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ESG

SUSTAINABILITYREPORT 2022
Published by:
Responsible Investment Department
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 April 2023

Corporate Principles

Introduction

Introduction

Introduction

VisionValue
Our action guidelines

The future that we are aiming to help create

1. Create Innovation
2. Consider and Act Logically
3. Enhance Global Sustainability
4. Have Integrity
5. Image Yourself in Their Place
6. Unite as One Team

―Creating opportunities for everyone who
continues to take on new challenges
Investment has the power to build the future.
By taking on All Challenges for All Investors,

Anticipated Future / Vision

we continue to work together as partners
to challenge ourselves, using investment to build
a future with real opportunities.

The Corporate Principles
Forming the Foundation of
the Group

CONTENTS

Compass / Value

Part 2 Stewardship Activities
Stewardship Activities Framework

Introduction
01

Corporate Principles

03

Investment Philosophy

04

Fund Management Structure

05

Corporate History
Initiatives Supported

07

19

Message from the Chair of the
Stewardship Committee

21

Daiwa AM’s Stewardship Activities
Policy22

Framework for Stewardship
Activities

23

Overview of Committee Activities
Conflict of Interest Management

Message from the President

Part 1 Sustainability-aware
Management

Materiality
24

Corporate

01

09

Sustainability-aware Management

11

Corporate Materiality

13

Materiality-based Initiatives

Daiwa Asset Management Co. Ltd.

Daiwa AM’s Materiality in Relation
to Asset Management
Materiality Identification andAnalysis Process

25

Integrating Core Materiality with
Daiwa AM’s Investment andBusiness Activities

ESG Integration

Engagement Activities

Proxy Voting

27

39

61

Integration of ESG into Investment
Integration of ESG Information into
the Investment Process, andCollaborative Utilization of this Data
via the Information Infrastructure28
29Japanese Equities
Corporate Value Assessment:
Corporate Value Assessment and
ESG Information

30

ESG Scores and Score Revision

31

Fixed Income

32

J-REIT

33

Passive Investment

34

Outsourcing

35

Engagement with Outside Service
Providers

Overview of Daiwa AM’s
Engagement Activities

40

Engagement Activities Policy

41

Daiwa AM’s Vision for Investee
Company Best Practice

42

Framework for Engagement Activities

43

Engagement Activities

44

Corporate Research Team49

Engagement Team52

Stewardship Team
(Stewardship Section)

Measures Relating to the TCFD
56

TCFD Disclosure Items

57

Analysis of the Main Indicators
Relating to Total Greenhouse Gas
Emissions, etc.

60

Announcement of the Net Zero
Asset Managers Initiative Targets

Our Vision for Proxy Voting
Main Changes in the Proxy Voting
Policy in 2022

Part 3 Corporate Information
Corporate Information
74

Company Overview

62

Issues for Ongoing Consideration

75

Organization Chart

63

Proxy Voting Process

76

Corporate Governance Structure

Case Studies of Proposals Subject
to Specified Deliberations

77

Risk Management

64

Case Studies of Engagement
Relating to Proxy Voting

65

Proxy Voting Outcomes and Trends

66

Aggregate Data (2022)

Compliance

Data
78

Greenhouse Gas Emissions
Financial Data

Further Enhancement of
Stewardship Activities

Change in Assets underManagement

67

Main Initiatives Implemented in 2022

Human Resources and Related69

Self-assessment

71

Message from Director Responsible
for Stewardship and ESG

Sustainability Report 2022

02

Introduction

Investment Philosophy

Fund Management Structure

Investments

FinancialMarkets

Human
Behavior

Comprehension of
investments

Comprehension offinancial markets

Comprehension ofhuman behavior

We measure intrinsic valuesof investments and changesof them in the future by conducting quantitative andqualitative analyses. Then, we
evaluate investment ideas bycomparing these values withcurrent market prices.

We are conscious of financial
markets’ high uncertainty andrecognize them as complicated systems/complex systems. So, we place the basis
for the certainty of investment activities on the logicality and adequacy of theinvestment process.

We realize that there arebiases in human behavior
and judgment. By understanding investor’s psychology, we can use this toimprove our decision
making.

Organizational Approach

Determination of FundManagement Policies

Fund Management(Determination and execution of fund management policies)

Determination of fund management
policies
Fund Management Division

We believe that we are able to contribute to the realization of a sustainable society,as seen in the SDGs, with providing services and values to our customers.

Fund Management
Division

Board of Directors

Approval of fundmanagement plan
Risk Management
Committee
Research
Department
Macroeconomic andmarket trends analysis

FundManagement
Committee

FD Advisory
Committee

Fund managers
Risk Management
Department

Marketing Division
Fund management
plan

Fund Management
Division

Legal & ComplianceDepartment

Chair
CIO

Overseas Offices
Daiwa Institute of
Research Ltd., etc.

Contribution to SocietyManagement
Execution

Fund Management
General Manager

Basic Plan

Organizational approach
We promote the specialization and division of labor, and build a process and an informational
interaction space to enhance the required knowledge and skills in order to achieve performance that exceeds the constraints and limits of an individual ability.

Risk Management
Fund Management
Evaluation
ComplianceFund Management Division
Fund managers

Fund Management
Advancement
Committee
Portfolio
Fund Management
Division

Process Related to Determination of Fund Management Policies
Formulating the basic plan

The basic plan that describes various policies for fund management is given final approval by the
executive in charge of products.

Determining basic fund management policies

Chaired by the CIO, the Fund Management Committee meets once a month, in principle, anddetermines basic fund management policies.

Creating and approving the fund management plan

The fund managers prepare a fund management plan in accordance with the policies of eachfund as set forth in the basic plan and the basic fund management policy decided upon by theFund Management Committee. The General Manager of the Fund Management Division checks
and approves the fund management plans presented by the fund managers for consistency withthe basic plan and the decisions made by the Fund Management Committee.

03

Daiwa Asset Management Co. Ltd.

Sustainability Report 2022

04

Introduction

2020

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

Corporate History
1984

2015

1987

2018

New York office opened
Daiwa Asset Management(Europe)Ltd established in London

Established the Stewardship & ESG Section

Daiwa AM introduces Japan’s first fundmanager system

1951

1995

1999

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

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

1970

1951

1980

Launched Million, a payroll deduction type fund1952

Launched Japan’s first open-ended investment trust

Product andService-related

1961

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

1992

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

2006

Signed onto the UN Principles
for Responsible Investment

2014

Announced adoption of the Japan’s Stewardship Code

2000
2001

Executed Japan’s firstelectronic delivery of aprospectus
Launched Nikkei 225 ETF,
TOPIX ETF

2002

Launched Japan’s first
Regional Support Fund2010

Launched Daiwa JPX Nikkei 400 Fund and Daiwa ETF JPX Nikkei 400 tolink with JPX Nikkei Index 400 index

ESG 2011 Principles for Financial Action for the 21st Century

The Principles for Financial Action towards a Sustainable Society (Principles for
Financial Action for the 21st Century) were developed as an action guideline fordomestic financial institutions to fulfill their responsibilities and roles in helping tosolve global environmental and social problems and to form a sustainable society.

E2014 Statement on Fiduciary Duty
and Climate Change Disclosure

The Statement on Fiduciary Duty and Climate Change aims to prompt companies
to disclose climate change information in a comprehensive and comparable formin 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.
E2020 30% Club Japan Investor Group

Daiwa Asset Management Co. Ltd.

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
Fund and a tree-planting project

2015

Began managing Japanese equities for funds sold overseas andco-managing of a UCITS fund with Mirae Asset Global Investments, aleading Korean asset management firm2016

Launched iFree, index fund series

2017

Launched three ETFs linked to ESG-related indexes

ESG ESG in general

The 30% Club Japan Investor Group is a group comprised of asset owners andasset managers whose goals include sharing the importance of gender diversity
and gender equality at all levels of an organization through constructive dialog andother stewardship activities with companies in which they invest. Daiwa AM
participated in a working group to formulate best practices forengagement.

G

2021 International Corporate Governance Network (ICGN)The International Corporate Governance Network (ICGN) is an international
initiative launched in 1995. Its stated mission is to establish effective corporate
governance and foster investor stewardship with the aim of promoting an efficient
global market and sustainable economic activity.

S

2022 Human Capital Management Consortium

S

2022 Women’s Empowerment Principles (WEPs)

The Human Capital Management Consortium was established by a group ofJapanese companies, investors and others. Its objective is to promote both thepractice and disclosure of human capital management in Japanese companies by
sharing advanced cases of human capital management practices, holding
discussions aimed at cooperation between companies, and considering effective
information disclosure.

ESG 2022 Japan Stewardship Initiative (JSI)E

2021 Net Zero Asset Managers initiative（NZAMI）

The Net Zero Asset Managers initiative is a global initiative of asset managementcompanies aiming to achieve net zero greenhouse gas emissions from theirinvestee companies by 2050. Daiwa AM has established interim targets for 2030 inorder to achieve its net zero target for the portfolio we manage in 2050.

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

S

E

2021 Climate Action 100+E2021 Investor Agenda

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

2020 Task Force on Climate-related Financial Disclosures (TCFD)

The Task Force on Climate-related Financial Disclosures (TCFD) is an international
initiative established by the Financial Stability Board (FSB) in 2015. It recommends
that companies disclose climate-related financial information as part of their own
general (public) annual financial reports. In line with the TCFD framework, Daiwa
AM has been disclosing its efforts to address climatechange issues, including greenhouse gas emissions
from its fund management portfolio, since FY2021.

05

A

2022

2003

Launched sales ofinvestment trusts at post
officesDaiwa Stock Index Fund 225
adoptedESG 2006 UN Principles for Responsible Investment (PRI)

2021

2014

2005

The United Nations Principles for Responsible Investment (PRI) are global guidelines
for responsible investment that aim to improve long-term investment results forbeneficiaries 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 other events sponsored by PRI.

2020

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

Launched Daiwa SRI Fundto support Japanesecompanies engaged in CSR
efforts

E Environment
G GovernanceDiversity and Human Rights

2015

2013

2004

A

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)

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

Launched Daiwa J-REIT
Open

Initiatives Supported

2021

2012

1990

1987

Launched unit type investment trust

Signed onto the Principles for Financial Action towards a
Sustainable Society (Principles for Financial Action forthe 21st Century)

Began selling investment trusts throughbank tellers

1959

1960

2011

License for discretionary management
services acquired

1998

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

1950

Global X Japan Co. Ltd. establishedDaiwa Asset Management(Singapore)Ltd.
Established1973

Signed onto the Japan Stewardship
Initiative (JSI)
Signed onto the Investor Agenda inadvance of COP27
Name of the Stewardship & ESG
Department changed to the Responsible
Investment Department
Participated in the Human CapitalManagement Consortium
Signed onto the Women’s Empowerment
Principles

2019

1994

Daiwa AssetManagement

2022

Established the Engagement TeamThe Investor Agenda was launched in 2018 by a group of institutional investors. It
has issued recommendations on how to accelerate climate change initiatives byinstitutional investors and national governments. Daiwa AM signed in support ofa statement by global investors in advance of COP27.

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.

2022 PRI Advance

Established in 2022, Advance is a collaborative stewardship initiative where
institutional investors work together to take action on human rights and social
issues. Investors exert collective influence over companies and other decision
makers to bring about positive outcomes for workers, communities and society.
Daiwa AM has participated since Advance was launched in 2022. Going forward,
Daiwa will work through collaborative engagement to help
companies achieve their goals.

* 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 thatdevelop 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 the SDGs Subcategory. For the ESG Investment Subcategory, financial sector companies that are
working to promote widespread 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 for Green Finance, in recognition of its outstanding initiatives in thearea of green finance.
Please note that neither Tokyo Metropolitan Government nor the Tokyo Financial Awards recommend the purchase, 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.

Sustainability Report 2022

06

Introduction

Message from the President

We will continue our efforts to win thetrust of even more customers andbecome the most chosen asset
management company.

Mikita Komatsu
President
Daiwa Asset Management Co. Ltd.

Through the asset management business, Daiwa
AM’s social mission is to contribute to therealization of a sustainable society and enablepeople to live fulfilling lives. To achieve stableasset formation for our customers, we must not
only develop and provide products that meetcustomer needs in a timely manner, but also
fulfill our role as asset management
professionals to safeguard and grow the assets
entrusted to us by our customers.
In evaluating corporate value, which isimportant for making fund management
investment decisions, in addition to traditional
financial data analysis, we are building a new
evaluation process that takes into account avariety of ESG factors that support sustainability.
When utilizing the advice of external asset
management firms, we also place an emphasison whether the institution incorporates ESG andsustainability perspectives in its investment
philosophy and fund management flow, andwhether its investment decisions are based on
the same values as those of Daiwa AM.
What these efforts require is an accurate
assessment of an investee’s potential andpossibilities. This is based on an understanding ofwhat the company should be, incorporating ESG
and other non-financial information and anevaluation of the investee’s intangible assets. In
July 2022, Daiwa AM announced a joint study with
the Drucker Institute, and we believe that asset
management companies like ours are being
expected to accurately incorporate a wide range

of information, including intellectual property andothers, in their evaluations of corporate value.
In addition, to continue to provide ourcustomers with quality products over the longterm, we ourselves must be a sustainable
company. In September 2022, we formulated
our Sustainability Policy, declaring ourcommitment to sustainability in every initiative
we undertake. We have identified eight priority
areas of materiality, and of these, we consider
rigorousness in fiduciary duty in our businessactivities and earning the trust of stakeholders inour business foundations to be fundamental. We
believe that we cannot fulfill our responsibilities
as an asset management company unless weconduct management that remains steadfast inthese fundamental areas. To continue playing arole in contributing to the maintenance andgrowth of capital markets, and to require ourinvestee companies to engage in sustainabilityaware management, we ourselves will take thelead in sustainability management.
Under our vision of “All Challenges for All
Investors,” we will continue our efforts to win thetrust of even more customers and become themost chosen asset management company. Our
goal is to contribute to maintaining andimproving a sustainable society by ensuring thateach of our employees has a deeper
understanding of ESG and sustainability, and by
developing, providing and responsibly managing
products that offer the optimal investment
returns for customers.

