for PLN to finance the thermal coalphase-out.
Currently, Indonesia meets more than 80% of its energy
needs with fossil fuels, according to the IEA. Its aim toachieve net zero carbon emissions by 2060 is therefore
an ambitious goal. The government is looking to boost
the use of renewable energy to 65% of its primary energy
mix by 2030 and to 85% by 2060, with the remaining
15% covered by nuclear power.
PLN will clearly play a critical role in achieving this target
and hence our active engagement with management
to accelerate progress. Its response so far has generally
been positive, although it has been honest about thechallenges it faces in transition planning, particularly
given the mandate to ensure Indonesia’s energy security.
Outcome: PLN has made strides in its efforts todecarbonise. Since the start of our collaborative
engagements in 2022, the company has publicly
announced the cancellation of 13.3 Gigawatts (“GW”) ofplanned coal-fired power plant and terminated a powerpurchase agreement of 1.3 GW of coal-fired production.
The company has also agreed to halt new coal-fired
developments.
The latest evidence of the company’s commitment camein the recent announcement of Indonesia’s first early
shut-down of a coal-fired power plant. A conditional
agreement signed at December’s COP28 climate
conference between PLN, the independent owner of theplant, the Asian Development Bank and the Indonesia
Investment Authority will end the power station’s
obligation to provide electricity in December 2035
instead of the original date of July 2042.
The ETM framework agreement for the early shut-down
is still subject to due diligence, plus a number of reviews
and studies. Nonetheless, taken together, we view these
efforts as signifying PLN’s commitment to clean energy
and exemplifying the collaborative action it is taking toaccelerate energy transition to zero carbon in Indonesia.
We remain committed to our engagement efforts withfellow investors to monitor and support these efforts.

* Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, nor constitute a
recommendation to buy or sell.

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Case Study:
Flexing our muscles with Nestlé* and Coca-Cola* to address plastic pollution (equity)
Issue: Food and drinks giants Nestlé and Coca-Cola
have both been accused of being amongst the largest
plastic polluters in the world by the Ellen MacArthur
foundation, a pressure group promoting the “circular
economy”. This is in spite of both companies being
strategic partners of the foundation and signatoriesof the Business Coalition for a Global Plastics Treaty, acoalition seeking a UN treaty on plastics. Both Nestléand Coca-Cola have developed industry-leading
plastic pollution policies but still have a long way to go
to address the problem.
Activity: The Global Equity team wanted to follow up
on particular issues affecting each company: Coca-Cola: In May 2023, a report from Oceana, alobby group dedicated to protecting the oceans,pointed out that Coca-Cola was not going to meet
its target of having 25% of its products sold in
reusable packaging by 2030. Indeed, the share had
actually fallen from 16% to 14% in 2022.
 Nestlé: MSCI moved its rating on plastic packaging
pollution at the company from “moderate” to“severe” in early 2023 due to a change in its rating
methodology. In July it moved a controversy
related to the company’s activities in palm oilsourcing and deforestation in Indonesia from“moderate” to “very severe”. This followed anaccusation in 2017 that Nestle was involved insourcing palm oil from suppliers involved in
deforestation.
We see the impact on biodiversity of both Coca-Colaand Nestlé as a material risk. We sent a letter to CocaCola in June 2023 asking it to comment on its progress
regarding reusable packaging targets and othercommitments. We did not get a response, despite
following up with the company’s investor relations
department.
We did meet Nestlé at the end of June to discuss
progress and problems with its plastic pollution
policy. We had a constructive discussion about thecompany’s plastics targets and concerns over the lackof regulation and infrastructure in most countries
to support progress in this area. We also probed thecompany on what measures it has taken over the last
few years to monitor its supply-chain and address
deforestation.

