Corporate Planning Department andResponsible Investment Department

Sustainability Report 2023

Published by:

Daiwa Asset Management Co. Ltd.
GranTokyo North Tower, 9-1 Marunouchi 1-chome,
Chiyoda-ku, Tokyo
100-6753
E-mail: damssc@daiwa-am.co.jp
Published in March 2024

Sustainability
Report 2023

Daiwa Asset Management Co. Ltd.

Corporate Principles
Our Anticipated Future

CONTENTS

Vision01 Corporate Principles
03 Corporate History
05 Message from the President―Creating opportunities for everyone who continues totake on new challenges

07 Part1 Stewardship Activities
07 Introduction
11 Engagement

Investment has the power to build the future.

37 Proxy Voting

By taking on All Challenges for All Investors, we continue to work

46 Stewardship Committee

together as partners to challenge ourselves, using investment to build a

48 Sustainable Investment

future with real opportunities.

57 Participation in Initiatives
64 Activity Report

69 Part2 C orporate Sustainabilityaware Management
70 Corporate Sustainability-aware Management

Compass

71 Corporate Materiality

Value

75 Initiatives Based on Our Corporate
Materiality

Our action guidelines
1. Create Innovation

4. Have Integrity

2. C onsider and Act
Logically

5. I mage Yourself
in Their Place

3. E
 nhance Global
Sustainability

6. Unite as One Team86 Appendix
86 Corporate Information
86 Company Overview
86 Financial Data
86 Change in Assets under Management

87 Data
87 Greenhouse Gas Emissions
87 Amount of Copier Paper Used per Employee
87 Human Resources and Related

The Corporate Principles Forming
the Foundation of the Group
01

02

Corporate History
1973

Daiwa AM introduces Japan’s first fundmanager system

1990

2020

Daiwa Asset Management(America)Ltd. established in
New York

Daiwa Asset Management

Trade name changed to Daiwa Asset Management Co. Ltd.
Joined the 30% Club Japan Investor Group
Expressed support for the Task Force on Climate-related
Financial Disclosures (TCFD)
Established the Stewardship & ESG Department
Daiwa Capital Management Silicon Valley established

1994

Daiwa Asset Management(Singapore)Ltd. Established

1995

License for discretionary management services
acquired1951

Act on Securities Investment Trusts enacted
Daiwa Securities Co. Ltd. registered as an investment trust management company

1998

Began selling investment trusts through bank tellers

1999

Became a major company of the Daiwa Securities
Group Inc. under the holding company structure

1959

Split from Daiwa Securities Co. Ltd.
Company established as Daiwa Asset Management Co. Ltd.

2011

Signed onto the Principles for Financial Action toward a
Sustainable Society (Principles for Financial Action for the 21stCentury)2012

Relocated the headquarters to 9-1, Marunouchi 1-chome,
Chiyoda-ku, Tokyo 100-6753, Japan

2014

2006

New York office opened

Participated in the activities of the International Corporate
Governance Network (ICGN)
Participated in the Climate Action 100+ initiative
Signed onto the Investor Agenda in advance of COP26
Signed onto the Net Zero Asset Managers initiative (NZAMi)

1987

2022

Signed onto the Japan Stewardship Initiative (JSI)
Signed onto the Investor Agenda in advance of COP27
Name of the Stewardship & ESG Department changed
to the Responsible Investment Department
Participated in the Human Capital Management
Consortium
Signed onto the Women’s Empowerment Principles
Joined the PRI Advance initiative2015

Signed onto the UN Principles
for Responsible Investment

Established the Engagement Team2018

Daiwa Asset Management(Europe)Ltd
established in London

Established the Stewardship & ESG Section

2019

Global X Japan Co. Ltd. established

1992

2015

Launched Daiwa MMF, a money management fund offering an
open-end bond investment trust

Product and Service-related

1920

Began managing Japanese equities for funds sold overseas
and co-managing of a UCITS fund with Mirae Asset Global
Investments, a leading Korean asset management firm

2016
1951

Launched iFree, index fund series

2001

Launched unit type investment trust

2017

Executed Japan’s first electronicdelivery of a prospectus
Launched Nikkei 225 ETF, TOPIX ETF

1952

Launched Japan’s first open-ended investment trust

Launched Japan’s first Regional
Support Fund

Launched Income Fund (now the Large-Cap
Equity Fund), Japan’s oldest existing stock
investment trust

2003

Launched Daiwa J-REIT Open

2004

1987

Launched Million, a payroll
deduction type fundLaunched Daiwa SRI Fund to support
Japanese companies engaged in CSR
efforts2013

Launched Daiwa TOPIX Ex-Financials ETF to meet Basel
III, as the first asset management company in Japan
Launched a rich variety of products for NISA

2014

Launched Daiwa JPX Nikkei 400 Fund and Daiwa ETF JPX
Nikkei 400 to link with JPX Nikkei Index 400 index

2005

Launched sales of investment trusts
at post offices
Daiwa Stock Index 225 Fund adopted

1950

1960

1970

1980

1990

2000

1990s

SRI began to address environmental issues
and corporate governance

2010

2015

2014

Japan’s Stewardship Code wasformulated

2006

The Principles for Responsible
Investment (PRI) were
formulated by the UN

History of Sustainable
Investment
1920s

Negative screening based on
Christian morality began to be
implemented in the U.S.

1960s

Socially responsible investing (SRI) started to
attract attention as a method for realizing
social change

2022

Received the Governor’s Special Prize forGreen Finance in the ESG Investment
Category of the 2021 Tokyo Financial
Awards*, in recognition of initiatives
including the Carbon Neutral Equity Fundand a tree-planting project

2015

2024

Received an award in the ESG
Finance Awards Japan organizedby Japan’s Ministry of theEnvironment(see P. 54 for more details)

2023

Launched three ETFs linked to ESG-related indexes

2002

1961

Announced NZAMi intermediate goals
Registered with GIG Supporters
Joined the Japan branch of the Glasgow Financial
Alliance for Net Zero (GFANZ)
Became a TNFD Adopter
Became a PRI Spring Endorser

2021

Announced adoption of the Japan’s Stewardship CodeSigned onto the Statement on Fiduciary Duty and Climate
Change Disclosure

1984

2023

Expanded the product range to include products
tailored to Japan’s new NISA system, and increased
the provision of support for sales companies* As one of the measures being implemented to realize “Global Financial City: Tokyo” Vision 2.0, Tokyo Metropolitan
Government holds the Tokyo Financial Awards, which honor financial sector companies that develop and provide
revolutionary new products and services that can help to meet the needs and solve the problems of Tokyo’s citizens
and of companies operating in Tokyo, as well as financial sector companies which are implementing activities that
help to popularize ESG investment, and companies implementing measures that embody SDG-aware
management.
The ESG Investment Category of the Tokyo Financial Awards is divided into the ESG Investment Subcategory and theSDGs Subcategory. For the ESG Investment Subcategory, financial sector companies that are working to promotewidespread adoption of ESG investment are invited to submit entries. The jury reviews the entries on the basis of
how well they match the theme of the awards, the originality of the measures adopted, and the results achieved,
and decides on the award-winners. Each year, one company is chosen to receive the Governor’s Special Prize forGreen Finance, in recognition of its outstanding initiatives in the area of green finance.
Please note that neither Tokyo Metropolitan Government nor the Tokyo Financial Awards recommend thepurchase, sale or holding of any particular products, nor do they offer any guarantee of future performance. All
copyrights and other intellectual property rights relating to the Tokyo Financial Awards belong to Tokyo
Metropolitan Government, and may not be duplicated or reproduced without authorization.

2020

2021

2022

2020

Japan’s Stewardship Code was revised
The Japanese government announced thatJapan would realize net zero greenhouse gas
emissions by 2050
National Action Plan on Business and Human
Rights was formulated

Corporate Governance Code was compiled 2021
The Paris Agreement was adopted at COP21
Corporate Governance Code was
The Sustainable Development Goals (SDGs)
revisedwere adopted by the UN
The Glasgow Climate Pact was adopted
Japan’s Government Pension Investment
at COP26
Fund (GPIF) signed up to the PRI
The Glasgow Financial Alliance for Net
Zero (GFANZ) was launched2017

Japan’s Stewardship Code was revised
The TCFD Recommendations were announced

2018

Corporate Governance Code was revised

2023

2024

2023

The Tokyo Stock Exchange asked companies to takeaction to implement management that is conscious of
cost of capital and stock price
It became a legal requirement in Japan to implement
sustainability disclosure
The TNFD issues its final Recommendations
PRI in Person 2023 was held in Tokyo

2022

The Tokyo Stock Exchange was restructured
into new market segments
The Kunming-Montreal Global Biodiversity
Framework (GBF) was adopted

2019

The Business Roundtable in the U.S. announced
a shift toward stakeholder capitalism

03

04

Message from the President

We will continue our efforts
to win the trust of evenmore customers andbecome the most chosen
asset managementcompany.
Mikita Komatsu
President
Daiwa Asset Management Co. Ltd.

First of all, I would like to express my sincere condolences
for all those who lost their lives in the earthquake which
struck the Noto Peninsula region of Japan on January 1,
2024, and my sympathy for everyone affected by theearthquake. I hope that the region will experience a quick
and smooth recovery.

With the uncertainty affecting the global
economy becoming ever more
pronounced, an even greater focus on
ESG is needed05

In July 2023, in a speech given at the headquarters of theUnited Nations, UN Secretary-general Antonio Guterres
noted that “The era of global warming has ended; the era ofglobal boiling has arrived,” and urged the leaders of national
governments and business enterprises to take further
action to combat climate change. Besides global warming,
the global economy is also affected by supply chain
disruption resulting from the COVID-19 pandemic, etc., aswell as intensifying inflation throughout the world, andvarious geopolitical risks, all of which are causes ofheightened uncertainty. Under these circumstances, there isa need for business enterprises to face up to environmental
and social issues, identify the risks and opportunities thatthey present, and achieve growth through sustainable value
creation.
Daiwa AM believes that companies which do not adopt a
proactive approach toward addressing ESG issues will havea heightened risk of having their perceived credibility
worsen over the medium to long term. For this reason,
when determining the real value of an investee company,
besides undertaking an integrated assessment of not only
financial performance but also non-financial aspects(including ESG), to evaluate the risks to which the company
is exposed, we also strive to clarify the potential forsustainable growth. At the same time, we cannot afford toignore new technologies and new business opportunities
that companies create to solve environmental and social
problems. I believe that Daiwa AM has a responsibility todevelop and provide our customers with investment
products which embody the digital transformation (DX) andgreen transformation (GX) that is coming, and which willcontribute toward the realization of a sustainable future.
Daiwa AM also aims to further enhance the cultivation of
ESG-aware human talent, so as to maintain the quality of
our investment products and faithfully realize accountability
in relation to our customers. We have already been
implementing educational programs to cultivate ESG-aware
talent, both internally and externally, and we have now
established a grade-specific internal qualification system toraise the overall level of ESG knowledge among ourcompany officers and employees.
We expect investee companies to manage themselves ina way that not only enhances corporate value but also
embodies awareness of sustainability, and so that we cancontinue fulfilling a role that contributes toward themaintenance and development of the capital markets,
Daiwa AM will itself take the lead in implementing
sustainability-aware management.

Playing a key role in Japan’s development
as a “Leading Asset Management Center”
A key challenge for Japan as it seeks to realize becoming a“Leading Asset Management Center” (embodying a shift
away from saving toward wealth formation) is to redirect thedeposits that account for over half of the household sector’s
financial assets toward investment, to realize a “virtuous
circle” of growth and profit distribution in line with the ethosof the new capitalism. As an asset management company,
this is our mission. However, Daiwa AM cannot bring about
the achievement of the “Leading Asset Management Center”
vision on its own. All stakeholders, including Daiwa AM,
investee companies, and investors, are linked together asone. To stimulate the development of the virtuous circle
outlined above, Daiwa AM is building various types ofcontact-points with stakeholders, for example by focusing

on financial and economic education to widen the scope of
asset management, we are determined to fulfill our
responsibility in relation to realizing the “Leading AssetManagement Center.”
2024 saw the launch of the long-awaited new Nippon
Individual Savings Account (NISA) program in Japan. Aiming todevelop products that contribute toward enriching customers’
lives in the new era of 100-year lifespans, Daiwa AM isproceeding with an expansion of our product line-up, creating
investment trusts that make effective use of a Japaneseequivalent of the Drucker Institute Score which quantifies
intangible assets such as human capital and customer
satisfaction, and launching alternative investment trusts, etc.
Daiwa AM’s social mission is to contribute, through theasset management business, toward realizing enriched lives
for people and a sustainable society. In line with Daiwa AM’s
“All Challenges for All Investors” vision, we will continue
striving to win the trust of even more customers and to be
the asset management company that people are most likely
to choose.

President

06

Part 1

Stewardship Activities

OUTCOMES

Sustainable growthfor society

Introduction

The Value Creation Process in
Relation to Stewardship
Activities
Daiwa AM is building on its strengths
in terms of three-in-one engagement,
intellectual property initiatives,“lingagement” (combining linkage
with engagement), proxy voting, and
ESG integration, to promote measuresthat will enhance the corporate valueof investee companies.

Beneficiaries
Funds

P.12

Corporate Research Team: 14 team members
Engagement Team: 7 team members
Stewardship Team: 8 team members

OUTPUTSEngagement

ESG integration

P.11–

No. of engagement cases:

1,377
Engagement
Team

Stewardship Team

VisionThe future that
we are aiming tohelp create

14.4%/198 cases

P.49

4.4%/61cases

Corporate
Research Team

81.2%/1,118 cases
Creating opportunities foreveryone who continues totake on new challenges

ESG Scores
In-house ESG score
Drucker Institute Score

Proxy Voting

Proxy voting
Supervisory Committee
Stewardship Committee
Revision of the Proxy Voting Criteria

Proxy voting
P.37

P.14

External organizations“Lingagement"*

Drucker Institute
Glass, Lewis & Co. LLC
MSCI Inc.
Morningstar Sustainalytics
Participation in relevant initiatives Etc.

P.22

Investment

Environmental,social andgovernance (ESG)

Approach to dialog
with investors anddisclosure of
information

25.7%

Ratio of voting in favor versus voting against
Proposals relating to company proposals (Total: 23,601 proposals)
In favor：21,490

Against：2,111

PRI annual assessment2

Proposals relating to proposals by shareholders (Total: 432 proposals)
In favor：89

No. of Stewardship Committee proposals：

2023
Daiwa Asset Management Co. Ltd
Generated 15-12-2023

07

Best practice
P.35

Proxy Voting
PolicyP.37

General Policy on
Stewardship Activities
P.47

ESG Investment
PolicyP.48

Materiality
P.48

101

No. of revisions made to the Proxy Voting Policy： 2

Items

SUMMARY SCORECARD

Against：343

P.66

Direct - Listed equity - Active
Direct - Listed equity - Passive
SSA/Corporate

Policies

28.1%

Note: Some cases are included in more than one category, as the dialog in agiven meeting may embrace multiple perspectives.

Policy Governance and Strategy

Investee companies

Capital policy (cashutilization, shareholder
returns, etc.)

Part 12,500

No. of Stewardship Supervisory Committee meetings held：

Information

18.3%

27.9%

No. of Stewardship Committee meetings held： 40*Daiwa AM’s
proprietary coinage
combined “linkage”
and “engagement”

ROE and capital
cost

P.37–

No. of instances of exercising proxy voting rights:

Intellectual
property
initiatives

Engagement cases by category (%)

Stewardship Activities

Engagement

Enhancing corporate value and creating social value

Fiduciary Duty

Daiwa
AM

Three-in-one
engagement

INPUTS

Addressing
society’s problems

Enhanced fund performance

Securitised
Indirect - Listed equity - Active

Assessment

★★★★★
★★★★★
★★★★★
★★★★★
★★★★

★★★★★

08

Introduction

Stock Market Investment Environment and
Stewardship Activities
that firm is failing to generate revenue sufficient to meetinvestors’ expectations (i.e. cost of capital).
Given these circumstances, the decision by the cabinetof Japanese Prime Minister Fumio Kishida to announceplans for developing Japan into a Leading AssetManagement Center can be seen to be very timely. By
combining a transformation of the asset management
sector with the effective utilization of personal financial
assets that have been lying idle as deposits, so thatcompanies are provided with funds where a certain degreeof risk is acceptable, if companies then use these funds
efficiently and proactively (i.e., if they invest in expanding thescope of business operation while remaining aware of thecost of capital), then it should be possible to realize avirtuous circle that leads to enhanced corporate value, andwhich puts the Japanese economy back on a growth path.

Yoshinori Nagano
Managing Director, Research Department

The transformation in corporate attitudes
and developing Japan as a Leading AssetManagement Center

The significance of engagement activities,
and Daiwa AM’s approach

The importance of intangible assets forenhancing sustainability, and Daiwa AM’s
initiatives in this area
Medium- to long-term corporate value is, in other words,
sustainability. The word sustainability is often heard in
relation to environmental issues, but its essential meaning
remains the same in regard to corporate value.
Contributing toward the sustainable existence of humanity
involves not only avoiding business risks, but also taking
advantage of opportunities, and building a management
strategy that enables the right decisions to be made isconnected to enhancing corporate value (i.e., sustainability)
over the medium to long term.

One thing to which particular attention is paid whenmeasuring medium- to long-term corporate value isintangible assets. In the past, the term intangible assets
tended to be used in a restricted sense to mean only thevalue of brands, software, etc., but recently it has come to
be used in a wider sense to refer to anything besides
tangible assets that can generate corporate value. In
other words, it can be used to mean a company’s
fundamental strengths in terms of its managerial
capabilities, human capital, corporate culture, etc.
Financial data alone are not enough to evaluate acompany’s intangible assets. By making effective use ofnon-financial data, collaborating with externalorganizations that possess relevant knowhow, andundertaking engagement based on this, Daiwa AM is able
to get a clearer picture of a firm’s intangible assets, andthen encourage firms to grow these assets and utilize
them effectively, thereby both providing outstanding
asset management performance and contributing
toward enhanced corporate value, and, ultimately,
playing a role in reinvigorating the Japanese economy.

Japan’s stock markets posted an impressive upswing in
2023. There are two significant structural changes that
contributed to this growth. The first of these changes is
the transition from deflation to inflation. In a deflationary
environment where prices are expected to fall, whichmakes it advantageous to delay consumption andinvestment until the future, economic activity tends to be
characterized by diminishing equilibrium. However, thistendency toward stagnation is now changing due to theshift toward inflation. The second structural change is amove toward business management that is more awareof the cost of capital. There is a growing recognition that,when a firm’s price-to-book ratio (PBR) falls below 1.0,

Corporate value can be defined as the sustained generationof revenue that exceeds the cost of capital. One of theactivities that asset management companies need toundertake to realize an increase in corporate value isengagement (i.e., constructive dialog with companies). If an
investee company and the asset management company
have a shared understanding of the issues relating tocorporate value enhancement, and undertake joint
discussion of strategies for addressing these issues, then if
the investee company implements management based onthese discussions, it should be able to realize an increase incorporate value. Activities of this type have become
increasingly prominent in recent years, and Daiwa AM has
adopted a proactive approach to this type of engagement.

PBR analysis of companies included in the TOPIX
500, S&P 500 and STOXX 600 indices

PBR distribution among companies listed on theTokyo Stock Exchange

Changes in global competitiveness rankings

Composition of the world’s Top 100 companies interms of market capitalization

No. of companies
300(Rank)
1(companies)
100

193 companies（39%）

TOPIX500

13 companies（3%）

S&P500STOXX600

104

119
companies
（20%）

0%

20%

200

38

150

8
160

40%

313

60%

80%

90

U.S.

Germany

9th

10Companies with negative net assets
348

Daiwa AM’s Research Department is a team of economists and strategists who undertake analysis of the global economy
and market environment. The team members disseminate their insights not only to company personnel responsible forfund management, but also to sales companies and customers. As part of the FundManagement Division, the Research Department also provides support for
stewardship activities from a market perspective. Given that the global businessfoundations of both individual Japanese companies and the Japanese economy as awhole have for many years now been seen as declining, it is hoped that an increase inboth the quality and quantity of stewardship activities can serve as a catalyst for thereinvigoration of Japan.

5

PBR of 1.0 x
or higher

250

145

The Research Department’s role in stewardship activities

1st

PBR of 1.0 x or higher but less than 2.0 x PBR of 2.0 x or higher
160

Part 1

15

50

100%

0

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5
PBR (x)

Source: Compiled using Bloomberg data, and referencing data from Ministry of Economy,
Trade and Industry (METI)

Source: Compiled using QUICK data, and referencing data from METI

30

19

80

21st
22nd

50

29th

30

Japan

15

29

12

35th

China
89 90
19 19

1

5
99

2

0
00

2

5
00

2

0
01

2

5
01

20 23
20 20

Source: Compiled using data from the IMD World Competitiveness Yearbook, andreferencing data from METI

0

Other

14

China
Europe

29
50

40

10

9

17

61

59
39

20

35
40

1
1

60

25

Companies with a
PBR of 5.0 x or higher
232

3

70

UK

20

100

2

Stewardship Activities

PBR less than 1.0 x

09

There have also been a growing number of cases inwhich, besides undertaking engagement as an investor,
asset management companies also make use of proposals
put forward at companies’ shareholders meetings. If, after
careful study, Daiwa AM believes that a proposal willcontribute toward raising corporate value over the
medium to long term, then it will support that proposal.

U.S.

26
5

8

1993

2000

Japan

1

2010

2021

Source: Based on reference data compiled by METI, published on November 19, 2021
(Reference 5)10Engagement

Engagement to Encourage
Company Reform
Daiwa AM positions engagement as an important meansof improving operational performance thereby
maximizing beneficiary returns. We aim for win-win
relationships by investigating, from multiple perspectives,

Engagement Framework
Engagement is implemented with the three teams below working in concert as a three in one.
The compositions of teams are optimized for the engagement case according to the situation and requirements of thetarget company, to effectively leverage the unique characteristics of each team.

the reasons behind a company’s failure to deliver its
intrinsic value and encouraging reforms to remedy these
problems, on an equal footing with the company.

Overview of Daiwa AM’s Engagement Activities
General Policy on Stewardship Activities
Engagement Policy

ESG Investment Policy

Proxy Voting Policy

Engagement Team
Comprised of active fund managers

Emphasized perspectives
1

Businessstrategy

2

Basic approach to investor/
shareholder relations (IR/SR)
Timely, fair disclosure of
information
Dialog from a medium- tolong-term perspective
Integrated reporting
initiatives
Etc.

Financial evaluation
Strong-type engagement

3

ESG

Environmental
Climate change
Natural capitalSocialHuman capitalSocial responsibility

Non-financial evaluation“Lingagement”

Engagement for passive fund

Improved investment returns

Stewardship Team

Corporate Research Team
Increased social value

Realization of a sustainable society

11Part 1Governance
Governance framework
Risk management
Capital efficiency
improvement
Communication

Investee companies
Medium- to long-term
improvements in corporate value

P.31–

Stewardship Activities

Corporate philosophy
Management policy
Business modelBusiness areas
Allocation of operational
resources
Etc.

Dialog with investors anddisclosure of information

and analysts

A three-in-one
engagement
framework thatdrives company
reformComprised of stewardship analysts in the
Stewardship Section of the Responsible
Investment Department

Comprised of analysts in the ESG & Corporate
Research Section of the Responsible
Investment Department(with concurrent assignments in the Active
Fund Management Department II)

12

Engagement

Three Key Points
1. Sharing materialities and best practices
Through its asset management business, Daiwa AM aims
to make a positive contribution toward beneficiaries’
asset formation over the medium to long term. In
order to achieve this goal, the company has identified
materiality (key issues) that includes enhancing the
medium- to long-term value and sustainability of investee
Examples of materialities (overview on

2. Engagement focused on the value of intangible assets
companies and helping to maintain the sustainability ofsociety as a whole.
For engagement, each of these key issues is sharedby each person with jurisdiction over the case whenengaging in dialogs toward improving corporate value.

P.48 )

Business and human rights
Diversity, equity, and inclusion

Governance structure
Capital efficiency improvement

Corporate value encompasses a company’s financial value,
which will be reflected in its financial statements, and its
non-financial value, which will not be reflected in thesestatements. In recent times, the share accounted for by acompany’s non-financial value, in particular its intangible
assets (intellectual property, human capital, etc.) is reputed
to be on the rise. Analyses have shown that intangible
assets account for a lower share of the corporate value ofComparison between Japan and the U.S. of intangible assets as a percentage of company value
Components of S&P 500 Market Value
100

32

80

Intellectual
property
Digitaltransformation (DX)Climate change
Biodiversity

Japanese companies than is the case for companies inother countries. This tendency may be attributable toinsufficient disclosure and a shortfall in initiatives relating tointangible assets by Japanese companies.
With this perspective in mind, Daiwa AM will actively
undertake strategic engagement to ensure that corporate
value is appropriately rated within the marketplace or toraise the corporate value of companies.

60

83

0

1975

Intangible Assets

10

80

90

48

1995

2005

2015

2020

Tangible Assets

69

68

31

32

2015

2020

85

40
20

32
1985

100
80

84

（%）

Components of Nikkei 225 Market Value

60

68
17

16

68

40
20

20

（%）

0

52
15
2005

Intangible Assets

2010
Tangible Assets

Source: Guidelines on Disclosure and Governance of Strategies for Investment and Utilization Regarding Intellectual Property and Intangible Assets Ver. 2.0

Daiwa AM additionally defines an anticipated vision ofmanagement (best practices) to realize sustainableenhancement of the corporate value of investee
companies. While approaches to anticipated visions andbest practices may differ from person to person, Daiwa
AM believes that defining our own approaches will serve
Examples of best practices (overview on

to facilitate all investment managers to orient themselvesin the same direction when engaging in dialogs. Daiwa
AM encourages our investee companies to undertakethese initiatives through engagement and other means.

P. 35)

Climate change
The company formulates a specific roadmap and milestones to achieve carbon
neutrality by 2050, and provides annual accounts of progress thereon. Note, thatthe desired target for 2030 is a reduction of at least 50%, consistent with Daiwa AM’s
NZAMi interim target.

Human capital
The company formulates a human resources strategy that is integrated with its
business strategy. The human resources strategy includes measures relating toinitiatives for recruiting and retaining outstanding human talent, frameworks for
initiatives for the cultivation of human talent, and initiatives for enhancing employee
engagement.
13

For institutional investors, the importance of corporate
evaluations and investment decisions based on theirrelevance to social sustainability is increasing. This perspective
anticipates radical changes to the competitive environment,
known as game changes, driven by innovations involving
major shifts in thinking. It underscores the importance of theability of companies to instigate or align with a game change.
It can however be assumed that, when a game change occurs,
the importance of intangible assets such as intellectual
property, research and development capabilities, and thehuman capital responsible for these assets, as well as thecorporate culture that nurtures them, will exceed that of the
manufacturing and financial capital accumulated by acompany to date.
As patent information, as well as the degree to which it
is utilized and its related strategies, is characteristicallydifficult to discern from an external viewpoint, Daiwa AM
actively engages in purposeful dialogs and engagement
known as “IP Strategy Dialogs.” These dialogs are aimed at
the management tiers of IP and R&D departments at
companies, and involve initiatives to understand their IP
strategy based on specific examples, with dialogs undertaken
after confirming basic information such as the positioning
and characteristics of the IP department at the company. The
ability to discern the factors behind its functioning, as well as
the underlying strategies and systems, will serve to increase
confidence in the company’s IP strategy.

While interest in intellectual property is growing in thecapital markets, it has yet to reach the stage whereby IP
analyses are sufficiently integrated into corporate value
assessments and investment decision-making. Daiwa AM
nevertheless considers that a trend is underway toincorporate intellectual property into corporate value
assessments and investment decision-making in the same
way as has been the case for environment and humanresources. We are thus committed to facilitating appropriate
evaluations while also promoting the expansion of corporate
value through the enhancement of non-financial value,
including a company’s intellectual property.

Stewardship Activities

3. Initiatives for the utilization of intellectual property information

Part 1

Written contribution to the Securities Analysts Journal
In the October 2023 issue of the Securities Analysts
Journal, Chief Analyst Watanabe contributed an article
entitled “‘IP strategy’ Evaluation and Engagement in
Institutional Investors.” The article introduced theperspective of evaluations of IP strategy by institutional
investors; the desirable communication between
companies and institutional
investors; as well as theforthcoming outlook forevaluations of IP strategy.