President

07

Daiwa Asset Management Co. Ltd.

Sustainability Report 202208

corporate

Pa r tSustainability-aware
Management

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

Corporate

Corporate

Overall policy

Sustainability-aware Management
In November 2021, Daiwa AM established the Sustainability Committee with the aim of promoting sustainability-aware management so as to fulfill the company’s
corporate social responsibility. During meetings of the
Sustainability Committee, Daiwa AM’s president (whochairs the Committee) and the other members, whocomprise the directors and executive officers responsible for individual departments, have engaged in
repeated discussions regarding the question of what isneeded for Daiwa AM to be a sustainable enterprise.

In September 2022, Daiwa AM formulated a Sustainability Policy, in order to drive the development of sustainability-aware management at an even higher level.
Based on this Policy, Daiwa AM has identified the company’s materiality (key issues) relating to sustainability
and has also drawn up an Environmental Policy and a
Human Rights Policy.
Going forward, Daiwa AM will be implementing various initiatives so that it can be an asset managementcompany that is trusted and chosen by stakeholders.

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 management business. To
this end, the company fulfills its fiduciary duty and strives
to provide high-quality returns and services over the longterm. Daiwa AM believes that, in order to be able to continue doing this over an extended period while responding
to changing times, it is vitally important to manage thecompany with an emphasis on sustainability.
Socioeconomic activity requires a sustainable social
foundation in order to continue, and so Daiwa AM posi-tions the realization of this sustainability as a precondition
for its business operations. At the same time, as a company engaged in the asset management business, Daiwa
AM is constantly aware of the magnitude of 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 is implementing initiatives, through its
business activities, to address the important issues affecting the maintenance of society’s sustainability, and to earn
the trust of its stakeholders, with the aim of further
enhancing Daiwa AM’s corporate value.

Action guidelines
1. As an asset management company, Daiwa AM recognizes the importance of its role in promoting a virtuous
cycle in the economy. Through its business activities,
Daiwa AM will support business enterprises that contribute toward the maintenance and enhancement of
the sustainability of the global environment and of society, while also fulfilling its fiduciary duty.

WEB For more details, please visit the following webpage (in Japanese).
https://www.daiwa-am.co.jp/company/sustainability/index.html

09

Daiwa Asset Management Co. Ltd.

2. Daiwa AM will aim to be a “best partner” for all of its
stakeholders.
3. By implementing healthy, transparent management,
Daiwa AM will strive to enhance its corporate value in asustainable 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.

Sustainability Policy

Main specificpolicies

Environmental Policy

Stewardship Activities

Human Rights Policy

PolicyPrinciples of
Customer-oriented
Business Conduct

Materiality identification process

Identifying and collating social issues

Step

Identifying important societal issues that have the potential to create opportunities orrisks for Daiwa AM with reference to various international frameworks (such as the GRI,
ISO 26000 and SASB), international initiatives such as the UN Global Compact, indicators
formulated by ESG rating organizations, key issues recognized by governments andeconomic organizations, etc.
Compilation of a long list of around 60 items

1

Taking into account the perspectives of internal and external stakeholders
Incorporating the perspective of internal and external stakeholders withregard to the long list, assessing the company’s impact on and importanceto society, and selecting those items that are deemed to be particularly closely
related to the company’s businessSelecting a group of around 30 items as “Issues that the company needs toaddress,” and administering a questionnaire survey regarding these items to
the company’s officers and employees

Step

3

Identify items that the company needs to address through its business activities basedon the questionnaire survey results and the views of external experts
Review opportunities and risks for the company in relation to the draft materiality thathas been formulated

Following discussion by the Sustainability Committee, thefinal decision is made by senior management in a meetingof the Board of Directors (including Outside Directors)

Steps

2

Formulation of draft materiality

Discussion and final decision by senior
management

Next

Step

Step

4

The company as a whole implements initiatives addressing themateriality, and promotes sustainability-aware management
Set KPIs to manage progress in initiatives relating to the company’s long-term vision and its materiality
Have the heads of each division and department manage progress, identify problems, andimplement measures to address these problems
Have senior management monitor progress on a regular basis through meetings of the
Sustainability Committee, Board of Directors, etc.
Conduct ongoing reviews of the company’s materiality in the future, in light of major international
trends in relation to societal problems, the changing business environment, and the views ofinternal and external stakeholders

Sustainability Report 202210

corporate

Corporate Materiality
After examining the risks and opportunities relating to various items, Daiwa AM identified the following materiality:

Materiality relating to business activities
Promotion of stewardship
activities and responsible
investment

Service quality enhancement
contributing to asset formation

Expansion of business fields

Materiality relating to the company’s business foundations
Enhancing employee wellbeing

Thorough fulfillment of the company’s fiduciary duty

Grounds for deeming it
important

Key area

Thorough fulfillment of the company’s fiduciary
duty

Promotion of stewardship activities andresponsible
investment

Service quality
enhancement contributing to asset
formation

Expansion of business fields

11

Daiwa AM believes that, as a company engaged in the asset management business, the thoroughimplementation of its fiduciary duty
and the maximization of its customers’ interests constitute the foundation of its business and are its social
mission.

Daiwa AM believes that, by promoting
responsible investment and incorporating investee company’s environmental, social and governance (ESG)
factors into corporate evaluations, it ispossible to accurately determine themedium- and long-term risks andopportunities of the investee
company.
Daiwa AM also believes that it canfulfill its social responsibility as an
asset management company bycontributing toward enhancing thevalue of enterprises, etc., and towardsustained growth through stewardship activities.
Daiwa AM believes that, since
stewardship activities and responsible investment form part of thecompany’s fiduciary duty, and will
also improve fund performance, theyultimately contribute toward themaintenance and enhancement of
the customer’s interest.
Daiwa AM believes that initiatives toencourage a wider range of people
to undertake investment, and thedevelopment and provision of products tailored to investors’ needs, arevitally important for the company’ssustained growth.
Daiwa AM also believes thatenhancing management quality isvery important in terms of securing
stakeholders’ trust.

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

Daiwa Asset Management Co. Ltd.

Daiwa AM’s initiatives
Ongoing initiatives

Daiwa AM provides ongoing training to instill awareness of the importanceof fiduciary duty, or “business operations that put the customer’s interests
first,” throughout the company.

Key area

Grounds for deeming it important

Winning stakeholders’ Daiwa AM believes that winningstakeholders’ trust is the foundatrusttion for the company’s continued
existence as a sustainable
enterprise.

Enhancing employee
wellbeing

Ongoing initiatives

Since signing up to the Principles for Responsible Investment (PRI) in May
2006, Daiwa AM has consistently implemented responsible investment.
The company has formulated an ESG Investment Policy, and it positions
investee companies’ ESG-related initiatives as contributing both to the
expansion of medium- and long-term growth potential and to risk reduction,and references these initiatives when making investment decisions.

Daiwa AM believes that humancapital is the wellspring of thecompany’s corporate value, andthat if the wellbeing of Daiwa AM
employees is not enhanced, thenthe company will not be able torealize sustainable growth.

Respect for human rights Daiwa AM believes that it isimportant to respect the humanand diversity
rights of stakeholders through-out the value chain, and thatencouraging the participationand dynamic engagement ofdiverse human talent is important for the company’s continued
growth.

Key initiatives

Ongoing initiatives

Daiwa AM has been putting in place an evaluation and compensation
system tailored to human talent with high levels of specialist expertise, andhas been implementing career support training, etc.
The company has been providing support for flexible workstyles withthe adoption of a shortened working hours system and a flextime system.
Daiwa AM has striven to monitor employees’ health status through theimplementation of periodic stress checks, etc.

Ongoing initiatives

Daiwa AM has been implementing periodic human rights training on an
ongoing basis, and has been working to cultivate a corporate mindset that
fosters the dynamic engagement of diverse human talent.
The company has formulated an action plan for the dynamic engagement of female employees, and is implementing this plan.
The company is also introducing a system to create a working environment that is more user-friendly for employees with disabilities, striving to help
them fulfill their potential while taking into account the various issues that
affect them, so that they can play a more active role in the company.
Daiwa AM will be strengthening its system for the promotion of diversity,
equity and inclusion, and will be building a workplace environment that is
equitable and free from discrimination, so that diverse human talent canfulfill their potential.
The company has established a Diversity & Inclusion Promotion Committee, chaired by the President, and a dedicated organization is directing
the promotion of related activities throughout the company.
The company will be also implementing human rights due diligencemeasures with respect to stakeholders in the value chain, and is contributing
toward the realization of a society in which no one is left behind.

Key initiatives

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

Key initiatives

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

Key initiatives

Ongoing initiatives

With the aim of enhancing the company’s organizational management
capability, besides making use of advisors with an academic background,
Daiwa AM has also been implementing measures for the visualization andsharing 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 toasset formation, from the basics upwards.

Ongoing 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

Key initiatives

Daiwa AM has established a dedicated ETF affiliate company, and is proceeding with collaboration in this area.
Daiwa AM has also been undertaking the development of products thatincorporate non-traditional assets.

Daiwa AM’s initiatives

Daiwa AM will be building a working environment that enables employees tocontinue fulfilling their potential through measures such as the adoption ofstrategies to enhance motivation, which in turn will lead to improved
employee engagement.
The company will also be introducing a framework that facilitatesexchange across departments and roles, thereby invigorating intra-organizational communication.

In the areas of stewardship activities and responsible investment, Daiwa AM
will be promoting initiatives that embody the company’s uniquecharacteristics.
Daiwa AM will also be undertaking ongoing cultivation of specialist ESG
talent.

Daiwa AM will be putting in place a system for the speedy provision of financial products tailored to the changes in society and to customer needs.
Daiwa AM will be making a contribution toward the development offinancial and economic education programs in schools, and will be contributing to the enhancement of financial literacy in society as a whole.

Strengthening corporate
governance

Winning stakeholders’ trust

Key initiatives

In order to provide products that are in customers’ best interests, Daiwa AM
will examine performance from a long-term perspective, and will implement
systematic quality management after product formation (enhancing theeffectiveness of product governance).

Respect for human rights anddiversity

Strengthening corporate
governance

Daiwa AM believes that themaintenance and strengtheningof a sound, solid corporate
governance system will help tosecure the trust of stakeholders
and enable the company toincrease its corporate value andrealize sustained growth.

Ongoing initiatives

Daiwa AM has structured its Board of Directors so that it includes three
Outside Directors, with the aim of realizing a higher level of corporate
governance.
With the inclusion of Outside Directors in meetings, 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 also strives to cultivate high ethical standards and compliance awareness through periodic compliance training.

Key initiatives

Daiwa AM will be striving to strengthen the effectiveness of the Board of
Directors and the oversight function.

Sustainability Report 202212

corporate

Asset Management Women’s Forum

Materiality-based Initiatives
Women’s Healthcare Training
As an initiative to enhance Daiwa AM officers’ and employees’ healthcare literacy, this fiscal year the company has
held Women’s Healthcare Training, with Dr. Ruriko Tsushima, a leading expert in women’s healthcare, invited toprovide the training.
Although it has recently become clear that healthissues specific to women are a major obstacle for working women, the current situation is that men’s understanding of these issues remains limited. Daiwa AM has
identified this as a pressing issue, and so the company
arranged this training activity as a measure to facilitate
understanding of the current circumstances and tostrengthen health literacy. Comments from training participants included: “I learned a lot of things that I didn’tknow before” and “It was a great opportunity to acquire
accurate knowledge.” Rather than allowing women’s

healthcare to be a “taboo” subject, Daiwa AM is promoting employees’ understanding by aiming to implement
effective communication, and is seeking to build aworking environment that is
employee-friendly
for both male andfemale employees.
Women’s Healthcare Training in progress

As an enterprise that implements high-quality healthmanagement, the Daiwa Securities Group has been
awarded certification as a Certified Health & Productivity
Management Outstanding Organization, and has also
been selected for inclusion in the “White 500” (Top 500
Certified Health & Productivity Management Outstanding
Organizations) as of December 31, 2022.

level, including efforts to promote the dynamic engagement of female employees. Daiwa AM will also be working to put in place
the environment
needed to help
every individual
employee demonstrate outstanding
performance andto transform diverA Diversity & Inclusion Promotion Meetingsity into strength.
in progress“Wai Wai” inter-employee network
In FY2022, Daiwa AM launched the “Wai Wai” inter-employee
network, which provides opportunities for employees toengage in communication and exchange with one another inline with their own preferences, with the Human Resources
Department acting as an intermediary for employees who
would like to ask another employee about something, or who
would like to make new friends within the company. Various
different formats are used for the communication andexchange activities, including both face-to-face and online
activities, lunch meetings held during the noon break, etc.
The “Wai Wai” network has also organized discussion
meetings on a wide range of different topics, includingbalancing childcare with work, subordinate cultivation

13

Daiwa Asset Management Co. Ltd.