Despite both companies adopting sector-leadingtargets, the total amount of plastic they produce
continues to increase every year. Current targets
are focused on changes in the use of material, suchas reducing the weight and changing the design of
packaging. Neither company has a target to reduce
single-use plastic.
Considering the lack of meaningful plans to reduce
the amount of plastic produced and the absence of a
response from Coca-Cola, we looked to other meansof engagement to escalate our concerns. As a result,during the third quarter of 2023, we decided:
 To publicly support a call by investors for urgent
action to reduce plastics from intensive users ofplastic packaging coordinated by VBDO, a Dutch
sustainable investor network. It set out clear
expectations for companies such as Coca-Colaand Nestlé, one of which was to encourage theimplementation of absolute reduction targets for
single-use plastic. The collaboration also gave us
access to a new engagement channel with
Coca-Cola and Nestlé.
 We became an investor participant in NA100, a
new investor-led initiative to support nature andcombat biodiversity loss. We asked to participate
in the direct engagement group with Nestle,
however, given our expertise in Asia, we wereinstead allocated companies in that region(and Coca-Cola is not amongst NA100’s target
companies).
Outcome: It is early days yet in our efforts to drive
improvements in biodiversity and plastic pollution
policies at Coca-Cola and Nestlé. Our influence islimited by being a relatively small investor in bothcompanies. However, we hope that by joining the two
new investor-led coalitions we will gain better accessto management and increased leverage to effectchange. We will monitor progress against biodiversity
targets for both companies to ensure they stay on
track. We will also consider using our voting rights toescalate any concerns at the companies’ next annual
general meetings.

* Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, nor constitute a
recommendation to buy or sell.

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Principle

11

Signatories, where necessary, escalate stewardship activities to influence issuers.

Activity
Where we engage with companies
to shape corporate behaviour andinfluence positive change, we may
escalate the discussions if we are notsatisfied with progress. The escalation
methods vary, but broadly comprise: additional meetings andengagement, including meetings
with more senior management,
where appropriate; collaborative engagements, where
like-minded shareholders jointly
seek change at a company;
 voting at general meetings and/or
supporting shareholder resolutions(in our equity holdings);
 reducing or divesting our holdings.
Our investment teams have thediscretion to escalate in the mostappropriate way, depending on thenature of the issue. Some might want
to follow up, others divest.
When an incident raises concerns
about the ESG performance of aportfolio company, we take a dual
approach. On the one hand, we
may put the company through ourevaluation frameworks to determine
whether we should continue tohold it in the portfolio. On the other
hand, we may engage with company
management to urge change, as
illustrated in our case studies. In somecases, we may join with other investors
to escalate the issue. A good example
is CA100+, a collective engagement
group referred to under Principle
10 and highlighted there in ourcase study “Paving the way to lower
emissions at India’s biggest cementcompany”.

Escalation timelines may differ,depending on the region and the issue
in question. While many engagements
touch on topics that are inherently
long term and require time for
improvement, some issues need to bereviewed quickly. These considerations
are taken into account when we selectthe method of escalation.
With our Japanese Equity holdings,
the initial assessment will be made by
our analysts in the Japan Sustainable
Investment department, who areresponsible for proxy voting andengagement. An analyst will workwith the relevant portfolio manager
and sector analyst to engage withthe company according to priorities
based on the gravity of the issue, thecompany’s response and the weight of
the holding in the portfolio. They will
open a dialogue with managementwith the initial aim of trying to avoid
any loss of shareholder value.
In serious cases where no
improvement is observable and it
is determined that there is a highlikelihood of long-term damage to thecompany, the analyst has the power toremove the stock and such evaluation
may be made independently of
any investment decision by the
portfolio manager. In addition, when
governance issues are revealed by thisevaluation process, we may seek toexpress our opinion through our proxyvoting activity.

Another form of escalation where wehave reinforced our stance in 2023
are climate shareholder resolutionsin Japan. Whilst climate shareholder
resolutions in Japan are not new,
we find that the relevance of such
resolutions is increasing. With ourcommitment to decarbonising ourportfolios (including our NZAMi
membership and a 2030 GHG
emissions reduction target), we havefurther increased our support ofclimate shareholder resolutions inJapan. Following engagements withthe target companies, proposing
parties and internal discussions,
we have supported around 50% of
the climate shareholder resolutionsin Japan, which is a significant
increase from previous years. Basedon public data, we are one of ahandful of domestic investors who
have supported climate shareholder
resolutions in 2023. For the remaining
50% of Japanese companies, we
intend to send letters to share our
expectations in more detail on climatechange and our voting rationale. In
December 2023 we also updated
the Standards for Exercising Voting
Rights on Japanese stocks to detail
how we will treat climate shareholder
resolutions going forwards (effective
April 2024). Further detail on this is
published on our website.

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OutcomeAs we have suggested under earlier
principles, our general policy in our
Asian businesses is to rely, where
possible, on one-to-one engagements.
Particularly in Japan, escalation
involving a group of investors is rare,
given the complications associatedwith large and joint shareholdings
and the cultural aversion to public

challenge or conflict. Having said
that, we are not afraid to be robustwith companies where we think
there are failings, both in financial
performance and stewardship, and ouradvancements on climate shareholder
resolutions in Japan in 2023 are acase in point. Furthermore, we will
escalate where we think that we can

improve the outcome for our investors.
The case studies that follow give aflavour of how we escalate issues
when they occur, sometimes by voting
against management at shareholder
meetings or by selling the shares
when engagement has failed. Other
examples can be found throughout
this document.