14

Engagement

Roundtable discussion on
intellectual property
At Daiwa AM, we anticipate that there will be an increasing trend for IP to be incorporated into corporate
value assessments and investment decision-making in the same way as has been the case for environmentand human resources. Meanwhile, we recognize comprehensive and appropriate assessment of corporate
value as an important component of our role as institutional investors. This is the background to Daiwa AM

Theme 1Counsellor, Intellectual Property Strategy
Promotion Secretariat, Cabinet Office,
Government of Japan
Graduated from the University of Tokyo Facultyof Economics in 1997, and the Tuck School ofBusiness at Dartmouth in the U.S. in 2003.
Joined the Ministry of Trade and Industry (nowthe Ministry of Economy, Trade and Industry)in 1997. After appointments at the Small andMedium Enterprise Agency; Cabinet Office
Minister's Secretariat; Japan Patent Office;Agency of Natural Resources and Energy; andas Counsellor at the Embassy of Japan inIndonesia, served as Counsellor for the Diet,
Cabinet Office Minister's Secretariat; Executive
Officer, Nuclear Damage Liability andDecommissioning Facilitation Corporation;
Director, Secretariat Division, Japan Patent
Office; and Director, Asia and Oceania Division,
Trade Policy Bureau. Has served in current
position since July 2022.

15

Significance of, and developments since, publication of the Guidelines
on Disclosure and Governance of Strategies for Investment andUtilization Regarding Intellectual Property and Intangible Assets

Expectations of investors and financial institutions
and initiatives that should be undertaken as
shareholders and investors

Ozaki: The “Guidelines on Disclosure and Governance of Strategies for
Investment and Utilization Regarding Intellectual Property and Intangible
Assets Ver. 1.0” were published in 2022. Please share your perceptions of thesignificance of these guidelines and trends among companies and otheractors in the aftermath of its publication, from your respective standpoints.
Ikeya: We can assume that corporate managers, investors, and financial
institutions variously recognized the importance of “intellectual property andintangible assets” as operational resources in terms of their being a source ofcompetitiveness. With this, the 2021 revision to the Corporate Governance
Code stipulated that “Companies should disclose and provide information on
investments in human capital and intellectual properties in anunderstandable and specific manner, while being conscious of theconsistency with their own management strategies and issues.” This threw
into relief the management challenges of how companies should disclose
their investment and utilization strategies for intellectual property andintangible assets, which often received only general attention despite theirsignificance, and how they should feed this into enhancement of thecorporate value. The significance of these guidelines is that they set out
concrete approaches and actions.
Watanabe: From an analyst’s perspective, the report is also significant in thatit clearly shows that we have fallen behind our cutting-edge competitors in
Europe, the U.S., and emerging markets in terms of realizing business models
that utilize intellectual property and intangible assets to secure competitive
advantages, create value, and generate cash flow. We believe that thismessage, on the need to build a business model with high added value andpricing power, and the use of the expression game change have once again
raised their profile and caught the attentions of management and IP
departments, as well as those of shareholders and investors. Daiwa AM
attaches great importance to purposeful dialogs, and since the publication of
the guidelines, we have seen an increase in companies being more receptive
to our IP Dialogs.
Nakayama: Combined with this, we consider the relationship with thehuman capital located at the core of non-financial information to be of greatsignificance. Human resource development and motivation become importantfactors when attempting to amplify and utilize intellectual property as the coreof a business model. In this way, we feel that this may well come to constitutean opportunity to raise the overall level of non-financial capital. In fact, wehave found cases where the IP department was perceived as being asomewhat behind-the-scenes presence at companies. However, based on theguidelines, there is now a degree of momentum toward better collaboration
among between the IP, R&D, and business departments. Efforts are also
underway to rethink human resource development at IP departments.
Ikeya: Following the publication of the guidelines, a framework to link thethinking and assessment points of investors and financial institutions toenable value co-creation has become necessary to enhance the effectivenessof corporate initiatives and disclosure. This is the background to the
publication of Ver. 2.0 in March 2023.
Nakayama: We have also had cases in which technical officers have been
invited to sit in on IP Dialogs since the publication of the guidelines.

Ozaki: What are your expectations of investors and financial institutions
following on from the publication of the guidelines?
Ikeya: The dissemination of information and disclosure on their intellectual
property and intangible assets initiatives is required of institutional investors
in addition to being required of corporations. From a company’s perspective,
institutional investors are perceived as having diverse information usage
patterns and needs, depending on their respective positions. Accordingly, we
would like to see institutional investors close any gaps by indicating how they
intend to utilize information and dialogs on “intellectual property andintangible assets.” In addition, I would like to have them engage in dialogs withcompanies from the perspective of discerning the “causal paths”―namely,
how intellectual property and intangible assets are connected to corporate
value; whether they are reproducible; and whether they lead to a businessmodel, as opposed to merely ticking boxes using information and dialogs. The
expectation then becomes that further improvements to their capabilities inthis area will come about.
Ozaki: From the perspective of an analyst and fund manager, how should thisbe undertaken as a shareholder or investor?
Watanabe: I believe in the importance of maintaining a stance toward
companies of commitment to actively exploring the factors and sources
informing the success or failure of a business or product by tracing these backto operational resources, rather than simply looking to their immediate impact
on performance. Among these operational resources, intellectual property itself,
including patent information, is highly specialized, and as information disclosure
on IP strategies has been limited, it has been difficult to identify as a factor in
aspects such as operational performance and corporate value. I have the sensethat the understanding and exploration of this through IP Dialogs is the samething as what Counsellor Ikeya refers to when he talks about discerning the“causal paths.” It is often the case that there will be major differences in terms of
profitability and efficiency even when you are making the same product.
Attention to intellectual property is essential for exploring the factors informing
such differences. When I am conducting IP Dialogs, I show my counterparts thefollowing diagram, to inform them that, in addition to externally visible R&D,
business/product development, investments and results, I also want tounderstand their IP and related strategies that support these activities using
specific examples. This is because I believe that, if we can affirm that IP and
related strategies, which are difficult to discern from the outside, are robust, thiswill as a matter of course change assessment of a company’s R&D, business/
The relationship between business success and patent-related strategies
Externally visible business successNeeds

Research

Development

Commercialization

Monetization

Theme 2

Yuji Watanabe
Chief Analyst, Active Fund Management
Department Ⅱ and Responsible Investment
Department

Part 1

Stewardship Activities

Mr. Iwao Ikeya

inviting Counsellor Ikeya of the Cabinet Office of Japan, who is tasked with promoting policies that foster theenvironment for initiatives and disclosure relating to the investment in and utilization of intellectual property
and intangible assets by companies to be reflected as corporate value, to take part in a roundtable discussion
and exchange views.

Mika Ozaki
Stewardship Analyst
Associate Director
Responsible Investment Department

Examples of how strategies related to patents contribute within a company
Search by patent data

Other company patentclearances

Preparation for building
access barriersPartial blackboxing

Utilization of early
screenings

Overseas and international
patent applications

Patent infringement
defenseLicensingSale

Specific understanding of the contributions of an IP strategy of this kind
will facilitate appropriate IP strategy assessments.
Source: Daiwa Asset Management

16

Engagement

Intellectual property is set tobecome an important issue indialogs with investee
companies regarding proxyvoting (Ozaki).

We are actively undertaking
engagement on intellectual
property issues while
disseminating our own views on
IP from the perspectives ofshareholders and investors at
various workshops andseminars (Nakayama).

product development, investments, and results.
Nakayama: There are aspects in which IP analysis is highly specialized which canentail difficulties, and we are aware that it has yet to reach the stage where analysis
of IP is sufficiently incorporated into corporate value assessments and investment
decision-making by institutional investors. I also do not believe that we will be able
to engage in dialogs with corporate IP departments to an equivalent level ofexpertise. However, what I do believe in is achieving a shared recognition of the factthat intellectual property and intangible assets are not being sufficiently reflected incorporate value, and in the importance of engagement to discuss the factors
informing this as well as improvement strategies.
Ikeya: I am aware that the objective of shareholders and investors lies in mediumand long-term increases in corporate value. Accordingly, more than understanding
and evaluating technologies and patents themselves, I would like to see you
facilitate deeper dialogs with companies from the perspectives of why and how
these technologies and patents constitute differentiating factors, how they can beorganically linked with other management resources to be reflected in businessperformance, and whether they will be sustainable and reproducible. I would like to
see specialists, with a focus on consulting companies and information vendors, fulfill
the role of analysis and evaluation of the technologies and patents themselves.
Ozaki: The reality as it currently stands is that investment and utilization
strategies, as well as information disclosure on intellectual property andintangible assets are seldom discussion points at Shareholder Relations (SR)meetings, which constitute dialogs pertaining to proxy voting policies and ESG
issues. I believe that an underlying reason for this is the fact that operating
results and capital efficiency as stipulated in proxy voting policies are being madethe targets for evaluations of past performance. I do however feel that this is a
topic which should also be actively probed and discussed in greater depth at SR
meetings, given the fact that operating results and capital efficiency are outcomesof the accumulation of investment and utilization strategies for intellectual
property and intangible assets. In this respect, I feel that the summary chart,
which gives an encompassing overview of the Guidelines on Disclosure andGovernance of Strategies for Investment and Utilization Regarding Intellectual
Property and Intangible Assets Ver. 2.0 (see below) is an eminently usable tool in
attempts to encourage dialogs on these topics at SR meetings.

Current situation Increasing importance of intellectual property and intangible assets as a source of competitiveness(→progress of digitalization; calls to realize a green society)Japanese companies lagging behind advanced companies from overseas in investment in and utilization of intellectual
property and intangible assets, with PBR under 1.0x and foreign investors abandoning Japanese equities

Increase corporate value and attract further investment funds by promoting investment in and utilization of intellectual property and intangible assets
Enhance disclosure and governance of company strategies for investment in and utilization of their intellectual property and intangible assets
Strengthen capital and financial market functions to allow investors and financial institutions to properly assess company investment andutilization strategies for intellectual property and intangible assets and provide the necessary funds
The Corporate Governance Code was revised in June 2021 to newly stipulate on the disclosure ofintellectual property investment strategies and supervision by boards of directors⇒ Listed companies are required to comply or provide appropriate explanations
Provides an easy-to-understand approach to the disclosure and governance of strategies forinvestment in and utilization of intellectual property and intangible assets

Guidance for Collaborative
Value Creation 2.0
Integrated reports, IR materials
Management design
sheets, etc.

Guidelines on Disclosure and Governance of Strategies for Investment and Utilization Regarding Intellectual Property and Intangible Assets
Expected use by small- and medium-sizedenterprises and start-ups in addition to major
corporations, investors, and financial institutions

Facilitate “pricing power”
and “game changes”

Five principles

ﾠCompaniesﾠ
Identify as the formation ofDisclose and disseminate“assets” rather than as “outlays”
as “logic/stories”

Feeding environmental and social issues into long-term
positive value assessments to achieve Sustainability
Transformation (SX)

Develop company-wide cross-functional
structures and “build governance”

ﾠInvestors and financial institutionsﾠ
Assess and support “investment withmedium- to long-term perspectives”

Seven actions for companies investing in and utilizing intellectual property and intangible assets
Establish thecurrent
situation

Identify the key
issues and clarify
positioning ofstrategy

Construct value
creation stories

Constructinvestment andresource allocation
strategies

Develop strategies,
implementation
systems, andgovernance structures

Disclose anddisseminate
investment andutilization strategies

Refine strategies
through dialogs
with investors andothersProvide operational resources and partnerships with the supply chain for start-ups and others

Added in Ver. 2.0

Communication framework for companies, investors, and financial institutions

Stories of corporate transformation
backcasted from transformations ofbusiness portfolios

17

Causal path design and planning to connect each company's intrinsic strengths with its intellectual property and intangible assets
Linking operational indicators to intellectual property and intangible asset investment strategies (ex. ROIC Reverse Tree)*The scope of intellectual property and intangible assets extends beyond IP rights such as patents, trademarks, design rights, and copyright, to encompass a wide range of technologies, brands,
designs, content, software, data, know-how, client networks, trust and reputation, value chains, and supply chains, as well as the organizational capabilities and processes that create these.
Source: Guidelines on Disclosure and Governance of Strategies for Investment and Utilization Regarding Intellectual Property and Intangible Assets, Cabinet Office.

Ozaki: It is my impression that the Guidelines on Disclosure and Governance ofStrategies for Investment and Utilization Regarding Intellectual Property andIntangible Assets have been the catalyst for information disclosure on the partof companies as well as exploration and engagement by institutional investors
in relation to intellectual property and intangible assets. What is your opinion on
the status of awareness around these issues and ongoing prospects following
on from this trend?
Ikeya: Firstly, one of the current issues, as I perceive it, is that companies
cannot be said to have made sufficient progress in disclosing information. In
addition, there are still cases where the department within a company that willtake the initiative in implementing strategies relating to intellectual property andintangible assets remains undecided. I would like institutional investors to be
conscious of such issues and promote high-quality dialogs that give companies
this insight. In terms of information disclosure, the disclosure of human capitalin marketable securities reports began in the financial year ending March 31,
2023. I am also keeping an eye on how this trend toward institutional disclosure
will extend to encompass intellectual property and intangible assets. Also, in
terms of dialogs, I am looking at the possibility that developments in AI will
enable the evolution of analyses by institutional investors, consulting
companies, information vendors, and other specialists, resulting in moremeaningful dialogs.
Watanabe: Systems do exist for the analysis, in various ways, of financial
information and market data and their linking to corporate value. We aremeanwhile aware that systems for measuring the value of a company’s
intellectual property and intangible assets remain in the exploratory stage. We
are anticipating the formation of a trend whereby all stakeholders around acompany are given a renewed awareness of the importance of intellectual
property and intangible assets through initiatives to develop systems to gauge
their “hidden power” and to reflect intellectual property and intangible assets incorporate value assessment models, with these feeding into increases incorporate value through initiatives and information disclosure.
Nakayama: Even with outstanding IP and technologies, if a company cannot
establish a business model and connect this with the creation of added value,
its investment capacities will not increase. We aspire to conduct engagement insuch a way that it leads to the emergence of spiraling virtuous cycles. In thisrespect, dissemination of information on the importance of IP and related
strategies by companies is gradually progressing, and the environment is
becoming more conducive to analyses. The dissemination of such information is
also one key to dialogs with investors, and with the furthering of dialog andengagement between companies and institutional investors, we believe a trend
will emerge whereby advances will be seen in the dissemination of informationand the development of analysis methods by institutional investors, while IP will
also be incorporated into corporate value assessments and investment
decision-making in the same way that has been the case for environment andhuman capital. Furthermore, while the current focus is on patent information,
we would be inclined to say that, going forward, IP in its broadest sense, taking
in designs and trademarks, is destined to become the target of analysis andassessment. At Daiwa AM, we are determined to make efforts to be at thevanguard of this trend. There are significant disparities between companies interms of their disclosure of information on intellectual property and intangible
assets, as well as in their actual investment and utilization strategies. Our
Engagement Team both engages in one-to-one dialog with companies, andarranges opportunities for one-to-n (multiple company) meetings. These
include meetings with companies that have achieved outstanding information
disclosure and strategies (best practice companies). We introduce such bestpractice companies to those with issues, as means to encourage inter-company
knowledge sharing. At Daiwa AM, we refer to these activities as “lingagement,”and have the sense that this category of activities is of particular utility in thedomain of intellectual property and intangible assets.
Ikeya: I look forward to seeing these activities that are undertaken in the role ofshareholder and investor serving as one of the driving force for increased
investment and utilization strategies for intellectual property and intangible
assets for companies, leading to many Japanese companies becoming gamechangers.

Theme 3

Daiwa AM has developed aJapanese version of the Drucker
Institute Scores, and is
endeavoring to measure“hidden power,” withintellectual property andintangible assets positioned as
essential elements within this
(Watanabe).

Part 1

Stewardship Activities

Overview of the Guidelines on Disclosure and Governance of Strategies for Investment and Utilization Regarding
Intellectual Property and Intangible Assets Ver. 2.0

Prospects for a future in which greater importancewill be attached to intellectual property andintangible assets

There is an expectation that
institutional investors will
engage in dialogs withcompanies focused on
intellectual property andintangible assets, while asking
constructive questions toward
encouraging the sustainablegrowth of companies(Ikeya).

18

Engagement

Strong-type Engagement

Engagement case studies

Overview
At Daiwa AM, we categorize engagement according to its
depth and use the term strong-type engagement todescribe the deepest category of engagement, whichaims to significantly improve operational performance byidentifying engagement themes and directly and actively
encouraging management to improve on these.

Companies to be targeted for strong-type
engagement are selected by corporate research analysts
or fund managers from the Engagement Team based on
the following selection criteria, with milestone
management conducted until the issues are resolved.

Selection method for target companies

Covered brands

Corporate research analysts select companies in the sector
for which they are responsible for engagement based on
the following criteria: 1 A company has key
management issues, and 2 these issues can be
expected to be improved or resolved through dialogs,
while 3 the resolution of the issues also can be
expected to increase corporate value. Among these,companies that can be expected to significantly increase
their corporate value through the resolution of issues arethen selected for strong-type engagement.
Fund managers in the Engagement Team also selecttarget companies based on these previously outlined
perspectives for all investee companies.

Company A(chemicals)
Engagement theme

ﾠMain dialog counterpart: President & CEO

Improving capital efficiency and expanding investor relations (IR) communication

Issue awareness and background

Cash holdings levels have remained excessive, despite the company
having made major capital investments in line with its 50% total
returns policy and long-term vision. With a lack of progress achievedon reduction of cross-shareholdings, actions to improve capitalefficiency should be actively pursued.
There is also a necessity to improve interpretability of new
products that have started to demonstrate outcomes as well as
their underlying R&D capacities, while also indicating a path toward
becoming a highly profitable and efficient R&D-oriented company.

Suggested measures to resolve the issues

1 Expedite reduction of cross-shareholdings and calculate andCompanies targeted for engagement
Companies targeted forstrong-type engagement

disclose reasonable cash levels. Dissolve in particular crossshareholdings with principal shareholders
2 Establish disclosure methods for new products and R&D withminimal track records and limited experience regarding
disclosure methods
3 Improve IR communication, prompted by appointment ofcompany president, who had previously been a director in
charge of IR department.

Anticipated situation following issue resolution

Company response at time of dialog

After informing the company that their share price
was indicative of a situation whereby “shareholder
equity costs are considerably high” and there was “noexpectation of profit growth and ROE improvements,”
we presented favorable examples of corporate valueenhancement at R&D-oriented companies. Following
a dialog on the issues to be resolved as described to
the left, company endorsed the suggested measuresand decided to set up an opportunity to learn fromthe CFO of a model practice company.

Company actions following the dialog

The company presented a persuasive capitalefficiency improvement plan based on lessons fromthe model practice company. As a result of measures
including having R&D heads andoutside directors present at small
meetings, the share price rose to alevel of over 1.0x PBR.

Establishment of a clear path to becoming a highly efficientcompany with typical characteristics of an R&D-oriented
enterprise
Reduction of capital costs, fostering of medium- to long-term
growth prospects, and improved PBR achieved by raising ROE

Issue being addressed

3Part 1

When implementing strong-type engagement, we first set an
engagement theme for each target company, with an
engagement plan then prepared. This plan outlines the
specific issues recognized, the background to these issues,suggested measures to resolve the issues, and theanticipated situation after they have been successfully
addressed.
Milestone management is then carried out by dividing
the implementation statuses of engagement into fivecategories of: 1 Issue recognized and clarified, 2 Issue
shared, 3 Issue being addressed, 4 Issue resolved 5
Issue closed. The progress statuses are shared with eachanalyst and fund manager and routinely monitored by senior
officers.

Increase incorporate value

Company B(retailer)
Engagement theme

Main dialog counterpart: President & CEO

ﾠ Expansion of corporate value through improved profitability and ROE

Issue awareness and background

Issue closed

5Issue resolved

4Company profitability was significantly below that ofindustry peers, with the major reason for disparity being
low per-customer spending. There was an additional issueof low profitability of B2C businesses compared to the core
B2B business.
Balance sheet indicates a surplus of on-hand cash, andthere is a necessity to undertake measures to optimize
capital in addition to profitability to improve ROE.

Suggested measures to resolve the issues
1 Implement measures to increase per-customer

Issue being addressed

3

Issue shared2

spending by expanding product range, increasing
inventory products, and enhancing recommendation
functionality
2 Implement measures to reduce costs such as platform
integration
3 Sell low-profitability businesses such as B2C businesses
4 Implement measures to eliminate excess cash andimprove capital efficiency through M&As andrepurchasing of own-company stock

Company response at time of dialog

Stewardship Activities

Milestone management

The company is aware of the issue of low percustomer spending and will continue to endeavor to
expand its product range and increase its inventory
products. It also plans to maintain the B2C businessin view of synergies with the B2B business but will
strive to achieve further cost reductions. In addition,
the company will set out measures such as a capital
allocation policy and actively undertake ambitious
reforms for its balance sheet.

Company actions following the dialog

Specific measures aimed at increasing per-customer
spending and reducing costs in the B2C businesswere presented following the engagement meeting.
It is expected that specific measures for balance
sheet reform will be set out going
forward.

Anticipated situation following issue resolution
Issue recognized and clarified

19

1

Expectation of major increase in share price as a result of
achieving financial targets set out in the ongoing
medium-term business plan

Issue being addressed320

Engagement

Company C(foodstuffs)
Engagement theme

From Engagement toMain dialog counterpart: CEO and CFO

ﾠ Improvement of ROE through selection and concentration of operational resources and structural reforms

Issue awareness and background

Since the formulation of the ongoing medium-term businessplan, the external environment has deteriorated, including
higher raw material costs caused by inflation. This situation
raises doubts about the effectiveness of the structuralreform and growth strategy set out in the plan. In addition,
the main factors driving increases in capital costs are lowlevels of consistent profitability in processed foods, andprofit volatility linked to conditions in the meats market.

Suggested measures to resolve the issues

Review the medium-term business plan with focuses onenhanced strategy execution, acceleration of structuralreforms and actualization of growth strategies following thechange of president. While the issues to be resolved remainunchanged, the need to speed up processes and a greater
sense of urgency in the face of potential crises is increasing.
This will require early implementation of key measures in theongoing medium-term business plan; withdrawal from lowprofit businesses, mainly those overseas; implementation of
additional measures in response to the deteriorating external
environment; as well as radical judgment calls founded instrong leadership to rally from internal and external setbacks.

Company response at time of dialog

The company were initially reluctant to implement measures
to improve unprofitable businesses, despite indicating theirrecognition of the issues when laid out during the tenure of
the previous president. Profits for over-performing businesses
deteriorated at an accelerated rate due to the turmoil
associated with the period of the COVID-19 pandemic, mainly
attributable to the sharp rise in raw material prices. Since thattime, the company has become more forward-looking inengaging in dialog with the stock market.

Company actions following the dialog

The company has shifted to a strong message of specificchallenges and solutions in the businesses targeted forstructural reform, as well as the need for change pertaining
to deep-rooted problems related to the company’sorganization and culture as a whole. The penetration of
structural reforms, including the moving
forward of announcements on the targets
for the new medium-term business plan
was confirmed under the strong
leadership of the senior management.

Anticipated situation following issue resolution

Increase in ROE due to improved margins and withdrawal
from/downsizing of unprofitable businesses, andimproved company valuations

Issue being addressed

3

Daiwa AM conducts analyses aimed at gaining a deep
understanding of our investee companies. Nevertheless, there is alimit to the understanding we can achieve, in terms of not having
insider know-how requiring technological and other expertiseequal to that of our investee companies. Meanwhile, we believethat the insight on best practices, past examples of failure, andinter-company comparisons which we have accumulated throughour analyses and dialogs with various companies are domains inwhich investors are truly in their element. Another major strengthin our dialogs with investee companies is the relationships wehave built up with many representatives of industry and academia,
as well as a range of consultants, analysts, government officials,
and others with whom Daiwa AM share an affinity.
Daiwa AM leverages these strengths to conduct engagement

Overview

meetings with management at companies facing challenges, andissues engagement letters collating the matters shared at theseengagement meetings. We also focus on specific ESG themes tohold “ESG Meetings,” which serve as a platform for sharing
knowledge among companies. Additionally, we focus efforts on“lingagement,” a process whereby we introduce companies
encountering challenges in increasing their corporate value tothose which have faced similar challenges and discovered hints
toward their resolution, encouraging them to share theirknowledge.
By fully leveraging the know-how available to us in ways suchas these, Daiwa AM aims to become a partner in the stock market
which joins alongside our investee companies in the journey
toward the shared goal of increasing their corporate value.

disappointing impasse, with the directors present
rebuking us after our meeting for recommendations
which they said amounted to radical structural reform ofa business with a distinguished history.
Nevertheless, based on a strong conviction that ourassertions were accurate, we embarked on an analysis of
the rebuttal by the company President. As part of this, we
conducted interviews with client companies, while also
researching into changes in client company shareholdingsin the company. It became increasingly apparent that thecompany’s assertions were unreasonable during theprocess of conducting analyses of the actual track recordand profitability of growth products.
Based on these analyses, we refuted the company’s
claims, with the outcomes of a series of surveys and,coincidentally, as the market environment deteriorated
and risks in line with our assertions became apparent, weachieved a consensus with them on the need forstructural reforms. Toward the drafting of a structuralreform plan, we engaged a strategic consultant contracted
by the company for discussions on the capital market
assessment as well as the structural reform plan thatinvestors sought.
Subsequently, a radical restructuring plan for thebusiness was presented and implemented. This was a
deeply poignant moment, with all the efforts made up
to that point finally bearing fruit.

We aim to contribute to corporate
value by fully utilizing all available
resources and ideas to increase value.

Investee company x Investee company x Investee company

ESG Meeting
Audience Presenting
companies companies
Company I

Company J

Company K

Investee companies

Company A
Company B

Company H

Company G

Collective
intelligence

Company F

Effects

This is an initiative to provide a platform
for discussion with the personnel andmanagement of best practice companies
on challenges facing investee companies
as a reference to inform future
improvements in their corporate value.

Company C

Company D

Company L

Company M

Company N

Company E

Themes

FY2021: Diversity (1st meeting)
FY2022: Human Resources Strategy (2nd meeting)
FY2023: Finance Directors (3rd meeting)Daiwa AM x Investee company

Engagement meetings
Engagement letters

Best practice companies
Interactions with other companies can leadto insights to facilitate taking their own
initiatives to the next level.

Funds
We expect companies to sustainably growand increase their corporate value.

Investee company x Best practice company“Lingagement”
Shared themes

Capital costs, ROE strategy(permeation within the organization)

ESG information disclosure

We believe that sharing on their challenges
with best practice companies, andarranging encounters with the processes
toward their resolution will provide hints on
how to solve in-company issues. By building
relationships which facilitate exchanges ofviews with other companies with bestpractices we expect to enhance theoutcomes of initiatives.

Part 1

Stewardship Activities

Behind-the-scenes story of successful corporate change engagement

21

Together We Will Work to Improve the Corporate
Value of Our Investee Companies

Overview and Effects of “Lingagement”

ColumnThis account concerns the business portfolio of amaterials company. While the business in question was
one with a long history, it was capital-intensive andcharacterized by low profitability rates and high volatility
with their origin in a strong susceptibility to economic
and market conditions. This business also
demonstrated the highest environmental impacts whencompared with other businesses, with engagement
deemed necessary due to the potential for businessrisks to increase even further in the future.
Engagement was first initiated with members of theinvestor relations team at the company. Daiwa AM thencollated and shared the results of our analyses of theabove points of concern, and indicated that continued
neglect of the medium- to long-term issues could leadto increased scrutiny in the area of environment, as wellas increasing capital costs, resulting in damage tocorporate value.
Subsequently, a dialog was successfully initiated with
the President following those with the company
directors. Initially, however, the discussions moved on
different tracks, as the company indicated their view that
continuation of the business would enhance corporate
value. The reasons they gave were an expectation of
growth for certain products within the businessconsidering environmental demands from society as well
as client relationships. Discussions reached a“Lingagement”:

Etc.

In some cases, the scope ofcommunication has moved beyond thethemed discussions and developed into
actual business collaboration.