Reflecting the need to support women’s active participation, in August 2022 the first Asset Management Women’s Forum online event was held with the collaborationof the Investment Trusts Association and assistancefrom the Financial Services Agency. Nearly 500 people“White 500” Certified Health & Productivity
Management Outstanding Organization

Holding of the Diversity & Inclusion Promotion Meeting
Given that Daiwa AM is working to achieve sustainablegrowth, the effective utilization of diverse human talent(i.e., diversity) is becoming increasingly important. Starting from this fiscal year, the company has held a Diversity & Inclusion Promotion Meeting, headed by the
President, at which discussions have been held regarding the diversity and inclusion (D&I) initiatives that Daiwa
AM has implemented to date and the issues that thecompany will need to address in the future. Going forward, the meeting will be held on a regular basis, withthe aim of taking the promotion of D&I to an even higher

Following the coming into effect of the Act on Promotion of Women’s Participation and Advancement in
the Workplace in 2016, there has been significant progress in terms of women’s advancement, and thisprogress has also been seen in the asset management industry. The general trend has been toward steady
improvement in women’s career development, through a process of trial and error. At the same time, however, there are many people who, personally, have not experienced an improvement, and have not felt
real change. In 2022, the Asset Management Women’s Forum network secretariat was established by four
asset management companies, including Daiwa AM, with the aim of bringing together people who havebeen working hard on a daily basis with the same concerns and goals in relation to realizing career development in the asset management industry that is unaffected by gender.

and management, and care provision.
Positive feedback from participants includes comments such as “It was very useful in helping me to think
about my future career.” Going forward, by holding further events based on various different themes, the “Wai
Wai” network will
help to build anenvironment inwhich all employees
can continue towork enthusiastically with high“Wai Wai” lunch meeting in progress
motivation.

Panel discussion in progress

participated. The first part of the event was a panel discussion in which four women, including General Manager Noguchi of Daiwa AM’s Advisory Fund Management
Department, discussed the topic of “How to overcome
the obstacles that women face at work,” while thesecond part comprised workshops inwhich there was a lively exchange ofviews by the participants. Commentsfrom participants included “It was very
useful to hear from people with adiverse range of careers,” and “I found itvery stimulating.” In the future, it is anticipated that the forum will continue to beheld, on various different themes.

Childcare leave for male employees
To encourage male employees to make use of their childcare leave entitlement, starting from October 2022, Daiwa
AM has expanded its childcare leave system. Since then, thecompany has held “Daddy Meetings” for male employees
who are expected to be taking childcare leave, at which the
new system is explained and participants are able toexchange views. At these meetings, male employees who
have already taken childcare leave have discussed theirexperiences, and there has been a lively exchange of ideas.
Daiwa AM has set itself the goal of having eligible male
employees take at least 14 days of childcare leave, and is
working to put in place an environment that makes it easy formale employees to take childcare leave. The percentage of
eligible employees taking childcare leave has already reached100% for both male and female employees. Going forward,

Daiwa AM will be working to further improve the working
environment and strengthen employee engagement so as torealize childcare
leave that provides ahigh level of satisfaction for all concerned, including thefamilies of the male
employees who aretaking childcare leave.
“Daddy Meeting” in progress

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

Engagement Survey
Daiwa AM implements Engagement Surveys to gauge thecurrent state of employee engagement. The company
aims to enhance employee engagement on an ongoingbasis, by building a productive workplace environment
where every employee can attain further personal
growth, and by helping employees to realize better phys-

ical and mental health.
The survey results enable Daiwa AM to identify thestrengths and issues of the company as a whole and of
individual departments, providing a basis for organizational improvement activities and for helping each individual employee to grow.

Sustainability Report 202214

corporate

Dissemination of the company’s vision and values
In April 2020, Daiwa AM formulated its corporate vision
for the future that the company aims to help create,
along with values consisting of six principles that constitute Daiwa AM’s action guidelines. The company is implementing various initiatives with the aim of disseminatingawareness of its vision and values among all company
officers and employees.
In March 2022, Mr. Daisuke Ohata, a former rugby
player who captained the Japanese national team, wasinvited to give an address on the topic of “Unite as One
Team,” which is one of the principles making up Daiwa
AM’s action guidelines. Mr. Ohata noted that there weresimilarities between rugby and work, such as the importance of fulfilling one’s role while having trust in thepeople around you, and the fact that writing one’s goals
down is a good way of reinforcing them. A survey conducted after the lecture showed that 87% of company
officers and employees felt that they had gained someinsights that they could use in the future, and, overall,
the response from employees was very positive.
Daiwa AM’s company officers and departmental managers were asked to express their resolutions for the
coming year based on the company’s vision and values
in the form of a single kanji (Chinese character); wereannounced on the company’s intranet. This was a great
opportunity to share awareness so that employees canwork together to realize the company’s vision.
In December, Daiwa AM held a Sustainability Week
activity as part of the company’s efforts to “Enhance
Global Sustainability,” which forms part of its vision. The
aim of Sustainability Week is for every company officer
and employee to enhance their awareness regarding

Expanding the overseas training system
sustainability. The theme for this year’s Sustainability
Week was environmental protection.
Company officers and employees made use of internal communication tools to actively disseminate ideas(supported by photographs, etc.) for initiatives based onsustainability-related experiential activities including, forexample, using your own reusable bottle or reusable
shopping bag. Positive feedback from employees
included comments such as “It gave me an opportunity tothink in-depth about sustainability” and “It was a great
opportunity to learn more about the personalities of mycolleagues.”
Going forward, Daiwa AM will continue to implement
measures to strengthen company officers’ and employees’ awareness of the company’s vision and values, andwill continue to provide support for the realization of thisvision and values.

Starting from this fiscal year, Daiwa AM has been
expanding its overseas training system.
In September 2022, Daiwa AM President Komatsu
personally visited a number of major asset managementcompanies in Europe and North America, with the aim ofstrengthening partnerships with companies providing
entrusted management services and advisory services,and to explore the possibility of these companies accepting trainees. He engaged in discussions with the CEOs,
CIOs and investment managers of these companies
regarding their thoughts on issues that will be significant
over the medium- and long-term and their implementationof responsible investment initiatives; the response fromthese companies regarding the potential for strengthening their partnership with Daiwa AM was very positive.
As a result of these visits to overseas asset management companies, it has been decided that Daiwa AM will

send personnel to undergo training at several asset management companies that are leaders in the field of ESG
investment or which are developing thematic investment
on a global scale. Daiwa AM believes that, not only willthese trainees help to invigorate the company’s asset management operations by bringing back the in-depth knowhow and experience that they will have acquired at officesin the countries concerned, thisprogram will
also help toenhanceemployeemotivation.
President Komatsu with AXA IM CEO Marco Morelli

Financial and economic education

Expressions of resolution

Daiwa AM continues to implement visiting classes for juniorand senior high school students. Company personnel
recently visited an integrated junior and senior high school,and gave a class on the topic of “What is investment?” referring to the concept of “time,” a subject familiar to students.
Feedback from the students indicated that the examples
used for the explanations, which showed how, by investing
their time wisely, students can get good “returns” in terms of
being able to get into their first-choice university, were easy
to understand, and that students’ preconception that investment was something to be afraid of had changed.
The question-and-answer part of the visiting class wasvery lively, with questions from junior high school students
such as “Besides reading KAISHA SHIKIHO, what othermaterials should you study for investment purposes?”Daiwa AM believes that this kind of initiative can help
to stimulate interest in finance and the economy, andgoing forward the company will continue to promote
finance andeconomics
education byholding visiting classes
for juniorand seniorhigh school
students.
Visiting class in progress

Participation in initiatives relating to human capital

Sustainability Week―The V&V Team (Corporate Sustainability Section)

15

Daiwa Asset Management Co. Ltd.

In August 2022, Daiwa AM joined the Human Capital Management Consortium, which undertakes the sharing ofadvanced practices in the area of human capital management, engages in discussion aimed at fostering interenterprise collaboration, and examines how to implement
effective disclosure.
In October 2022, Daiwa AM signed up to the Women’s
Empowerment Principles (WEPs), which are action guidelines to encourage self-directed initiatives for positioning
gender equality at the core of business management.
Daiwa AM believes that human talent constitutes thewellspring of competitiveness, and will continue to actively
promote human capital-related initiatives in the future.

Sustainability Report 2022

16

Daiwa AM held town-hall meetings in December 2022. The
company positions town-hall meetings as an opportunity
for direct dialog between senior management and employees; a total of three meetings were held, one for each of
the three divisions to which officers and employees are
assigned (Corporate, Fund Management, and Marketing).
Senior management outlined Daiwa AM’s vision ofwhere it wants to be in the future—“Evolving into an
enterprise that is recognized both in Japan and globally as
a first-rate company with unique strengths”—as well as
discussing matters such as the attitude that one needs totake towards one’s work (based on their own personal
experience). Employees had already submitted questions
relating to management strategy, the approach to humancapital, etc. in advance, while the question-and-answer
session on the day saw a lively exchange of views between
senior management and employees.
For a company such as Daiwa AM that is engaged in

the asset management business, winning the trust of
stakeholders is the foundation for a successful business.
As employees are not just important stakeholders but
also the wellspring of the company’s competitiveness,
Daiwa AM believes that deepening mutual understanding
with employees is vital for enhancing corporate value.

Pa r tStewardship Activities

Stewardship Activities Framework

Town-hall meetings

Town-hall meeting in progress

Promoting the paperless officeSince May 2020, Daiwa AM has been using mobile devices sothat all company officers and employees can work in thesame environment regardless of whether they are working
at home or in the office. When meetings are held, participants bring their mobile devices into the meeting, and since
the company is basically aiming for a “paperless office” operation, the amount of paper materials being printed and distributed has been dramatically reduced.
Daiwa AM is also proceeding with adjustments to operational flow and with the introduction of Robotic Process
Automation (RPA), and has adopted electronic approval
processes. In 2017, the company began using C-Flow, a standardized internal workflow management system, which has
eliminated the need for paper vouchers and forms. In order
to convert vouchers and forms with complex application andapproval flows to the new system, the existing workflow alsoneeded to be reviewed, and so the changes not only helped
to reduce paper usage, they also improved overall operational efficiency. The number of applications for which C-Flow
is used has increased steadily over the past few years, andthe workflow management system has now been adopted
for almost all internal operations that require applications.
As a result of the efforts outlined above, by comparison
with the situation in 2019 (before employees were issued withmobile devices), the amount of paper used per employee has
been reduced to about one-third of what it was.

Stewardship Activities Framework

ESG Integration

Measures Relating to the TCFD

19

27

Integration of ESG into Investment

56

TCFD Disclosure Items

Integration of ESG Information into
the Investment Process, andCollaborative Utilization of this Data
via the Information Infrastructure

57

Analysis of the Main Indicators
Relating to Total Greenhouse Gas
Emissions, etc.

60

Announcement of the Net Zero
Asset Managers Initiative Targets

21

Daiwa AM’s Stewardship Activities
Policy22

Framework for Stewardship
Activities

28

Japanese Equities

23

Overview of Committee Activities

29

Corporate Value Assessment:
Corporate Value Assessment and
ESG Information

30

ESG Scores and Score Revision

31

Fixed Income

32

J-REIT

62

Issues for Ongoing Consideration

Materiality Identification andAnalysis Process

33

Passive Investment

63

Proxy Voting Process

34

Outsourcing

Integrating Core Materiality with
Daiwa AM’s Investment andBusiness Activities

35

Engagement with Outside Service
Providers

Conflict of Interest Management

Amount of paper used per employee(Sheets of paper)

2019

2020

2021

2022

8,176

4,386

2,673

2,356

Materiality
24

25

Human rights awareness training
In this fiscal year, Daiwa AM implemented human rights
awareness training for personnel who have recently beenpromoted to general manager, deputy general manager
or associate manager. In addition, to enable all company
officers and employees to learn about human rights
issues from multiple perspectives, the company provided
video-based training and discussion-based learning sessions on the theme of “Promotion of Human Rights,” withthe topics addressed this fiscal year including gender
diversity, people with disabilities, and harassment.

17

Daiwa Asset Management Co. Ltd.

Message from the Chair of the
Stewardship Committee

Every year, in October and November, Daiwa AM
holds a human rights awareness slogan contest toenhance the human rights awareness of each individual
employee. The prize-winning entries are publicizedthroughout the Daiwa Securities Group. Going forward,
Daiwa AM will continue to implement human rights education and awareness-raising for company officers andemployees so that, in today’s world where workstyles are
becoming increasingly diversified, each employee can work
together with colleagues in the way that suits them best.