Case Study:
Joining forces to force change at a Japanese automation group (equity)
This company and its subsidiaries engage in the development, manufacture and sale of factory automation
systems. It was held in both our Japanese Equity portfolios and in some of our Global Equity portfolios.
Issue: The group was sitting on a significant amount of excess cash amounting to 35% of total assets, while
we judged the proposed dividend payout ratio for the year of 20% as too low. In May 2023, members of ourJapan Sustainable Investment team engaged with company management to encourage it to allocate capital
more efficiently, but were given no comfort that the situation would change.
We believed that the incumbent directors had had ample time to rectify the excess cash issue. The two Nikko
investment teams holding the stock therefore decided to combine their votes against a company proposal
requesting approval for the dividend payout at the company AGM in June. We also co-ordinated our votes tooppose the entire incumbent board, supporting only the one new appointment being proposed. This was agood example of where we were able to increase our leverage with a portfolio company by joining the forcesof two Nikko AM investment teams.

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Case Study:
Never mind the quality, feel the risk at a major Japanese construction firm (equity)
Issue: A major Japanese construction company inwhich we owned shares discovered quality control
failings at a building project after responding toinquiries from a client. The company found that thegrade of steel being used did not meet the standards
set by the client, while the thickness of concrete slabs
differed from that in the specifications.
Activity: We contacted the general affairs
department of the company after the reports of faults
surfaced. In our discussions, the company claimed
that the problem was isolated to the particularbranch in question and did not go further up theorganisation, while the quality control system atbranch level had been strengthened to address theissue. It claimed that the irregularities would havebeen detected by inspections at the Sapporo branchinvolved in the construction, scheduled to takeplace soon after they came to light. In the event, thefaults prompted an immediate investigation into all
projects under construction by the company, whichfound no other problems.
Nonetheless, the company announced theresignation of a director and senior managing
executive officer who headed the company’s
construction operations, as well as a director andmanaging executive officer who managed thecompany’s Sapporo branch. This seemed to clarify

where the responsibility lay, as far as the company
was concerned.
Outcome: Our governance risk rating scale grades
companies from A (best) to C (worst), with a B
ranking applied to companies with problems
sufficiently serious to oppose directors’ re-election
but not enough to warrant the sale of the position.
Accordingly, we initially applied a B rating to theconstruction company, since it appeared that it had
no involvement at the organisational level in these
construction faults and a functioning quality control
system was in place.
The likely effect on earnings is unclear at present,
but analysts estimate that costs could amount to JPY
30 billion, given that the project under constructionneeds to be dismantled and compensation to be paid
to both tenants and the client.
The company has said that it will organise a separate,
fully independent and transparent investigation
into the causes of the Sapporo incident, develop
preventive measures as soon as possible anddisclose appropriate information. In our view,
although the situation does not warrant a C grade
on our governance risk rating scale – which isreserved for more extreme cases – the incident wasa manifestation of major governance risk and wetherefore decided to sell our position.

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Case Study:
Sickly governance at AdaptHealth* (equity)
AdaptHealth, held in our Global Equity portfolios,
provides home medical equipment, medical supplies
and related services in the United States.
Issue: We discussed governance failings at
AdaptHealth in our 2022 response to the Stewardship
Code. They related to several charter or bylaw
provisions (rules established at the time a company
is started to govern how it is governed and run)adopted when it became a public company after
the acquisition of AdaptHealth Holdings by DFB
Healthcare Acquisitions in 2019. In our view, theseprovisions fell short of what might be considered
best governance practice. They included a “classified
board”, a US arrangement that can entrench
management and deter takeovers and proxycontests. In our opinion it is a structure that impedes
shareholder rights.
As a result of the classified board structure, at theAGM in June 2022, three directors on the governancecommittee ran unopposed for re-election. Given
the board’s failure to change the board structure or
subject it to a “sunset” requirement, we withheld ourvotes in line with our views on board effectiveness.
(Where a director stands for election unopposed, avote against the appointment is not possible andhe or she needs only one vote to be elected. In suchcases, a withheld vote is seen as a public statement ofdisagreement, whereas an abstention could merely
be seen as the shareholder being undecided.)