22

Engagement

Case

2

“Lingagement” case study
Example scenario of “lingagement”

Best Practice Companies
Examples of companies
introduced

Companies which haveestablished platforms for
dialog between outside
directors and investors
Companies which haveincorporated ROE and
ROIC management
Companies which havedisclosed on their growthstrategies

Grasp the issues they face and themeasures implemented throughcontinuous dialogs with
Dialogs
Dialogs
investee companies

Companies with Issues
Examples of issues

Dialogs with investors“Lingagement”
Provide a platform for companies
facing challenges to be introduced
to and discuss with best practicecompanies

Capital policy
IR
ESG

Following structural reforms, including to cost structuring
reforms, customer relations management (CRM), and branchreforms, Company A’s corporate value was being revised bymeans of ameliorations to aspects of profit and loss in thecontext of the stringent business environment of the COVID-19
pandemic.
Thus, while evaluations of the business aspects of thecompany were increasing, with its balance sheet and cash flow
management remaining works in progress, Daiwa AM proposed
that, to further increase its corporate value, it become consciousof capital cost while also pursuing improvements in capitalefficiency. As part of this proposal, we shared the case study ofCompany B, and proposed a “lingagement”―with Daiwa AM’s

relationships enabling it to act as an intermediary―between thefinance directors of the two companies toward an exchange of
information which would facilitate a deeper understanding byCompany A of Company B’s initiatives.
This “lingagement” led to a series of initiatives in which
Company B had previously been engaged being taken up by
Company A, while also creating a networking opportunity, withthe two companies having remained in frequent contact witheach other since then. The financial strategy was then updated
at a Company A briefing session, which, in addition to thepositive evaluation of business aspects, led to a growing
appreciation for the change to capital cost-aware
management, ultimately further enhancing its corporate value.

Case

Mitsui Chemicals, Inc.

Multiple companies (11 companies)

3

Purpose ﾠ Share know-how on dialogs with outside directors and investors

experience in holding "small-scale meetings between
outside directors and investors" and the know-how
gleaned from these experiences.
As a result, Nippon Gas Co., Ltd., one of theparticipating companies, was able to reaffirm theimportance of dialog with outside directors andinvestors, with the senior executive managing director
with jurisdiction over the matter providing feedback
indicating that they would attempt to coordinate
internally. In fact, Nippon Gas at a later point in timethemselves organized “small-scale meetings between
outside directors and investors” and requested Daiwa
AM’s participation. In this way, with Mitsui Chemicals
experience as the core catalyst for “lingagement,”
Daiwa AM was extremely pleased at having been able
to contribute to broadening the scope of initiatives tofacilitate effective corporate valueenhancement.

Company C

Company D (Best Practice Company)

Purpose ﾠ Knowledge sharing on capital cost-aware management

Company C had a PBR considerably below 1.0x, anddespite enjoying operating profits in the mid-10billion-yen range, the value of the business, excluding
market capitalization of redeemable assets, such as
cash, deposits and marketable securities, remained
limited to around 40 billion yen. An underlying factor
was their extremely poor awareness of balance sheet
and cash flow management attributable to their
being a technology-oriented company.
Nevertheless, following repeated engagement
between Daiwa AM and management at Company C,
their sense of the importance of capital efficiency had
begun to grow. However, due to their theretofore lowawareness of capital efficiency, they lacked the knowhow of what issues they needed to address as well as
the solutions to address these, in addition to aknowledge of how to build internal consensus.
We therefore proposed a “lingagement,” tointroduce the senior executive managing director ofCompany D to the finance director at Company C,
after which the Company D executive officerdelivered a lecture on the approaches to fosteringinternal consensus and instituting improvements. As
a result, Company C’s know-how on internal reforms
deepened, which led to changes that can be
expected to increase corporate value going forward.

Part 1

Stewardship Activities

The current in ESG is shifting from a stage involving
responding to requirements and conducting
disclosure, toward a focus on initiatives
demonstrating effectiveness in contributing to
improvements in corporate value. For example,
regarding governance, it is also becoming
increasingly important to understand the ways inwhich the governance process contributes toimproving corporate value. This is evidenced bydisclosure on the skills matrix and the ratio ofoutside and female directors. Within this context,
the interest in dialog between outside directors andinvestors is increasing year on year. Given that oneof the roles of outside directors is to act as
spokespersons for the capital markets, this is awelcome trend, and one for which there is likely to
be increasing demand going forward.
From the perspective of companies, meanwhile,
we have a sense that many are reticent aboutproviding opportunities for dialog, with this being
attributable to their reluctance to burden outside
directors who have been invited from outside thecompany, as well as the fact that outside directors
themselves may have very little experience of dialog
with investors.
Accordingly, we organized “lingagement” meetings
with multiple companies around the nucleus of Mitsui
Chemicals Inc. with the aim of contributing to theestablishment of sound investment chains withoutside directors as their starting point, involving the
introduction to other companies of Mitsui Chemicals’

23Company B (Best Practice Company)

Purpose ﾠ Knowledge sharing on capital cost-aware management

Daiwa AM

Case

1

Company A

Case

4

Company E

Company F

Purpose ﾠ Business matchingCompany E aims to expand into all-solid-state batteries asa new business. Their strong knowledge and experiencein the energy sector make them a frontrunner company
within the industry for such new products. The company
aspired to build up a track record in the industrial sector,
while extending into other areas, including the healthcare
domain, toward expanding this product.
Against this backdrop, Company E introduced
companies it was looking to develop in this market

going forward to Daiwa AM. Companies with which
Daiwa AM was already conducting engagement wereamong this list of clients, and we contacted the listedcompanies to introduce Company E’s products to them.
As a result of this, business negotiations between ahead of the business department at Company F and a
representative in the area at Company E came to takeplace, with “lingagement” achieved in the form of abusiness matching.

24

Engagement

Engagement for Passive Fund

CFO Meeting implementation report
The “2023 CFO Meeting” was held in September 2023, withchief financial officers (CFOs) from 15 investee companies
taking part. This was positioned to coincide with the third ESG
Meeting, with the meeting arranged as an opportunity toprovide reference for future initiatives through interactions
among CFOs of companies facing various issues, with thereasoning that both management and financial strategy
perspectives are indispensable to discussions on governance.
The theme of the event was “Initiatives to improve PBR.”
The participants were divided into three groups andparticipated in group discussions conducted over two sessions.
For the first session, “ROIC,” “cash allocation,” and“shareholder returns” were designated keywords as subthemes of initiatives to improve ROE; while in the second
session, “business portfolios,” “sustainability,” and “dialog anddisclosure” were the designated keywords as sub-themes of
initiatives to reduce capital cost, with introductions of eachcompany’s characteristic initiatives and discussions taking
place at both sessions.
The event was well received by the participatingcompanies, and we will continue to actively hold meetings ofthis kind going forward, thereby contributing to improving
their corporate value by providing a platform for companies
to share knowledge with each other.

(Market-wide bottom-up-type engagement)
Overview
In order to proactively fulfill its fiduciary duty with respect
to passive fund investment too, Daiwa AM attaches great
importance to engagement activities. Particularly in thecase of companies where Daiwa AM must vote against thecompany’s proposals in accordance with Daiwa AM’s Proxy
Voting Policy, because the company in question has notachieved sufficient gender diversity or has excessively highlevels of cross-shareholdings, Daiwa AM undertakes

E

We did not expect that this meeting would be on such a large scale. We were also very grateful tohave been invited to be one of the companies which would take part. The networking allowed us toexchange business cards with representatives from other companies, which led to us securingcommitments for subsequent exchanges of views. This is extremely gratifying, as such opportunities tocommunicate with other companies are not generally available to us. I hope that you will invite us again.

Feedback from
Participating
Companies

Daiwa AM

engagement with such companies so as to verify the stateof the measures implemented by the company in relation
to these issues, and to exchange views. At the same time,since the total number of investee companies is very high,at over 2,300 companies, besides direct dialog, whennecessary, Daiwa AM may also make use of methods suchas sending companies information about revisions to the
Proxy Voting Policy and about related topics.

S

G

AND

Investeecompanies

This was a wonderful meeting. We found it helpful in seeing that there werecompanies at various stages, as well as in understanding statuses at these othercompanies. This proved an excellent opportunity, as we were in the process ofconsidering our future strategies as well as how to prepare for a TSE disclosure request.

Part 1

External assessment of engagement activities

Daiwa AM has received a steady level of recognition from companies, with a focus on matters dealing withengagement activities, including for “Asset management firm with the most effective overall stewardship
activities,” in a survey of listed companies evaluating the stewardship activities of their asset management
firms conducted by Mizuho Research & Technologies, Ltd.
We believe that this is in recognition of Daiwa AM’s efforts undertaken to enhance our engagement
framework, expand our dialog tools, and of unique initiatives such as the “lingagement.” Daiwa AM will continue
to actively endeavor to achieve qualitative improvements in our engagement activities.

Participation in the integrated reporting of a company

An article about a discussion with Daiwa AM Chief Analyst Watanabe was included in UBE Corporation’s (UBE)
Integrated Report 2023. We have previously conducted numerous dialogs with UBE on a wide range of topics,
from structural reform to ESG and intellectual property. For this article, however, a dedicated three-party dialog
was held at the company’s request with UBE’s representative director andexternal directors on the theme of “Talent Strategy to Expand the Specialty
Chemicals Business,” the content of which was then included in the
integrated report.
Following the publication of the Integrated Report, at the request of UBE,
Chief Analyst Watanabe presented and exchanged opinions on “evaluations,
expectations, and suggestions for improvement in the stock market” at a
training event for executive officers, with dialogs aimed at improving
corporate value currently ongoing.
UBE Corporation Integrated Report 2023

25

Style we to achieve going forward
Conventional passive engagement has mainly consisted ofone-way dialogs, including those amounting toconfirmations of status reports in response to requests
for meetings from investee companies, or means such ascommunicating our requests merely through letters,

Stewardship Activities

MarketPick Uprather than dialog based in an awareness of specificissues. Currently, however, we are conducting more active
and two-way engagement than ever before, including for
passive fund investment, directed toward increasing theeffectiveness of engagement and producing positiveeffects which extend to the overall performance of Daiwa
AM’s investments. More specifically, we are focusing on
investee companies at which there is room for
improvement in our materialities relating to climatechange, diversity, and other areas for the promotion ofissue resolution-type engagement initiated by Daiwa AM.
We are adopting a continuous approach to follow-up withthe targeted companies, and encouraging them to resolve
their ESG issues through engagement while actively
supporting them to improve their corporate value over the
medium to long term. In this way, we hope to enhance themarket reputation alongside them and, thereby,
contribute to improving the overall performance of ourmanaged assets.
26

Engagement

Engagement with Outside Directors

Case studies of passive engagement
Daiwa AM conducts engagements not only on the
management and capital strategies of our investee
companies but also those which focus on improving ourmateriality. The issues faced by our investee companies
are diverse, with many of these considerably difficult tosolve. However, as passive fund investment does not, inprinciple, allow us the option of selling our holdings, wehave set our sights on engaging in dialog that offer
potential clues to improving sustainability and mediumand long-term corporate value.

Company A(glass and earthenware products)
Dialog themeEﾠ

Dialogtheme

Climate change countermeasures

Issue The company has low GHG emission reduction targets despite
being a high CO2 emitter.
Background By proactively expediting the decarbonization of its highemission sectors, the company can greatly slow the pace ofclimate change, with this contribution spilling over to its entire
stakeholder base, leading to improvements in corporate value.
Potential solution Actively endeavor to move forward the schedule of initiatives forwhat can be accomplished over the short term such as converting electricity
use to renewable energies after acquiring Science Based Targets (SBT)
certification and clearly indicating time-based countermeasures equivalent tothe baseline standard of the Nationally Determined Contributions.

Company response
We have had companies respond that,after confirming case studies fromother industry peer companies inJapan and overseas, the company wasconsidering actively implementing anddisclosing the initiatives that it can
implement to further decarbonize its
own operations.

Company response
Based on the points raised in theprevious fiscal year, theimprovement of employee
engagement has been set as amateriality as well as a mediumterm target, and specificdisclosure were made on
initiatives for their outcomes.

G

27

Term of office of directors in the Articles of Incorporation

Issue A two-year term of office for directors does not allow forshareholder feedback to be heard on an annual basis.
Background Governance discipline should be instituted by gaining
annual shareholder confidence in managerial accountability eachyear. A two-year term of office for directors does not allow
shareholders to hold management accountable during a given
fiscal year, even if misconduct or other incidents occur outside there-election period.
Potential solution Reduce the terms of office for directors in the Articles
of Incorporation to one year.

Scenario encountered Governance failures wereidentified, and a shareholder proposal for director
appointments and other matters was received
Dialog content We confirmed the current status ofgovernance and the company’s vision for the
future, as well as probing whether the current
management structure could be said to beinadequate for governance, as claimed by the
proposing shareholder.

We met with the newly-appointed outside director who waschosen to serve as the chairperson of the board of directors toaccompany the change in the management structure. Despite
being newly appointed, they demonstrated high-level knowledgeof corporate governance and superior communication skills, being
able to respond fully to rigorous questioning,and so we were able to confirm that trust was
warranted in relation to the adequacy of thecurrent governance system and the future
vision for the company. For this reason, we
fully approved the company’s proposals
regarding this matter.

Dialogtheme

Company E (retail business)
Shareholder proposal(management strategy & governance)

Scenario encountered The reliability of the current management
structure, which does not select and focus businesses despite
the presence of those with longstanding unprofitability andhaving been made subject to a conglomerate discount, wasquestioned, and a shareholder proposal was received for theappointment of directors, and other matters.
Dialog content The dialog sought to identify any inadequacies in thecompany’s structures in response to the current situation
which had been pointed to by investors over many years, andwhether there was insufficient communication with various
stakeholders.

Meeting
outcomes
Prior to the meeting, Daiwa AM had intended to approve theshareholder proposal in its entirety. However, the outside director
with jurisdiction over the matter logically explained the need for the
unprofitable business from an independent standpoint
without denying the points raised by Daiwa AM, andwhile acknowledging the inadequacies of the current
system. As a result, the credibility of the company
increased, and the shareholder proposal was
only partly approved.

Part 1Engagement for Fixed Income Investment
Case study of engagement with Company F (electric power company) on decarbonization

Company C(petroleum and coal products)
Dialog theme

Shareholder proposal(governance)

standpoint, to utilize the content of dialogs as a reference
for decisions in the proxy voting process in governancemeetings regarding annual meetings of shareholders that
include shareholder proposals.

Stewardship Activities

Sﾠ Employee engagement

Issue While the company has conducted an employee engagement
survey, they have yet to complete any specific disclosures on it.
Background As it tends to be the case that companies will haveelevated performance, productivity, etc. in line with higher
levels of employee engagement, survey results and future plans
should be proactively disclosed, as a jumping off point for theformulation and implementation of human capital strategies.
Potential solution The results of the survey will be monitored using
KPIs while also being disclosed using a PDCA cycle todemonstrate how initiatives are being undertaken to resolve
issues.

Company D (machinery)

Meeting
outcomes

Company B(electrical equipment)
Dialog theme

Daiwa AM also conducts engagement focused on dialog
with outside directors. As part of this, we place particularemphasis on dialog with outside directors who are in aposition to relate the company’s assertions from a neutral

Company response
The Report on Corporate
Governance was updated toreduce the terms of office fordirectors in the Articles ofIncorporation from two years to
one year.

While Daiwa AM holds corporate bonds of Company F in adomestic fixed income investment, an increase in theirweighting has become a factor in an increase of GHG emissions
in domestic corporate bonds in comparison to the benchmark.
We therefore conducted an engagement with Company F on
climate change countermeasures.
Company F is completing disclosure, including disclosing incompliance with TCFD recommendations, in addition to its GHG
emission reduction targets for 2030 and a roadmap to achievethese, as well as its 2050 net-zero targets. However, it does notprovide more specific details and statuses on the roadmap,
while also not indicating the power configurations it aims toachieve in 2030. Daiwa AM thus advised Company F on thenecessity to further consolidate their disclosure including thatto promote investor understanding.
We moreover conveyed to them the advisability of information
disclosure whenever there is a change or progress regarding theirinitiatives aimed at achieving the 2050 net-zero target, including
development of technologies for ammonia and hydrogen co-firingand mono-firing, as well as R&D on the utilization of Carbon
Capture, Utilization and Storage (CCUS), as means to demonstratethat it is steadily undertaking initiatives.
In response, the company indicated that it hopes to expand
the scope of its disclosure wherever possible, even while
indicating a problem in terms of the difficulty of presenting a
specific indication of the form this would assume in the future,
due to the influence on some fronts of ongoing national energy
policies and systems.
28

Engagement

Joint Engagement with an Outsourcing Company
Overview
A framework is in place to jointly conduct engagementwith investee companies for some funds (Global Life)through a partnership with outside service provider
Candriam.

PurposeThe purpose is defined as leveraging Candriam’s knowhow to provide more specialized dialogs from a global
perspective for companies facing various issues. Throughthis, we aim to improve the performance of the funds inquestion while seeking to maximize beneficiary returns.
Combining the know-how of both Candriam and Daiwa
AM additionally enables us to cater to a wide range ofdomestic and international companies.

Case study of proxy engagement
Engagement target

Amazon.com, Inc (USA)

Issue

Forced Labor―Supply Chain

Extract from Global Standards Engagement
Overview Amazon is facing a series of accusations ofhuman rights violations associated with its operationsin Saudi Arabia. According to an investigation madepublic in October 2023 by human rights organization
Amnesty International, which interviewed Amazon
contract workers, Nepalese migrant workers,
employed by Abdullah Fahad Al-Mutairi Co. (AFMCO),
an Amazon third-party labor supply contractor, and its
subcontractor Basmah Al-Musanada Co. (Basmah),alleged that, between 2021 and 2023, they had paid
consistently high commissions to recruitment
agencies. The investigation report by Amnesty also
describes other instances of modern slavery, including
false recruitment processes for Nepalese workers andviolations of freedom of movement.

Engagement on Foreign Stocks

Engagement details ﾠIn January 2024, Sustainalytics sent an
initial query to Amazon seeking further information on
incidents of forced labor occurring at Amazon’s thirdparty vendor in the Kingdom of Saudi Arabia (KSA).
In February 2024, Amazon issued a press release andresponded to our query. This indicated that, over thepreceding several months, AFMCO had resolved serious
concerns raised in Amnesty International’s investigation
report, that this had been verified by Amazon, and that
AFMCO had made progress in improving workers’
housing. More specifically, changes that AFMCO had
made were noted as including: improvements to living
conditions; the provision of lockers for personal
belongings; limits to the number of occupants per room;
and upgrades of fire safety systems. The changes madeensured that living conditions met Amazon’s standards.
In addition, Amazon undertook to continue to implement
ongoing monitoring of improvements and progress
made in relation to AFMCO’s working environment.

Proxy engagement
Overview
Sustainalytics� Global Standards Engagement, which
Daiwa AM uses, is an incident-driven proxy service
focused on companies that have committed serious andsystematic breaches of international standards such as
the Ten Principles of United Nations Global Compact andthe OECD Guidelines for Multinational Enterprises.

2023 GSE Quarterly Report

29

PurposeThe purpose of this engagement is both to examine how
companies have dealt with various incidents, and to
improve ESG disclosures by bringing about changes incompany policies and operational processes andensuring that appropriate systems and programs are inplace to circumvent future recurrences.
Expected outcomes
Although this engagement was not directly conducted by
Daiwa AM, the issues under dispute and the record of
dialog with the targeted company were shared with us.
Through this instance of engagement, the reputationalrisk for Daiwa AM�s foreign company holdings was
effectively managed, and issues with serious
environmental and social implications were effectively
managed. In addition, it is hoped that this case will havehelped in developing a deeper understanding of casesthat have the potential to affect our portfolio and cannot
be addressed merely by monitoring various types ofnews. It is anticipated that this will help us to fulfill our
fiduciary duties to our beneficiaries.

Message to All Members of Investee Companies

Stewardship Activities

Engagement on foreign stocks is handled by means of direct engagement by Daiwa AM’s local subsidiaries as well as
indirect engagement through proxy engagement. Below we introduce an initiative using proxy engagement.

Part 1

Daiwa AM seeks constructive two-way communication aspart of its engagement. However, we currently feel that there
is a gap between the ideal scenarios and realities, such as
those given below. We believe that bridging these gaps
through repeated engagement will contribute to sustainable
increases in corporate and shareholder value. As such, we
expect the following actions from the investee companies
with whom we engage in dialog to help close these gaps.

Ideal scenarios
Potential for full two-way discussions to take place
Presence of managerial intention to provide evidence tosupport the content of disclosures
Generation of additional questions during dialogs Etc.

GAP
Realities
Explanations of materials followed by single question andanswer exchanges throughout
No sense of managerial intention in the content of disclosures
Lack of questions at the conclusion of meetings
Etc.

Daiwa AM’s expectations

Minimize explanations of materials and allow for
dedicated discussion time

(E.g.: Materials explanation should be kept to around 10 minutes)

Explain even the management vision behind thecontent of disclosures(E.g.: Insist on explanations of the “why”)

Encourage free-flowing and proactive questioning(E.g.: Confirm impressions on the meeting as well as
expectations going forward)
Etc.

30

Engagement

Engagement Activities by Respective Teams
Engagement activities based on direct dialog
During the term January 2023–December 2023, Daiwa AM implemented engagement activities with 1,377 companies.
The breakdown by team and number of engagements during the term under review is as follows.

Engagement Team
Dialogs with senior management from the perspective of improving
corporate value over the medium to long term
Overview

Activities status in the term under review

Engagement Team

“Lingagement”

8 meetings

4.4 %

13.1%

Stewardship Team14.8 %

44 meetings

Engagement
Meetings focused on
E and S

9 meetings
Corporate Research Team

81.2%
Number of engagements

Focus points

Engagement meetings by theme
44(meetings)

1,500

1,377
1,230

1,200

1,138
9 8

900

600

568

2019

431

2021

2022

Engagement Meetings relating to management issues, etc.

300

Engagement Meetings focused on E and S“Lingagement”

0

2019
31

2020

2020

2021

2022

2023

Part 1

Stewardship Activities

14.4 %

72.1%

Engagement
Meetings relating tomanagement
issues, etc.

Daiwa AM emphasizes the role of engagement in enhancing
corporate value, and established the Engagement Team inJune 2015, bringing together analysts and fund managers
for combined activity. The main target for engagement
activity by the Team was positioned as being companies
where there was felt to be potential for enhancing
corporate value through IR improvements and changes in
the measures taken by the firm resulting from dialog with
Daiwa AM. The emphasis in these Engagement Meetings is
on discussion from a medium- to long-term perspective,
and as far as possible, dialog is held with senior managersof the company in question, including the CEO. The
Engagement Team draws up the agenda for the dialog inadvance, and clarifies its purpose. In addition, besides
collating relevant issues by implementing KPI management(visualization) with respect to engagement progress status,
the Engagement Team also shares information aboutengagement progress status within the company.

2023

In the term under review, we focused on enhancing theengagement framework and deepening methodologies. As
part of enhancements to the resources invested inengagement, we created synergies between the company
analysis skills of our Corporate Research Team and the
dialog skills of our Engagement Team, which enabled us tocreate a framework for more effective engagements. In linewith this, there has been an increase in dialogs
characterized by an unprecedented sense of urgency withinvestee companies, toward the shared goal of increasing
corporate value. Furthermore, the accumulation of knowhow and the building of relationships with the managerial
tiers of companies has enabled the establishment of Daiwa
AM’s proprietary approach of “lingagement*.” In the next
fiscal year, we will endeavor to evolve our engagement
activities focused on the “lingagement” approach.
* Refer to P. 22 for more information on “lingagment.”32

Engagement

Corporate Research Team

Stewardship Team

Constructive engagement to enhance corporate value
and achieve sustainable growth

Dialogs on proxy voting and resolution of sustainability issues

Overview

Activities status in the term under review
Environmental, social andgovernance (ESG)

ROE and capital cost

438 cases

664 cases
17.7%

26.8%

24.8 %
Approach to dialog
with investors, anddisclosure

Capital policy(Cash utilization,
shareholder
returns, etc.)

614 cases

761cases

Note: Some cases are included in more than one category, as the dialog in a given meeting
may embrace multiple perspectives.

Engagement meetings by theme
761
664
614
438

2019

2020

2021

2022

ROE and capital cost
Capital policy (Cash utilization, shareholder returns, etc.)
Approach to dialog with investors, and disclosure
Environmental, social and governance (ESG)

33

2023

Environmental, social andgovernance (ESG)

ROE and capital cost

106 cases

192 cases
18.9%
34.2%
14.9%
32.0%
Approach to dialog
with investors, anddisclosure

Capital policy(Cash utilization,
shareholder
returns, etc.)

180 cases

84 cases

Note: Some cases are included in more than one category, as the dialog in a given meeting
may embrace multiple perspectives.

Engagement meetings by theme

Focus points
The Corporate Research Team made efforts to enhance
engagement as constituting a major principle of their activities
as analysts. Specifically, after classifying engagement into
categories, including “strong-type engagement,” which involves
direct and active interventions to encourage managementtiers to institute improvements, respective themes were
designated for companies targeted for engagement, withmilestone management promoted in terms of initiatives totackle and address issues as regards awareness, sharing,
resolution effort, and resolution. In addition to consolidating
the infrastructure to share engagement progress statuseswith fund managers, progress statuses and policies for future
initiatives are shared at morning meetings. We have also
deepened ties with the Engagement Team and are promoting
joint engagement activities between our corporate researchanalysts and fund managers.

192
180

106
84

2019

2020

2021

2022

ROE and capital cost
Capital policy (Cash utilization, shareholder returns, etc.)
Approach to dialog with investors, and disclosure
Environmental, social and governance (ESG)2023

A total of eight members (as of the end of December 2023) of the
Stewardship Section’s Responsible Investment Department havemain responsibility for holding meetings that are focused primarily
on investee companies’ corporate governance and on the exercise
of voting rights. The Stewardship Team collects information fromthe investee company that is needed for making decisions
regarding the exercise of voting rights. In addition, during the courseof the dialog with the investee company, the Team outlines theproxy voting strategy and Daiwa AM’s expectations of the investee
company in terms of corporate governance, with the aim of having
consensus with the investee company. In recent years, the content
of dialogs has covered a wide range of topics, including mediumand long-term management, capital strategies, and ESG-related
initiatives, with themes outside the exercise of voting rights andgovernance also being covered. Furthermore, although Daiwa AM
strives to ensure a clear division of responsibility between the
Stewardship Team and the Corporate Research Team, these two
teams work collaboratively to engage in dialog with investee
companies; for example, members of both teams may be asked toattend meetings, when necessary.

Part 1

Stewardship Activities

30.7%

As part of their regular analyst activities, Daiwa AM’s
corporate research analysts conduct stewardship activities
that contribute to the enhancement of corporate value andto sustained growth. There are a total of 14 analysts (as ofDecember 31, 2023), divided into four teams: Consumer
Services; Electronics; Materials & Industrial; and Utilities &Financial.. The implementation of constructive engagement
makes use of various shared platforms and tools, including:
1 The Analyst Handbook, which outlines the fundamental
approach to be followed and presents the knowledge which
underpins analyst activities; 2 The Business Strategy Case
Studies, which are based on analysis of actual businessenterprise management strategies; 3 ESG Materiality Item
Summary, which compiles information on key ESG items
required for engagement, etc.; 4 Qualitative analysis, inwhich companies are assessed qualitatively from a
medium- to long-term perspective in terms of both financial
and non-financial aspects; 5 The compilation of a Long-term
Corporate Valuation Model, to determine companies’ fairvalue over the medium to long term.

Overview

Activities status in the term under review

Focus points
In the term under review, we focused on conducting dialogs withoutside directors as well as dialogs with proposing shareholders
at investee companies. Dialogs with outside directors wereconducted from the perspective of examining how theindependence and effectiveness of the board of directors isappropriately ensured, and how outside directors, as the voiceof minority shareholders, contribute to increasing corporate
value. For the dialogs with proposing shareholders, we
endeavored to engage in the exercise of voting rights from moreneutral perspectives to contribute to improvements to corporate
value over the medium to long term by conducting dialogs notjust for those on the corporate side as has traditionally been thecase, but by also actively engaging in dialogs with proposing
shareholders who could be referred to as activists. In the next
fiscal year, we plan to actively engage in both conventionalpassive engagement, and in issue resolution-type engagement
focused on improving Daiwa AM’s materiality.
34

Engagement

Daiwa AM’s Vision for Investee Company Best PracticeDaiwa AM defines its vision of investee company best practice for the sustainable enhancement of corporate value as
outlined below. Daiwa AM will continue to use engagement, etc. to encourage investee companies to adopt thesemeasures.
Key Issues
Climate change / Natural capital
Environmental
Social responsibility / Human capitalSocialClimatechangeBy formulating and analyzing climate change scenarios in line with the TCFD framework, the company identifies transitionalrisks, physical risks and business opportunities.
The company implements quantitative monitoring of greenhouse gas emissions, emissions per unit of production, and theanticipated risks and opportunities.
The company formulates a concrete roadmap and milestones for achieving carbon neutrality by 2050, and explains the
progress made on an annual basis. It is also desirable that the company should set a goal of reducing emissions by at least
50% by 2030, in line with Daiwa AM’s NZAMi intermediate goals.
The company formulates and implements a business strategy that takes both risks and opportunities into account, andimplements the summarizing and evaluation of activity implementation status.