Daiwa AM’s Materiality in Relation
to Asset Management

Proxy Voting61

Our Vision for Proxy Voting
Main Changes in the Proxy Voting
Policy in 2022

Case Studies of Proposals Subject
to Specified Deliberations

64

Case Studies of Engagement
Relating to Proxy Voting

Engagement Activities

65

Proxy Voting Outcomes and Trends

39

Overview of Daiwa AM’s
Engagement Activities

66

Aggregate Data (2022)

40

Engagement Activities Policy

41

Daiwa AM’s Vision for Investee
Company Best Practice

Further Enhancement of
Stewardship Activities

42

Framework for Engagement Activities

43

Engagement Activities

44

Corporate Research Team49

Engagement Team52

Stewardship Team
(Stewardship Section)

67

Main Initiatives Implemented in 2022

69

Self-assessment

71

Message from Director Responsible
for Stewardship and ESG

Sustainability Report 2022

18

Message from the Chair of the Stewardship Committee
We encourage investee companies to improve corporate
value by increasing the value of their intangible assets,
thereby contributing to investors’ asset formation.

variety of matters and work to clarify the materiality (keyissues) that should be prioritized. With regards to materiality, we have established the following four issues
related to business activities and four issues related toour business foundations (see P. 11–12 for details).

Recent initiatives regarding key issues related to asset management
operations
This section introduces recent initiatives regarding key
issues related to asset management operations.

Promotion of stewardship activities andresponsible investment

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

Unwavering commitment to the importance of ESG in the medium- andlong-term
Changes in the environment surrounding the asset management business over the past year have been unprecedented in recent years. Supply constraints since the
COVID-19 pandemic have caused the prices of goods
and services to rise markedly, and this has had a significant impact on the value of assets. The situation surrounding ESG has also sparked debate about how toproceed amidst greenwashing and conflicts of opinion
between state governments and fund managementcompanies in the U.S. over fiduciary duty (considerationof ESG factors and prioritization of fund performance).
We believe, however, that the direction we should aim
for in the medium- and long-term remains unwavering.

Sustainability-aware management is important to providing long-term,
stable returns
Our social mission is to work through the asset management business to contribute toward enabling people to19

provide quality returns and services over the long term.
Management that emphasizes sustainability is importantin providing those returns and services stably over thelong term regardless of conditions. To ensure sustainability, we examine the risks and opportunities across a

Stewardship Activities Framework

Stewardship Activities Framework

Stewardship Activities Framework

Daiwa Asset Management Co. Ltd.

live fulfilling lives and toward realizing a sustainable society. To that end, we strive to fulfill our fiduciary duty andWith regard to promotion of stewardship activities andresponsible investment, we believe that by promoting
responsible investment and incorporating ESG factors of
our investee companies into our corporate evaluations,
we can accurately identify medium- and long-term risks
and opportunities for our investee companies. A uniquefeature of this process at Daiwa AM is that our corporate
research analysts, Stewardship Team and fund managers are each involved in research and engagement activities from their own perspectives, with the three coming
together to share knowledge. We calculate corporate
value by incorporating ESG qualitative analysis conducted by our corporate research analysts into theLong-term Corporate Valuation Model of our corporate
evaluations. Further, the ESG score is calculated inhouse, utilizing the quantitative analysis of our Quantitative Research Team. This information is shared within theFund Management Division and is used in investment
decisions by managers and in engagement activities by
each of the aforementioned teams. (We are currently
working to further refine our ESG scores. See P. 30 for
details.)

Engagement activities
A unique initiative among our engagement activities is
the ESG Meeting. Opportunities are provided for corporate stakeholders, primarily from investee companies
with which we are engaged, to gather and exchange
information and opinions on specific ESG topics. The firstmeeting two years ago focused on gender diversity,
while the second meeting addressed the topic of humanresource strategies. Seven companies, mostly thoseengaged in progressive, enthusiastic efforts, participatedin the discussion (with another 20 interested companies
in attendance). The events were well-received, and weare currently working to select a theme for the next
session.

Corporate evaluations
From the perspective of corporate evaluations, which
also relate to service quality enhancement contributing
to asset formation, we believe that the evaluation of
intangible assets, which are not adequately reflected incorporate financial information, is an important point.
We are thus engaged in joint research with academia inJapan regarding intellectual property, and have enteredinto a comprehensive business alliance agreement
regarding the Drucker Score, calculated by the Drucker
Institute in the U.S. At the Institute, this Drucker Score is
calculated by dividing the comprehensive basic principles of stakeholder focus as advocated by management scholar Peter F. Drucker into five areas: “Customer
satisfaction,” “Employee engagement and development,”“Innovation,” “Social responsibility” and “Financial
strength” and then quantifying them. Based on thisscore, we have developed a proprietary analytical modelfor our stock market-aware management approach, andon December 20, 2022, established a completely new
type of mutual fund using this model, the Drucker Institute U.S. Equity Fund (Capital Growth Type). Going forward, we will work to jointly develop a version of the
Score for Japan, targeting Japanese companies.
Through our engagement and other activities, we willcontinue to promote our investee companies’ efforts toaddress their intangible assets, including ESG issues, sothat the status of such initiatives will be reflected, forexample, in this score, leading to improved corporate
evaluations and asset formation for investors.

Sustainability Report 2022

20

General Policy on Stewardship Activities
As an asset management company, Daiwa AM follows thegeneral policies specified in the agreements for each individual financial product, and strives to achieve, to the
maximum possible extent, the objectives that conform toeach investment purpose, giving the highest priority to theperformance of our fiduciary duty (including the duty ofloyalty and the duty of due care of a prudent manager).
To realize this goal, in addition to making appropriate
choices regarding which stocks and bonds to invest in, it
is also vitally important to enhance the medium- andlong-term value and sustainability of the companies andorganizations (hereinafter referred to as “companies”)
that issue them, while at the same time, maintaining thesustainability of society as a whole is also an importantprecondition.
By contributing, through our stewardship activities,
toward the enhancement of the medium- and long-termvalue and sustainability of companies, Daiwa AM is
making a contribution toward maintaining the sustainability of society, and in so doing is fulfilling its fiduciary
duty in relation to asset management, and also fulfilling
its responsibility to society as a business enterprise.
The following policies, which have been formulated inconformity with this approach, are disclosed on Daiwa
AM’s website (in Japanese):
ESG Investment Policy
Engagement Policy
Proxy Voting Policy
General Policy on Stewardship Activities

WEB For more details, please visit the following webpage (in Japanese).
https://www.daiwa-am.co.jp/company/managed/result.html

Framework for stewardship activities

Board of Directors
ReportingMembers: Outside Directors,
Director with responsibility for legal &compliance

The Stewardship Committee undertakes decision-making in
relation to practical policies, while the Stewardship Supervisory
Committee oversees conflict of interest management in relation to stewardship activities.
The members of the Stewardship Committee, which is chairedby the CIO, comprise the executive officers and departmental managers assigned to the Fund Management Division (as of December
2022, the Committee had 13 members). To eliminate concerns
about conflict of interest, personnel who concurrently hold posts ineither the Marketing Division, which oversees relationships withsales companies, or the Corporate Planning Department, whichhandles communication with the company’s major shareholders,are excluded from membership of the Stewardship Committee.
The Stewardship Committee undertakes decision-making in
relation to stewardship activities, including engagement and proxyvoting, and in relation to sustainability considerations relating toinvestee companies. More specifically, the Committee shares information regarding information relating to, and future strategy for,engagement with companies, Proxy Voting Policy, policy for surveys
and investment relating to sustainability, including ESG, and international initiatives relating to issues such as climate change andhuman rights. It also undertakes deliberation and decision-making inregard to policy revision and participation in initiatives. In line withthe policies formulated by the Stewardship Committee, Daiwa AM’s
corporate research analysts, fund managers and the personnel ofthe Stewardship Section of the Responsible Investment Department(hereinafter referred to as the “Stewardship Section”) implement
systematic activities aimed at enhancing medium- and long-term
investment returns and ensuring investee companies’ sustainability.
The members of the Stewardship Supervisory Committee
comprise the company’s Outside Directors together with the
Director with responsibility for legal & compliance. The Stewardship Supervisory Committee is chaired by an Outside Director.
As there is a requirement that more than half of the members of the Stewardship Supervisory Committee must be Outside Directors, it is able to conduct monitoring of conflict ofinterest management in relation to stewardship activities,
including proxy voting, from a perspective that is independentof the company’s management. The Stewardship Supervisory
Committee also submits reports to the Board of Directors and,
when it deems it necessary, issues recommendations to make
improvements in regard to conflict of interest management.

Stewardship Committee

Entrustment

Stewardship Supervisory
Committee

Framework for Stewardship Activities

Stewardship Activities Framework

Daiwa AM’s Stewardship Activities Policy

Recommending
improvements

Chair: CIO
Other members: Executive officers and departmental
managers assigned to the Fund Management Division
Decision-making in regard to all stewardship activities
Reporting on engagement activities
Decision-making in regard to, and reporting on, proxyvoting matters

Reporting

Stewardship activities
Corporate research analysts

PolicyFund managers
Reporting

Personnel of the Stewardship Section of
the Responsible Investment Department
Constructive
engagement

Proxy voting

Companies

21

Daiwa Asset Management Co. Ltd.

Sustainability Report 2022

22

No. of meetings held

Around 40 per year

Main topics, andperiods during whichthese topics are
addressed

Revision of the Proxy Voting Policy (March and October)
Formulation and revision of stewardship policies (May andOctober)
Specified deliberation of shareholders meeting proposals(mainly in March, June, September, etc.)

Materiality

Stewardship Committee

Materiality

Overview of Committee Activities

Materiality

Daiwa AM’s Materiality in Relation to Asset Management
Through its asset management business, Daiwa AM aims to
make a positive contribution toward Beneficiaries’ asset
formation over the medium- and long-term. In order toachieve this goal, the company has identified materiality(key issues) that includes enhancing the medium- and longterm value and sustainability of investee companies andhelping to maintain the sustainability of society as a whole.

To this end, Daiwa AM strives to develop an accurate picture of the state of individual enterprises and of industry as
a whole, and to share its understanding. The following sections present an analysis of Daiwa AM’s materiality fromtwo perspectives—Sustainability, and Long-term Returns—
and outline the process through which the company’s coremateriality was identified for both of these.

Stewardship Supervisory Committee
No. of meetings held

Two times per year

Main topics
addressed

Proposals by companies that are the objects of conflict ofinterest management

Materiality Identification and Analysis
Process Setting of core materiality
Step 4The Management Policy for Conflict of Interest
As an asset management company that plays an importantrole within the Daiwa Securities Group, Daiwa AM emphasizes great importance to its fiduciary duty and strives tofulfill this duty in its daily operations. When conducting asset
management operations, Daiwa AM keeps in mind the possibility that conflict of interest might arise between Daiwa AMor other Daiwa Securities Group member companies andthe beneficiaries of the investment trusts established and/or
managed by Daiwa AM (hereinafter referred to as “Beneficiaries”). With this in mind, to prevent the inappropriate causingof harm to the interests of Beneficiaries, Daiwa AM has put inplace a system for the proper management of transactions,etc. where there is a possibility of conflict of interest.
So that Beneficiaries can use Daiwa AM funds withpeace 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).
https://www.daiwa-am.co.jp/company/policy/interest/index.html

Conflict of interest management in relation to proxy voting

23

Daiwa Asset Management Co. Ltd.

proposal should be supported. With regard to proxy voting in
relation to proposals made by companies that are the object ofconflict of interest management, the Stewardship Committee
will submit periodic reports to the Stewardship Supervisory
Committee. If the Stewardship Supervisory Committee deems
that there is a problem in relation to conflict of interest management, then it will strive to eliminate the conflict of interest
and maintain neutrality by submitting a recommendation to
the CIO. The Stewardship Supervisory 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 tovote in favor of a proposal.
WEB For more details, please visit the following webpage (in Japanese).
https://www.daiwa-am.co.jp/company/policy/interest/index.html

Provisional setting ofmateriality

Materiality mapping
Step 3

Provisional selection ofmateriality items that areimportant for Daiwa AM and/or its Beneficiaries

Formulation of evaluation
criteria (from the sustainability
perspective and the long-term
returns perspective) that willcontribute toward asset
formation for Beneficiaries overthe medium- and long-term

Allocation of provisionally set
materiality to axes

Wide-ranging
examination of societal
issuesStep 2

Examination of key axes

Identification of issues using awide scope and referencing
international frameworks, etc.

Step 1

Materiality Map
Very important

Sustainability

With regard to proxy voting, conflict of interest management is
implemented as outlined below. The Stewardship Committee
will treat the voting rights as special cases when exercising thevoting 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 be appropriate,from the perspective of enhancing corporate value or minority
interest, then it may independently decide whether or not theStep 5

Setting of items that demonstrate a high level ofimportance on both the Sustainability axis andLong-term Returns axis as core materiality

Conflict of Interest Management

M

ImportantBusiness and human rights
Safeguarding occupational healthand safety
Compliance system and ethos
Natural capital

Climate change
Diversity, Equity &Inclusion (DE&I)
Improving capital efficiency
Governance system

Digital transformation (DX)
Cyber-security

Long-term Returns

Very important

Sustainability Report 2022

24

Materiality

Integrating Core Materiality with Daiwa AM’s
Investment and Business Activities

Engagement case study

Issue

Besides reflecting the core materiality identified by Daiwa AM in engagement, proxy voting and investment decisionmaking, the company is also applying this core materiality across a wide range of its business activities, including product development and sales strategy.