Our discussions with the company also highlighted
a shortfall between its strategic vision and financial
reality. Sales results were good, but the company
underperformed on margins. Subsequent results led
us to believe management was failing to deliver on
promised improvements recommended by KPMG
consultants. It seems that investment spending had
been increased, but management had lost sight ofcosts, leading to lower expectations for profitability.
Activity: While we felt that the company’s strategic
vision was strong, we were keen to see a commitment
to ending the classified board arrangement andbetter financial controls.
We met the chief finance officer in March 2023 but
there were few signs of any rapid improvement
thereafter. A meeting with the chairman in May did
little to reassure us. There then followed a further
round of sub-optimal corporate results, with morequestions being raised about governance andmanagement accountability after the company
dismissed the chief executive but retained othersenior management who we deemed more culpablefor the failures.
At the 2023 AGM, we withheld support for thechairman. Although the company remained wellplaced strategically, we had become increasingly
concerned about its ability to come good on its
promises, with management having consistently
over-promised on improved financial performance.
Although the chief executive had paid for this with hisjob, we felt that this would merely create additional
uncertainty and as a result we sold the stock.

* Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, nor constitute a
recommendation to buy or sell.

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Case Study:
Pushing for more pay for shareholders at a New Zealand payments provider (equity)
Pushpay* is a cloud-based online payment systemthat helps organisations like schools, churches andeducation providers centralise donation data andmanage payment operations.
Issue: Our New Zealand Equity team had beenbuilding a position in Pushpay shares during
the course of 2022. In October of that year, themanagement announced that it had agreed a bid
from a consortium, with the board unanimously
recommending the price of NZ$1.34 a share. This wasmuch lower than the fair valuation indicated by ourinternal valuation models. We decided to engage
with the management and the board to get them toraise the offer to a level that reflected a fair valuationof the company, which would be in the best interestsof both management and shareholders

Activity: Our investment team initially met the
management and board in November 2022 to convey
our view that the offer undervalued the company.
This view was supported by an independentvaluation report released by Pushpay in February
2023, which showed that the offer price was at thebottom of a wide potential valuation range from NZD
1.33 to NZD 1.53. Our investment team again met theboard to discuss our concerns and relay our intention
to vote against the board recommendation and theoffer. Our team then issued a press release expressing
our dissatisfaction with the scheme and announcing
our intention to vote against both the board and our
proxy advisor’s recommendations. This was followed
up by comments we made to specific publications in
the New Zealand financial press. In March 2023 wevoted with the majority against the scheme, which
failed to pass the shareholders’ meeting.
Outcome: A new offer was subsequently made andin April 2023 we and a majority of shareholders voted
to accept a revised offer of NZD 1.42. We feel that thisengagement extracted substantially more value forour clients and is a good example of stewardship inpractice.

* Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, nor constitute a
recommendation to buy or sell.

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Principle

12Signatories actively exercise their rights and responsibilities.

Context
Proxy voting is one of the major
elements of our stewardship activity
in our equity portfolios and we takegreat care to ensure that our voting
serves the interests of both companies
and clients. Where we invest throughpassive strategies, we strive toincorporate stewardship through thevoting of proxies and the engagement
process, where appropriate.
In our fixed income investments, we
do not have the voting rights that areavailable to shareholders, however we
aim to be active owners of assets byusing other stewardship tools, such as
issuer engagement. We hold a small
allocation (just under 0.8% of AUM) in
infrastructure investments via subadvised managers who are subject toan annual ESG evaluation. We do notcurrently manage either private equity
or private debt.

PolicyThe Nikko AM Group Proxy Voting
Policy, plus our more detailed
Guidelines on Exercising Voting
Rights, establishes our group-wide
approach to proxy voting decisions.
Implementation of the groupwide policy is undertaken by our
local businesses, with the freedom
to interpret the rules to suit local
conditions. (In Japan, however, wehave separate Standards for Exercising
Voting Rights on Japanese Stocks:
see more below.) As a result, there aresome variations in how stewardship
activities, including voting, areimplemented across the group.
For example, our UK entity has asupplemental proxy voting policy on
environmental and social principles
that apply to our Global Equity
strategy.