NaturalcapitalThe company performs a “stocktaking” of business continuity risks by identifying links between natural capital (forests, water
resources, mineral resources, biodiversity, etc.) and its own business activity, and by analyzing its impact on the naturalenvironment and the extent to which it is dependent on the natural environment. The company identifies its materiality on
the basis of this analysis.
The company incorporates natural capital considerations into its management policy.

Socialresponsibility

The company formulates a concrete human rights policy based on international human rights standards.
The company implements human rights due diligence and auditing that also covers stakeholders in the supply chain on an
ongoing basis, and formulates improvement strategies to address the due diligence results and the issues found.

HumancapitalThe company formulates a human talent strategy that is integrated with its business strategy. The content of the humantalent strategy includes measures relating to initiatives for recruiting and retaining first-rate human talent, frameworks andinitiatives for human talent cultivation, and initiatives for enhancing employee engagement.
Besides announcing concrete measures that enunciate how the company will implement initiatives to promote active
participation by women, the company will also formulate initiatives aimed at reducing the disparities between male andfemale employees, based on gender-specific, quantitative indicators. It is desirable that, in the future, the company shouldhave female directors account for at least 30% of the membership of the board of directors. It is also describable for thecompany to put in place a framework (for talent pooling) that facilitates the ongoing appointment of female directors fromwithin the company.
The company formulates initiatives and concrete measures aimed at ensuring not only gender diversity, but also diversity
in terms of nationality, age, experience, etc.

Governanceframework

The company has a board of directors composition that is appropriate and effective in terms of best practice. From theperspective of enhancing understanding of the board’s effectiveness, it is desirable that the main initiatives decided on anddiscussions held at board meetings, etc. should be disclosed.
The company formulates processes and criteria for decision-making in regard to management team succession. Besides
outlining the knowledge, experience and capabilities that directors are expected to possess, the company also formulatesa skill matrix and a director allocation plan for the future.
The company does not adopt takeover defense measures.
The company discloses the basic approach and philosophy that underpins its director's remuneration system. The company
also adopts malus provisions and claw-back provisions.
The company divides compensation into fixed compensation, short-term incentive compensation and long-term incentive
compensation. Short-term incentive compensation is linked with and evaluated in relation to the degree of achievement ofstrategic objectives; long-term incentive compensation is linked with and evaluated in relation to corporate value. It is
desirable for the share of total compensation held by long-term incentive compensation to be increased, withinappropriate limits. Long-term incentive compensation should also be incorporated into compensation for outside
directors where this would contribute to the enhancement of corporate value.
The company considers the desirable number of members of the board, with a view to promoting a lively exchange of views
at board meetings, to be around 10 at most.

Riskmanagement

The company formulates rules governing diversity, human rights, supply chain, data security, etc.
The company’s internal auditing requires the maintenance of a direct reporting line to the board of directors and the boardof auditors.
It is desirable that the company should establish a framework for ensuring group-wide internal controls, and that theinternal reporting system should provide multilingual support in line with the internationalization of corporate activities.
The company will put in place a framework so that, in the event that misconduct or a scandal occurs, the reasons why theinternal controls system did not function properly will be thoroughly investigated, strategies will be formulated to prevent
reoccurrence, and the implementation and effectiveness of these strategies will be confirmed and verified on a periodic
basis.

Improving
capitalefficiency

The company implements the following measures so as to raise ROE above equity cost and realize a continued, steady
expansion of the equity spread.
–The company formulates a long-term vision, and formulates a medium-term management plan through back-casting from
this.
–The company’s medium-term management plan clearly specifies the growth strategy, and the company monitors progressstatus on a regular basis with respect to the investment planning and key measures needed to achieve this.
–The company considers withdrawing from or selling off businesses and assets with low capital efficiency where there is noprospect of improvement. The company will also work actively to reduce cross-shareholdings.
–The company will formulate an appropriate approach to capital structure and shareholder returns.

Communication

The company compiles an integrated report and/or ESG report, and also compiles detailed supplementary data toaccompany its financial results. The company also implements timely disclosure of other information.
The company creates opportunities for dialog between senior management, outside directors, employees andshareholders, respectively, at least once a year. The company also holds regular business presentations and site visits, etc.
The company’s management philosophy, long-term vision and business plan are consistent with one another and are able
to appeal to stakeholders.
The company’s outside directors are aware of where the company needs to be, are capable of confirming and pointing out
the company’s problems, and are provided with adequate information by the company.
IR personnel have access to all necessary information for engaging in dialog with investors, and the management teamreceives feedback on the content of dialog with investors.
In regard to initiatives relating to key ESG issues, the company implements all necessary disclosure adequately, and also
engages in dialog with stakeholders.

Enhanced collaboration between the Engagement Team and the Corporate Research Team
While fund managers in the Engagement Team andanalysts in the Corporate Research Team have previously
worked together when required, we are now making
efforts to deepen this collaboration. Doing so will enable
us to improve the quality of engagement conducted by
the Engagement Team, as well as to facilitate more active
engagement by Daiwa AM as a single entity in investee
companies with which engagement is conducted. We will

To dateEngagement
Team

thereby aim to realize even greater benefits from theimproved investment performance that engagement
brings.

Going forward

Corporate
Research TeamEngagement
Team

Corporate
Research TeamPart 1Engagement funds

Other funds

Utilization of a Japanese version of the
Drucker Institute Score
In 2022, Daiwa AM formed a comprehensive businessalliance with the United States’ Drucker Institute, and as partof this alliance, have jointly developed a Japanese version of
the Drucker Institute Score for Japanese companies.The
Japanese version of the Drucker Institute Score will be used
to quantify human capital, intellectual property, and othercapabilities which financial data fails to capture, thereby
actively increasing the effectiveness of engagement.

Engagement funds

Other funds

Enhancing “lingagement” andcontinuation of the ESG Meetings
We will continue to provide opportunities for exchanges
between investee companies and introductions of bestpractice companies as part of our “lingagement” initiatives.
In addition, we will continue to conduct our ESG Meetings,
which have been held since 2021.

Stewardship Activities

Measures aimed at corporate value enhancement
Governance

Information disclosure / Comprehensiveness / Importance

35

Best PracticeEngagement Plan for the Next Fiscal Year

Enhancing passive engagement
As previously described, we will actively engage in passive
engagement to improve investment performance, andthereby increase fiduciary returns with respect to passive
fund investment. This will initially involve Daiwa AM
encouraging companies that we judge to have high ESG
risks based on our materiality to take action to reduce
those ESG risks. By doing so, we will continue toencourage them to improve their corporate value overthe medium to long term.

36

Proxy Voting

Proxy Voting

Approach and response to shareholder proposals
Votes in favor or against proposals by shareholders
Recently, shareholder proposals have been on theincrease, with various such proposals also having been
put forward for discussion in 2023.

Key features of Daiwa AM’s Proxy Voting Policy
We will fulfill our fiduciary duty, aiming to improve the medium- to long-term value and sustainability ofinvestee companies while at the same time exercising our voting rights in consideration of the interests ofminority shareholders.
In principle, we will exercise our voting rights on shares of all investee companies for which we haveauthority to exercise them, without distinguishing between active and passive management.
Approval or disapproval of the exercise of voting rights is determined independently by Daiwa AM based on
criteria established by the Stewardship Committee (Proxy Voting Criteria). Specific Proxy Voting Criteria areformulated and made public.
We make rational decisions based on the relative position of the investee companies in the TOPIX 17
industry categories, which are more in line with the actual circumstances of the investee companies.
Based on individual consideration drawing on the results of constructive dialog (engagement) with thecompanies, we may in some cases make decisions for or against that diverge from the Proxy Voting Criteria(including escalation strategies).

Approach to major shareholder proposals
Appropriation of surplus: Decisions made from theperspective of improvements to corporate and shareholder
value over the medium to long term following a comparison
with the company’s proposal
Treasury stock acquisitions: Consideration of the company’s
use of shareholder equity, cash flow and other factors
Sale of cross-held shares (proposals to amend the Articles ofIncorporation): Consideration of the appropriateness of crossshareholdings; measures to reduce cross-held shares; periodof sale sought by shareholder proposal; appropriateness ofshare quantity to be sold, and other factors based on thestatus of company’s use of shareholder equity
Disclosure of capital costs (proposals to amend the Articles ofIncorporation): Consideration of the company’s disclosure
statuses (including engagement) for their medium-term
management plan, capital policy and growth strategy, with theProxy voting process
Proxy voting is implemented by means of a painstaking
process that reflects the know-how obtained throughconstructive dialogs with investee companies. Daiwa AM
is also committed to deepening our mutual

understanding by engaging in constructive dialogs withinvestee companies through the proxy voting policy andoutcomes, thereby contributing to enhancements to thecorporate value of investee companies.

1 Proposal where the determination as towhether to vote in favor must be madeon the basis of the Proxy Voting Policy

2 Proposal where the Proxy Voting Policy

specifies that the proposal requires
specified deliberation

CompanyA

Daiwa AM Engagement Participants:

Corporate Research Team;
Stewardship Team

Outline of Shareholder Proposal

Careful scrutiny of the proposal
3 Proposal where it is determined thatspecified deliberation is required in this caseSpecified deliberation (Stewardship Committee)

ﾠIn response to last year’s TOB from Company X, the company agreed to apurchase price that underestimated the potential of Company A, the sole
reason for which was to protect itself by becoming a director of Company
X. The proposing shareholder, Company Y, believes it is possible to realize
shareholder value above the offering price by Company X.
ﾠCompany Y pointed out a lack of governance in that the board of
directors makes decisions without sufficient discussion or institutional
decision-making, and even outside directors blindly support
management’s decisions. Current management has failed to act tomaximize shareholders’ profits, and the proposal regarding election of
directors was submitted based on the judgment that a restructuringof the board is necessary to improve corporate value.

Topics of Discussion with Company A
Determination as to whether to vote in favor of the proposal

Exercise of voting rights

ﾠRelationship with Company X going forward regarding last year’s TOB
from Company X
ﾠBackground of the major changes in governancestructure, including the resignation of two representative directors
and a major reshuffling of outside directors
ﾠProcess for nominating director candidates

Topics of Discussion with Shareholder Proposer
Specified disclosure of the outcome of the exercise of voting rights(Reasons for decisions in favor or against are included in the remarks column for proposals
for which specified deliberations were conducted)

37

Approach to proposals to amend the Articles ofIncorporation
Daiwa AM bases decisions on shareholder proposals put forward
for discussion as proposals to amend the Articles of Incorporationfrom a combination of the following perspectives.
① Whether the inclusion of this information in the Articles ofIncorporation will be an obstacle to the businessdevelopment of the company in question② Whether the content of the amendment is appropriate forinclusion in the Articles of incorporation

ﾠBackground leading to the shareholder
proposal and key points
ﾠProcess for selecting candidates for theboard of directors

respective thinking. In 2023, there were six cases in which we met
with both parties. Following are examples of proposals related tothe election of directors, which were among the most common.
Issues for the Stewardship CommitteeﾠIssue 1 Whether to support the plan of increasing corporate value atCompany A, and whether governance can be considered inadequate.
ﾠThe company’s new medium-term management plan and its
accompanying capital policy were rated positively, and the shareprice has risen since the TOB was publishedﾠConsidering the specificity of the business plan and the company’s
ability to implement it, we basically support the company’s
measures to increase corporate value
ﾠThere is no clear and objective proof of the inadequate governanceclaimed by Company Y, the shareholder proposer

Part 1

Stewardship Activities

ExampleProxy Voting Policy

capital costs of the company in mind
Proposals seeking responses to climate change (proposals toamend the Articles of Incorporation): Consideration of climatechange initiatives and disclosure statuses of the company

Examples of engagement with companies subject to shareholder proposals, and points
considered when making exercise decisions
Daiwa AM strives to make exercise decisions after meeting withboth the investee company subject to the shareholder proposal
and the shareholder making the proposal and confirming theirConstructive engagementwith investee companies

Daiwa AM has based decisions on votes in favor of oragainst shareholder proposals on the following
approach, principled on the application of our Proxy
Voting Policy.

Issue 2 ﾠThe skills and knowledge of the company’s proposed
directors and each of the candidates in the shareholder proposal.
Who are the candidates needed for growth going forward?
ﾠSome of the shareholder proposal candidates can be appraised ashaving the deep knowledge and skills needed for the company’s
future growthﾠOppose some of the candidates proposed by the company basedon their skill sets and other factors, given that a significant increasein the number of directors on the board could impair the flexibilityof management decision-making
ﾠVerify the skill matrices and publicly disclosed work
histories and skills

Exercise decision points and results
Approved three of candidates in the shareholder proposal from theviewpoint of ensuring diversity and in expectation of their contributions tothe company, including knowledge of new business fields.
Also, based on the judgment that the number of members on the board of
directors should not be enlarged, we opposed three of the candidates
proposed by the company after considering their skill matrices.

38

Proxy Voting

ExampleB

Company

Daiwa AM engagement participants:

Corporate Research Team;
Stewardship Team

Outline of Shareholder Proposal
ﾠShareholder proposer pointed out that the founding family has enormous
influence in the company, given that they own more than 30% of thecompany’s shares and have an oligopoly over key positions, including chief
advisor, chairman, president, and deputy president. Given also that no
voluntary systems have been put in place to protect the interests ofminority shareholders, such as establishing nominating and compensationcommittees, they proposed inviting outside directors with a greater degreeof independence.
ﾠAlso, since the issuance of stock subscription rights to the founding family
was carried out through a procedure by the board of directors without aresolution of the company’s general meeting of shareholders, effectively
putting the nature of the stock subscription rights in question as executive
compensation, the proposer suggested that nominating and compensationcommittees should be established consisting of a majority of outside
directors, both to strengthen the independence, objectivity, andaccountability of procedures for nominating directors and to determine
their compensation.

Topics of Discussion with Company B

Topics of Discussion with Shareholder Proposer

ﾠIssue 1 Problems with the governance structure

ﾠThe company has not established voluntary nominating and compensationcommittees.
ﾠThe company does not provide English-language or TCFD disclosures as
required of companies listed on the TSE Prime Market.
ﾠThey have not disclosed a skills matrix.
ﾠExecutives have a policy of not, in principle, engaging in one-on-one
discussions with shareholders and investors.
ﾠAbsolutely no training is conducted for executives.
ﾠOutside director compensation comes to about three million yen perperson, and with no voluntary committees, it is difficult to believe they are
fulfilling an adequate supervisory function.

ﾠIssue 2 Issuance of stock options (“SOs”) several years priorﾠSeveral years ago, current president Mr. Z and current deputy president Mr.
Y were issued SOs amounting to an 11.1% dilution. The reason for theissuance was to increase their commitment to management, but both
gentlemen already each held more than 10% of shares as members of thefounding family. Further, based on the judgment that this was not executive
compensation, despite the fact that both were management executives, theSOs were issued solely by a resolution of the board of directors.
ﾠThe fair value for the above SOs was 2,073 yen per share, but theactual issuance price was 15 yen. The company explained thissignificant discount by saying the SOs came with strictness ofcompany’s performance and other exercise conditions.
ﾠA downward revision to financial results prior to issuance of the SOs
resulted in a significant drop in share price, and the exercise price was set
at that share price level. Subsequently, however, full-year results ended
up exceeding the initial plan. Note that since moving to a holding
company structure, the company has not revised its results other than
this one time, and the assumptions behind the plan that was revised
downward are also not consistent with the company’s actual promotional
campaign measures.

ﾠThe problem of stock options issued to current president Mr. Z andcurrent deputy president Mr. Y
ﾠThe problem of Mr. W’s independenceﾠProblems regarding successors and continuity of the business; theindependence of the reappointed outside directors

Important management issues at Company B and the skills andknowledge required of its outside directors

Important Management Issues
Strengthening governance systems, including
protecting minority shareholders
Improving the independence and effectivenessof outside directors
Ensuring directors have the proper attitude
toward and provide opportunities for dialog
with shareholders and investors
Advancing initiatives included in themedium-term management plan
Strengthening ESG initiatives
and information disclosureﾠBased on Issue 1, there is an urgent need to improve and strengthen
the company’s governance structure.
ﾠRegarding Issue 2, if true this would represent a breach of trust
against general shareholders and a serious problem, but it is limited
to circumstantial evidence accumulated by the shareholder
proposer, and there is no definitive proof. That said, we believe thatissuing SOs with allegedly favorable terms to top management
without a resolution of the general meeting of shareholders is a signthat governance is not functioning.

ﾠThe SOs issued several years ago 1 came with a significant
dilution equivalent to 11.1% per outstanding share, and 2 byexercising these SOs, the founding family’s share of the company
would increase (to over one-third), giving them veto power.
Despite these being serious issues for minority shareholders, theSOs were issued without a resolution of the meeting ofshareholders, and solely by resolution of the board of directors.
ﾠIn addition, though the company states that the SOs were issued
to increase management commitment, no rational explanation
has been given for granting a large number of shares to just two
members of the founding family who already hold a certain
number of shares.

Decision 1 ﾠWe oppose the reappointment of Mr. Z, as thecompany’s representative director, on the assumption that thecompany’s governance failures are serious and that top
management should be held accountable for said
responsibility.

ﾠ
Decision 2 We believe that issuing said SOs solely by resolution of theboard of directors is a serious problem that disregards the interestof minority shareholders. We thus oppose those directors who
participated in the resolution of the board of directors at the time.
Refer to the chart at right for the decision regarding outside directors

39

1 Deep knowledge of corporate

governance at listed companies

2 An understanding of the importance ofdialog with shareholders, and knowledgeof capital markets
3 Knowledge of the business and industry
to support advancing business strategy
4 Deep knowledge of ESG management

Prioritization of skills and knowledge expected of outside director
candidates and their contributions to the company
Name

ProposerMr. S

Company

Mr. T

Company

Skills and knowledge

Reappointment

Reappointment

Retailindustry
management

Company

Reappointment

Accountant

Ms. V

Company

Reappointment

Corporate
management

Mr. W

Mr. X

Company

Shareholder

New
Appointment

New
Appointment

Listedcompany
management

Attorney

Mr. U

Exercise Decision Points and Results
Decision regarding inside directors

Skills and Knowledge Required of
Outside Directors

PharmaceuticalIndustry

Head of adispensing
pharmacy

M&A

Listedcompany
executive

SkillsOpinionDecision

1

Opposed based on Daiwa AM’s Proxy Voting
Criteria, given that he is the head of a major
shareholder and not an independent director.

Against1

Has served as outside director at multiple
listed companies, and has a certain amount ofknowledge or governance at listed companies.
However, in the belief that said issuance of SOs
solely by resolution of the board of directors is
an important problem that disregarded theinterests of minority shareholders, we oppose
Mr. T, who participated in that board of
directors’ resolution.

Against1

While he has no directorship experience atother listed companies, he can be expected tocontribute to supervision of governance andmanagement from the position of accountant.

In favor

1

As head of a pharmaceutical company, he canbe expected to contribute to the company’s
governance and business strategy.

In favor

3

As operator of a dispensing pharmacy, canbe expected to make a certain contribution
to advancing the company’s medium-termplan of increasing the ratio of facilities withdispensing pharmacies, however, this is nota high priority for the company. We oppose
his appointment because of concerns
about his independence, given his ties toformer employees and inside directors.

AgainstHas served as an outside director at otherlisted companies, and has a certain level ofknowledge about governance. Proposedby a shareholder and considered fully
independent, he can be expected tocontribute to improving governance.

In favor

1
3

Part 1

Stewardship Activities

ﾠOutside director selection process; why outside directors do not agree toa dialog; specific schedule for establishing nominating andcompensation committees
ﾠVerify the reason for issuing stock options issued several years prior andwho the recipients were; explanation of the significant discount from thefair price and the reason for setting the exercise price at the mostrecent stock price level; suspicions that the company may haveintentionally revised its financial results to manipulate its stock priceﾠReason for Mr. W’s appointment to the board of directors andmanagement’s response to the shareholder proposal

Issues for the Stewardship Committee

40

Proxy Voting

Roundtable Discussion with Stewardship
Committee Members
Expectations for Governance Reforms

Norihisa Takao

Jun Matsumoto

Yuka Shimada

Fumiaki Saguchi

Head of Active FundManagement Department II,
Managing Director

Head of Beta Management &Investment Solution
Department, Managing
Director

Senior Managing Director,
Head of Stewardship & ESG and Deputy
Head of Global Business, FundManagement Division

Head of Responsible
Investment Department,
Managing Director
Stewardship Analyst

Judging whether to vote in favor of or against shareholder proposals
Saguchi：Amid expectations for governance reforms at
Japanese companies, a record number of shareholder
proposals were made in 2023, and the Stewardship
Committee discussed many of them.
How do you judge whether to vote in favor of oragainst shareholder proposals (and for what kind of
reason do you vote in favor of shareholder proposals)?
What are the issues involved?
Shimada：Important criteria for deciding include

whether the shareholder proposal will lead to improving
the investee company’s medium- to long-term value andits sustainability as a business, and whether it may not be
detrimental to the interests of minority shareholders.
In addition, while proposals calling for greater disclosureof information on and stronger initiatives regarding ESG
have been on the rise recently, and may lead to increased
shareholder value, we make our decisions based on thestatus of corporate initiatives and other considerations.

Saguchi：Many shareholder proposals are submitted
calling for the appointment or dismissal of directors. Of
note are those focused on strengthening governance,
including proposals to strengthen the independence ofoutside directors and to appoint directors with skills thatwill contribute to enhancing corporate value. In somecases, they also pointed out a lack of governance on thepart of the board of directors, even in companies whose
operating results are trouble-free. What do you think isneeded to establish board governance?
Takao：The functions of the board of directors canlargely be divided between decision-making andsupervisory roles. We believe it is particularly important
for the latter to function that the board of directors
maintains an appropriate level of tension. In thisrespect, attention must be paid to the selection ofoutside directors and a balance in their numbers.
Outside directors must have the ability to independently
investigate and possibly remove top management whenproblems arise in the management of a company,
including issues related to the conduct of top
management. Regardless of business performance, we

Evaluation of the effectiveness of the board of directors and the independence of outside
directors in calling for the appointment and dismissal of directors

41

Expectations for investee companies

Saguchi：There is a trend toward outward fulfillment of
improvements in board of director governance,
including ensuring gender diversity and increasing theratio of independent outside directors. Still, the problem
is their effectiveness. What do you require of yourinvestee companies in enhancing this effectiveness?
Takao：Currently, the skills of outside directors
primarily comprise corporate management experience,but going forward, we believe it will be important tosecure personnel who have knowledge of capital
markets, including how to respond to activists and othertypes of radical investors.
We would also like investee companies to actively
pursue dialog with outside directors and institutional
investors. We think that a truly independent outside
director with sufficient skills should be capable ofengaging in dialog with institutional investors, and would
enhance the effectiveness of investor engagement
activities.

to the diversification of the board of directors. Regarding
expertise, we expect them not to intervene in businessexecution, but to utilize their skills solely in terms ofoversight aimed at improving governance.
Saguchi：What do you emphasize in determining
independence in relation to a proposal for appointmentof outside directors?
Takao：We assume that even if an outside director
formally meets the criteria for independence, it ispossible that both company and shareholder proposals
contain a fundamental bias in the choice of candidates
for outside director. This is especially likely when boththe company and its shareholders have submitted acandidate for outside director. To determine true
independence under such circumstances, we believe it
is essential to engage in dialog with candidates foroutside director to the extent time permits, to gain anunderstanding of their views on the company inquestion and the shareholder proposals.
Saguchi：There have been cases where, in the selectionof directors proposed by shareholders, you have voted
in favor of some of the candidates from the standpointof improving corporate governance, taking into
consideration their skills and other factors. What do you
think regarding the importance of skills matrices as ameans of verifying a director’s skills?
Takao：They are important in the sense that they are afirst step in verifying whether the skills the board needsin order to function properly are well-organized and how
those skills are covered by the inside and outside
directors. That said, in some cases the skills indicatedmay be of questionable reasonableness and objectivity,
making it difficult to judge solely on the skills matrix.

Part 1

Stewardship Activities

At Daiwa AM, the Stewardship Committee deliberates proposals for which the Proxy Voting Policy
stipulates in advance that individual decisions are to be made, or for which individual deliberations are
deemed necessary. At Stewardship Committee meetings, committee members engage in a vigorous
exchange of various opinions, each time resulting in heated debate. Here, four members of the
Stewardship Committee review several agenda items from general shareholders’ meetings and talk about
the effectiveness of the board of directors as the key to improving corporate value.

believe it is necessary to alter the numerical balance
within the board, such as by increasing the number ofoutside directors, when shareholder proposals aimed atstrengthening governance seem supported by a certain
rationale.
Saguchi：Daiwa AM manages many passive funds; what
are the key points you emphasize in exercising voting
rights from the viewpoint of passive management?
Matsumoto：In passive management, we handle ahuge number of stocks, and realistically, this makes it
difficult to discuss the individual compositions of theboards of directors of every company. As long as thestock is employed in an index aiming to be linked, itcannot be sold simply for lack of governance. The
composition and effectiveness of the board of
directors must be judged externally in terms of theratio of outside directors, diversity, and other factors. If
it fails to meet those criteria, we express our intentions
through the exercise of our voting rights in thecompany, and encourage them to make
improvements. Other possible criteria for deciding tovote in favor of or against a proposal include, as noted
previously, the ratio of outside directors, ensuring
diversity and other quantitative standards, as well as
qualitative judgments from the viewpoint of capitalefficiency, corporate culture, etc. as seen in thereasons for and responses to scandals, and others.
Saguchi：You mentioned that in establishinggovernance, selection of outside directors and the ratioof outside directors on the board are important. Whatdo you think is required of outside directors?
Shimada：I believe they require the independence thatenables objective supervision of management, as well as
a variety of attributes and expertise that can contribute

Shimada：I also look for opportunities to engage indialog with outside directors. In doing so, I try to verify
whether they have sufficient knowledge andunderstanding of the company, whether they
understand the role expected of them, and how they
deal with the company in exercising the supervisory
function.
I think it is also important for the companies
themselves to improve the effectiveness of their outside
directors by conducting their own effectivenessassessments and addressing any issues they may
identify.
Matsumoto：We expect to see proactive dialog withactivists. We also believe that, to increase effectiveness,
it is important that companies ensure that board of
directors’ meetings are held frequently enough to allow
for adequate discussion.

42

Proxy Voting

Proxy Voting Outcomes

Proposals relating to Articles ofIncorporation

In 2023, proxy voting rights were exercised for 2,412 Japanese companies and3,171 non-Japanese companies. The following table shows the status of those
votes by proposal.

100

4.3

8.4

（%）

1.7

75

■ In favor ■ Against ■ Pending

91.6

94.0

25
0

Proposals relating to company proposals
Total
Foreign stocks

8.9%

1.5%

Domestic stocks

Foreign stocks

Domestic Stocks

89.1%

Proposals relating to company organization
Appointment and dismissal of
Directors
8.9

8.9

（%）

1.4

75

24.6

Appointment and dismissal of
Corporate Auditors
100

10.3

8.9

91.1

50

89.7

91.1

Foreign stocks

0

Domestic stocks

Appointment and dismissal of
Accounting Auditors
100

0.0

75

96.1

Domestic stocks

Foreign stocks

25

Foreign stocks

0

100

7.0

0.2
（%）

20.0

0.2

75

Payment of retirement benefits for
retiring Executives
（%）
100

6.2

75

50

93.0

50

79.7

25

25

0

0

Domestic stocks

84.5

Foreign stocks

93.8

15.5

Domestic stocks

Foreign stocks

Proposals relating to capital policy（%）

Appropriation of surplus
4.2

0.1
0.3

75

99.6

95.8

Domestic stocks

100

Foreign stocks

0.0

4.0

（%）

0.5

75

43

14.1

75

100.0

85.9

0

0.0

Domestic stocks

Foreign stocks

Other proposals relating to capital
policy*3
（%）
100

0.0

12.5

1.2

75

100.0

95.6

25
0

100

25

Organizational restructuring*2

50

Introduction, revision or abolition of
takeover defense measures
（%）

50

25
0

87.3

0

Domestic stocks

Foreign stocks

50

100.0

86.3

Domestic stocks

Foreign stocks

25

Domestic stocks

Foreign stocks

0

With regards to domestic stocks, Daiwa AM
opposes the introduction or continuation ofpre-introduction takeover defense
measures. For contingency-introduction
takeover defense measures, we scrutinize
the nature of these measures and basedecisions in favor or against these after
considering details such as the particular
scheme, as well as plans to enhance
corporate value on the part of both thepurchaser and the investee company.
*1 We may choose “Pending” for decisions on
exercising votes on foreign stocks from thestandpoint of improving shareholder value.
*2 Includes proposals relating to mergers, business
transfers and acquisitions, share swaps, sharetransfers, corporate splits, etc.
*3 Includes proposals relating to treasury stockacquisitions, reduction of statutory reserves,increase in allocation of new shares to third
parties, capital reduction, reverse stock splits,
issuing of classified stock, etc.