Core Materiality

Climate change (Company A)
The amount of CO2 emissions generated when producing aluminum ingots using recycled aluminumis only around 3% of the amount generating when producing aluminum from virgin ore; thisrepresents a dramatic improvement in emissions performance. Due to the special characteristics ofrecycling, there is a need to maximize the effective utilization of scrap aluminum throughcollaboration with various different partners within the supply chain. The company in question had
announced that it would be strengthening its initiatives in this area, with FY2030 as the target year,
but the company had not disclosed its current recycling rate or set a specific target for the future.

Background A significant point was that, when supplying aluminum ingots (mainly for use in can manufacturing), thecompany was using a distinctive business model whereby, within Japan, it was contractually required touse material supplied by the can manufacturers, making it difficult for the company to make progressin this area on its own. Recycling was difficult because different alloys were used for the body of the canand for the lid, and there were limits on how much scrap material could be procured.

E

G

S

Climate change

DE&I

Improving capitalefficiency(Diversity, Equity & Inclusion)

Daiwa AM will require the formulation and implementation of business strategies that take into
account the level of greenhouse gas
emissions and the risks and opportunities relating to climate change,
and will require summaries andevaluations of related activity status.

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

Daiwa AM will require the raising ofreturn on equity (ROE) above costof equity, and the continued,
steady increase 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 of Outside Directors, the compensation
system for company officers, etc.

Measuresrequired toaddress theissue

The company needed to transition from contracts whereby material was supplied by the canmanufacturers, to a new type of contract that would allow the company to purchase its own raw
materials. In addition, in order to strengthen procurement of recycled aluminum, there was a needfor the company to strengthen its relationships with producers of secondary aluminum alloys, and toproceed with related R&D.

Situation
after
resolution

After changing the type of contract used, the company would be able to secure enhanced valueadded in relation to raw materials procurement, and the profitability of its domestic business would
improve. Besides increasing the recycling ratio, the environmental performance of the company’s
products would also improve relative to other materials. With the shift away from PET bottles toward
the use of aluminum containers, it can be anticipated that a “virtuous circle” would develop in which
the company’s production volume and sales volume would continue to grow.

Response from Our policy is to disclose our current recycling rate, and to set and disclose our target for the future
the company in at the earliest possible date. Moving away from contracts that involved the use of materials suppliedby the customer offers great benefits in terms of revenue, and we will be proceeding with negotiaquestion
tions with our customers in this regard.

Engagement case study

Issue

Product development and sales strategy

25

Daiwa Asset Management Co. Ltd.

The limited number of female science students studying materials science is believed to be a major
obstacle to the active participation of women in the R&D departments of R&D oriented companies in
the materials sector. Whether or not there is an appropriate response to this situation, whether
progress is made in promoting women’s participation, and whether the path to improving this situation can be clarified, could have a major impact on the competitiveness of R&D oriented companies
over the medium- and long-term.

Background The company is a medium-sized firm in the materials sector, which it was assumed would be having

difficulty in recruiting and retaining female R&D personnel. Given that a characteristic of this business is that one of the roles played by R&D talent is to provide support for overseas customers, it
was assumed that this company was one of the R&D oriented companies in the materials sector thatwere having difficulty in promoting the active participation of women. While the company had
defined the type of human talent it needed, and its president had given a clear message regarding
the importance of gender diversity in relation to the cultivation of suitable talent, it had not disclosed
information about women’s participation in the R&D division, which is of particular importance to an
R&D oriented company.

Measuresrequiredto address
the issue

Through dialog with the company, Daiwa AM’s previous assumptions were overturned. It was confirmed that the female employee ratio in the company’s R&D division was actually nearly 40%. Given
that the female employee ratio in the R&D divisions of other R&D oriented companies in the chemical sector is often only around 15%, this is a very high figure. It was suggested that the company
should proactively disclose this background information and the measures it had taken, so as todemonstrate its medium- and long-term competitiveness as an R&D oriented company.

Situation
after
resolution

The company appointed its first female executive officer through internal promotion from its R&D
division, and this female executive officer was appointed to head the Taiwan subsidiary, an importantbase for the production of electronics chemicals. In this way, having DE&I take root in the company
was recognized as helping to boost competitiveness over the medium- and long-term, and enhancing corporate value, while also creating a “virtuous circle” of enhanced DE&I.

Engagement and proxy voting
ESG integration

DE&I (Company B)

While the company had implemented appropriate measures, which it saw as being only natural, it
Response
recognized that its disclosure of information, not only in regard to DE&I but also in relation to thefrom
the company company’s special features and strengths, had been inadequate. The company noted that it would
be striving to implement disclosure, through its CSR report, etc., in such a way as to enhance underin question standing of the company and facilitate better evaluation of it.

Sustainability Report 2022

26

ESG-related engagement—Topics

Integration of ESG into Investment
Since the introduction of the United Nations’ Principles for
Responsible Investment (PRI) in 2006, ESG has been
inseparable from investment, and its importance has
increased steadily. Numerous issues have emerged thatare global in scale, such as the problem of climate change
and human rights issues in the supply chain, and thecompanies and countries in which Daiwa AM invests have
had to face up to these issues, and been forced toenhance their own sustainability. At the same time, wemust not lose sight of the fact that the attempts toaddress these issues have led to the emergence of newtechnologies and new business opportunities.
Daiwa AM views the measures adopted by companies
to address ESG-related issues as helping both to expand
medium- and long-term growth potential and reduce risk,
and we therefore consider these measures when making
investment decisions.
By sharing information relating to the qualitative evalu-

ation based on the results of engagement—focusing particularly on materiality—with companies undertaken by
Daiwa AM’s corporate research analysts and fund managers, and quantitative analysis and evaluation undertaken
by our quantitative analysts, we are able to achieve corporate evaluation from an integrated perspective that combines financial information with non-financial information.
Daiwa AM calculates its own proprietary ESG scores,
based on our materiality, which are used when choosing
which names to invest in and implementing portfolio risk
assessment.
The details of ESG scores and the content of dialog
with companies are stored in our in-house information
infrastructure, a system that allows 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 intaking credit analysis to a higher level.

Integration of ESG Information into the Investment
Process, and Collaborative Utilization of this Data
via the Information Infrastructure
Investment process of funds

Collaborative utilization of information

Listed stocks, corporate bonds, etc.

Names that are targets for investment

Equity Investment
Team
REIT Investment
Team

Qualitative and quantitative evaluation offinancial information and of ESG and othernon-financial information

Collaboration

Screening based on research output andfund management plan

Candidate names
Selection ofcandidate names

Portfolio building
Performance evaluation
Qualitative and quantitative evaluation offinancial information and of ESG and othernon-financial information

Engagement

27

Daiwa Asset Management Co. Ltd.

Accompanying
duringengagement

ESG Integration

ESG Integration

ESG Integration

Collaboration

Fixed Income
Investment Team

Information
infrastructure
ESG score
Engagement results
Collaborative
utilization

Corporate
Research Team
StewardshipTeam

Collaboration

G

Governance

40.9%

Composition of theboard of directors

Directors’
remuneration

13.0%

15.5%

6.8%

Risk management
Cross-shareholdings
Long-term vision

4.4%

ESG-related

4.5%

engagement

12.3%—Topics

10.9%

Environmental

2.7%
4.1%

Climate change
Natural capital

15.1%

Social

10.9%

E
S

18.2%
40.9%

A healthy, safe society

Diversity

Supply chain

Human capital

Period covered: January–December, 2022
As in the previous year, there was an increase in the share of engagement topics accounted for by the social (S) aspect, rising from
31.8% to 40.9%, which brought it up to roughly the same share as the governance (G) aspect. With the S aspect, the most rapid
increase was in the topics relating to the supply chain (increasing from 5.2% to 15.1%). Due to the disruption caused to global
supply chains by the COVID-19 pandemic, etc., companies’ ability to maintain sustainable operations has continued to be under
threat. Daiwa AM has been collecting and analyzing information that relates to how companies are responding to these issues overthe medium- and long-term, and has been engaging in dialog with companies.

Japanese Equities
Engagement aimed at enhancing the value of intangible assets
When undertaking engagement, Daiwa
AM shares topics relating to ESG that cancontribute toward value enhancement for
the investee company over the mediumand long-term with the investee company’s managers, and encourages themto proceed with initiatives in these areas
and address related issues.
These topics are not limited to improving disclosure; they cover a wide range ofareas, including business profitability andefficiency, growth strategy, labor productivity, etc. The topics are collated based
not only on collaboration with Daiwa AM’s
own analyst team, but also on the views
expressed by external analysts and theopinions of various experts.
At the same time, Daiwa AM recognizes the need to fully utilize its rights as
an investor, and to meet its responsibilities, and in cases where investee companies are not making sufficient progress interms of taking action to transform themselves, Daiwa AM will encourage them toundertake related initiatives through theuse of proxy voting.

Iori Nakayama
Senior Fund Manager
Active Fund Management Department Ⅱ

By utilizing the wealth of knowledge
and relationships that have been built up,
and conducting engagement directed
toward the goal of increasing corporate
value (which is a goal shared with thecompanies in question), we have beenable to build good relationships with justthe right degree of tension.

One of the topics that we are currently
working assiduously to address is thevalue of intangible assets. Japan has many
companies that possess significant intangible assets, such as outstanding technology. We believe that, for Japan, which hasvarious problems such as limited
resources and a shrinking, aging population, it is very important to focus on thesekinds of useful assets, to realize their value,
and to utilize them in meaningful ways.
A Cabinet Office committee has published “Guidelines on Disclosure andGovernance of Strategies for Investment
and Utilization of Intellectual Property andIntangible Assets.” Daiwa AM is undertaking joint research with university professors who played a key role in theformulation of these guidelines, and aims
to make effective use of the guidelines in
the company’s engagement activities.
Through activities such as participation in
research groups and the dissemination of
its own views, Daiwa AM is aiming to contribute, as an investor, toward enhancing
the value of Japanese stocks as a whole.
Sustainability Report 2022

28

Daiwa AM incorporates qualitative assessment of companies’ approach to ESG and of the state of their implementation of ESG measures, which is obtained throughengagement, into Daiwa AM’s proprietary Long-term Corporate Valuation Model, which is used to assess corporate
value.
When incorporating ESG assessment into the Long-term
Corporate Valuation Model for companies, Daiwa AM’s corporate research analysts ensure that not only financial information but also non-financial information, including
ESG-related information, is reflected in the cost of equity.
“Cost of equity” is the return that an investor can expect
to obtain from their investment in the stock of the investee
company.
In order to make it possible to calculate the extent towhich the value generated by a firm will exceed this anticipated return, Daiwa AM uses the equity spread (ROE minus

cost of equity) to estimate corporate value.
When equity cost is low, this is reflected in corporate
value as follows. For example, in the case of a firm with an
ROE of 8%, if the cost of equity is 8%, then it can be determined that no additional value is being generated. If thecost of equity falls to 6%, then value is being generated at a
rate of 2%.
In estimating the equity cost level, we take into accountnot only the company’s growth and profitability but also its
ESG information (see figure below). For example, a company with outstanding corporate governance will be perceived by investors as having lower risk, and so will havelower cost of equity, and higher corporate valuation.
By breaking the ESG evaluation down into risks andopportunities, we have established a framework thatenables us to examine, in detail, the impact that measurestaken to address ESG issues will have on corporate value.

ESG Scores and Score Revision
Daiwa AM calculates its own proprietary ESG score, foruse in investment decisions and for identifying risk. The
score is calculated using qualitative evaluation by the
Corporate Research Team and the Proxy Voting Team

Daiwa AM’s

Cost of equity

GrowthProfitability

ESG-related risk

IR

Equity spread

Financial strategy

ESG

Continuity

that is focused mainly on what Daiwa AM sees as key
ESG issues, as well as the utilization of a quantitative
approach by the Quantitative Research Team.

ESG score

Investee company
Proxy voting

Constructive
dialogStewardship TeamROE

ESG Integration

Corporate Value Assessment:
Corporate Value Assessment and ESG Information

Constructive
dialogQuantitative
approach

Research

Corporate Research TeamESG qualitative analysis

Quantitative Research TeamESG quantitative analysis

ESG score

Weighting that reflects the importance of key ESG issues (materiality) in each sector(broken down for evaluation purposes)

ESG-related revenue opportunities

As Daiwa AM believes that governance (G) is the most important element, after calculating the scores foreach of E, S and G, the final ESG score is composed by E, S and G weightings; the basic approach is to givea weighting of 40% to G, and 30% each to E and S. However, as there are some industries where the mostimportant items differ, for these industries the calculation of the ESG score is performed using weightings
tailored to the actual circumstances in that particular industry.