The group-wide policy underscores
our focus on ESG in proxy voting
decisions and also covers the following
non-exhaustive list of considerations:
 shareholder return, the separation of executive andsupervisory functions,
 the size and composition of thecompany’s board of directors,
 the auditors,
 executive compensation systems,
 new share issuance, and company control and takeover
defences.
We are generally opposed toresolutions aimed at preventingchange of control. On the other hand,takeover defences may be assessed
positively if the acquisition risks areclear and existing shareholder value
would not be damaged.
We regularly vote and when doing
so take account of group-wide
policies and advice from proxyvoting advisers, where applicable,
as well as other considerations
like past engagements and local
policy. Our voting principles areapplied after full consideration of
a company’s circumstances. For
the majority of resolutions, uponreceipt of advisory research andvoting recommendations, theteam responsible for the security inquestion will analyse the report andconduct further research where any
issues have been flagged.

We aim to cast our votes on thesame resolution consistently acrossall vehicles that we manage, unlessspecifically directed not to do soby clients in respect of their own
accounts. We consider requests fromclients to override a house policy on acase-by-case basis. In a small numberof instances, segregated accountclients have their own policies, which
we apply and may supplement withours where appropriate. We also
have segregated account clients whomake and execute their own voting
decisions. It is not possible for clientsin pooled funds to direct our voting.

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Execution
For Japanese Equities (which
accounted for over three-quarters ofgroup equity AUM as at December2023), our Standards for Exercising
Voting Rights on Japanese Stocks
establish detailed decision criteria.
The Japan Sustainable Investment
department is responsible for directing
all voting proposals for holdings inboth actively-managed and passive
portfolios. It decides whether to votefor or against after taking into accountpast engagements with investee
companies. Advice from ISS basedon our proxy voting guidelines is oneof the inputs in the decision-making
process, but this advice is used forreference only.
The Investment Support andPlanning (“ISP”) team is responsible
for exercising voting rights for
non-Japanese stocks, where theinvestments are held via Japandomiciled feeder funds on behalf ofJapanese investors. In some cases,
when there are important resolutions,the ISP team takes account of theopinions of the overseas investment
management subsidiaries who areclosest to the market where theinvestee company is based. The
overseas investment team may
also engage with local companies
whose securities are held in Tokyoin co-ordination with the ISP team.
Execution is outsourced to ISS.

For equity strategies not managed
in Japan, ISS may provide analysis ofindividual proposals and customised
proxy voting recommendations
based on our proxy voting guidelines.
However, the local Nikko AM Group
entity makes the ultimate decision on
how to exercise these voting rights.
Voting decisions for all of our group
entities are executed by ISS, with
monitoring carried out via a webbased platform. This shows us theaccounts for which ISS votes, sends us
notification of forthcoming meetings,
establishes voting decisions, tracks
the status of votes and generates
reports on voting activities. A recordof all votes cast is also stored by ISS,
allowing us to look back at past voting
records to ensure all service standards
are being met and all votes are being
cast as directed.

Recalling lent stock
We lend stock in accordance with ourinternal controls on lending practices.
In some instances, we may recall stockfrom borrowers in order to vote inline with our proxy voting policies.
These are cases where exercising
voting rights is more desirablefrom the perspective of responsible
stewardship than earning an income
from share lending. For example, in
our Japanese Equity operations, if ourvoting guidelines signal a governanceconcern that would result in a voteagainst management or the reelection of directors, we would recall
the stock in order to ensure that we areable to vote and therefore satisfy ourstewardship responsibilities.

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Activity
A summary of our firmwide voting records is listed in the table that follows (this information will also be published in ourannual Sustainability Report). During the year we analysed 7,216 shareholder meetings and voted on 74,471 resolutions.
We cast votes for all shares where there are no legal, client or technical constraints. Examples of where we may not be able
to vote include those where power of attorney has not been granted by a client, or in markets where share blocking isapplied. These include bearer shares in the Swiss market, some stocks in the Norwegian and German markets and Egyptian
market stocks. Such instances accounted for less than 1% of all resolutions in 2023.
Region ofCompany
Incorporation

Number of
Shareholder
Meetings

Number of
resolutions

Votes forManagement(Number)Votes forManagement (%)

Votes Against
Management(Number)Votes Against
Management (%)

APAC ex-Japan

2,502

18,161

15,816

87.1%

2,345

12.9%

EMEA

1,080

18,14916,574

91.3%

1,575

8.7%

Japan

2,405

23,93919,883

83.1%

4,056

16.9%

Latin America

192

1,884

1,672

88.7%

212

11.3%

North America

1,037

12,338

11,340

91.9%

998

8.1%

Total

7,216

74,471

65,285

87.7%

9,186

12.3%

Overall, across all regions, we voted
against management in 12.3% ofresolutions. The most common reason
for voting against management wasin relation to the election of directors.
A lack of independence amongst nonexecutive directors, or dissatisfaction
with direction often prompts us tooppose management’s wishes in thesevotes.
Detailed voting records, including
reasons for voting against specificproposals, are published on our
website for the vast majority of ourequity assets, notably JapaneseEquities and Global Equities. For
those voting records not publicly
disclosed (US, New Zealand and Asia
ex-Japan Equities), our policy is torelease the information to clients onrequest and in line with local customs
and regulations.