1.4％
36.1%
62.5%

ColumnApproach to Performance Criteria
Through the exercise of voting
rights, we aim to improve themedium- to long-term value
and sustainability of ourinvestee companies.

Part 1

Stewardship Activities

Proposals relating to Executive compensation
Executive compensation

（%）

2.3
1.6

100.0

50

65.1

25

Domestic stocks

（%）

24.6

75

25

50

100.0

Foreign Stocks

79.4%

100

50
25

20.6%

0

（%）

2.2

10.5

Total

9.5%
91.1%

50

0.0

Proposals regarding shareholder proposals

Domestic stocks

100

100
75

50

*1

Other

Toru Yamanoi
Senior Executive Managing Director
Head of Fund Management Division

In the exercise of proxy votes regarding domestic
stocks, Daiwa AM voted against 8.9% of company
proposals. This was up by less than 2% compared to ourvoting record in 2022, but it has been pointed out that
this rate of opposition is lower in comparison to theproxy voting records of other institutional investors.
The majority of company proposals involve
proposals regarding the appointment of directors andthe disposition of surpluses. In principle, however, we
oppose candidates for reappointment as directors ofinvestee companies that have failed to achieve ROE forthree consecutive terms when compared to othercompanies in the same industry.
In general, institutional investors’ proxy voting criteria
use the same thresholds for ROE and otherperformance criteria. However, Daiwa AM’s policy is to
use the criteria noted above based on the belief thatdecisions should be made by looking at individualcompany circumstances and the characteristics of eachindustry. The percentage of votes exercised against
candidates of reappointment to boards of directors thus

tends to be relatively low.
That said, with regards to shareholder proposals,
which have been on the rise in recent years, as withcompany proposals we carefully examine eachcompany’s situation and make decisions in favor of oragainst proposals with the goal of improving corporate
value over the medium to long term. As a result, theratio of approval of shareholder proposals byinstitutional investors, including activists, was 20,9%, up
4.2% from 2022*4.
These approval/opposition ratios result from a close
examination of individual proposals, and are notintended to control the ratios themselves, and thus they
are likely to rise or fall going forward. However, we willcontinue to exercise our proxy voting rights based on aclose study of the condition of the individual companies
and the characteristics of their respective industries,
based on the judgment that those decisions will truly
contribute to improving their corporate value.
*4 Compiled by Japan Shareholder Services Ltd.

44

Proxy Voting

Stewardship Committee

Comparison with previous year (2022)
The number of opposing votes increased as a result of arevision of the Proxy Voting Policy in May 2023, which
expanded the criteria for the appointment of at least one
female director from TOPIX 500 companies to the TSE
Prime Market, and tightened the application of thosecriteria to companies.

In addition, when judging the number of outside
directors, the number of votes in opposition has
increased with a change to judging by the number of
independent outside directors, which meets Daiwa AM’s
requirements for independence.

Opposition to representative directors due
to violation of criteria on female corporate
officers

Opposition to representative directors due
to insufficient number and ratio ofindependent outside directors

6 proposals

147

proposals

Future issues to consider
Some of the issues for future consideration regarding theProxy Voting Policy (domestic stocks) include the following:

Cross-shareholdings
Daiwa AM believes that, in principle, cross-shareholdings
should be sold because the cross-holding of shares
reduces the company’s governance function and becausesuch cross-holdings can lead to a decline in capitalefficiency. At the same time, we recognize that it is difficult
for companies with large current holding to rapidly reduce
those holdings, so we have set a threshold for excessive
holdings at 20% or more of net assets. We will, however,consider lowering the numerical criteria going forward. In
addition, we recognize that the practice of asking business
partners, etc. to hold a company’s shares or to refuse to
sell a company’s shares is problematic. We will thus seek
improvements from such companies throughengagement, and consider incorporating those efforts in
our proxy voting criteria going forward.
WEB Please visit the following webpage for details and information on otherissues being considered (in Japanese):https://www.daiwa-am.co.jp/company/managed/revguideline.pdf

45

We focus on engagement andseek to enhance the corporate
value of investee companies
and increase the medium- tolong-term returns of each
investment fund.

369

Hisashi Kanamori
Senior Executive Managing Director, Executive
Head of Fund Management Division and CIO andHead of Global Businessproposals

Adjustments to individual disclosures
Early disclosure
We disclose our decisions for or against individual
investee companies and proposals at the end of themonth following the month in which the general meetingof shareholders is held.
Dedicated site set up to facilitate searchers
Using the Glass Lewis platform, we have created anenvironment that makes it easy to search for results ofproxy votes by filtering by the date of the generalshareholders’ meeting, searching by issue name, and soon. Past proxy vote results can also be viewed.
Tool for disclosing proxy vote results using the
Glass Lewis platform

https://viewpoint.glasslewis.com/WD/?siteId=DaiwaAM

Data can be downloaded as an excel file
You can collate and analyze the proxy vote results bydownloading the Excel file.

In 2023, the capital efficiency and market evaluationsof companies were once again a focus of attention
following a request from the Tokyo Stock Exchange for
Action to Implement Management That Is Consciousof Cost of Capital and Stock Price. Many companies
announced specific measures for enhancing ROE and
PBR, and awareness of capital costs, ROE, and PBR has
increased on the part of both investors andcompanies. There will continue to be expectations forcompanies to take active measures into the future,and the importance of stewardship activities as ameans of actively promoting reforms by investee
companies is increasing.
Daiwa AM believes that engagement (constructive
dialog) that involves direct communication withinvestee companies is the foundation of ourstewardship activities, and we have long actively
conducted such activities. We also believe thatengagement conducted with appropriate content andmethods to address the issues that companies arefacing can identify and eliminate the factors that
impede fundamental corporate value, thereby leading
to improved corporate value.
In active management in particular, we go beyond
simply seeking improvement in the quantitative
indicators, such as ROE and PBR, of investee
companies, and we engage in exchanges of opinions
to encourage investee companies to reform theirbusiness portfolios by reviewing their corporate
culture and exploring new business areas where they
can leverage their strengths, encouraging corporatetransformation. For example, we conduct“lingagement” initiatives for companies that are
confronting the issue of improving corporate value,such as introducing companies that have faced similar
issues and found solutions and holding networking
events where companies can share their knowledge.
For an even broader scope of investee companies,

Daiwa AM engages in passive engagement that seeks toenhance corporate value for the market as a whole. In
passive engagement, the primary aim is to mitigate andeliminate risks based on the material issues that weemphasize in relation to ESG and best practice adopted
in the organizing of initiatives of companies that we
believe conduct the best corporate governance overall.
We see the exercise of voting rights of investee
companies, along with engagement, as a key tool forcontributing, as an institutional investor, to theimprovement of corporate value. When establishing orrevising standards on the exercise of voting rights, we
use the knowledge that we gained throughengagement and conduct adequate internaldeliberation so that our ideas on corporate
governance can be reflected. In addition, if wedetermine through engagement with a company that
it would not be appropriate to decide whether to votefor or against a proposal in accordance with the voting
criteria, we may engage in internal deliberations toreach a decision on a case-by-case basis.
In July 2022, Daiwa AM formed a business alliancewith the Drucker Institute in the U.S., and in Decemberof that year, we established and began managing the
Drucker Institute U.S. Equity Fund (Capital Growth Type),
which uses a proprietary analytical model based on the
Drucker Institute Score. In March 2024, we jointly
developed a Japanese version of the Drucker Institute
Score that covers Japanese stocks. In addition to using
this score for investing in Japanese stocks, we are also
considering its application as an engagement tool that
focuses on the intangible assets of Japanese companies.
Going forward, Daiwa AM will continue to use tools,
such as the Drucker Institute Score and ESG scoresthat we independently calculate to conductengagement and stewardship activities with theobjective of increasing returns for investors by
improving corporate value.

Part 1

Stewardship Activities

Tackling ESG issues(Diversity, equity, and inclusion)
Daiwa AM believes that diversity, equity, and inclusion
initiatives and enhanced information disclosure bycompanies are important topics of engagement. Not only
do these efforts contribute to enhancing corporate value,
but also improve the efficiency of corporate managementby making use of underutilized corporate resources.
Proxy voting criteria currently require TSE Prime
Market listed companies to have a multi-gender board
member composition, but we will consider expanding thescope of application and requirements regarding thenumber of members in the future.

226 proposals

Message from the Chair of the Stewardship Committee

46

Stewardship Activities

Sustainable Investment

Framework for Stewardship Activities

ESG Investment Policy

The Stewardship Committee undertakes decision-making in relation topractical policies, and the Stewardship Supervisory Committee
oversees conflict of interest management in relation to stewardship
activities.
To eliminate concerns about conflicts of interest, the Stewardship
Committee excludes from its membership personnel who concurrently
hold posts in either the Marketing Division, which oversees
relationships with sales companies, or the Corporate Planning
Department, which handles communication with major shareholders.
The Stewardship Committee shares information relating to, andfuture strategies for, engagement with companies, the Proxy Voting
Policy, policies on surveys and investment relating to sustainability
including ESG, and international initiatives relating to issues such as
climate change and human rights. It also conducts deliberation anddecision-making in regard to policy revision and participation ininitiatives.
As there is a requirement that more than half of the members of
the Stewardship Supervisory Committee must be Outside Directors, it isable to conduct monitoring of conflict of interest management inrelation to stewardship activities, including proxy voting, from aperspective that is independent of the company’s management. The
Stewardship Supervisory Committee also submits reports to the Boardof Directors and, when it deems it necessary, issues recommendations
to make improvements in regard to conflict of interest management.

Through its asset management business, Daiwa AM aims
to make a positive contribution toward Beneficiaries’
asset formation over the medium to long term. To
achieve this goal, besides the appropriate selection of
investment assets (i.e., stocks and bonds), enhancing the
medium- to long-term corporate value and sustainabilityof the issuer companies and organizations (hereinafter“investee companies”) is also extremely important, while
maintaining the sustainability of society as a whole is alsoa prerequisite.

Framework
Board of Directors
ReportingEntrustment

Stewardship Supervisory Committee
Chair: Outside Director
Members: Outside Directors, Director with responsibility forlegal & compliance
Scope of Deliberations
Stocks that pose conflicts of interest
Recommending
improvements

Reporting

Stewardship Committee
Chair: CIO
Other members: Executive officers and departmental
managers assigned to the Fund Management Division(14 members as of December 2023)

Details of activities
Decision-making in regard to all stewardship activities
Reporting on engagement activities
Decision-making in regard to, and reporting on, proxy voting
matters
Reporting

PolicyStewardship activities
Corporate
research analysts

Fund managers

Constructive dialog(engagement)

Personnel of the Stewardship
Section of the Responsible
Investment Department
Proxy voting

As an asset management company that plays an important role within
the Daiwa Securities Group, Daiwa AM emphasizes great importance toits fiduciary duty and strives to fulfill this duty in its daily operations.
When conducting asset management operations, Daiwa AM keeps inmind the possibility that conflict of interest might arise between Daiwa
AM or other Daiwa Securities Group member companies and thebeneficiaries of the investment trusts established and/or managed by
Daiwa AM (hereinafter referred to as “Beneficiaries”). With this in mind,
to prevent the inappropriate causing of harm to the interests ofBeneficiaries, Daiwa AM has put in place a system for the proper
management of transactions, etc. where there is a possibility of conflictof interest.
So that Beneficiaries can use Daiwa AM funds with peace of mind,
Daiwa AM has formulated a Management Policy for Conflict of Interest,a summary of which is presented on the company’s website.
WEB For more details, please visit the following webpage (in Japanese):
The Management Policy for Conflict of Interest (summary)https://www.daiwa-am.co.jp/company/policy/interest/index.html
Proxy Voting Policy
https://www.daiwa-am.co.jp/company/managed/guideline_03.pdf

47

Conflict of interest management inrelation to proxy voting
The Stewardship Committee will treat the voting rights as special cases
when exercising the voting rights for securities issued by companies
with a capital relationship (Daiwa AM’s affiliates including Daiwa
Securities Group Inc., etc.) or business relationship (companies that are
distributors of our Investment Trusts, and their parent companies), as it
may lead to conflict of interest. For proposals by these companies
which should be decided independently of the regular criteria, we will
exercise the voting rights based on the advice given by the external
proxy advisor (Glass, Lewis & Co., LLC), so as to avoid conflict of interest
and ensure the neutrality of the decision. However, if the Stewardship
Committee determines that following this advice would not beappropriate, from the perspective of enhancing corporate value orminority interest, then it may independently decide whether or not the
proposal should be supported. With regard to proxy voting in relation
to proposals made by companies that are the object of conflict ofinterest management, the Stewardship Committee will submit periodic
reports to the Stewardship Supervisory Committee. The StewardshipSupervisory Committee may also provide advice, when requested by
the Stewardship Committee, prior to the making of a decision by the
Stewardship Committee in regard to specified deliberation or whether
or not to vote in favor of a proposal.

ESG Investment Policy

1. Through our asset management business, we will provide all investors with the opportunities to invest incompanies that are proactively addressing ESG and SDGs issues, as well as contributing to building asustainable society.
2. We believe the companies‘ ESG initiatives can lead them to grow in the medium-to-long-term and reducerisks. We will consider these measurements in terms of our investment decisions.
3. Through constructive dialogue with the investee companies, we call for proactive ESG initiatives and share
ESG issues. We will support them to maintain sustainable growth and longer-term corporate value.
In addition, based on the strategy outlined above, Daiwa AM has positioned the following items as its ESG Materiality(key issues), and is striving to accurately monitor the status of investee companies and industry as a whole, and to share
its awareness of these issues.

Materiality

Part 1

Stewardship Activities

Investee companies

Conflict of Interest Management
The management policy for conflict of interest

To enhance the medium- to long-term corporate
value and sustainability of investee companies, it is vitalto build a good relationship with the environment (E) andsociety (S) based on appropriate governance (G). We
believe that this can also contribute toward therealization of a highly sustainable society.
In playing a role as a link in the investment chain
alongside Beneficiaries and investee companies, Daiwa
AM is implementing measures that embody a focus on
the key aspects of ESG.

Materiality relating to environmental, social and governance (ESG)
Key issues

Specific points of focus

Information disclosure

Climate change

Greenhouse gas emissions
Energy transition

Responding to climatechange risk

Natural capital

Environmental pollution
Biodiversity

Resource conservation

Business and Human rights
Supply chain management

Contributing toward thebuilding of a healthy, safe
society

Environmental

Social responsibility

SocialGovernance

Human capital

Enhancing the value of human capital
Diversity, Equity & Inclusion

Measures aimed at corporate
value enhancement

Governance framework
Improving capital efficiency

Risk management
Communication

Other perspectives on sustainability in general
Key issue

Other sustainability

Specific points of focus

Intellectual property (IP)Artificial intelligence (AI)Digital transformation (DX)48

Sustainable Investment

ESG Integration
Core materiality (Targets and Measures)

In-house ESG score

Integrating core materiality with Daiwa AM’s
investment and business activities
Daiwa AM has analyzed its materiality from two
perspectives: sustainability, and long-term returns. Items
that score highly for both of these perspectives are
identified as core materiality. Besides reflecting the core

Climate change
Daiwa AM will require the formulationand implementation of businessstrategies that take into account thelevel of greenhouse gas emissions andthe risks and opportunities relating toclimate change, and will requiresummaries and evaluations of related
activity status.

E

Improving capitalefficiency
Daiwa AM will require the raising ofreturn on equity (ROE) above cost ofequity, and the continued, steadyincrease of equity spread.

Governance system
Daiwa AM will require the improvementof the governance system, in terms of
institutional design, the effectiveness of
the Board of Directors, the role ofOutside Directors, the compensation
system for company officers, etc.

Core Materiality

DE&I(Diversity, Equity & Inclusion)

With the aim of identifying companies’ ESG-related risks
and opportunities from multiple perspectives and thenusing this information effectively in investment decisionmaking, Daiwa AM calculates its own proprietary ESG
scores. In the spring of 2023, the existing ESG scoresystem was revised, and Version 2 was introduced.

With the new ESG score system, quantitativeevaluation of ESG data is used to build models. By
comparison with the old system, significantly increased
number of data items makes it possible for moreaccurate scoring that reflects the actual situation.

Investee company
Proxy voting

Engagement

Research

Stewardship team

Quantitative
approachEngagement

Corporate research teamInsights ofbest practiceand materiality

Insights from
ESG research

Data vendors

Insights of industry
and individual
enterprisebusiness model

Quantitative research teamInsights from
ESG data model
development

Insights of bestpractice andmateriality

More than 100
items of ESG data

Model construction
Selection and weighting of relevant ESG data based on materiality and best practice.
Adjustment with reference to qualitative judgments by corporate research analysts.

ESG Score (Ver. 2)
Part 1

ESG score and performanceG

Daiwa AM will require respect fordiversity and equality of opportunity inrelation to all stakeholders, and will
require the elimination of
discrimination and harassment.

Using the ESG scores compiled by Daiwa AM, theuniverse of stocks was divided into five quintiles and thenthe performance disparity between the first quintile(highest scores) and fifth quintile (lowest scores) of stocks
was analyzed. It was found that, over the period

measured, the stocks in the first quintile steadily
outperformed the stocks in the fifth quintile, showing
that, on average, the higher a company’s ESG score, thebetter its performance.

Stewardship Activities

S

materiality identified by Daiwa AM in engagement, proxyvoting and investment decision-making, the company isalso applying this core materiality across a wide range ofits business activities, including product development
and sales strategy.

ESG score―cumulative returns (first quintile to fifth quintile)

（%）
25
20
15
10
5

Product development and sales strategy
49

/1

11

24
20

/9

23
/

20

/7

20
23

/5

20
23

/3

20
23

/1

20
23

/1
1

20
23

2/
9

20
22

2/
7

20
2

2/
5

20
2

2/
3

20
2

20
2

1

2/
1

20
2

9
21
/

21
/1

20

7
21
/

20

5
21
/

20

3
21
/

20

1
21
/

20

11

20

/9

20
/

20

/7

20
20

/5

–5
20
20

ESG integration

0

20
20

Engagement and proxy voting

Note: The stock universe comprised the stocks included in Japan’s TOPIX 1000 index. When monthly rebalancing is executed, neutralization is implemented using Daiwa AM’s
proprietary industry classification.

50

Sustainable Investment

Integration of ESG scores and other no-financial data into the investment process, andcollaborative utilization of this data via the information infrastructure
ESG scores and the content of dialog with companies are stored in our in-house information infrastructure, a system thatallows anyone involved in asset management to utilize the information. By utilizing this information not only for equity
investment but also for fixed income investment, Daiwa AM has succeeded in taking credit analysis to a higher level.
Investment process of funds

Initiatives on each asset productJapanese Equities

Collaborative utilization of information

Listed stocks, corporate bonds, etc.
Screening based on research output and fundmanagement plan

Names that are targets for investment
Qualitative and quantitative evaluation offinancial information and of ESG and othernon-financial information
Candidate names
Selection of candidate names

Equity Investment
Team
REIT Investment
Team

Collaboration
Accompanying
duringengagement

Collaboration

Fixed Income
Investment Team

Information
infrastructure
ESG score
Engagement results
Collaborative
utilization

Collaboration

Takahiro Isobe
Portfolio building

Senior Fund Manager,
Active Fund Management Department Ⅱ

Corporate
Research Team
Stewardship Team

Performance evaluation
Qualitative and quantitative evaluation of financial
information and of ESG and other non-financial
information

ESG-related engagement―Topics
Composition of theboard of directors
13.9%
Directors’ remuneration
4.5%
Risk management
5.0%
Strategic shareholdings
8.0%
Long-term vision
15.1%

G

Environmental

18.5%

E

Governance46.5%

Climate change
16.7%
Natural capital
1.7%

A healthy, safe society
2.7%

Social35.0%

Supply chain
3.5%

S

Diversity
9.3%
Human capital
19.5%

Period covered: January–December, 2023
Of the three major classification―Environment (E), Social (S), and Governance (G)―the share of engagement topics accounted
for by the S aspect fell from 40.9% to 35.0%, while the shares held by the G and E aspects rose from 40.9% to 46.5% and from
18.2% to 18.5% respectively.
For more detailed classification, global warming remains an important topic and therefore climate change stays as animportant topic category, with the share held rising from 15.5% to 16.7%.
In human capital where companies are now required to disclose in their financial statements and strategic shareholdings
where Daiwa AM has tightened its Proxy Voting Policy, the opportunities for timely dialog increased in view of the current
situation with the share held rising from 10.9% to 19.5% and from 6.8% to 8.0% respectively.
By contrast, the share of engagement topics in relation to supply chain issues declined from 15.1% to 3.5%, due to factors
including the easing disruption of the COVID-19 pandemic.
51

In its engagement activities, Daiwa AM focuses on enhancing investee
companies’ corporate value over the medium to long term, sharing information
about various management issues (engagement topics) with investee companies’
senior management, encouraging them to address problems, and providing
support where necessary. From a wide range of engagement topics, including
those relating to ESG, restructuring of unprofitable and low-profit businesses,
improving ROE and the cost of capital, and formulating growth strategies toaccompany business transformation, Daiwa AM selects those that are most
relevant for the individual investee company, and then proposes solutions, with
Daiwa AM’s own analyst teams playing a central role together with effective useof insights from external analysts and other experts.
One unique initiative of Daiwa AM is its active provision of opportunities forthe exchange of information and for dialog between investee companies,
through an activity which Daiwa AM calls “lingagement” (combining linkage withengagement). Companies that have implemented best practice in regard tospecific engagement topics are introduced to other companies that are facing
similar issues, with the aim of addressing problems efficiently through the direct
sharing of experience and knowhow. In September 2023, Daiwa AM conducted a“lingagement” activity inviting the CFOs of more than a dozen listed companies
to discuss measures for raising the price-book value ratio (PBR). Throughknowledge-sharing as Daiwa AM as a hub, we aim to enhance corporate value
not only for investee companies but for all Japanese corporations.

Key Point

Part 1

Stewardship Activities

Engagement

Promoting the sharing of knowledge through“lingagement”

Using the Drucker Institute Score to Determine the Value of Intangible Assets
Peter F. Drucker was one of the leading economists of the 20th century. He has been called the “greatest
thinker of the 20th century,” and the “father of management,” and a great many managers have been
influenced by him. The Drucker Institute is a research institute established at Claremont Graduate
University in the U.S. to keep Drucker’s ideas and vision alive. Besides spreading Drucker’s philosophy, theinstitute also undertakes quantification
The Drucker Institute’s Score Model(score utilization) of the basic principles
Satisfaction with productsthat Drucker advocated.
How well meeting customer
expectations Etc.
Customer
By quantifying intangible assets that
Employees’ contribution
Satisfaction
Economic value
cannot be determined from a company’s
Gratitude to employer
added
Etc.
Operating return
financial statements, such as employee
on invested
Employee
Financialengagement and innovation, the Drucker
capital Etc.
Engagement andStrength
Development
Institute Score aims to identify enterprises
Drucker’s Basic
with real growth potential.
Principles
Daiwa AM is collaborating with theOverall ESG score
R&D expenditures(absolute)
Value of patents Etc.
Drucker Institute on plans to launch funds
Social responsibility
Socialscore Etc.
Innovationthat will be focused on assigning scores to
Responsibility
Japanese stocks in the same way that has
been done for U.S. stocks.
52Sustainable Investment

Fixed Income

Keisuke Saeki
Chief Fund Manager
Fixed Income Team
Active Fund Management Department Ⅰ

ESG Integration in Fixed Income Investment

Index Funds and ESG Investment
By providing funds linked to indexes which incorporate ESG assessment, ourteam aims to give investors the low-cost, easy-to-start ESG investment
opportunity. The advantage of ESG investment using index funds is tofacilitate low-cost investment management with transparent, clear rules.
Daiwa AM currently provides five ESG funds (including ETF funds). We are also
proceeding projects to provide institutional investors in Japan and overseas
with ESG-related funds meeting their needs.
Regarding engagement, we keep investee companies informed about our
stewardship activities, for example by sending them copies of our Proxy
Voting Policy. With regard to ESG data such as ESG rankings and carbon
emissions, we are aiming to realize more easy-to-understand disclosure,through efforts including liaison with index providers.

53

Fund Type

Serial CodePublic Fund

3470

ETF

3510

ETF

3513

ETF

3514

ETF

3515

iFree Global Stock ESG Leaders Index

Advisory Fund Management Department
Sustainability Leader

Part 1

Daiwa AM and Candriam S.C.A. were the joint winners of the Selection Committee
Chairman’s Award (Bronze) in the Investors Category (Asset Managers) in the 5th
ESG Finance Awards Japan, organized by Japan’s Ministry of the Environment.
Grounds for the Award

Date Launched

Reference

2022/5/10
2016/5/18

Daiwa ETF－MSCI Japan ESG Select Leaders Index

2017/9/25

Daiwa ETF－MSCI Japan Empowering Women Index (WIN)

Masako Okouchi

Daiwa AM Receives an Award in the ESG Finance Awards Japan
Organized by Japan’s Ministry of the Environment

Daiwa ETF－MSCI Japan Human and Physical Investment Index

Daiwa ETF－FTSE Blossom Japan Index

Follow-up monitoring after fund launch
After a fund has been launched, we continue to hold meetings with theoutsourced fund manager in relation to ongoing due diligence and other types of
periodic review, and we exchange views with them regarding their opinions on
ESG-related issues (which are constantly changing), and with regard to whether
they are addressing these issues.
In the case of impact funds, we exchange views with outsourced fundmanagers and perform monitoring not only with regard to fund performance, butalso regarding how the stocks included in the fund are contributing to social
returns. When an impact report is issued, besides verifying the status of fundobjective achievement, we also encourage the outsourced fund manager toimplement full information disclosure.
In addition, with regard to the results of engagement and proxy voting, wehave a policy of implementing monitoring and exchanging views with theoutsourced fund manager on a regular basis.

Pick Up

Beta Management & Investment Solution
Department
Senior Fund Manager and Sustainability
LeaderFund Name

Selecting investment management strategies
When performing initial due diligence, we verify the outsourcing party’s ESGrelated internal systems and policies, and their links to various initiatives.
Particularly in the case of ESG investment, we focus on verifying whether ESGrelated risks and opportunities are controlled properly in the portfolio-building
process, and whether concrete disclosure is possible, as well as whether the fund’s economic and social returns are reflected fully in the character of the product,
and whether concrete disclosure is possible in relation to these returns.

Indexes

Eriko Ono
ESG Index Funds

Implementation of ESG-related Monitoring With
Respect to Outsourced Fund Managers

Stewardship Activities

Unlike investing in equities, returns from investing in bonds is characterized bylimited upside, but with significant downside risk. The key to enhancing
investment performance with fixed income investment is how well controlling
this risk. From this perspective, we believe non-financial data (including ESG
elements) are very important for fixed income investment as well, and it is vitalto make effective use of this information when making investment decisions inrelation to bond issuers.
In credit analysis, the shorter the investment timescale, the more importantnear-term financial information is; the longer the investment timescale, themore important non-financial information is. With this awareness that nonfinancial data is the foundation of the future financial data to be built, we see
the success or failure of companies’ initiatives addressing ESG issues asaffecting the company’s future financial data.
Daiwa AM implements investment decision-making from a perspective thatemphasizes verifying and analyzing how each bond issuer is addressing ESG
issues, evaluating the impact on their performance and balance sheet in the
future, and determining whether they can maintain good returns while taking
the risks into account.
By incorporating assessment of bond issuers’ non-financial data into thecredit risk analysis process in addition to analysis of financial data, we aim tocontrol downside risk in relation to returns, improve the risk-return balance,
and, ultimately, enhance investment performance.