Other

Daiwa AM’s proprietary ESG score

ESG score revision
Daiwa AM is currently implementing an upgrading of its ESG score, based on its newly-formulated materiality. Data is being collected for over 100 items, with the aim of identifying, from multiple perspectives, therisks and opportunities associated with companies’ ESG activities.
A further point is that, whereas the current ESG score compiles scores mainly for use in investment
decision-making, including portfolio building, consideration is being given to also using the new ESG scorefor engagement with companies.

29

Daiwa Asset Management Co. Ltd.

Sustainability Report 2022

30

Fixed Income

J-REIT

ESG integration in credit analysis

ESG factors taken into consideration in evaluating J-REIT issues

The need for ESG integrationin fixed income investment

Chief Fund Manager
Fixed Income
Active Fund Management DepartmentⅠ

decline in earnings associated withissuer default.

Degree of impact of ESG
factors on creditworthinessrisk

Integration process

Screening inaccordance with theinvestment strategy
Creditworthinessanalysis

Daiwa Asset Management Co. Ltd.

Developed based on notjust financial markets but
also on factors such as
global climate change anddemographics.
Among social factors, manufacturers of inhumane weapons that go against social
responsibility are excluded in
the screening phase.
In addition to a quantitative
analysis, a qualitative analysis
is also conducted using
internal ESG scores, ESG
information from outside
institutions.

Very low
Low

s
es
in
th
or
itw
ed
Cr

Investment
candidate stock

Degree of impact on credit risk

Degree of impact

Developing an investment
strategy that takes the macro
environment into accountIn analyzing creditworthiness, Daiwa
AM views the impact of ESG factors
on an issuer’s credit risk in terms of
the relationship between the time
it takes for that impact to manifest
and the creditworthiness of theissuer, excluding ESG factors, as
shown in the figure below. In otherwords, the lower the creditworthiness of the issuer and the shorterthe timeframe for the ESG factors
to have an impact, the greater the
impact on the bonds issued by theissuer in terms of credit risk.
Under this basic understanding,in addition to a financial analysis of
the issuer, Daiwa AM incorporates
in its creditworthiness risk analysis
both quantitative and qualitative
information regarding ESG, withthe goal of conducting appropriate
creditworthiness analysis, controlling downside risk and improving
investment performance.

Keisuke Saeki

Daiwa AM also makes use of
ESG information in fixed income
investment.
In today’s world, where people
are becoming increasingly awareof the sustainability of society andeconomic entities, we believe thatkeeping abreast of these trends
and appropriately addressing the
ESG issues faced by issuers is an
essential element of their long-term
activities.
One of the main features of
fixed income investment is thatinvestments have a fixed maturity
and the approximate return isdetermined at the time of investment, as long as no default occurs
during the period of the investment.
By understanding the issuers
efforts to address ESG issues, andby analyzing their sustainability, we
believe we can reduce the risk of a31

ESG Integration

ESG Integration of Other Asset Classes and Managed ProductsLong term
Medium termHigh
Very highShort term
Fairly short
term

me

efra

Tim

In the last two to three years, J-REIT
companies have accelerated their
ESG initiatives. In J-REIT active fundmanagement, Daiwa AM makes
investment decisions using each company’s valuation, growth potential andother financial information, in addition
to ESG and other non-financial information gained through interviews,
property tours and other means.

Noritaka Yoshimura
Chief Fund Manager
Global REIT Active Fund Management
DepartmentⅠ

Society

GovernanceOne thing Daiwa AM has consistently
emphasized over the years isgovernance. J-REITs have an externalmanagement type of system in which
an asset management company isentrusted by a fund (investment corporation) to manage assets and conduct various operations. Governanceis important in J-REIT investment
because there are many instances inwhich J-REITs acquire properties fromsponsor companies (real estate firms,etc.) which are shareholders of theasset management company. In thiscase, there is a conflict of interest: The
sponsor company wishes to sell theproperty at the highest possible priceto book a profit, while the investmentcompany wants to buy the property
at the lowest possible price to ensurea yield. Aside from price, the asset
management company should makedecisions that place the highest priority on the interests of the investment
corporation’s investors (equivalent toshareholders), including whether or
not to acquire the property in the firstplace. However, due in part to capitalties and personal relationships—suchas staff of the asset managementcompany being seconded from thesponsor—there is a structural risk thatpriority will be given to what is convenient for the sponsor. While laws,

equipment with high environmental
performance and green electricity
also need to be carefully analyzed.

industry rules and each company’s
own regulations have advanced thedevelopment of mechanisms for managing conflicts of interest, Daiwa AM
analyzes each company’s governanceefforts, including the actual operationsof asset management companies andhow the sponsors respond.

Environment
One of the major changes faced in
the near term is in the area of environmental efforts. In October 2020,
the government declared its goalof becoming carbon neutral, whichmeans reducing overall greenhousegas emissions to zero by 2050. Many
J-REIT companies are also moving tobecome more proactive in the environmental field, including by setting
targets to reduce CO2 emissions
intensity and by acquiring green
building certification. While efforts
in the area of the environment areimportant for realizing a sustainable
society, the costs and benefits ofspecific initiatives like introducing

Unlike the environmental field,
efforts of J-REITs in the social field
are currently somewhat scattershot
because of the difficulty of setting
quantitative targets, and because
evaluations need to be changed
depending on purpose, scale, andlocation. On the other hand, realestate can contribute to the creationof a sustainable society and people’s
well-being because of its strong relationship with local communities andthe way people work and live, with
offices providing a place to work,
rental housing providing a place to
live, commercial facilities and hotels
providing a place for consumption,and logistics facilities supporting
each of these. As progress is madein putting in place criteria and methods for evaluating the impact of realestate on society as a whole, and inestablishing a framework for information disclosure, this will become
one area of growing importance.
When properties that consider
ESG, including the environment, seehigher rents and occupancy rates
and higher profitability than properties that do not, and when the cap
rate—the discount rate—declines
and property values rise in trading
markets, these factors will become
increasingly important in investment decisions. It would not be
exaggerating to say that the valueof a J-REIT is determined by thevalue of its real estate holdings, andDaiwa AM will continue to closely
monitor the impact of ESG on the
intrinsic value of real estate.

Sustainability Report 2022

32

Outsourcing

Aiming to offer a wide range of ESG investment
opportunities through index management

Monitoring of ESG factors in the selection of outsourced fundmanagers and strategy and in the evaluation process

In recent years, as the transition
to a decarbonized and sustainable society has become a global
imperative, particularly in Europe,
considering ESG in investments has
become a requirement. Investment
capital continues to flow into index
funds from institutional and otherinvestors as well, and the balance
under management related to ESG
investments has expanded, withperformance improving over thelong term.
Daiwa AM’s team would like tooffer funds linked to indexes thatincorporate ESG evaluations, offering investors a lower-cost, easy-tobegin ESG investment opportunity.
Currently Daiwa AM offers five ESG
funds, including publicly offeredfunds and ETFs. ETFs include threefunds that are linked to ESG indexes
in which the GPIF invests.
The advantage of ESG investment
in index funds is that they are low

Eriko Ono
Senior Fund Manager
Beta Management & Investment Solution
Department

cost and allow for fund management
based on highly transparent, clear
rules. Under the methodology of
the MSCI ACWI ESG Leaders Index,
the benchmark for the iFree Global

Stock ESG Leaders Index, companies
are selected according to the flow
shown in the diagram below. It
specifies how ESG evaluations areincorporated into index construction
using quantitative and other data.
ESG ratings by MSCI also have a sufficiently high level of transparency,
as the rating methodologies are
published and are based on publicly
available information.
Daiwa AM believes proactive
efforts regarding engagement arealso important in index funds, andwe send our investees our Proxy
Voting Policy and other materials
and inform them of our stewardship activities. We also discuss withindex vendors the importance of
ESG disclosure, including information such as ESG ratings and carbon
emissions, and aim for easier-tounderstand information disclosure,including encouraging them toprovide a wider range of data.

ESG Index Funds
Fund Type

Serial CodePublic Fund

3470

ETF

3510

ETF

3513

ETF

3514

ETF

3515

Fund Name

Date Launched

iFree Global Stock ESG Leaders Index

Daiwa ETF－MSCI Japan Human and Physical Investment Index

Reference

2022/5/10
2016/5/18

Daiwa ETF－FTSE Blossom Japan Index

2017/9/25

Index used by GPIF

Daiwa ETF－MSCI Japan Empowering Women Index (WIN)2017/9/25

Index used by GPIF

2017/9/25

Index used by GPIF

Daiwa ETF－MSCI Japan ESG Select Leaders Index

Worldwide stock(developed &emerging countries):

About

2,900

1
Exclude companies
involved in specificbusinesses*1

companies

2
Exclude companies
with low ESG
evaluations
Exclude companies withlow ESG ratings (belowBB) and those with low
controversies scores*23
For each industry andregion in the regional
index, companies
covering 50% of market
capitalization are selected
and added together tocalculate the index*1 Weapons against humanity, tobacco, gambling, etc.
*2 Score that indicates whether a company is involved in controversy that has a serious negative impact on its ESG evaluation

Daiwa Asset Management Co. Ltd.

ESG investment, which systematicallytakes ESG issues into account in
the investment process, is growing
rapidly around the world and has
now become a part of the investment
mainstream. One important role ofoutsourced fund management isto provide Japanese investors withaccess to the strategies of outstanding
overseas asset managers who areleading the way in ESG investment.
Based on this, Daiwa AM conducts
monitoring regarding ESG in theselection and evaluation processof outsourced fund managers andinvestment strategies.

Masashi Imachi
Senior Fund Manager
Advisory Fund Management Department

When Selecting Investment
Strategies
When selecting investment strategies, as part of initial due diligence,
Daiwa AM collects information on
items regarding ESG at outsourced
fund managers, and then conducts
an evaluation of that information.
Specifically, Daiwa AM verifies ESGrelated management structures, ESG
policies, ESG-related disclosures and
ESG initiatives in which the company
participates, among other things.
In particular, when selecting an
outsourced fund manager for ESGrelated investment trusts, the firmmust be able to control ESG risks anding the same information as duringinitial due diligence, Daiwa AM examines how outsourced fund managers
and their fund management strategies are responding to changes inthe external environment.
During the quarterly review withthe fund management team, wemonitor not only fund performance,
but also exchange opinions regarding how new issues to be includedin the fund will help achieve social
returns. We also discuss the viewsof the management team on everchanging ESG-related issues andexchange opinions and monitor
how they are responding.

Daiwa AM’s ESG Funds
opportunities in the portfolio building
process and disclose specifics. Or,
we look closely at whether the mainfeature of the product’s nature is toearn economic and social returns as afund, and whether specific disclosuresabout such returns can be made.

Ongoing MonitoringOnce the fund is established, monitoring is conducted in the form of
ongoing due diligence of ESG factors
through quarterly reviews with thefund management team. ESG investment is evolving daily, and by verify-

Daiwa AM’s offerings include theCarbon Neutral Equity Fund of
Belgium’s Candriam and the Clean
Tech Equity Fund of France’s AXA
IM. Both of these companies havestrengths in ESG investment and areamong the leading ESG fund management companies in Europe. As
ESG funds, they provide transparent
disclosure to Beneficiaries in Japan.
Daiwa AM also periodically reviews
its monitoring methods, and will
work to achieve both a sustainable
society and long-term asset building
through its investment trusts.

Process of Monitoring Outsourced Fund Manager ESG Factors

MSCI ACWI ESG Leaders Index Calculation Overview

33

ESG Integration

Passive Investment

Companies
comprising the MSCIACWI ESG Leaders
Index:

About

1,200

companies(Source) MSCI

Initial Due Diligence

Ongoing Monitoring

Quarterly Review

Verify ESG-related items

Verify changes sinceinitial DD

Reinforce monitoring ofongoing DD［Outsourced fund managers］
ﾠESG-related fundmanagement structure
ﾠESG policies
ﾠESG-related disclosure
ﾠParticipating ESG initiatives［Investment strategies］
ﾠControl of ESG risks andopportunities
ﾠSpecific disclosure of ESG
integration
ﾠSecuring of economic andsocial returns
ﾠSpecific disclosures regarding
returns［Outsourced fund managers］
ﾠESG-related fundmanagement structure
ﾠESG policies
ﾠESG-related disclosure
ﾠParticipating ESG initiatives［Investment strategies］
ﾠContribution to helping
included issues to achievesocial returns
ﾠESG views and investment
policies of fund management
team

Sustainability Report 2022

34

ENGAGEMENTEngagement with Outside Service Providers

In addition to managing assets in-house, Daiwa Asset Management obtains advice from the world’s leading
asset management companies so it can provide product suited to customer needs. One such product thatit manages is the Carbon Neutral Equity Fund. Advice for this fund is provided by Candriam S.C.A. Below is
a discussion on ESG investment by personnel from both companies.

ESG Integration

Engagementwith Outside
Service
Providers

Candriam S.C.A.