Fixed income
As previously stated, we are not able toexercise the same level of influence asholders of equities in our fixed income
allocations since the instruments
we hold do not confer voting rights.
Nonetheless, we aim to exercise ourstewardship responsibilities throughother means, such as by engaging
with market participants and ensuringthat our product offering is in line with
the needs of our clients.
When participating in the primarybond issuance markets, ourinvestment teams review offering
documents for every transaction aspart of the due diligence process.
Where possible, the investment teamengages with issuers and structuringadvisers on the terms and conditionsof issues in which we are interested,
including providing feedback
and, where applicable, seeking
amendments to terms and conditionsin legal bond documentation. In our
experience, issuers accessing thebond market for the first time tend to
be more receptive to feedback about
legal documentation and contracts.
For private companies’ bond issues,
we also ask for access to the details
provided in trust deeds, such as,
for example, financial disclosures. It
should be noted, however, that in theJapanese bond market this approachis less easy to adopt for publicly-traded
corporate bonds.

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OutcomeAs a relatively small global investor
we may not always be able toinfluence the direction of companies
in the way we would desire. Moreover,
it is sometimes difficult to claim credit
for what we believe are successes
since we do not act in a vacuum.
Nonetheless, we will continue to use
the leverage that we have to act inwhat we believe is the best interestof our clients and wider stakeholders
and to encourage best practice ininvestee companies where possible.

As has been already noted, our fixedincome holdings do not confer
voting rights, while our relatively
small presence in most fixed income
markets and our investment insovereign bonds limits our influence.
Even so, we are steadily increasing
our engagement activity with issuersand combining with our equity
investment colleagues to effectchange where possible. Examples
include the case studies “Helping tolift the veil on corporate emissions” inPrinciple 4 and “Elevating nature at amajor Korean steel maker” in Principle
9, and “Joining forces to force change
at a Japanese automation group” inPrinciple 11. As described in these casestudies and also when our individual
Fixed Income investment teams work
alone, such as was the case in the“Iberdrola”* example, we aim to use
the influence we do have to promote
the best outcomes for stakeholders.
The following case studies areexamples of resolutions that we voted
on during 2023.

Case Study:
Guarding shareholder interests at a major Japanese security company (equity)
This company provides security services such as guarding and fire protection to prisons in Japan andinternationally.
Issue and activity: We contacted the company in March 2023 because we believed that the 5% equity ceiling
imposed by the company on directors’ remuneration was too low to align with the interests of shareholders.
Since the founder’s son-in-law is the president of the company, we also urged it to improve the effectivenessand transparency of the nomination process and increase the board’s awareness of the importance ofshareholder return. At the AGM in June, we voted for a shareholder proposal that the company develop equity
compensation guidelines in the hope that this would address the issue of directors’ remuneration.
Outcome: The vote was lost with only 24% shareholder support. However, in spite of opposing the proposal,
the company changed the nomination committee chairman from a company insider to an outsider director.
It also raised the proportion of equity in directors’ compensation from 5% to 20%. We believe that thecompany’s change of heart on both the issues we had lobbied for was the result of investors’ encouragement
through dialogue and the support shown for the shareholder proposal. We will now be closely monitoring theperformance of the board in the wake of the changes.

* Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, nor constitute a
recommendation to buy or sell.

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Case Study:
Banking on better green targets at a large Japanese finance group (equity)
This is a large Japanese banking and financial services
group.
Issue: A shareholder resolution on climate change wasproposed by three environmental non-governmentalorganisations: Kiko Network, Market Forces, andRainforest Action Network. It stated that the group’s
significant involvement in carbon-intensive sectors
exposed it to substantial financial risk and it had notmade sufficient efforts to reduce its exposure sufficiently
to reach zero emissions by 2050. It called on the groupto set suitable zero-emission targets, such as those of theInternational Energy Agency.
Activity: The group said it had been “earnestly working”
to address climate change, including: In 2021, committing itself to achieving net zerocarbon emissions across the group by 2030 and in its
loan and investment portfolio by 2050.
 In 2022, setting reduction targets for 2030 in its
lending to the power, oil and gas and coal sectors,
aimed at achieving the Paris climate agreement’s
1.5°C reduction goal.
It felt it had therefore made the commitments requiredby the shareholder proposal. It also laid out the group’splans for further measures: In 2023, it would set emissions reduction targets for
its lending to the steel and automobile sectors;
 by October 2024, it would set targets for lending tosectors accounting for roughly 90% of total global
greenhouse gas emissions; by 2030, it would end lending to thermal coalmining in member countries of the Organization for
Economic Co-operation and Development and by
2040 for non-members;
 by 2040, it would reduce loans for coal power
generation to zero.