Outsourcing

2017/9/25
2017/9/25

Index used by GPIF
Index used by GPIF

The basic concept behind the Carbon ZERO ESG fund that Daiwa AM has been managing with investment
advice received from Candriam has a clear focus on investment in enterprises contributing toward
mitigating the effects of climate change by reducing greenhouse gas emissions, which received a positive
evaluation from the Awards jury, as did the social significance of the fund constituting long-term investment,with a fund operation period that will extend until 2050. In addition, the effort made to maximize therespective strengths of Daiwa AM and Candriam through our close collaboration, the inclusion in the fundimpact report of content that will encourage individual investors in Japan to undertake ESG investment, andthe clear stance focused on contributing toward expanding the ESG investment market in Japan, allattracted positive comment. The potential for discovering even more creation of synergy with Candriam in
the future was another factor behind the decision to present the award to Daiwa AM and Candriam.
54

Sustainable Investment

Making the ESG Fund Certification Process More
Rigorous“ESG-washing,” which involves investment activity that
pretends to embody concern for the environment and forsociety despite the lack of reality, has become a problem,and countries throughout the world are tightening up
controls relating to ESG investment. In Japan, the Financial
Services Agency issued a related Guideline in March 2023,
outlining the scope of ESG investment trusts, and theinformation disclosure items that need to be provided inrelation to ESG investment trusts.
Based on this Guideline, Daiwa AM is putting a system
in place to provide publicly-offered ESG fund in whichcustomers can invest with peace of mind.
The figure below explains the measures taken in the

ESG fund creation process to prevent “ESG-washing.”
When the Product Planning Department asks theFund Management Division to confirm a particular fundproposal, the Fund Management Division verifies
whether there are any problems with the fundmanagement plan, and whether the proposed fundmeets the ESG fund criteria set by Daiwa AM. The
verification results are submitted for deliberation at a
Product Committee attended by members of the senior
management team, thereafter the new fund is certified
as an ESG fund. The certified fund is then established,
and begins to be managed as a publicly-offered ESG
fund.

ESG

ESG Fund Creation Process

Fund

ESG Fund Definitions, and Daiwa AM’s ESG Funds
To provide customers with ESG funds inwhich they can invest with peace of mind,
Daiwa AM has clarified the definition of ESG
funds, and formulated criteria for ESG fundcertification. These criteria are based on the
Guideline issued by Japan’s Financial Services
Agency, while also referencing similar
guidelines issues by regulatory authorities inother countries.
As outlined below, Daiwa AM has

formulated criteria for two types of ESG fund.
Funds meeting each of these two categories
have already been certified and are listed in
the table below. Besides implementing
monitoring to check whether the actual
management of each fund is in conformity
with the fund certification criteria, we also
aim to ensure that there is ample information
disclosure which brings across information tocustomers in an easy-to-understand way.

Daiwa AM’s ESG funds
Daiwa AM’s ESG funds position ESG as a major factor
when selecting targets for investment, for example byfocusing on ESG risk management in relation to theentire portfolio, or by investing in companies that areemphasizing ESG or the achievement of the SDGs, so as
to help bring about the transition to a sustainable
society, and it is also important to enable effective
disclosure possible in relation to the above.

［Impact funds］

A key feature of impact funds is that they should
realize not only economic returns but also social
returns, and that it should be possible to realize
effective disclosure in relation to these social returns.

Part 1

Daiwa AM’s ESG Funds
Code

Fund Name

2785

Decarbonization Technology Fund (Carbon ZERO)

2790

Decarbonization Technology Fund (estimated dividend type) (Carbon ZERO estimate
dividend type)

2800

Global Water Resources Equities Fund

3256

Women’s Advancement Support Fund (Tsubaki)

3356

Tsumitate Tsubaki

3388

Social Problem Resolution Support Fund (Bridge for Smiles)

●

3410

Clean Tech Equity & Green Bond Fund (capital growth type) (Mirai Earth capital growth
type)

●

3411

Clean Tech Equity & Green Bond Fund (estimated dividend type) (Mirai Earth estimateddividend type)

3417

Clean Tech Equity Fund (capital growth type) (Mirai Earth S capital growth type)3470

iFree Global Stock ESG Leaders Index

3488

Global Life Equity Fund (capital growth type)(Bright Life (capital growth type))3489

Global Life Equity Fund (estimated dividend type)(Bright Life (estimated dividend type))

3510

iFree ETF MSCI Japan Human and PhysicalInvestment Index

3513

iFree ETF FTSE Blossom Japan Index

3514

iFree ETF MSCI Japan ESG Select Leaders Index

3515

iFree ETF MSCI Japan Empowering Women Index (WIN)3711

DC Daiwa SRI Fund●●

Creation

Product Committee
ESG fund certification
Fund proposal

Confirming the fundmanagement plan, etc.

Product Planning
Department

ESG fundqualification
determination

Fund Management
Division
Request for ESG fundconfirmation

Monitoring ESG Index Providers, etc.
Daiwa AM has created its own proprietary ESG scoresystem, but we also make use of other ESG score systems
provided by third parties, as part of the management
process for our ESG index funds, etc. In order to provide
55

ESG funds in which customers can invest with peace ofmind, we hold meetings and exchange views with ESG
index providers as well as ESG assessment and data
providers in relation to these funds.

●

Stewardship Activities

Impact fund56

Participation in Initiatives

Measures Relating to the TCFD and TNFD
In this section, we introduce measures that address climate change related issues through stewardship
activities undertaken in line with the disclosure framework recommended by the Task Force on Climaterelated Financial Disclosures (TCFD). We have also begun to implement disclosure relating to natural
capital, as recommended by the Taskforce on Nature-related Financial Disclosures (TNFD).

Risks associated with the destruction of natural capital
Natural capital

Disclosure items

Atmosphere

Governance
Daiwa AM addresses ESG issues, including risks relating toclimate change and natural capital, in accordance with our
General Policy on Stewardship Activities, which has been
decided on by our Stewardship Committee, and with our
ESG Investment Policy, which incorporates sustainability
considerations. Related activities and policies aredeliberated on and monitored by the Stewardship
Committee. We are currently making preparations for theformulation of an organizational human rights policy inrelation to indigenous peoples, local communities andaffected stakeholders, as well as the full-scale launch ofengagement activities with related companies, as
recommended by the TNFD. The Stewardship Committee
reports to the Board of Directors on monitoring status in
relation to the TCFD and TNFD.

Board of Directors
Stewardship Committee
Acting entity

Risk management
Daiwa AM uses information disclosed by companies, datafrom external vendors, the research and engagement
conducted by Daiwa AM itself, and dialog with companies,
to monitor the risks and opportunities for investee
companies relating to climate change and natural capital.
Daiwa AM has also put in place a framework for utilizing
external vendors’ data as a basis for measuring greenhousegas emissions, and conducting climate change risk scenario
analysis, for individual funds and individual asset classes,
and monitors and manages risk through periodic analysis.
With regard to natural capital, although the data available iscurrently limited, we are striving to identify current risks andopportunities by making effective use of various data
sources recommended in the TNFD guidelines, etc.

Reflecting identified climate change related risks and opportunities in corporate value assessment

Transitional risks

Physical risks

Regulatory
risk

Stricter environmental regulation

Acute risk

Risk relating to floods,
typhoons, etc.

Resource
efficiency

Increased demand for recycling
technology, etc.

Technology
risk

Falling behind the progress being
made in technology, in terms ofrenewable energy, etc.

Chronic risk

Risk relating to changes inlong-term climate patterns

Energysources

Increased demand for renewableenergy, etc.

Market risk

Changes in demand for
petrochemical assets, etc.

Products
and services

Increased demand for products,
etc. with a smaller environmental
footprint

Resilience

Energy diversification aimed atachieving greater resilience

Reputational Becoming less highly valued andmore negatively judged by consumers
risk

57

Opportunities

Reflection in corporate value

Minerals

OceansSpecies

Water

Provision of ecosystem services

Ecosystem services

Genetic material

Pollination

Filtration

Underground water

Ventilation

Decomposition

Surface water

Water regulation

Dilution

Climate change control
Infectious disease control
Flood control
Pest control

Natural disaster risks

Reduced supply of natural resources

Infectious disease risk

ﾠReduction in the value of the assets heldby companies that own factories or otherbuildings
ﾠFall in revenue due to companies having
their supply chain disrupted
ﾠRisk that insurance companies will need to
pay out more in insurance payments, etc.

ﾠFall in revenue due to a reduced supplyof raw materials affecting sectors suchas agriculture, food andpharmaceuticals, which are heavily
dependent on natural resourcesﾠIncreased raw materials prices due tothe reduction in natural resources

ﾠPossibility that ecosystem destruction
may lead to specific pathogens causing apandemic
ﾠRisk that reduction in natural resources
may prevent measures from being taken
in response to new infectious diseases
Part 1

Indicators and targets
In terms of climate change, Daiwa AM uses the total
greenhouse gas emissions, carbon footprint, and carbon
intensity of its portfolios as greenhouse gas emissions
related indicators for individual funds and asset classes,
and performs monitoring and analysis of them. In regard
to natural capital, we perform monitoring and analysis ofrisks and opportunities based on the information
currently available to us. On the basis of this data and its
own original research, Daiwa AM undertakes
engagement activities with companies to encouragethem to decarbonize and implement nature-positive
management.

Stewardship Activities

Framework

Strategy
The risks and opportunities relating to climate change andnatural capital are reflected in Daiwa AM’s company evaluation
model, and are utilized in the selection of investee companies.
We also aim, through our engagement activities, to guidecompanies toward a focus on decarbonization and naturepositive management, so as to enhance investee companies’
corporate value. Particularly in regard to climate change, we
perform scenario analysis using indicators that include
conditional value at risk (CVaR) to verify portfolio risk andresilience. With regard to natural capital, we aim to identify therisk association with destruction of natural capital, and toanalyze and determine the risk borne by investee companies.

Land

Climate Change―Analysis of the main indicators relating to total greenhouse gas emissions, etc.

Daiwa AM has compared the total carbon emissions, carbon
footprint, and weighted average carbon intensity for each of
the asset classes that we invest in against respective
benchmarks per class. The carbon footprint is a measure of
the emissions in relation to portfolio size (market
capitalization), while carbon intensity is an indicator for the
carbon emissions of investee companies per unit of sales. For
each of these, climate change risk management is performed
appropriately by performing analysis and monitoring. As
shown in the figure below, Scope 3 emissions werecategorized as upstream or downstream, and the relevant
emissions for each were calculated. Daiwa AM intends toactively promote the decarbonization of its entire supply
chain, by establishing a detailed understanding of the total
carbon emissions of our investee companies, including Scope
1, Scope 2, and Scope 3 emissions, with a particular emphasis
on Scope 3, and making effective use of this information in

engagement activities with investee companies.
Carbon footprint and weighted average carbon intensity
for overseas equities were found to exceed the benchmark
values. This was attributable to increased investment in thestocks of Indian corporations. In the case of Japanese
corporate bonds, although the carbon footprint wasaffected by the inclusion in the portfolio of the corporate
bonds of electric power companies, at a weight higher thanthe benchmark, the disparity with the benchmark was
smaller than in the previous year, and there was also a fall inweighted average carbon intensity. Using engagement by
Daiwa AM itself and by outsourced fund managers, we areencouraging companies (both Japanese and overseas) withhigh emissions to reduce their emissions. Going forward,
we will continue to utilize engagement activities, etc. toencourage investee companies to implement measures inrelation to climate change.

58

Participation in Initiatives

Portfolios’ total carbon dioxide emissions
Scope 1, 2

(tons of CO2 equivalent)

Daiwa AM

BenchmarkDisparity

Domestic stocks

6,987,943

8,313,973–16%

Overseas stocks

721,398

513,356

41%

Domestic
corporate bonds

240,028

89,429168%

Overseas
corporate bonds

45,898110,696–59%

7,995,266

Total

Scope 3 Upstream

9,027,455–11%(tons of CO2 equivalent)

Daiwa AM

BenchmarkDisparity

Domestic stocks

22,097,292

23,971,727–8%

Overseas stocks

896,617910,126

Domestic
corporate bonds

298,559

246,728

Overseas
corporate bonds
Total

Total greenhouse gas emissions（Total of Scope 1, 2, and 3）
Daiwa AM

(tons of CO2 equivalent)
90,000,000

68,677,077

Benchmark77,390,948

60,000,000

30,000,000

0Domestic
stocks3,784,826 3,692,144

929,414 809,805

523,050 744,348

OverseasstocksDomestic
corporatebonds

Overseas
corporatebonds

Scope 3 Downstream(tons of CO2 equivalent)

Daiwa AM

BenchmarkDisparity

Domestic stocks

39,591,843

45,105,248

–12%

–1%

Overseas stocks

2,166,811

2,268,662

–4%

21%

Domestic
corporate bonds

390,827473,648–17%

357,823

436,166–18%

42,507,304

48,283,724–12%

119,330

197,487–40%

Overseas
corporate bonds

23,411,797

25,326,067

–8%

Total

Warming potential analysis
Warming potential analysis shows the degree to which
average global temperatures will rise by the year 2100 asa result of the corporate business activities that thecompanies in the current investment portfolio are
expected to conduct over this period. In this way, it ispossible to verify whether the current investment
portfolio is in line with the goal of the Paris Agreement,
which seeks to“limit global warming to well below 2.0,

preferably to 1.5 degrees Celsius, compared to preindustrial levels during the period up until 2100.” As aresult of comparing a hypothetical portfolio of all Daiwa
AM’s shareholdings with the benchmark, we were able toconfirm that our performance was superior to that of thebenchmark. There had also been an improvement ofaround -0.3℃ compared to the last time this comparison
was made.

Warming potential

Shares benchmark

Daiwa AM

2.4℃

2023

2022

2.3℃

2.6℃

Note: Benchmarks:
Domestic stocks: TOPIX (with dividends included) Overseas stocks: MSCI ACWI ex Japan Index Domestic corporate bonds: Bloomberg Asian-Pacific Japan Corporate TR Index
Value Unhedged JPY Overseas corporate bonds: Bloomberg Global Aggregate ex-JPY-Corporate TR Index Unhedged USD
Source: Some information is derived from ©2024 MSCI ESG Research LLC. Reproduced by permission.

Carbon footprint of portfolio (Scope 1, Scope 2)

Part 1200

Benchmark

170.9

150

100

67.0

79.7

75.6

63.7

53.8

50

62.4
25.9

0

Domestic
stocksOverseasstocksDomestic
corporate bonds

Overseas
corporate bonds

Weighted average carbon intensity of portfolio (Scope 1, Scope 2)
Daiwa AM

(tons of CO2 equivalent/million USD of sales)

300

248.8

250
200

131.1

150
100

205.6

197.3

84.0

161.8

95.8
55.1

50

BenchmarkGreenhouse gas reductions targets(SBT certification)
The figure below shows the percentage of companies
which have obtained SBT certification from among theportfolio component issues. The SBT certification process
is administered by the Science Based Target Initiative,
whereby companies set targets for reductions ingreenhouse gas emissions consistent with scientificfindings to mitigate increases in global averagetemperatures to less than 1.5 degrees Celsius. As a resultof comparing a hypothetical portfolio of all Daiwa AM’s
shareholdings with the benchmark, we were able toconfirm that around 6.1 points more companies haveobtained certification than the benchmark value. We also
found that this share had risen compared to the last time
this comparison was made.
Percentage of companies which have obtained SBT
certification

0

Domestic
stocksOverseasstocksDomestic
corporate bonds

Note: The benchmarks used were the same as those used in the previous section for portfolio’s total carbon dioxide emissions.
Source: Some information is derived from ©2024 MSCI ESG Research LLC. Reproduced by permission.

59

Overseas
corporate bonds
All holdings

Daiwa AM

BenchmarkPrevious
Comparison(Daiwa AM)

46.6%

40.5%

39.2%

Analysis of potential CO2 emissions(from fossil fuels)
This analysis allows us to examine potential CO2
emissions from fossil fuels, taking the stored amounts ofcompanies as its base. The analysis confirmed that
potential CO2 emissions from fossil fuels were generally
lower than the benchmark and that the portfolio’s
climate change risks were low.

Stewardship Activities

Daiwa AM

(tons of CO2 equivalent/million USD invested)(tons of CO2 equivalent/million USD invested)

Daiwa AM

BenchmarkDomestic stocks

691.7

863.6

Overseas stocks

1,497.7

1,331.9

Domestic
corporate bonds

117.1

1,070.8

Overseas
corporate bonds

466.3

743.8

Note: The benchmarks used were the same as those used in the previous section forthe portfolio’s total carbon dioxide emissions.
Source: Some information is derived from ©2024 MSCI ESG Research LLC. Reproduced bypermission.

60Participation in Initiatives

Natural capital―Risk analysis

Situation surrounding natural capital
The Global Risks Report 2024 published by the World
Economic Forum (WEF) positions natural capital related risk,
and particularly loss of biodiversity, as being the mostsignificant risk affecting the world over the next 10 years, interms of both likelihood and impact, and this is seen as
being an important issue in terms of its potential effects onsociety and the economy. According to the WEF, if the
global destruction of natural capital continues, theestimated economic loss will be around 44 trillion dollars.
However, the WEF notes that, if there is a positive shift
toward nature-positive economy, then this would generatebusiness opportunities worth around 10 trillion dollars
annually and create approximately 400 million jobs by

Exposure to sensitive areas
Exposure to areas that are sensitive in relation to natural
capital was estimated using data provided by MSCI. This
analysis made it possible to determine which types ofcompany were undertaking business development insensitive areas. We believe that this analysis, whencombined with the analysis of exposure to specific areas
outlined above, is important for monitoring natural capital
related risk in the portfolio. However, with individualcompanies tending not to disclose this type of information
at present, for the time being this analysis can only
61

2030. It is estimated that, in Japan, a shift toward a naturepositive economy would bring economic benefits totalingaround 125 trillion yen (including spillover effects), andcreate around 9.3 million jobs. It can thus be seen that
there are not only risks associated with natural capital, butalso opportunities.
The following section analyses the natural capital relatedrisks affecting Daiwa AM’s Japanese equities portfolio interms of two indicators, based on the guidance that the
TNFD has issued for financial institutions. As financial
institutions will need to wait until investee companies
expand the scope of their disclosure, these data are bestthought of as provisional, simplified risk indicators.

What is the Net Zero Asset Managers initiative
The Net Zero Asset Managers initiative (NZAMi), which waslaunched in December 2020, is a global initiative by asset
management companies to achieve net zero greenhousegas (GHG) emissions at investee companies by 2050. As of
February 2024, more than 315 companies worldwide, witha combined total of around 57 trillion dollars in assets

under management, were participating in this initiative,
including many Japanese asset management companies.
Daiwa AM announced its support for NZAMi and beganparticipating in December 2021.

The Net Zero Asset Managers initiative’s three commitments
Work in partnership with asset owner clients on decarbonization goals, consistent with an ambition to reachnet zero emissions by 2050 or sooner across all assets under management (“AUM”).
Set an interim target for the proportion of assets to be managed in line with the attainment of net zero
emissions by 2050 or sooner.
Review our interim target at least every five years, with a view to ratcheting up the proportion of AUM
covered until 100% of assets are included.

Exposure to specific industries
Japanese equities’ exposure

40.67%ACWI’s exposure

31.00%

Daiwa AM’s interim targets, and progress madetoward themNote: Data was correct as of December 31, 2023. The GICS 6-digit code industry
classification was used, as recommended by the TNFD.

Interim targets for 2030

Breakdown by specific industries
Industry

Reduce the GHG emissions per unit of at least 67% of AUM(which totaled approximately 23 trillion yen as of October
31, 2022) by 50% compared to 2019
Part 1

GHG emissions per unit,

Share

Semiconductors and semiconductor
manufacturing equipment

17.83%

Automotive

13.81%

Pharmaceuticals

12.21%

Chemicals

11.71%

Consumer durables

8.84%

Food

4.88%

Real estate management anddevelopment

4.80%

Land transportation

4.51%

Other

21.42%

provide a broad-brush picture of the actual situation.
Nevertheless, we view it as providing a guideline for datacollection and engagement in regard to latent risks.

as of 2019
GHG emissions per unit,
as of 2023

Engagement activities

93 tCO2e/$mn revenue (on a per unit of sales basis)

97 tCO2e/$mn revenue (on a per unit of sales basis)
Daiwa AM is proceeding with engagement with investee
companies regarding climate change, engaging in dialog
with target companies.

Stewardship Activities

Exposure to specific sectors
Daiwa AM has calculated the exposure that its Japaneseequities portfolio has to the sectors that are noted in Annex 1of the TNFD guidance for financial institutions as having a highlevel of natural capital related risk. Having calculated a figureof 37.73% as a reference value, we then went on to calculate
the level of exposure that the MSCI ACWI index has in thisregard. Comparison of the two figures suggested that Daiwa
AM’s Japanese equities portfolio has a higher level of natural
capital related risk than the MSCI ACWI index; however, thereal importance of this analysis lies in being able to clarify
which sectors with high natural capital related risk Daiwa AM
has a high level of exposure to, and in the insights it provides
that will facilitate data collection and engagement activities.
The analysis showed that Daiwa AM has a particularly highlevel of exposure to the automotive, semiconductor,
pharmaceuticals, and chemical sectors. By utilizing the impact
materiality data provided by ENCORE, a tool that financial
institutions can use to clarify companies’ impact on natural
capital and their level of dependence on it, we have been able
to confirm which types of business activity are associated withnatural capital related risks. Going forward, we will continue toundertake related data collection and engagement activities.

NZAMi

Advance
Advance, which was launched on December 1, 2022, isan institutional investor initiative which aims to promote
efforts made by companies through collaborative
engagement to address the social aspect of ESG, with aparticular focus on human rights issues. Companies witha high level of human rights risk will be encouraged,
through dialog, to implement measures that strengthen
respect for human rights.

Overview of AdvanceSupported by

265 institutional investors

Total assets under management of the
supporting investors come todollars

35 trillion

115 investors are already undertaking

engagement with companies

Exposure to sensitive areas
Japanese equities’ exposure

37.73%ACWI’s exposure

69.70%

Currently, engagement is being undertakenwith39 companies

Note: Data was correct as of December 31, 2023.
Some information is reproduced with permission from MSCI ESG Research LLC.

62

Participation in Initiatives

Activity Report

Other Initiatives Supported
ESG

2006 UN Principles for Responsible Investment(PRI)

The United Nations Principles for Responsible Investment (PRI)
are global guidelines for responsible investment that aim to
improve long-term investment results for beneficiaries by
incorporating ESG issues into the investment decision-making
process and determination of stock ownership policies of
institutional investors. Daiwa AM
participates in conferences and otherevents sponsored by PRI.

G

2011 Principles for Financial Action for the 21stCentury

The Principles for Financial Action toward a Sustainable Society(Principles for Financial Action for the 21st Century) weredeveloped as an action guideline for domestic financial
institutions to fulfill their responsibilities androles in helping to solve global environmental
and social problems and to form asustainable society.

E2014 Statement on Fiduciary Duty and Climate
Change DisclosureS

2020 30% Club Japan Investor GroupThe 30% Club Japan Investor Group is a group comprised ofasset owners and asset managers whose goals include sharing
the importance of gender diversity and gender equality at alllevels of an organization through constructive dialog and otherstewardship activities with companies inwhich they invest. Daiwa AM participated in aworking group to formulate best practices forengagement.

E

Diversity and Human Rights

G

Governance2021 International Corporate GovernanceNetwork (ICGN)

2022 Japan Stewardship Initiative (JSI)The Japan Stewardship Initiative (JSI) wasestablished in 2019 with the aim of helping
deepen and advance stewardship activities.

S

January

Started disclosing the results of the exercise of voting rights in thefollowing month

February

Held the second Asset Management Women’s Forum
Formulated the Daiwa AM’s vision for investee company (best practices)

March

Issued the 2022 Stewardship Report

April

Issued the English version of the 2022 Stewardship Report
Underwent a Bloomberg Investment Contest review

May

Revised ESG fund definitions
Revised the Proxy Voting Policy
Started disclosing the results of the exercise of voting rights in Excel format

June

Planted 7,124 trees in three locations around Japan: This project makes donations for tree-planting activities
according to fund balances
Joined the Japan branch of the Glasgow Financial Alliance for Net Zero (GFANZ)

July

Cooperated with preparations for the “FDSF Global Conference 2023: Seeking the Creation of a Sustainable
Future” and had company personnel appear as panelists
Chief Analyst Yuji Watanabe served as instructors at the Intellectual Property Issues Study Group of the JapanIntellectual Property Association

August

CA Watanabe discussed Talent Strategy to Expand the Specialty Chemicals Business in the UBE Integrated Report

SeptemberHeld the 2023 CFO Meeting and discussed efforts to improve PBR (October

Revised the Proxy Voting Policy
Revised the Daiwa AM's vision for investee company (best practices)
CA Watanabe contributed an article titled “‘IP strategy’ Evaluation and Engagement in Institutional Investors”
for Securities Analysts Journal (October issue)
CA Watanabe gave a lecture titled “UBE from the Perspective of Shareholders and Investors” at UBE training
for all officers
CA Watanabe co-authored “Introduction to Intellectual Property and Intangible Asset Governance” (publishedby Chuokeizai-sha)

November

Underwent screening for the Nikkei Integrated Report Award

DecemberHeld talks with Counsellor of the Cabinet Office Iwao Ikeya (2022 Human Capital Management Consortium

The Human Capital Management Consortium was establishedby a group of Japanese companies, investors and others. Its
objective is to promote both the practice and disclosure ofhuman capital management in Japanese companies by sharing
advanced cases of human capital management practices,
holding discussions aimed atcooperation between companies,and considering effective
information disclosure.

S

Main Initiatives Implemented in 2023

2022 Women’s Empowerment Principles(WEPs)The Women’s Empowerment Principles(WEPs) are action principles intended toactively promote the advancement of
women, and were jointly developed by UN
Global Compact and UN Women.

see P. 25)
Part 1

see P. 15–18)

Expressed support for the TNFD
Participated in Spring initiative as an endorser (see P. 65)

2021 Climate Action 100+

Climate Action 100+ is an international engagement initiative
launched by investors in 2017. Its goal is to stimulate
improvements through collaborative engagement with large
enterprises that have significant greenhouse gas emissions.
Daiwa AM participates as a collaborative
investor through cooperative engagementwith companies in Japan’s steel, electricaland other industries.

E

Environment

S

Stewardship Activities

The Statement on Fiduciary Duty and Climate Change aims toprompt companies to disclose climate change information in acomprehensive and comparable form in their annual reports
and other disclosure materials, with the recognition that, going
forward, climate change will have an increasing impact on
corporate results and investment performance.

E

The International Corporate Governance Network (ICGN) is aninternational initiative launched in 1995. Its stated mission is toestablish effective corporate governance and foster investor
stewardship with the aim ofpromoting an efficient global
market and sustainable economic
activity.

ESG
ESG

ESG ESG in general

Internal initiatives

2021 Investor Agenda

The Investor Agenda was launched in 2018 by a group of
institutional investors. It has issued recommendations on how
to accelerate climate change initiatives by institutional investors
and national governments. Daiwa AM signed in support of astatement by global investors in advance of COP26.

Internal initiatives included the ESG study meeting, which
Daiwa AM started with the aim of improving
understanding relating to stewardship and ESG, as well as
the launch of an ESG-related bulletin board in an effort toshare information. In addition, we introduced a new
qualification that certifies employees who have a certain
level of knowledge about sustainability, and we are taking
action to enhance our ability to explain company’s
initiatives externally. An example of one such measure is
the Sustainability Leader Training, which assigns trainees
to the Responsible Investment Department so that they
can acquire high-level knowledge.

Shuhei Arai
Stewardship Analyst, Associate Director,
Responsible Investment Department

63

An in-house training session

64Activity Report

PRI Evaluation Results 2023

Pick Upic k uPp

1

PRI in Person 2023, a gathering of institutional investors fromaround the world, was held over the three days from October 3
to 5 in Tokyo. Daiwa Asset Management supported theconference as a co-sponsor. We created conference bags andoperated a booth where we broadly introduced the Company’s
ESG-related products.
The conference was a major event that was made a part ofJapan Weeks held by the Financial Services Agency, and Prime
Minister Kishida attended and gave a speech. More than 1,300
persons from 42 countries attended. On the opening day,conference bags with the Daiwa Asset Management logo were
distributed to all participants.
The Company is an original member of PRI, signing on when
it was first launched in May 2006. We remain committed toactively undertaking responsible investment in the future.

Daiwa AM received by the stars, the highest score, onnine out of the 10 evaluation items in the 2023 annual
UN PRI assessment. For the remaining one item, thecompany received four stars.
PRI signatory organizations are obligated to submit areport on the status of investment invarious fields to PRI every year, and PRI
performs an annual assessment based on
the report. The current assessment
covered activities in 2022, and theAt the PRI Exhibition site (From the left:
Director Ogino, Business Development
Manager Hotchi, Outside Director Emi
Onozuka, Senior Fund Manager Ishii, andDirector Hinata)
At the PRI reception in
Happo-en (From the left:
PRI COO Esther Teeken
and Daiwa AM President
Mikita Komatsu)pDirectFixed income

Indirect

65

2030

★★★★★

97

60

Active fundamental

★★★★★

96

71

Active quantitative

★★★★★

96

65

Passive equity

★★★★★

100

42

Other

★★★★★

96

51

SSA

★★★★★

98

59

Corporate

★★★★★

100

68

Securitised

★★★★★

89

64

Listed equity

Active

★★★★★

96

57

Confidence building measures

★★★★★

100

80

Part 1

Stewardship Activities

Daiwa AM is participating as an endorser, and as amember of the investor group, is contributing to
improvement of the corporate value of investees byencouraging, through collaborative engagement withcompanies, initiatives to undertake initiatives to address
the loss of biodiversity.