A leading European asset managementcompany which has been actively
engaged in ESG investment since its
establishment in 1996

Marouane Bouchricha

Alix Chosson

Sophie Deleuze

Yuji Watanabe

Maki Noguchi

Tadashi Terajima

Haruka Miyamura

CFA - Senior Fund Manager

Lead ESG Analyst, Energy & Materials

Lead ESG Analyst, Engagement & Voting

Chief Analyst, Active FundManagement Department Ⅱ and
Responsible Investment Department

General Manager, Advisory FundManagement Department

Chief Analyst, Active FundManagement Department Ⅱ and
Responsible Investment Department

Director, Responsible Investment
Department

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Daiwa Asset Management Co. Ltd.

T
EN
M
M

Noguchi of Daiwa AM: Daiwa
Asset Management adopted “All
Challenges for ESG Investment” as
its slogan as an expression of ourcommitment as a responsible investor. Candriam has actively conducted ESG investment and has
been a pioneering presence within
the field of ESG investment since its
foundation. Please begin by discussing the ESG initiatives and characteristics of Daiwa Asset Management.
Watanabe of Daiwa AM: We see
corporate ESG initiatives as contributing to both medium- and longterm growth potential and risk
reduction, and we make use of
these initiatives in our investment
decisions. The characteristics of thisare qualitative assessments by analysts and calculation of original
quantitative ESG scores. Qualitative

tical processing. Candriam is active
as a global ESG investment leader;
how would you describe the characteristics of and commitment to ESG
investment?
CA Alix: Ever since we launched
our first sustainable investment
strategies in 1996, in-depth analysisof ESG factors has been a cornerstone of our investment process.
Accordingly, a very large part of our
product range is classified withinO

ESG Investment
Initiatives andCharacteristics of EachCompany

assessments by analysts that target
covered stocks evaluate the ESG
initiatives and information disclosures of each company from a perspective of corporate value, and areseparate from formalistic, checkthe-box ESG assessments. For original quantitative ESG scores, weselect priority data for each material
issue, weight the data according to
the importance in each sector, andperform calculations through statis-

C

Candriam: CA
Daiwa Asset Management: Daiwa AM

The name Candriam is derived from
“Conviction AND Responsibility In
Asset Management.” The namerepresents our belief in andcommitment to contributing tosociety and achieving management
results by actively investing in asustainable future.

Naïm Abou-Jaoudé
Chief Executive Officer
of New York Life Investment
Management

Article 8 and 9 under the EU’s Sustainable Finance Disclosure Regulation. When assessing thesustainability of companies, we analyze their adherence to international
norms, their involvement in controversial activities, how they manage
their stakeholder relationships andthe key sustainability challenges thatthey are exposed to. For countries,
our analytical framework includes
filters for high-risk, oppressive
regimes and standards of democracy. Furthermore, we assess eachcountry’s ability to manage its environmental, human, social, and economic capital in a sustainablefashion, today and in the future.

Key Points When
Assessing a Company’s
Environmental
Performance
Watanabe of Daiwa AM: I see. You
have a framework for analyzing an
extensive range of factors over time.
I handle materials sectors, suchas the chemical sector, which havehigh CO2 emissions, and whenassessing the environmental (E)performance of a company, I focus
not just on the scale or change inemissions, but also on carbon efficiency and the degree of contribution to reductions. Carbon efficiency
is a measure of the technologies
and expertise that companies haveand how efficiently they can produce the same products, andreduction contribution is the perspective of whether a company canfirst achieve net zero by contributing to the decarbonization of its
customers and society as a whole.
What are the criteria used by yourcompany for evaluating companies
in relation to climate change andselecting them for investment?
CA Alix: Our ESG analytical framework has embedded climate mitigation and adaptation across oursustainable investment strategies forover 15 years. This means thatacross our ESG-related strategies,
we systematically integrate climate
considerations into the way weinvest and select companies that are
putting forward a meaningful andcredible carbon decarbonization
pathway. We believe that when

doing so, it is important to focus oncompanies that are implementing
concrete measures towards a realenergy transition, such as companies demonstrating a credible
energy transition strategy that has
been validated by the Science
Based Targets initiative. We measure and disclose the carbon footprints of sustainable funds, and ouroverarching ambition is to reduce
the footprint of these strategies
year-on-year in order to secure a
50% reduction in greenhouse gas
emissions across a significant shareof our investment portfolio by 2030
and pursue net zero emissions in
our investment portfolio by 2050 orsooner. Candriam also joined the
Net Zero Asset Managers initiative(NZAMI), supporting the goal of net
zero greenhouse gas emissions by
2050 or earlier in line with global
efforts to limit warming to 1.5
degrees Celsius. Accordingly, we
engage in stewardship activities thattarget investments with the highest
climate risks, but we believe that it
is essential that each company firsthas a clear and achievable decarbonization strategy.

Sustainability Report 2022

36

ESG Integration

Candriam: CA
Daiwa Asset Management: Daiwa AM

C

O

M

M

EN

T

Watanabe of Daiwa AM: I mentioned that when assessing theenvironmental performance of acompany, we emphasize the degreeof contribution to carbon reduction,
but I get the sense that in someinstances, that assessment can bechallenging. This can depend on thelack of development of product life
cycle assessment (LCA) or carbon
footprint of products (CFP) information or a lack of clarity in the selection of criteria for making
comparisons. It is my impressionthat it is also necessary to develop
society as a whole for achieving
decarbonization, including standards and regulations.
CA Alix: We can say that the policies and regulations of national
gov-ernments still have issues, as
they need to accelerate even more
for the adoption of clean energy.
Also, radical technological innovations are increasingly seen as necessary to limit climate change to

Candriam is focusing its efforts
on achieving net zero GHG
emissions from its investment
portfolio by 2050 andsystematically incorporates
consideration for the climate
into its investment
approaches.
Vincent Hamelink
Candriam S.C.A.
CEO, Member of the Group Strategic
Committee and Executive Committee

37

Daiwa Asset Management Co. Ltd.

less than 2°C of temperaturechange, or to extend the limit ofglobal warming more ag-gressively
to 1.5°C, which are the goals of theParis Agreement.
Yet, the ability to address those
global challenges also involves organizational, social, and economicchanges. At such times, social adaptation may not progress without
incentives from policy makers. We
believe that there are cases where
something like the U.S. Inflation
Reduction Act or a system of credits
for biofuels is needed. And we further believe that it is the role ofcompanies to expand the scale sothat technologies intended to mitigate adverse effects can be madereadily accessible by using thesetypes of policies, regulations, andincentives.
Terajima of Daiwa AM: Whenperforming qualitative assessmentsof ESG, we assess dialog with thecompany and information disclosure. We believe that when assessing decarbonization, for example, it
is important to adopt a comprehensive perspective, not limited to thebusiness portfolio or technologies
relating to decarbonization, but also
including the human resources,
intellectual property, governance,
capital policies, and more that serveas the foundations of these.
What perspectives do you focus
on when assessing a company's
dialog and information disclosure in
the evaluation of ESG or carbon
mitigation technologies?
CA Alix: Since 2014, Candriam’s
stewardship efforts have focusedon three ESG topics: businessethics, energy transition and fairworking conditions. If companies
are not meeting our expectations
on ESG, we will continue engaging
with them and strive to advancetheir efforts. Climate is a good
example, as many large global
greenhouse gas (GHG) emitters arestill lagging behind on their net zerocommitments and associated strategies. If engagement intensifies but
progress is still not made, we takeescalation measures, including, as alast resort, divestment. Divestment
can send a strong signal to thecompany and the market.

Exercise of Voting
RightsMiyamura of Daiwa AM: I would
like to ask about exercise of voting
rights. Shareholder proposals relating to climate change have been

increasing in Japan in recent years.
At Daiwa Asset Management, we
make individual determinations,focusing on whether the companies
in question responds adequately to
climate change issues and information disclosure and whether a proposal could restrict business.
What points does Candriamemphasize when making determinations regarding climate change
related proposals?
CA Sophie: When exercising voting
rights last year, we voted against
about 30% of proposals relating toclimate change. This is because incases where a company’s policies
on climate change are not sufficiently ambitious, even if the proposal passes, it will not result in
concrete change within the company. Also, we have a target ofachieving net-zero GHG emissions
from our investment portfolio by2050, and we evaluate proposals byassessing whether the transition
strategies of individual companies
are in agreement with a path to net
zero emissions by 2050.

Creating Zero-Carbon
Funds
Noguchi of Daiwa AM: We areaware that the fund’s carbon-zero
approach, that is, funding projects
conducted by Carbon Neutral
Equity Fund (Carbon Zero), canserve a model initiative when considering long-term responsibility
and roles of investment management companies for achieving adecarbonized society. This is an
important point when selecting
projects, but we believe that there
are also some difficult aspects.
What mechanisms and innovations
does Candriam use when selecting
projects?
CA Marouane: When selecting
climate projects, we set conditions
such as projects must aim to
reduce, avoid or remove emissions;projects must apply the highest
environmental and social standards,
contributing to sustainable development; and projects must be subject
to monitoring and reporting. Also,
all projects are audited in accordance with the Gold Standard. The
Gold Standard was established in2003 by WWF and other international NGOs to ensure that projects
that reduce carbon emissions feature the highest levels of environmental integrity and contribute tosustainable development. By investing in these types of reliable projects, we are working towards zerocarbon for the fund.
Noguchi of Daiwa AM: Daiwa
Asset Management sends trainees
to Candriam as part of its efforts tostrengthen collaboration with excellent asset management companies
around the world. In the future, weplan to achieve mutual enhancements not only relating to investment advice for the Carbon Neutral
Equity Fund, but also in responsible
investment overall, human resource
development, and other areas.

We place particularimportance on the integrationof ESG assessments incorporate value calculations
and a comprehensive
perspective when performing
ESG assessments.

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

We seek to provide products
tailored to customer needs
while deepening collaboration
with excellent asset
management companies fromaround the world.

Maki Noguchi
General Manager, Advisory FundManagement Department

Sustainability Report 2022

38

Overview of Daiwa AM’s Engagement Activities
General Policy on Stewardship Activities
Enhancing companies’ medium- andlong-term value and sustainability

ESG Investment Policy

Maintaining the sustainability of society

Engagement Policy

Engagement Activities

Engagement Activities

Engagement Activities

Engagement Activities Policy
In June 2014, Daiwa AM announced the Engagement
Policy, which was formulated with the aim of facilitating
dialog that would contribute toward enhancing corporate value and realizing sustainable growth.
In September 2020 the Policy was comprehensively
overhauled. Regarding the perspectives that need toemphasized in relation to engagement, in addition to thebusiness strategy perspective and the perspective relating to dialog with investors and related disclosure, therevised Engagement Policy also incorporated what Daiwa
AM sees as key ESG issues, and specific points to focus
on. In August 2021, the content of the Policy regarding
management of information relating to corporations wasrevised, and in October 2022 a further revision wasmade to reflect the adjustment of ESG Materiality.
In line with the above policy, Daiwa AM undertakes
active engagement with companies in relation to bothfinancial and non-financial (including ESG issues) areas.

Proxy Voting Policy
Materiality relating to environmental, social and governance (ESG)

Emphasized perspectives

Key issues

Specific points

Business strategy

Greenhouse gas emissions

Climate change

Corporate philosophy, management policy, business model, business areas,
allocation of operational resources, etc.

Dialog with investors and disclosure of information

Responding to climate change risk
Energy transition

Environmental

Basic approach to investor relations (IR), timely, fair disclosure of information,
dialog from a medium- and long-term perspective, etc.

Natural capital

Environmental pollution
Resource conservation

ESG
Environmental

SocialGovernance

Climate change andnatural capitalSocial responsibility andhuman capital

Governance framework,
risk management, capitalefficiency, and communication

Note: Daiwa AM’s vision for investee company best practice (see P. 41)

Contributing toward the building of a

Social responsibility

Supply chain management

SocialHuman capital

Traditional approach

Topic-specific engagement

healthy, safe society

Enhancing the value of human capital

Non-financial evaluation(• Core materiality • Business strategy)

Engagement for passive fund

Governance

Measures aimed atcorporate valueenhancement

Governance framework
Risk management
Improving capital efficiency
Communication

Investee companies

39

Daiwa Asset Management Co. Ltd.

Sustainability Report 2022

40

Framework for Engagement Activities

Daiwa AM has defined its vision of investee company best practice for the sustainable enhancement of corporate value
as outlined below. Going forward, Daiwa AM will use engagement, etc. to encourage investee companies to adopt thesemeasures.

Daiwa AM’s engagement activities are implemented with
the Corporate Research Team, the stewardship personnel, and the Engagement Team (composed of corporate
research analysts and fund managers) as the three coreelements. This framework enables each element to

Key Issues

Environmental

Best PracticeClimatechangeClimate change
Natural capital
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 thenatural environment 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 thehuman talent strategy includes measures relating to initiatives for recruiting and retaining first-rate human talent,frameworks and initiatives 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 maleand female employees, based on gender-specific, quantitative indicators. It is desirable that, in the future, the company should have female directors account for at least 30% of the membership of the board of directors. It is also
describable for the company to put in place a framework (for talent pooling) that facilitates the ongoing appointmentof female directors from within 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. Fromthe perspective of enhancing understanding of the board’s effectiveness, it is desirable that the main initiatives
decided on and discussions 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
formulates a 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 ofachievement of strategic objectives; long-term incentive compensation is linked with and evaluated in relation tocorporate value. It is desirable for the share of total compensation held by long-term incentive compensation to be
increased, within appropriate limits. Long-term incentive compensation should also be incorporated into compensation for outside directors where this would contribute to the enhancement of corporate value.