In its report to the Japan Equity department, ISSsuggested that some of the criticisms levelled at thegroup in the shareholder proposal were fair. However,they suggested these failings were more than offset
by the actions the group had taken. For instance, thefact that it had set a number of targets in line with
International Energy Agency projections for its lending
activity and planned to extend them in due course. It
also reports in line with the recommendations of theTaskforce on Climate-related Disclosures and has joined
multiple industry initiatives. In the light of all this, ISS did
not recommend supporting the shareholder proposal.
Outcome: We agreed with ISS and voted against theshareholder resolution. We acknowledged the merits ofthe proponents’ case, but noted that the group had set
targets for three different areas of its lending activity andhad committed itself to enhancing disclosure by next
year and releasing new carbon reduction targets for its
lending. We believed the company’s activities were inline with global frameworks and in our opinion alreadysatisfied the demands made in the shareholder proposal.
In the vote, the resolution was lost with only 27%
shareholder support.
Although we opposed this proposal and a similar one
in 2022, we have continued to impress on the company
the key role of financial institutions in controlling Scope
3 emissions. We have emphasised the importance ofits further engagement with companies in this area.
We intend to continue the applying pressure on thecompany to support the transition to a decarbonised
society.

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Case Study:
Joining the rebellion to improve governance at a big construction group (equity)
This company is engaged in a range of businesses,
including marine and civil engineering, building
construction and real estate, both in Japan andinternationally.
Issue: The company had been involved in discussions
with one of its investors since May 2022, following
an industry rival’s takeover bid in March of thatyear. The bid had been supported by the company’sboard but opposed by the investor on the basisthat it undervalued the company. The investor hadthen itself made a counter-offer in May at a pricealmost 30% greater than that of the original tender,
which the company resisted. Following months of
discussion between the two parties, in January 2023
the investor launched a campaign asserting thatthe company’s board and executive team lacked thedrive and strategy to increase shareholder value to alevel that would counter its higher offer and takeoverproposals.
The investor pointed to the company’s poor stock
price performance under the current management,
claiming that the company had been destroying
value over many years. It alleged significant corporate
governance failures, which the current board andmanagement had refused to acknowledge andaddress, and that all efforts to improve stock priceperformance had been given up before the investor’soffer. It suggested that the lack of effective board
oversight over management would harm bothshareholders and the company, notably in the board’s
failure to consider the bid, which would deprive
shareholders of the opportunity to realise substantial
value.

To fix the company’s corporate governance
failures, the shareholder said it would oppose thereappointment of three company directors, including
the president, and would instead be nominating its
own slate of directors well versed in the business at
the June 2023 annual general meeting as part of its
plans to refresh management.
Activity: The Japan Equity team held meetings withboth the company’s management and the investor.
It proved hard to disentangle the truth amongst
the divergent claims made by both parties but,
ultimately, our assessment found the performanceof the management to be lacking, while there were
problems with the governance of the company.
We therefore voted in favour of all nine of theshareholder-proposed directors at the June AGM.
Outcome: Seven of the nine shareholderproposed directors were approved at the meeting.
Subsequently, in December, the new board
announced measures to strengthen governance,
further separating management supervision andexecution, and improvements in the supervisory
function. Although the investor subsequently
withdrew the bid, the shares stand higher than
before the offer was made and we believe themore experienced board will continue to drive
corporate value. This was therefore a good outcome
for shareholders and we look forward to further
enhancements of both the supervisory function
and corporate value. It also represented progress forshareholder effectiveness in holding the boards ofJapanese companies to account.