Full recovery by 2050

2020

Median Score

Listed equity

Measurable global targets for nature to be Nature Positive by 2030

Biodiversity index

Daiwa AM
Score

Policy Governance and Strategy

Bags with the Daiwa AssetManagement logo were placed on
all seats in the main conference hall

Reverse the loss of
biodiversity by 2030
with 2020 as
the referenceyear

Daiwa AM
Evaluation

Assessment Items

Participated as endorser in “Spring”

Spring is a new collaborative engagement initiative forwhich PRI (the United Nations Principles for Responsible
Investment) provides operational and other support withthe objective of halting and reversing biodiversity loss by2030. Initial endorsers were sought until January 19,
2024. Biodiversity is a key issue for companies to achievesustainable growth.

company’s scores for each item were significantly higher
than their median values. Since Daiwa AM signed the PRI
in May 2006, we have consistently undertaken
responsible investment, and we believe that thisassessment result is the product of our repeated efforts.
Going forward, we will continue tofulfill our social responsibility as an
institutional investor and will work to
improve the corporate value of investee
companies.

2023 PRI annual assessment

ic k u2

P

Five stars, the highest score, on 9 out of 10 items

Participated as a sponsor in PRI in Person 2023,
one of the world’s largest conferences on
the Principles for Responsible Investment (PRI)

WEB For more details, please visit the following webpage:2040© Ministry of the Environment

PRI Assessment Report 2023
https://www.daiwa-am.co.jp/company/pdf/20240221_02.pdf

DAIDARAPOSIE, the Nature Positive image characterof the Ministry of the Environment

PRI Public Transparency Report 2023
https://www.daiwa-am.co.jp/company/pdf/20240221_01.pdf

2050

66

Activity Report

Self-assessment

Principle

Daiwa AM implements periodic self-assessment of the state of Daiwa AM’s
implementation of the Principles for Responsible Institutional Investors(Japan’s Stewardship Code).
The measures taken by Daiwa AM in regard to each of the seven principlesof the Code are outlined below.

1

Principle

Institutional investors should havea clear policy on how they fulfill
their stewardship responsibilities,
and publicly disclose it.

Principle

67

3

2

Institutional investors should have aclear policy on how they manage
conflicts of interest in fulfilling theirstewardship responsibilities, andshould publicly disclose it.
Daiwa AM has established a StewardshipSupervisory Committee, of which more than half
the members are Outside Directors, and has
continued to implement systems to handle
conflicts of interest. Furthermore, when exercising
voting rights in relation to companies with which
Daiwa AM has a financial or business relationship,in cases where Daiwa AM’s proxy voting guidelines
require specific determination, in principle Daiwa
AM will follow the recommendations of an external
specialist organization.

Institutional investors should monitor investee companies so that they canappropriately fulfill their stewardship responsibilities with an orientation
toward the sustainable growth of the companies.

Daiwa AM positions research on companies as a key part of its business activities as an asset management company,
and is constantly undertaking the wide-ranging collection of information through both internal and external networks,
with the company’s corporate research analysts playing a central role, and striving to maintain an accurate picture of
the current state of companies.
Information and knowledge obtained through dialog with investee companies are managed and shared using
Daiwa AM’s internal databases, and a framework is being put in place to identify, at an early stage, any developmentsthat could be potentially harmful to corporate value. In addition, taking its approach to ESG as the foundation, Daiwa
AM calculates its own proprietary ESG scores, based on its materiality, which serve as a reference for investment
decision-making and when implementing portfolio risk assessment.

Daiwa AM has formulated an Engagement Policy in relation to engagement with investee companies, and thisPolicy clearly stipulates the major perspectives that Daiwa AM emphasizes in relation to engagement, including key
ESG issues. In October 2023, Daiwa AM revised its vision of best practicefor the realization of sustained corporate value enhancement by investee
companies. Daiwa AM’s corporate research analysts, fund managers andStewardship Team personnel all undertake engagement with companies
from their own respective standpoints in accordance with theEngagement Policy, and the knowhow obtained through these activities isshared within the company.
In addition, Daiwa AM undertakes collaborative engagement throughparticipation in the Climate Action 100+ and PRI Advance initiatives.

Institutional investors should have a clear
policy on voting and disclosure of voting
Principle
activity. The policy on voting should not becomprised only of a mechanical checklist; itshould be designed to contribute to the sustainablegrowth of investee companies.

5

In October 2023, Daiwa AM revised its Proxy Voting Policy. At the same time,
Daiwa AM disclosed potential changes to the Proxy Voting Policy that werecurrently under consideration, and its expectations with respect to investee
companies, in an effort to make disclosure more useful for dialog. With
regard to voting activity, Daiwa AM has sought to implement disclosure in
the month following the month in which the annual shareholder’s meeting isheld, has started to provide more detailed information regarding the
grounds for voting decisions, and is striving to realize disclosure that is easy
to understand. Starting from the annual shareholders’ meeting held in
August 2022, Daiwa AM has comprehensively overhauled its disclosure
format, providing enhanced convenience.

Institutional
investors, in
Principle
principle, shouldreportperiodically on how they
fulfill their stewardship
responsibilities, including
their voting
responsibilities, to theirclients and beneficiaries.

6

In April 2023, Daiwa AM
published the Sustainability
Report 2022, which outlined themain content of Daiwa AM’s
stewardship activities.

Part 1

Stewardship Activities

Daiwa AM supports the intent of Japan’s StewardshipCode, a statement of Principles for Responsible
Institutional Investors, and established and announced
Policies regarding Japan’s Stewardship Code. We also
formulated a General Policy on Stewardship Activities tofulfill our stewardship responsibilities. Based on thisgeneral policy, we formulated the ESG Investment Policy,
Engagement Policy, and Proxy Voting Policy and released
these policies on the Company Website. The Proxy
Voting Policy is updated twice annually and the details
are publicly released.

Principle

4

Institutional investors should seek to arrive at an understanding in common
with investee companies and work to solve problems through constructive
engagement with investee companies.

To contribute positively to the sustainable growth of investee companies,
institutional investors should develop skills and resources needed to
Principle
appropriately engage with the companies and to make proper judgments infulfilling their stewardship activities based on in-depth knowledge of the investee
companies and their business environment and consideration of sustainability consistent
with their investment management strategies.

7

Daiwa AM has established “Enhance Global Sustainability” as part of our action guidelines, and we are taking
systematic measures that will contribute toward the sustainable growth of society.
Daiwa AM’s Responsible Investment Department includes corporate research analysts who are also
concurrently assigned to the Active Fund Management Department II, and are able to share information obtained
through engagement with investee companies. The knowhow obtained in this way is effectively utilized in in-house
ESG score calculation and in corporate value assessment.
In addition, in September 2023, Daiwa AM held a CFO Meeting with the chief financial officers (CFOs) of 15
investee companies. In addition to the dialog between Daiwa AM and the investee companies, this meeting also
provided an opportunity for the investee companies to share information among themselves.
68

Part 2

Corporate
Sustainability-aware
Management

At Daiwa AM, we are promoting sustainability-aware
management aimed at realizing sustainability for society andenhanced corporate value for Daiwa AM.

Corporate Sustainability-aware Management

Sustainability Policy
Basic approach
Daiwa AM’s social mission is to contribute toward
enabling people to live fulfilling lives and toward realizing
a sustainable society through its asset managementbusiness. To this end, the company fulfills its fiduciary
duty and strives to provide high-quality returns andservices over the long term.
Daiwa AM believes that, in order to be able tocontinue doing this over an extended period while
responding to changing times, it is vitally important tomanage the company with an emphasis on sustainability.
Socioeconomic activity requires a sustainable social
foundation in order to continue, and so Daiwa AM

positions the realization of this sustainability as aprecondition for its business operations. At the sametime, as a company engaged in the asset managementbusiness, Daiwa AM is constantly aware of the magnitudeof its responsibility in relation to the continued
development of the capital markets, and needs to fulfill
its duty in this regard. This is why the company isimplementing initiatives, through its business activities, toaddress the important issues affecting the maintenanceof society’s sustainability, and to earn the trust of its
stakeholders, with the aim of further enhancing Daiwa
AM’s corporate value.

Action guidelines
3 By implementing healthy, transparent management,

recognizes the importance of its role in promoting avirtuous cycle in the economy. Through its businessactivities, Daiwa AM will support business enterprisesthat contribute toward the maintenance andenhancement of the sustainability of the global
environment and of society, while also fulfilling its
fiduciary duty.
2 Daiwa AM will aim to be a “best partner” for all of its
stakeholders.

Daiwa AM will strive to enhance its corporate value ina sustainable manner.
4 Daiwa AM will clarify its materiality (key issues) that thecompany should prioritize, and will adjust thisperiodically.
5 Based on the above guidelines, Daiwa AM will draw up
specific policies for promoting sustainability-aware
management and will put them into effect.
WEB For more details, please visit the following webpage (in Japanese):https://www.daiwa-am.co.jp/company/sustainability/index.html

Specific policies

To promote sustainability-aware management, Daiwa AM has drawn up a number of specific policies. The main policies
are noted below.

Corporate Mission
Overall policy

Main specificpolicies

Sustainability Policy

Environmental Policy

Human Rights Policy

Stewardship Activities
PolicyPart 2

Corporate Sustainability-aware Management

1 As an asset management company, Daiwa AM

Principles of Customeroriented BusinessConduct

Materiality Identification Process
Step 1
Identifying andcollating social
issues69

Step 2

Taking into accountthe perspectivesof internal andexternal stakeholders

Step 3

Step 4Formulation ofdraft materiality

Discussion andfinal decision bysenior management

NEXT Steps
The company as a whole
implements initiatives
addressing themateriality, and promotes
sustainability-aware
management
70Corporate Materiality
After examining the risks and opportunities relating to various items, Daiwa AM
identified the following materiality:

Materiality Relating to Business Activities
Key area

Grounds for deeming it importantThorough fulfillmentof the company’s
fiduciary duty (FD)Daiwa AM believes that, as a company engaged in theasset management business, the thoroughimplementation of its fiduciary duty and the
maximization of its customers’ interests constitute thefoundation of its business and are its social mission.

Long-term goals(Where we want to be in
10 year ’ s time)
Strengthening the
product governancefunction, andcontinuing to provide
products that serve
customers’ bestinterests

Daiwa AM ’ s initiatives
Ongoing initiatives

Daiwa AM provides internal training to strengthen awareness of fiduciary duty.

Key initiatives

Daiwa AM will examine performance from a long-term perspective, and will implement systematic
quality management after product formation (enhancing the effectiveness of productgovernance).

Initiatives in 2023

Progress management item (qualitative target): Review management methods periodically inline with the specific characteristics of each individual product
Performance: To maintain and enhance product quality, a Product Governance Committee
has been established, with senior management participating
The Product Governance Committee has established verification processes andimplemented fund performance checks

Promotion of
stewardship
activities andresponsible
investment

Spreading awareness of
Daiwa AM’s innovative
initiatives

Daiwa AM believes that initiatives to encourage awider range of people to undertake investment, andthe development and provision of products tailored toinvestors’ needs, are vitally important for thecompany’s sustained growth. Daiwa AM also believes
that enhancing management quality is very importantin terms of securing stakeholders’ trust.

Expanding the range ofcustomers, andproviding attractive
products that will makecustomers want tocontinue investing

Ongoing initiatives

Daiwa AM has formulated an ESG Investment Policy, and it references investee companies’ ESGrelated initiatives when making investment decisions.

Key initiatives

In the areas of stewardship activities and responsible investment, Daiwa AM will be promoting
initiatives that embody the company’s unique characteristics, and will be undertaking cultivationof specialist ESG talent.

Initiatives in 2023

Progress management item (quantitative target): In analyst activities, increase theimplementation rate for engagement aimed at supporting corporate reforms to 100%
Performance: Daiwa AM has formed an engagement team, and is strengthening its activities
Of the 152 stocks that are the object of engagement, milestone management was
being implemented for 145 stocks (95% of the total) as of February 29, 2024.
For these 145 stocks, there was an engagement implementation rate of 68%, asof February 29, 2024.
Note: See Part 1 for more details of promotion of stewardship activities and responsible investment.

Ongoing initiatives

To enhance the company’s organizational management capability, Daiwa AM has been
implementing measures for the visualization and sharing of the investment strategies and actions
adopted by personnel responsible for asset management operations. Daiwa AM is also providing
support for asset formation for a wide variety of customers, with the provision of wide-ranging
content relating to asset formation.

Key initiatives

Daiwa AM will be putting in place a system for the speedy provision of financial products tailoredto the changes in society and to customer needs, and will be promoting measures that contributetoward the enhancement of financial literacy in society as a whole.

Initiatives in 2023

Progress management item (quantitative target): Have Daiwa AM’s Sharpe ratio, weighted by thebalance of each individual asset class, exceed the industry average

Part 2

Corporate Sustainability-aware Management

Service quality
enhancement
contributing toasset formation

Daiwa AM believes that, by promoting responsible
investment and incorporating investee company’senvironmental, social and governance (ESG) factors
into corporate evaluations, it is possible to accurately
determine the medium- to long-term risks andopportunities of the investee company.
Daiwa AM also believes that it can fulfill its social
responsibility as an asset management company bycontributing toward enhancing the value ofenterprises, etc., and toward sustained growththrough stewardship activities.
Daiwa AM believes that, since stewardship activities
and responsible investment form part of the company’s
fiduciary duty, and will also improve fund performance,
they ultimately contribute toward the maintenance andenhancement of the customer’s interest.

Performance: Daiwa AM has exceeded the industry average in six out of seven major asset
classes (over the period March 31, 2021–December 31, 2023)

Expansion ofbusiness fields

Daiwa AM believes that the exploration of new
business areas (with the fulfillment of the company’s
fiduciary duty as a precondition) will lead to stableasset formation for customers and is vital for thecompany’s sustained growth.

Strengthening
management
fundamentals

Ongoing initiatives

Daiwa AM is collaborating with affiliate companies that specialize in ETFs, and has been
undertaking the development of products that incorporate non-traditional assets.

Key initiatives

Daiwa AM will be aiming to expand its business areas through the effective utilization of its
investment management know-how.

Initiatives in 2023

Progress management item (qualitative target): Realize improved profitability at affiliatecompanies.
Performance: In September 2019, Global X Japan, which is Japan’s first asset managementcompany specializing in ETFs, was established as a joint venture between Daiwa AM, Daiwa
Securities Group Inc., and U.S. company Global X Management Company Inc.
Through the provision of innovative ETF products, the balance of assets under management
was increased to over 200 billion yen (as of November 30, 2023).

71

72

Corporate Materiality

Materiality Relating to
the Company's Business Foundations
Key area

Grounds for deeming it important

Winning
stakeholders’ trust

Daiwa AM believes that winning stakeholders’ trust is
the foundation for the company’s continued existence
as a sustainable enterprise.

Long-term goals(Where we want to be in
10 year’s time)
Realizing close
communication withstakeholders andmutual dialog

Daiwa AM’s initiatives
Ongoing initiatives

Daiwa AM’s action guidelines emphasize the need to “Have Integrity” and “Imagine Yourself in
Their Place,” and the company has striven to build trust.

Key initiatives

Daiwa AM will be expanding its disclosure, and striving to monitor society’s views and needs.

Initiatives in 2023

Progress management item (qualitative target): Expand information disclosure to contributetoward enhancing stakeholder awareness
Performance: To realize investor-focused, easy-to-understand information disclosure, Daiwa
AM has led the way in converting all index funds and reference indices so thatthey take dividends into account.
Daiwa AM has published a NISA Guidebook and Investment Trust Reference
Guide for the use of sales staff.
Daiwa AM has held a large number of NISA-related seminars for investors.

Enhancing
employeewellbeing

Daiwa AM believes that human capital is the wellspringof the company’s corporate value, and that if the
wellbeing of Daiwa AM employees is not enhanced,
then the company will not be able to realize
sustainable growth.

Ensuring that working
at Daiwa AM
contributes to
employee wellbeing

Ongoing initiatives

Daiwa AM has been putting in place an evaluation and compensation system, and has been
implementing career support training, etc. The company has been providing support for flexible
workstyles with the adoption of a flextime system, and has striven to monitor employees’ healthstatus through the implementation of measures such as periodic stress checks.

Key initiatives

Daiwa AM will be adopting strategies to enhance motivation, which in turn will lead to improved
employee engagement. The company will also be introducing a framework that facilitates exchange
across departments and roles, thereby invigorating intra-organizational communication.
Progress management item (quantitative target): Maintain the employee satisfaction rate at 80%
or over
Performance: The employee satisfaction rate in 2023 was 90.3% (based on the percentage of
employees that responded “Yes, very proud” or “Yes, somewhat proud” to the question “Do you
feel proud of working for the Daiwa Securities Group” in a self-declaration survey implemented
in the summer of 2023)

Respect forhuman rights anddiversity

Daiwa AM believes that it is important to respect thehuman rights of stakeholders through-out the value
chain, and that encouraging the participation anddynamic engagement of diverse human talent isimportant for the company’s continued growth.

Diverse human talent isable to demonstrate
the strengths that they
possess because of
their diverse
backgrounds, andeveryone is able towork with enthusiasm

Ongoing initiatives

Daiwa AM has been working to cultivate a corporate mindset that fosters the dynamic engagementof diverse human talent. The company has formulated an action plan for the dynamic
engagement of female employees, and is implementing this plan. It is also introducing a system
to create a working environment that is more user-friendly for employees with disabilities, so thatthey can play a more active role in the company.

Key initiatives

Daiwa AM will be strengthening its system for the promotion of diversity, equity, and inclusion, andwill be building a workplace environment that is equitable and free from discrimination so thatdiverse human talent can fulfill their potential. The company has established a Diversity &Inclusion Promotion Committee, chaired by the President, which directs the promotion of related
activities throughout the company. Daiwa AM will also be implementing human rights due
diligence measures with respect to stakeholders in the value chain, and will be contributing
toward the realization of a society in which no one is left behind.

Initiatives in 2023

Progress management item (quantitative target): Raise the share of managers who are female toat least 30% (long-term goal)

Corporate Sustainability-aware Management

Initiatives in 2023

Part 2

Performance: The female manager ratio in 2023 was 15.1% (as of December 31, 2023)

Strengthening
corporate
governance

Daiwa AM believes that the maintenance andstrengthening of a sound, solid corporate governancesystem will help to secure the trust of stakeholders
and enable the company to increase its corporate
value and realize sustained growth.

Maintaining andbuilding appropriate
governance systems in
Daiwa AM

Ongoing initiatives

Key initiatives
Initiatives in 2023

73

Daiwa AM has structured its Board of Directors so that it includes three Outside Directors, with theaim of realizing a higher level of corporate governance. With the inclusion of Outside Directors inmeetings, the company has built a governance structure that functions in such a way as to control
conflicts of interest in relation to fund management and stewardship activities. Daiwa AM is also
cultivating high ethical standards and compliance awareness through periodic compliance training.
Strive to enhance the effectiveness of the Board of Directors and of the oversight function
Progress management item (qualitative target): Realize continued implementation of evaluationof the effectiveness of the Board of Directors
Performance: Regarding continued implementation of the evaluation of the effectiveness of theBoard of Directors, Daiwa AM has been collating case studies of other companies and using
these for comparative discussions, and has begun designing the relevant systems.

74

Corporate Materiality

Initiatives Based on Our Corporate Materiality

Enhancing employee wellbeing

Enhancing Wellbeing
Daiwa AM believes that human capital is the wellspring of the company’s corporate value, and that enhancing thewellbeing of Daiwa AM employees is the foundation for achieving sustained growth for our company. Besides the strict
enforcement of a policy of no overtime after 7:00 p.m., and implementing promotional measures to bring the rate ofannual paid leave utilization up to at least 70%, we have also adopted a flextime system and a teleworking system, andwe will continue to implement measures to make working more convenient for employees.

Creating workplaces
where all employees canmaximize theirperformance andcontinue to work withenthusiasm and vigor

Annual paid leave utilization rate (FY2022)

Average no. of overtime hours worked (FY2022)

Childcare leave utilization rate

Average years of service

82.3％

Male employees:(FY2022)

Female employees:

100.0% 100.0%

9.3hours / month

Male employees:(FY2022)

Female employees:

15.3 years 15.3 years

Engagement Survey

Kenichi Ueno
Executive Managing Director, Head of Human Resources

For Daiwa AM, human talent is the wellspring ofcompetitiveness. Besides creating workplace where all
employees can maximize their performance and continue
to work with enthusiasm and vigor, we are also aiming tobuild a truly professional team that continues to challenge
itself by setting high targets.
Reflecting our commitment to the cultivation of humantalent, we are putting in place a wealth of training programs
and a flexible learning environment that can be optimized
to meet individuals’ career planning needs, so that every
employee can continue to undertake self-directed study.
Through this process, we are able to visualize the career
path of each individual employee and the skills that they
possess, and so we are building up a human talent“portfolio” in which the right people are assigned to the rightposition. We are also transforming our approach to
employee appraisal and compensation, and proceedingwith the building of a competitive compensation system.
The continued evolution of Daiwa Securities Group’s
human resources system has brought about enhanced
employee motivation and employee satisfaction. However,
we realized the need to confirm whether this was actuallyleading to improved productivity and performance. To

canvass employees’ frank opinions and realize continuous
improvement activities, we are implementing ananonymous engagement survey on a periodic basis. Using
the survey results, we are able to identify strengths andissues, and implement improvement strategies, which willcontribute toward enhancing productivity andperformance.

Turn diversity into power
We believe that respecting the human rights ofstakeholders in the value chain, and accepting andpromoting the participation of diverse human talent, is very
important for realizing Daiwa AM’s sustained growth.
Adopting an approach that aims to make Daiwa AM anorganization which is able to turn diversity into a source ofpower, we are strengthening our Diversity & Inclusion
promotion system, and working to build workplaces that are
fair and free from discrimination, and where diverse humantalent can fulfill their potential. We also view the promotionof women’s participation and advancement as vital forachieving sustainable growth, and we are formulating andimplementing related action plans.
Going forward, I hope that Daiwa AM will continue torecognize human resources strategy’s importance as a
growth strategy, and will take it to an even higher level.

company’s strengths and issues, providing a basis fororganizational improvement activities and helping each
employee to realize growth. The company aims toenhance employee engagement on an ongoing basis, bybuilding a productive workplace environment where
every employee can attain further personal growth, andby helping employees to realize better physical andmental health.

Health management
Since 2015, the Daiwa Securities Group has been
selected by Japan’s Ministry of Economy, Trade andIndustry and the Tokyo Stock Exchange as a Health &Productivity Stock Selection eight times, and has also
been recognized by the Nippon Kenko Kaigi as White 500(Top 500 Certified Health & Productivity Management
Outstanding Organizations) seven times, and continues
to promote effective health management. In FY2022, webegan to implement a new system that helps employees
pay dental treatment costs.
In addition, with the aim of promoting employee
health and invigorating inter-employee communication,
we implement activities such as walking events in which
individual employees and teams compete to see who canwalk the most paces each day.

Part 2

Corporate Sustainability-aware Management

Human talent is the wellspring ofcompetitiveness

Daiwa AM implements Engagement Surveys to gauge thecurrent state of employee engagement, which can help
to enhance productivity and performance. To implementa PDCA cycle oriented toward the company’s vision ofwhere it wants to be in the future, we have set multiple
benchmarks, including benchmark values based on the
results achieved by high-performing global enterprises.
The survey results enable Daiwa AM to identify theInternal awards system
The Daiwa Asset Monthly Engagement Awards (DMEA)
have been established as a measure to help ensure that
employees feel highly motivated when working at Daiwa
AM. Through monthly awards given to individuals or
teams that have improved the Company’s management
not only in terms of revenue but also from other angles
like cost containment and reputation building, theprogram honors the work of its employees. The award
decisions are made by senior management on a monthly
basis.
DMEA award winners

75

76

Corporate Materiality

Initiatives Based on Our Corporate Materiality

Respect for human rights and diversity

Diversity & Inclusion (D&I)

Support for balancing work and childcare―promoting the taking of at least two weeks ofchildcare leave by all eligible male employees

The Daiwa Securities Group has identified Diversity & Inclusion as one of the key areas that we need to focus on. To
enable every individual employee to maximize their performance by making full use of their personal strengths andpersonality, Daiwa AM is promoting Diversity & Inclusion from a variety of different perspectives, including gender, age,disability, recruitment category, etc.

Gender diversity (Women’s participation and advancement)
As of December 31, 2023, 40.4% of Daiwa AM’s employees were women. In our diversity-related efforts, we view thepromotion of women’s participation and advancement being very important, and we are formulating and implementing
related action plans.

Action Plan Based on the Act on Advancement of Measures to Support
Raising Next-generation Children and the Act on the Promotion of Women's
Active Engagement in Professional Life
Plan implementation period: April 1, 2021 to March 31, 2026 (five years)

Quantitative Objectives

ﾠ
1 Raise the percentage of managers who are women
to at least

16％ (double the level in FY2020)

ﾠ
2 Raise the percentage of new graduate hires
who are women to a stableﾠ
3 Raise the percentage of eligible male employees
taking childcare leave to a consistent

100%, with each eligible employee taking
at least 14days of childcare leave.

15.1％

Percentage of managers who
are women(as of December 31, 2023)

47.9％

Percentage of new graduate(average for the period between
hires who are women
FY2021 and FY2023)

100％
16.1days

Percentage of eligible male employees
taking childcare leave
Average number of days ofchildcare leave taken by
eligible male employees(FY2022)

Platinum Kurumin
As a high-performing “Childcare-supporting Enterprise,” in June
2021 Daiwa AM received Platinum Kurumin certification from the
Minister of Health, Labour and Welfare.

Mentoring System for female managers
As one of Daiwa AM’s measures to promote women’s
participation and advancement, in FY2023 we introduced
a new Mentoring System. Under this system, executive
officers act as mentors for female managers who areunder consideration for promotion to executive officer or
department manager roles in the future, providing
support to help them with their career development.

The main reasons for the disparity in pay between male andfemale employees are that the share of women holding
management positions is relatively low, while the share ofwomen holding lower-paid administrative jobs is high(starting from FY2010 as a general rule, all new employees,
both male and female, have been recruited onto the
management career track). Going forward, we believe that
we will be able to reduce the gender pay gap by steadily
increasing the share of women in managerial positions.

ﾠGender pay gap (Female employees’ average pay as apercentage of male employees’ average pay)

62.8％ (FY2022, all staff)

ﾠPercentage of employees who are women

40.4％ (as of Dec. 31, 2023)

77

Promotion Meeting
Diversity & Inclusion Promotion Meeting
The Diversity & Inclusion Promotion Meeting, which isheaded by the President, meets twice a year. It reports
on Daiwa AM’s D&I initiatives and discusses future issues.
Daiwa Securities Group Companies Women’s
Advancement Meeting
Held four times a year, this meeting brings together the
executive officers responsible for human resources at
each group company, as well as managers responsible
for promoting D&I, to engage in discussion relating to thepromotion of women’s participation and advancement.

A meeting to exchange views with male employees who have taken childcare leave

Career planning network (Wai Wai)
Daiwa AM’s Human Resources Department provides andruns the “Wai Wai” inter-employee network, to create
opportunities for employees to exchange experiences
and ideas with one another. In FY2023, the “Wai Wai”
network held discussion meetings on the topics of
cultivation and management of subordinates, andbalancing childcare and work.

Training programs aimed at cultivating awareness
Human rights awareness training

Care-related training

Topics Providing reasonableaccommodation for persons with disabilities
Deepening understanding of LGBTQ+ people

Topics Support for balancing work and caregiving responsibilities
To spread awareness of key points relating to balancing
work and care responsibilities and of the internal systems
available within the company to provide support forbalancing them, and also to deepen understanding ofwhat balancing work and care involves, training has been
implemented for all employees using training videos.

To realize multi-faceted learning about humanrights issues, we provide training videos for
employees across all roles.

Training relating to Women’s Health

Other relevant dataroles, we are aiming to help realize a society in which
both men and women can balance work and family
responsibilities.

Topics Women’s healthcare

As in the previous year, we implemented
training with the aim of deepening
understanding of women’s health issues, using
training videos for both recent graduate hires
and mid-career hires.

Unconscious bias training
Topics Unconscious bias in the workplace
Training using training videos has been implemented forall employees, with Ms. Masako Arakane, whose programsfor promoting changes in attitudes and behavior havebeen well-received, being invited to act as instructor.