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Case Study:
Taking a poison pill to protect sustainable returns at a Japanese energy group (equity)
This is a Japanese energy group with businesses
spanning oil exploration, production and refining andrenewable energy.
Issue: An activist investor had acquired nearly 20% of
the shares in the company and indicated that it would
take the stake to 25-30% if certain demands were notmet. These included appointing a director chosen
by the investor, share buy-backs to hand at least¥500 billion to shareholders and spinning-off andfloating the group’s renewable energy business. The
company opposed these demands on the grounds
that its long-term plan already involved building therenewable energy business to a level where it was adriver of growth and that the investor’s track record
showed that it had no interest in the company’s
medium- to long-term future, either in terms ofstrategy or plans for value improvement. It also notedthat that the proposed director had close ties withthe activist, citing reports that she had served as its
legal representative and also an outside director atcompanies where it had stakes.

Ownership of more than 20% in a Japanese company
can often give the shareholder a de facto veto overcertain decisions which require a vote by more than
two-thirds of shareholders. The company therefore
announced a resolution to adopt a takeover defence– or poison pill – to prevent further stake-building, tobe put to shareholders at the AGM in June.
Activity: We are generally against poison pill
proposals however in this instance we voted with thecompany as we retained confidence in management’s
mid- to long-term business strategy and didn’t
believe the proposal by the activist shareholder
would lead to an increase in corporate value over thelong term.
Outcome: The management proposal passed withjust short of 60% shareholder support. Subsequently,
in December 2023, the activist investor sold its staketo an energy rival with whom the company had
already established a joint venture in the hydrogenrelated project engineering business, effectively
ending the conflict with the activist. We will continue
to monitor events at the company, particularly how
the new management’s plans to increase corporate
value are progressing.

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Case Study:

Case Study:

Hardening human rights policy at
Microsoft* (equity)

Cleaning up deforestation policy at
Procter & Gamble* (equity)

This is one of the world’s largest software groups.

Procter & Gamble is one of the world’s biggest
purveyors of global personal care to homecleaning products, which are sold under anumber of well-known brand names.

Issue: In May last year, plans by Microsoft toopen data centres in countries with questionablehuman rights records provoked a backlash from anumber of human rights groups. As a result, certain
shareholders submitted a proposal to the 2023
AGM requesting that the company prepare a reporton its human rights due diligence process for highrisk countries.
The proponents expressed particular concern
over the plans to expand data centres in locations
reported by the US State Department’s Country
Reports on Human Rights Practices. They noted, forinstance, that certain countries’ cloud computing
laws and regulations are not aligned withinternational human rights standards, undermine
the right to privacy and allow state surveillance.
They stated that the company has not provided
evidence of any human rights impact assessment,
engaged with interested parties, or disclosed any
assessment or mitigation plan.
Activity: The Global Equity team agreed with ISS
that the proponents of the resolution had raised
legitimate concerns over possible complicity inhuman rights violations in high-risk countries,
which could increase reputational, legal, andworkforce risks for the company. The ISS analysis
added that, as the company builds more data
centres, additional disclosures about its humanrights due diligence process would improveshareholders’ evaluation of the company’s
management of these risks.
Outcome: Given our general agreement with thesearguments, we felt that shareholder support for this
proposal was warranted and we voted in line with
the ISS recommendation, however the resolution
failed to pass with 33.6% of votes for the proposal.

Issue: In May 2023, the company generated
controversy by changing its forest commodities
policy to remove a 2020 pledge not to buy
wood pulp from “degraded” forests. As one of
the biggest buyers of wood pulp for consumer
products, this drew widespread criticism fromgreen lobby groups, investors and others.
The move followed a resolution on deforestation
passed at the 2020 AGM with the support ofmore than two-thirds of shareholders. The
proposal noted the lack of a “comprehensive
plan to mitigate exposure to deforestation andforest degradation throughout [the company’s]
operations”. It requested that P&G issue a reportassessing “if and how it could increase thescale, pace, and rigor of its efforts to eliminate
deforestation and the degradation of intact
forests in its supply chains”. While these failings
were addressed by company policies in 2021, theremoval of the forest degradation reference lastyear looked like a clear set-back.
Outcome: To show our displeasure, at theAGM we voted against the re-election of thechair of the Governance & Public Responsibility
Committee, to hold her accountable foroverseeing the removal of the pledge from thecompany’s deforestation policy. This was counterto the ISS recommendation. Unfortunately, thevote passed with 89.4% of shares voting for the
re-election.

* Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, nor constitute a
recommendation to buy or sell.

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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 ofKorea. Any interests in a fund or collective investment scheme shall be soldafter such fund is registered under the private placement registration regime
in accordance with the applicable regulations of the Republic of Korea, andthe offering of such registered fund shall be conducted only through a locallylicensed distributor.