Part 2

Corporate Sustainability-aware Management

50％

Performance

Ms. Toko Shirakawa, one of Daiwa AM’s female Outside
Directors, has held meetings with male employees who
have taken childcare leave to exchange views. Daiwa AM
has made it mandatory for male employees who havebecome fathers to take at least two weeks of childcare
leave, and the percentage of eligible male employees
who take childcare leave has alreadyreached 100%. By breaking down
stereotypical attitudes toward gender

Promoting D&I throughout the asset management industry―Asset Management Women’s Forum

The Asset Management Women’s Forum was launched byfour companies (including Daiwa AM) in the spring of 2022,with the aim of promoting women’s participation andadvancement in the asset management industry. In the
Forum’s first year of operation, its events for people working
in the asset management business were attended byapproximately 700 people.
In FY2023 an additional 11 companies took part in the
Forum’s activities, with the planning and implementing of
seminars and workshops from three perspectives: working
women, managerial positions with responsibility for talentcultivation, and personnel responsible for diversity
promotion. The Forum is proceeding with efforts to cultivate

an environment and build networks that will further theparticipation and advancement of women throughout theasset management industry.

Lunch meeting bringing together employees of 15 different companies

78Corporate Materiality

Initiatives Based on Our Corporate Materiality

Strengthening corporate governanceCorporate Governance Structure
At Daiwa AM, the Board of Directors is responsible forimportant decision-making on management andoverseeing the execution of duties by directors. As acompany with an Audit & Supervisory Board, the statusof the performance of duties by each director is audited
independently of the Board of Directors by the Audit &Supervisory Board Members and the Audit & Supervisory
Board. In June 2023, Daiwa AM welcomed two new
Outside Directors who have a wealth of experience in theasset management field, and their views, based on theirrespective specialist expertise, are taken into
consideration in the company’s management. Both the
Stewardship Supervisory Committee and the Fiduciary

Duty Advisory Committee are chaired by Outside
Directors, and the Outside Directors’ expert opinions are
helping to strengthen Daiwa AM’s governance.
The Board of Directors is comprised of individuals
with high ethical and moral standards, in addition tooperational experience or specialist expertise. As of
December 31, 2023, the Board of Directors was made upof 14 directors (including three Outside Directors, andthree female directors).

WEB For more information about Daiwa AM’s corporate governance system,
please visit the following webpage (in Japanese):https://www.daiwa-am.co.jp/company/about/governance.html

Legal & Compliance
Aiming to build a compliance system that embodies a high level of specialist expertisecompliance at Daiwa AM, while the Monitoring Section is a
specialist organization responsible for implementing
compliance-related auditing operations across the company
that works to strengthen the effectiveness and efficiency ofmonitoring. The Legal & Compliance Department is also
focused on the dissemination of information relating tocompliance. To date, approximately 100 Compliance
Columns written by department staff have been publishedinternally within the company, and Compliance News, which
provides timely information in an easy-to-read format, isdisseminated within the company. The goal of measures
such as these is to encourage employees to notice things
happening around them and to constantly have theircompliance awareness at a high level.

Organizational structure of the Legal &Compliance Department
Planning Section

Monitoring Section

The Planning Section has been
established as a strategicorganization that draws up andimplements plans to realize
compliance that embodies theessence of Daiwa AM.

The Monitoring Section has been
established as a specialist
organization responsible for
implementing compliancerelated auditing operations
across the company, which works
to strengthen the effectivenessand efficiency of monitoring, withall auditing operations being
handled by the same unit.

Legal consultations, Innovation
Legal Team (ILT), and various
legal services
Compliance program planningand promotion
Coordination with, andsupport for, planningdepartments and risk officers
Handling administrative errors,
and functioning as a contact
point for communication withthe regulatory authorities andrelevant associations
Implementation of compliancetraining

79

Daiwa AM’s compliance initiatives in FY2023 aimed torealize a revolution in compliance awareness, based on our
corporate philosophy, the Daiwa Spirit, and the company’s
Vision & Values, with a focus on the theme of “Promoting
Compliance to Enhance Corporate Value.” These initiatives
are formulated and developed as compliance programs
after obtaining the approval of the Board of Directors.
Progress reports are submitted to the Board of Directors
and made available for viewing to all company officers andemployees via the in-house intranet.
Compliance initiatives are closely linked to thedissemination of Daiwa AM’s corporate philosophy.
Activities undertaken by company officers and employees inline with our corporate philosophy are the wellspring for
generating value-added, and will make customers more
likely to choose Daiwa AM. Based on a strong awareness of
this, and with compliance awareness being seen as part of
Daiwa AM’s corporate branding, the Legal & ComplianceDepartment provides support for every aspect of thecompany’s operations from a legal and compliance

perspective, while aspiring to make Daiwa AM a leader inthe legal and compliance sectors in the industry.

Enhancing corporate
value

Customers’ trust

MindsetPractical
implementation

Collecting
and utilizing
information

Building a Corporate Culture Based on Our
Corporate Philosophy, the Daiwa Spirit, and our
Vision & Values

Putting compliance into practice

Cultivating compliance that embodies the essence of Daiwa AM
Daiwa AM believes that the realization of complianceinvolves more than just abiding by laws and regulations; italso means instilling the corporate philosophy that is thefoundation for everything we do, and implementing
measures to put this philosophy into practice. We believe
that, by undertaking this in a strategic manner, it cancontribute toward our corporate branding and enhance
corporate value. Dif-ferent companies implement
compliance in different ways, but we aim to realize
compliance that embodies the essence of Daiwa AM. To thisend, this term, we have implemented training that gets
employees to think about what compliance that embodies
the essence of Daiwa AM actually means, from theperspective of the corporate ethics that are our foundation,and of our Vision & Values. Small group sessions were used
for the training, during which each officer and employee
shared their unique points of view, helping to clarify andunite their shared values. With the aim of achieving
sustained growth in corporate value, and taking ourcorporate philosophy and Vision & Values, which are deeply
instilled in all company officers and employees, as a corefoundation, we have implemented training that enables
everyone to experience for themselves how we are all
moving in the same direction in carrying out our duties.
Going forward, we will continue to cultivate complianceawareness appropriate to Daiwa AM so that all company
officers and employees can have a shared understanding ofcom-pliance that embodies the essence of Daiwa AM.

Compliance training output

Compliance training in progress

Part 2

Corporate Sustainability-aware Management

As an asset management company, Daiwa AM is expected tofulfill its social responsibilities, including those relating to
stewardship, while managing the valuable assets of its
customers and achieving the greatest possible performancein terms of investment goals. Legal and compliancechallenges have a direct bearing on management at asset
management firms, while also being intimately linked with all
aspects of asset management operations. This makes it
imperative that we establish an increasingly advanced andspecialized compliance framework.
Daiwa AM’s Legal & Compliance Department comprises
two sections: the Planning Section and the Monitoring
Section. The Planning Section is a strategic organization thatdraws up and implements plans for the realization ofCompliance initiatives in FY2023

Contract Review Team
Advertising Review Team
Trade Inspection Team
Responsible for overseas
subsidiaries(concurrent responsibility)
The Monitoring Section operates using
a team structure

Compliance Columns written by Legal & Compliance Department
personnel

80

Initiatives Based on Our Corporate Materiality

Corporate Materiality

Corporate Materiality

Thorough fulfillment of the company's fiduciary duty

Service quality enhancement contributing to asset formation

Initiatives for Instilling Fiduciary Duty, and for
Putting It into Practice
For Daiwa AM to be an asset management company that is truly customer-focused, it is important for all company
officers and employees to have a correct understanding of fiduciary duty, and to put this into practice. In FY2023, weonce again implemented periodic internal training so that all employees can think and act with an awareness of
fiduciary duty when performing their duties. A questionnaire survey was conducted during the training; obtaining
feedback in an appropriate manner not only enables us to monitor changes in the awareness of company officers andemployees, it also makes it possible to obtain their views, based on practical experience, which can be effectively
utilized in future business operations.

Strengthening product governance
To provide products tailored to meet customers’ needs,
Daiwa AM strives to maintain and enhance productquality. In FY2023, we established a new ProductGovernance Meeting, with the senior management teamtaking part, and we have been working to strengthen theeffectiveness of product governance.
In principle, the Product Governance Meeting meetson a quarterly basis, with the company’s executive
directors attending its meetings. At the meeting, theresults of the verification are reported on matters related
to overall product quality maintenance and improvement(e.g., operational status, merchantability, adequacy of

disclosures, etc.), policies are discussed and decided upon,
and the status of implementation is confirmed.
In addition, to incorporate external viewpoints, theProduct Governance Meeting’s decisions and reports arereported to the Fiduciary Duty Advisory Committee, whose
members include the company’s Outside Directors andthe personnel responsible for risk management; the views
expressed by the Committee are then reported to theBoard of Directors. Since June 2023, the Committee has
been chaired by an Outside Director with a wealth ofexperience in asset management companies, which is
helping to further strengthen governance.

Product Planning
Department

Product Meetings
Launching new funds

Expiration/prematurity
redemption, andextension of maturity

Fund Management
Advancement Committee

Fund Management
Division

Investment
TrustsAdjusting trustee revenue

Considering ways to enhancefund management
capabilities, etc.

Product creation

Management

Redemption

Product Governance Meeting
Risk Management
Department

Maintaining and enhancing product quality, forexample in relation to management status

Note: The Product Governance Meeting reports on the content of its deliberations to the Fiduciary Duty Advisory
Committee, which in turn reports its views to the Board of Directors.

81

To contribute toward enhancing people’s financial literacy through the provision of continuing financial and economic
education, in FY2023 Daiwa AM established the Financial Education & Corporate Sustainability Section. Going forward,
we will be rolling out various financial and economic education initiatives, with the new Section playing a central role,promoting measures that help people to realize long-term asset growth.

Participating in a project organized by Tokyo Metropolitan Government to provide visiting
instructors
Daiwa AM has been involved in a project by Tokyo
Metropolitan Government to provide visiting instructors
to enhance financial literacy ever since the project was
first launched.
In October 2023, Daiwa AM conducted a seminar for
employees of the Council of Social Welfare in Suginami
Ward regarding the importance of asset management,
focusing in particular on the individual-type defined
contribution pension plan (iDeCo) system and on the new
Nippon Individual Savings Account (NISA) program. Using
worksheets, seminar participants performed asset
management simulations and fund allocation. Participants

appreciated having the opportunity to take part in theseminar, with comments such as “We were able to learn
the basics about how to utilize investment funds.”

Seminar in progress

Holding the Investment Trust Creators Cup Activity
Daiwa AM provided three visiting lessons, combining
Zoom and hands-on classes, for third-year students at
Takamatsu Junior High School Attached to the Faculty of
Education, Kagawa University.
In FY2023, taking Investment Trust Creators Cup as
the theme, the students were asked to design aninvestment trust based around the concept of “aninvestment trust that will benefit both individuals andsociety as a whole in the future.” The best investment
trusts were chosen jointly by the students, their teachers,
and Daiwa AM. The winning investment trust was createdaround the theme of space, while other outstanding
investment trusts focused on the depreciation of the yen
and decarbonization. Positive comments from theparticipating students included “We were able to learn

about the links between business enterprises andsociety,” and “It got me interested in asset management.”
Daiwa AM will continue to promote financial andeconomic education in the future, with the hope that
initiatives of this kind can help people to develop aninterest in finance and economics.

Part 2

Corporate Sustainability-aware Management

Product governance framework

Promoting Financial and Economic Education

Group photo

Voice

In this project, which was being implemented for the third time in 2023, bydesigning the classes in collaboration with Daiwa AM, we were able to deliver acomprehensive learning experience. Through the classes, the students achieved
significant growth, going from knowing nothing about investment trusts tocreating them themselves. I feel that, by participating in this program, thestudents recognized that the economy is directly relevant to them, and haveacquired the ability to think, judge, and act on their own.
Tomofumi Ono,
Teacher,

Takamatsu Junior High School
Attached to the Faculty of Education, Kagawa University

82

Initiatives Based on Our Corporate Materiality

Corporate Materiality

Corporate Materiality

Service quality enhancement contributing to asset formation

Winning stakeholders’ trust

Measures Relating to the Launch of the New NISA
Program

Insights Regarding ESG Fund Information
Disclosure

To accompany the launch of the new Nippon Individual Savings Account new NISA, a specific pillar of the Japanese
government’s Doubling Asset-based Income Plan initiative, Daiwa AM has been engaged in intensive communication
with financial commodity sales companies, and has been undertaking new product development and provision of
on-site support content.

Even before the Progress Report on Enhancing Asset Management Business 2022 published by the Financial Services
Agency (FSA) outlined the government’s expectations regarding information disclosure in relation to ESG investment
trusts, Daiwa AM was already implementing leading-edge measures in regard to ESG fund disclosure.

Publication of the NISA Guidebook for personnel responsible for handling assets undermanagement at sales companies
To enhance financial literacy, besides providing information
to investors, it is also vitally important to offer support to thesales staff working at our sales companies. In addition to
helping them develop a better understanding of the tax
system, we have produced a practical guidebook with FAQs
that can be used as case studies. The new NISA,
encouraging people to make lifetime tax-free investments,
is a significant development comparable to the Big Bang, amajor financial reform previously implemented by thegovernment, and it offers new opportunities forcommunication with a wide range of investors, including
investors with limited experience. The NISA Guidebook has

been compiled and published in collaboration with Yamada
Consulting Group, which has previously produced taxation
guides for investment trusts, etc.

NISA Guidebook

Style 9―Developing an investing style diagnostic tool for inexperienced investors

them to perform asset accumulation simulations based on
their life goals, etc.

Part of the Style 9 investment style diagnostics online tool

The Decarbonization Technology Fund (Carbon ZERO) is
one of Daiwa AM’s leading ESG funds. Since the fund was
first launched, its impact report has provided, on annual
basis, an explanation of the significance of ESG funds andthe philosophy behind ESG fund management, as well as
ESG surveys and management methods, and the impactthat investment in the fund has had on society, all of it
presented in a way that is easy for individual investors tounderstand. This fund is equivalent to a European Union
Sustainable Finance Disclosure Regulation (SFDR) Article
9 fund, the most rigorous standard in the world forcarbon zero funds, and with collaboration from
Candriam, an asset management advisory firm, it has
become an industry-leading fund that features leadingedge disclosure.

Carbon ZERO Impact Report 2023
WEB For more details, please visit the following website (in Japanese):https://www.daiwa-am.co.jp/special/carbonzero

Working Together to Cultivate Tomorrow’s Forests tree-planting activity―Carbon ZERO

Focusing on the topic of Working Together to Cultivate
Tomorrow’s Forests, Daiwa AM and its sales companies
are realizing tree-planting on an annual basis bycontributing part of our carbon zero investment trust
returns to a tree-planting project run by NPO
Environmental Relations. As of 2023, a cumulative total of
16,104 trees had been planted in four locations invarious parts of Japan. We intend to continue with thisactivity every year as long as the Carbon ZERO fund is inexistence. As a framework whereby the financial
institutions providing investment trusts can work
together with investors to help realize a decarbonizedsociety, this project won the Governor’s Special Prize forGreen Finance in the ESG Investment Category of theTokyo Financial Awards.

Ashigawa-cho, Fuefuki-shi, Yamanashi Prefecture (June 2022)

Part 2

Corporate Sustainability-aware Management

Taking “Making asset management colorful” as its
catchphrase, Style 9, which is oriented toward
inexperienced investors, offers nine different portfolios thatprovide investment trusts tailored to match investors’
individual investing styles. This product is designed tosupport the investment of smaller amounts on a regularbasis within the NISA framework; a key feature is that it uses
online tools to provide support for every stage from the firststeps of asset management through to management statusmonitoring. The investment style diagnostics function asks
investors some simple questions about their approach toinvestment and their risk tolerance, to guide them inthinking about their optimal investment style and allowing

Issuing the Carbon Zero Impact Report 2023

Introducing the Tree-planting Projects
2022 Tree-planting Project2023 Tree-planting Project

WEB View video footage here:
https://youtu.be/h_iSAmqERbw

WEB View video footage here:
https://youtu.be/rqEg09-pKRw

Ashigawa-cho, Fuefuki-shi,
Yamanashi Prefecture

WEB For more details, please visit the following website (in Japanese):https://style9.qri.jp/dam

83

Hinohara-mura, Nishi-Tama-gun,
Tokyo

84

Initiatives Based on Our Corporate Materiality

Corporate Information

Initiatives Aimed at Instilling our Vision and Values,
and at Putting Them into Practice
Holding our second round of town-hall meetings
Following on from 2022, town-hall meetings chaired by
Daiwa AM President Mikita Komatsu were held on December
25 and December 28, 2023. With one of the goals being tostrengthen engagement, this year there was more emphasison dialog relating to the company’s future direction. This wasa valuable opportunity for the senior management team todirectly hear from employees, while for employees, it was amarvelous opportunity to develop a more in-depth

understanding of the management team’s approach and thecompany’s overall strategic direction.

Company Overview

Company
name, etc.

Daiwa Asset Management Co. Ltd.
A Financial Instruments Business
Operator registered with the Director of
the Kanto Local Finance Bureau of the
Ministry of Finance (Kin-sho) No. 352

Headquarters
location

9-1 Marunouchi 1-chome, Chiyoda-ku,
Tokyo

Main business
areas

Investment management business,investment advisory and agency
business, Type II financial instruments
business

Memberships

The Investment Trusts Association, Japan;
Japan Investment Advisors Association;
Type II Financial Instruments Firms
Association

Town-hall meeting in progress

Vision & Values (VV) Promotion Team activities
activities help to ensure a shared awareness among employees,
and provide support for putting the company’s Vision & Values
into practice. Going forward, we intend to continue proactively
implementing this kind of activity, so that each employee canmove forward toward the achievement of Daiwa AM’s vision.

The Vision & Value Awards(with award-winners chosen by employees)
In FY2022, Daiwa AM launched its own internal awards system.
We call for applications from all company officers andemployees once a year for challenging cases in which two or
more people worked together with an awareness of Daiwa AM‘s
Vision and Values, and all officers and employees vote to selectthe winning team. It is anticipated that this awards system willlead to new discoveries through the sharing of best practices,and that, by cultivating mutual respect, it will contribute to thecultivation of a company ethos that values taking on challenges.
Going forward, we will continue
working steadily to instill thecompany’s Vision & Values!

Vision & Values (VV)Promotion Team
(Second cohort)This is a team thatthinks and acts
logically, and which
you can rely on!

Yusei Yamanaka
Legal & ComplianceDepartment

We will continue to workwith other teammembers to deliver
sustainable projects!

Atsushi Kobayashi
Human Resources Department

The VV Team will be
rolling out somerevolutionary newactivities; watch
this space!

Yoko Jimbo
Human Resources
Department

Let’s strengthen thecohesion of all Daiwa AM
employees through the
VV Team’s activities!

Going forward, we willcontinue to develop
projects that enable
everyone to work
together as one!

Established

WEB For an organization chart, please visit:https://www.daiwa-am.co.jp/english/corporation/organization.html
WEB For more detailed information about Daiwa AM, please visit:

Yusuke Fukuda

Corporate Planning Department

Corporate Planning Department

Daiwa Securities Group Inc. (100%)

Overseasbusiness
locations

New York, Silicon Valley,
Singapore, London

Number of
Executives &Employees

680 (as of Dec. 31, 2023)

Financial Data
(Million yen)

FY2018FY2019FY2020

FY2021

FY2022

Operating revenue

76,725

70,13465,90674,94870,405

Operating profit

16,572

14,525

14,067

18,551

15,310Ordinary profit

16,961

15,62914,616

19,08915,642Current net profits

11,87010,566

9,389

12,738

10,317

Change in Assets under Management(Trillion yen)

30

24.0

25

Seika Izumisawa
Product Planning
Department

By looking at things fromother people’s perspectives,
I will be working together
with the other team members
to carry out VV activities.

Naomi Matsuda
Yuqing Jing

Principal
shareholder

https://www.daiwa-am.co.jp/english/corporation/index.html

20
15
10
5
0

85

December 1959

15,174,270,000 yen

AppendixDaiwa AM formulated its Vision & Values (VV) in April 2020, andall employees are working together to realize the future thatthey embody. The “VV Team,” composed of employee
volunteers, works to promote related activities. In July 2023, a
new group of employees took over the running of the VV Team(see figure below). Continuing to maintain the approachespoused by their predecessors, the new team is redoubling
efforts to instill the Daiwa AM Vision and Values throughout thecompany.
The VV Team plans and implements various measures tomake it easier for employees to develop an awareness of the
Vision & Values. For example, they have held Input Day lecture
sessions at which external instructors give talks on topics
relating to the values espoused by Daiwa AM, and also carries
out promotion initiatives like Sustainable Month as an activity topromote one of our Values, "Enhance Global Sustainable," tofamiliarize employees with ecological activities. The VV Team’s

CapitalInvestment Planning
Department and Global
Business Department

March 31,2014

March 31,2015

March 31,2016

March 31,2017

March 31,2018

March 31,2019

March 31,2020

March 31,2021

March 31,2022

March 31,2023

Note: This figure is the combined total of investment trust, discretionary investment and investment advisory balances (Estimate including the investment balance of Daiwa AM’s
overseas subsidiaries)

86

Data

Points that customers should be aware of when purchasing units in investment trusts
When purchasing units in an investment trust, customers should be fully aware of the two key points to note
listed below, and should be sure to read through the investment trust prospectus for the investment trust inquestion, before making a decision as to whether or not to invest based on their own judgement.

Greenhouse Gas Emissions
Scope 1＋2
500

（tCO2）

442.5

400

Since April 2021, Daiwa Securities Group, Inc. havetransitioned to renewable energy sources for electricity
used at the group’s headquarters building, whichhouses all Group companies, including Daiwa AM.

300
200

83.9

100
0

FY2020Fees payable by thecustomer directly

64.4

FY2021

FY2022

Scope 3Category 6 Business trips*1
350
300
250
200
150
100

Increase in businesstravel accompanying therelaxation of COVID-19
related restrictions on
movement in FY2022
73.9

70.0

FY2020

FY2021（tCO2）

Category 7 Employee commuting*1
200（tCO2）

Category 8 Upstream leased assets*2
20（tCO2）

292.4
150
100

101.8

118.6

140.6

15

12.0
8.8

10

50

5.0

5

50
0

0

FY2022

FY2020

FY20210

FY2022

FY2020

FY2021

FY2022

Amount of Copier Paper Used per Employee(sheets)

2019

2020

2021

2022

2023

8,176

4,386

2,673

2,356

2,145

Human Resources and Related
December 31, 2022

40.4％

Ratio of female managers
Ratio of female members of the Board of
Directors
Ratio of female employees hired*1

Average duration of service of men andwomen*1
Employment rate of persons withdisabilities
Average overtime per worker per month*1
Percentage of paid leave taken*1
Percentage of childcare leave taken*1
Disparity in pay between male and female
employees*1(Female employees’ average pay as a percentage ofmale employees’ average pay)

87

14.1％
8.3％

57.1％
(Male) 15.8 years (Female) 14.8 years

December 31, 2023

40.4％
15.1％
21.4％
29.6％

(Male) 15.3 years (Female) 15.3 years

2.4％

2.7％

10.5 hours

9.3 hours

82.7％(Male) 100％ (Female) 100％―

*1 Data is for FY2021 (April 2021 to March 2022), and FY2022 (April 2022 to March 2023)

82.3％(Male) 100％ (Female) 100％

62.8% (all employees)
59.4% (regular employees)
76.5% (non-regular employees)

Fees payable by thecustomer indirectly,
from the trust
assetsType

Fee rates

Fee details

Projected amount of fees payable (amounts
are calculated based on the maximum fee
rates shown to the left)

Handling fee
payable at thetime of purchase

0 to 3.3%(tax
included)Compensation for product explanation orprovision of product information at purchase,provision of investment information, andexecuting transaction

The maximum fee payable will be 33,000
yen if 1 million units at the net asset value of
10,000 yen will be purchased

Redemption fee(amount to beretained in fundassets)0 to 0.5%

Deducted from the proceeds of redeemedamount and transferred to trust assets tocover expenses, etc. required for redemption

The maximum fee payable will be 5,000
yen if 1 million units at the net asset value of
10,000 yen will be redeemedManagementfee (trustee
revenue)

Annualrate of0 to 1.98％(tax
included)Compensation received by the three partiesof sales company, management company, andtrustee company from the trust assets asinvestment and management expenses forunits in investment trust

The maximum fee payable will bearound 55 yen per day if 1 million units atthe net asset value of 10,000 yen will be held

Other fees andhandling
charges

Auditors’ compensation, handling charges payable on the purchase or sale of marketable securities, fees
payable on transactions involving futures contracts or options, fees payable for custody of assets overseas, etc.
are payable from the fund assets. With regard to other fees and handling charges, these will vary depending on
the management status, so it is not possible to give fee rates, upper limits, etc. in advance.

Notes:
1.Types and fee rates of expenses will vary by sales company and individual investment trusts. The above fee rates for expenses are those of standard investment trusts
managed by Daiwa Asset Management. As part of funds that invests in other funds, management and administration expenses for investment trusts in which funds
will be invested are charged separately. Some investment trusts may also charge fees based on the performance of investments or handling fees for redemption.
2. As the total amount of handling fees, etc. will vary depending on how long the investor holds the fund, these cannot be shown here.
3. As this will vary depending on the investment trust, please contact the sales company for more details. You may also refer to the investment trust prospectus for more details.

Key points to note 2 Regarding investment trust risk
As the investment trust invests in marketable securities, the price of which fluctuates significantly, the net asset
value may also vary. Consequently, the original investment amount cannot be guaranteed. All profit or loss
generated by the investment trust must be borne by the investor. An investment trust is not the same as asavings deposit. Please refer to the investment trust prospectus for the investment trust when applying, as the risk factors
will vary depending on, for example, the securities instrument in which the investment trust will invest.

Appendix*1 Business trips, employee commuting: Calculation based on amount of transportation expenses paid out*2 Upstream leased assets: Calculation based on fuel amounts for leased vehicles employed as company cars
Notes:
1. Calculated using data obtained from Tokyo headquarters and overseas subsidiaries
2. The London subsidiary switched over to using renewable energy for electric power in 2019, and for gas in March 2022.
3. Calculated in accordance with methods stipulated under the Act on the Rationalization etc. of Energy Use and the Act on Promotion of Global Warming Countermeasures(disclosure figures are rounded off).

Ratio of female employees

Key points to note 1 Regarding the fees payable by customers (assuming a consumption tax rate of 10%)The providers of information to Daiwa Asset Management Co. Ltd., including MSCI ESG Research LLC and its affiliate companies(hereinafter collectively referred to as “ESG Parties”), obtain information from sources believed to be reliable (hereinafter referred toas “Information”), but none of the ESG Parties give any guarantees regarding the originality, accuracy and/or completeness of any ofthe data presented in this report, nor do they give any guarantee, implicit or explicit, regarding the Information’s marketability or
fitness for any specific purpose. The Information may be utilized only for customers’ own internal use; it may not be reproduced ordisseminated in any form, and may not be used as the basis of or as a component in any financial product, other product or index.
Furthermore, none of the Information may be used for the purpose of deciding whether to purchase or sell any marketable security,or when to undertake such purchase or sale. None of the ESG Parties will be held liable for any error or omission in relation to the
Information, nor will they be held liable for any direct, indirect, special, punitive, consequential or other damages (including loss of
income), even if advance notification was given of the possibility of such damages.
Important points to note regarding the use of this report
This report is a Sustainability Report compiled by Daiwa Asset Management Co. Ltd., and should not be construed as a solicitation to purchase or subscribe
to any product. Potential investors should refer to and read the content of the prospectus of each fund product, available from the sales company, prior totheir investment decision.
The content of this report is based upon sources believed to be reliable, but their accuracy, correctness or complete-ness are not guaranteed. The content,
including performance of investments, etc., is based on past data and is neither an indication nor a guarantee of future performance. The intellectual
property rights and all other rights relating to the indexes, statistical data, etc. used in this report are the property of their respective issuers or licensors.
The information presented in the report was correct at the time of compilation, and is subject to change without notice.
In cases where the names of individual enterprises are given in this report, these are given for reference purposes only, and should not be construed as arecommendation of the enterprise concerned. They should also not be construed as an indication or guarantee that the enterprise in question will be
included in a particular fund in the future.
The data presented in this report are for the period between January 1 and December 31, 2023.

Management Company
Company name, etc. Daiwa Asset Management Co. Ltd.
A Financial Instruments Business Operator registeredwith the Director of the Kanto Local Finance Bureauof the Ministry of Finance (Kin-sho) No. 352
Memberships

The Investment Trusts Association, Japan
Japan Investment Advisors Association
Type II Financial Instruments Firms Association

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