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 theboard of 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
the internal controls system did not function properly will be thoroughly investigated, strategies will be formulated toprevent reoccurrence, and the implementation and effectiveness of these strategies will be confirmed and verified ona 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-castingfrom this.
The company’s medium-term management plan clearly specifies the growth strategy, and the company monitors
progress status 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
no prospect 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 and shareholders, 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 areable to appeal to stakeholders.
The company’s outside directors are aware of where the company needs to be, are capable of confirming andpointing 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, andalso engages in dialog with stakeholders.

SocialSocialresponsibility
Human capital

Information
disclosure
Comprehensiveness
Importance

Governance
Measuresaimed atcorporatevalueenhancement

41

By formulating and analyzing climate change scenarios in line with the TCFD framework, the company identifies
transitional risks, physical risks and business opportunities.
The company implements quantitative monitoring of greenhouse gas emissions, emissions per unit of production,and the anticipated 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,and implements the summarizing and evaluation of activity implementation status.

Daiwa Asset Management Co. Ltd.

Engagement Activities

Daiwa AM’s Vision for Investee Company Best Practiceundertake in-depth exploration of its own area of competence, while also enabling engagement activities to be
conducted with effective coordination between the threecore elements.

Engagement Team
Composed of fund managers and analysts, this team holds in-depth meetings
with companies which are being invested
in over the medium- and long-term

The key elements of engagement activities
Main activities

Corporate Research Team
Comprising the ESG & Corporate Research
Section, Responsible Investment Department, this team undertakes research
activities relating to corporate value, business strategy and ESG, and also holds
related meetings

Stewardship Team
Comprising the Stewardship Section,
Responsible Investment Department, thisteam holds meetings relating to ESG,
including corporate governance, andproxy voting
Engagement for passive fundSustainability Report 2022

42

rp

co

Corporate
Research TeamEngagement Activities

In the most recent fiscal year (January 2022–December 2022; the same definition shall apply to subsequent references
to “most recent fiscal year”), Daiwa AM implemented engagement activities that involved opportunities for direct dialog
with 1,138 companies.
The figure below shows these engagement activities broken down according to which team played the leading rolein implementing them.

Examples of engagement activitiescham

Engagement activities based on direct dialog

researte

Engagement Activities

o

te
ra

Constructive engagement to enhance corporate value
and achieve sustainable growth

Overview

Stewardship TeamEngagement Team

15.6%

4.6%

Corporate Research Team

79.8%

As part of their regular analyst activities, Daiwa AM’s corporate research analysts
conduct stewardship activities that contribute to the enhancement of corporate
value and to sustained growth. There are a total of 13 analysts (as of December
31, 2022), divided into two teams: Manufacturing and Non-manufacturing.
The implementation of constructive engagement makes use of various sharedplatforms 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 business enterprise management strategies; 3 ESG Materiality Item
Summary, which compiles information on key ESG items required for engagement, etc.; 4 Qualitative analysis, in which companies are assessed qualitatively
from a medium- and long-term perspective in terms of both financial and nonfinancial aspects; 5 The compilation of a Long-term Corporate Valuation Model,
to determine companies’ fair value over the medium- and long-term.
Analysts undertake analysis of individual companies based on the Analyst
Handbook, Business Strategy Case Studies, and ESG Materiality Item Summary,and then use this analysis as a basis for engaging in constructive engagementthat is aimed at enhancing corporate value from a medium- and long-term perspective and realizing sustainable growth. The results of this dialog are reflectedin the estimation of fair value using qualitative analysis and the Long-term Corporate Valuation Model, and in the ESG Score calculated by Daiwa AM.
Furthermore, the fair value as estimated using qualitative analysis and theLong-term Corporate Valuation Model serves as a reference for further dialog,
on the basis of which the Analyst Handbook and Business Strategy Case Studies, and ESG Materiality Item Summary can be revised and expanded. Throughthe accumulation of constructive engagement and a continuing cycle ofimprovement of the five key platforms and tools, Daiwa AM aims to realize further enhancement of analysts’ research activities and of stewardship activities.

Engagement for passive fund
In order to proactively fulfill its fiduciary duty withrespect to passive fund investment too, Daiwa AM
attaches great importance to engagement activities.
Particularly in the case of companies where Daiwa AM
must vote against the company’s proposals in accordance with Daiwa AM’s Proxy Voting Policy, because thecompany in question does not have any female company
officers or has excessively high levels of cross-shareholdings, Daiwa AM undertakes engagement with such com-panies so as to verify the state of 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, when necessary, Daiwa AM may
also make use of methods such as sending companies
information about revisions to the Proxy Voting Policy
and about related topics.

Note: The same company may be counted more than once, due to undertaking engagement with the same company on multiple occasions.

43

Daiwa Asset Management Co. Ltd.

Analysts
1 Analyst Handbook
2 Business Strategy Case Studies
3 ESG Materiality Item Summary

Constructive
engagement

4 Qualitative Analysis
5 Long-term Corporate Valuation
Model

Constructive engagement by analysts
and key platforms and tools

Investee companies

Sustainability Report 2022

44

Engagement Activities

1 Analyst Handbook

4 Qualitative Analysis

The Analyst Handbook is a compilation of the fundamental knowledge that Daiwa AM analysts
should possess, and the things they should be aware of, as the basis for their work. The firstedition was compiled in September 2015; a revised fourth edition was completed in August 2021,
to reflect successive revisions subsequently made to the Stewardship Code and Corporate
Governance Code. The Analyst Handbook is utilized extensively as a means of sharing knowledge
about the basics of analyst activities, including the background to the Stewardship Code andCorporate Governance Code, important points to note regarding ROE and capital costs, Daiwa
AM’s approach to ESG, and the points to emphasize when engaging in dialog with companies.

Besides quantitative evaluation of companies based on earnings
forecasts, etc., Daiwa AM’s analysts also conduct qualitative
analysis on an ongoing basis. Qualitative analysis examines six
items―growth, profitability, continuity, financial strategy, ESG and
IR―from a business strategy perspective over the medium- andlong-term. Examination of ESG is conducted using a five-stage
process that considers the environmental (E), social (S) andcorporate governance (G) aspects separately. In addition, withregard to the E and S aspects, opportunities and risks are now
evaluated separately. Growth is evaluated by breaking it down
into four component elements: business strategy, market growth,market share and business model.
The number of stocks for which qualitative analysis is conducted
is around 550, with a focus on stocks that are deemed to havestrong growth potential over the medium- and long-term, stocks
where the quality of management is evaluated as being particularly
high, and major stocks representative of business sectors.

3 ESG Materiality Item Summary

2 Business Strategy Case Studies
When evaluating a company from a medium- and longterm perspective, it is vital to be able to accurately recognize and evaluate the company’s business strategy. To thisend, Daiwa AM analysts hold periodic business strategy
study meetings. The Business Strategy Case Studies
brings together the results of analysts’ research and analysis in relation to business strategy, with a main focus on
the topics addressed at study meetings. We also actively
deploy the Business Strategy Case Studies during constructive engagement and engagement meetings.
In 2022, we brought together case studies of corporate business strategies (mainly those related to ESG),
which had been evaluated and identified as focus casesby analysts, and used these as reference material toinform revisions of ESG Materiality and for the formulation of best practices.

Daiwa AM drafted the ESG Materiality Item Summary in
2022, with the aim of contributing to the maintenance,
fostering, and sharing of know-how in dialogs with companies, and to establish current status with regards to ESG.
These materials highlight those items of ESG Materialitythat we have determined as currently meriting deeper
exploration and development based on changes in theirimportance for society, companies, and the capital market,
as well as dialogs with companies. They summarize therelated laws and principles, as well as the perspectives
and talking points during engagement for each item, while
also including case studies of companies that have madeadvanced efforts in these areas. We will continue to strive
to enhance the content and promote the active use of thisSummary to improve the effectiveness of ESG research.

5 Long-term Corporate Valuation Model
Daiwa AM began to make large-scale use of the Long-term Corporate Valuation Model
starting from April 2017, with the aim of achieving greater precision in the estimationof corporate value over the medium- and long-term. Using the residual income modelas the corporate valuation method, long-term corporate value (i.e., fair value) is estimated. With this model, when performing the estimation, as the variation in capital
cost will partly depend on the ESG evaluation performed in item 4 (qualitative analysis), if the ESG evaluation is high, then capital cost will be low, and corporate value will
be higher. This model is being improved to enable visualization of how corporate valuechanges in line with the ESG evaluation, and Daiwa AM has begun to implement measures that will make it easier to effectively utilize ESG evaluation in investment decisions and in constructive engagement with investee companies.
The analysts present fund managers with an investment rating and target
share price for each company for a period of between six months and one year;
here too, fair value is indicated using the Long-term Corporate Valuation Model,
to provide a reference for investment from a long-term perspective.

Case study of engagement where a bond operations perspective was central
Provision of research data for bond operations
Daiwa AM has adopted a centralized research framework, with respective
Corporate Research Team at the core of this framework, for gathering dataand conducting research and analysis on listed companies in Japan. Researchdata, including that on studies conducted by corporate research analysts andevaluations by analysts, is provided to both fund managers of domestic
stocks and fund managers of domestic bonds. From the viewpoint of bondoperations, the data employed primarily relates to financial status, cash flow,
capital strategy, fund-raising capacity, and assessments of ESG-related risks.
With regards to ESG, Daiwa AM considers there to be no significant differencein its perspectives on shares and bonds, in the sense that they lead to an
enhancement of a company’s corporate value in the medium- and long-term.

45

Daiwa Asset Management Co. Ltd.

Due to Company J having posted significant losses in the past and having jeopardized its financial footing, it drafted and was
implementing a business rehabilitation plan taking in structural reforms and the fostering of growth businesses to achieve
recovery from those losses. Despite some progress having been achieved regarding structural reforms, including asset liquidation and withdrawal from unprofitable businesses, they had posted significant losses in their overseas operations, attributable to the COVID-19 pandemic, and their financial standing had failed to improve to the extent that may have been
expected. In this context, we initiated engagement on the topic of the company’s decision to issue preferred shares.
From the perspective of financial standing and the certainty of raising funds, their choice of preferred stock as a financing
method is understandable, and expected to improve the company's financial position. On the other hand, since the company explained that the main purpose of the fundraising was for investment in growth, we requested timely and appropriate
disclosure of information on the future use of the funds and their effects, with a firm awareness of the current financial position and the fact that the company raised funds using the high-cost method of preferred shares.

Sustainability Report 2022

46

In the most recent fiscal year, the Corporate Research Team undertook engagement with 908 companies.
This engagement can be divided into four major categories: ROE and capital cost; Capital policy; Approach todialog with investors, and disclosure; and ESG.
The distribution of engagement activity when broken down into these categories is shown below.

Environmental, social and governance (ESG)

ROE and capital cost

11.2%

587cases

34.0%

Approach to dialog with investors, and29.0%

disclosure

194cases

CASE 02 >Engagement Activities

Activity

Company B (Wholesaler)

Issues

While improvements in the company’s business performance through appropriate businessstrategies, aggressive IR activities, and strengthening of its governance framework haveenhanced its visibility in the stock market and facilitated some extension of its reputation, thisremains at an insufficient level when compared to other companies in the same industry.
Background to the issues
A shortfall in in-depth communication with investors regarding the company’s: 1 visualizations of its
growth strategies; 2 optimization of its capital structure; 3 ESG.

Suggested
1 Review current information disclosure which makes it difficult to quantify growthmeasures tostrategies; 2 demonstrate optimizations of the capital structure in the course of gradualresolve these issues changes to the business models for main lines of business; 3 implement in-depth
disclosure on all aspects of ESG through the publication of an integrated report.

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

445cases

25.8%

500cases

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

CASE 01 >Company A (Chemical industry)

Issues

While in the past few years, the company has clarified its management policy ofaiming to become an R&D-oriented company, and some outcomes have begun toemerge, there remains considerable room for improvement when the company iscompared with other R&D-oriented companies which the company uses as a benchmark, both in terms of the efficiency of management resources and profitability, as
well as in communication with shareholders and investors.
Background to the issues
ﾠRoom for improvement in terms of efficiency and profitability in the high value-added functional products business and in company-wide assets
ﾠLack of consistent IR improvements which would foster an awareness of the intention of management tobecome an R&D-oriented company

Anticipated situation By engaging in 1 to 3 above, appropriate expectations of long-term growth will beafter addressing the fostered and capital costs lowered, which will result in a correction to the company’s
lower valuations when compared to other companies in the same industry.
issuesCompany’s response
For 1 the company will consider reviewing information disclosure in financial briefings; for 2 the company recognizes this as a key issue for the upcoming medium-term business plan; and for 3 the company aims to explore
in-depth and disclose on various elements of ESG in an integrated report to be published in the next fiscal year.

CASE 03 >Company C (Telecommunications)

ﾠAlthough the company has formulated and announced a medium-term business plan, thenumerical targets in the plan have become untethered from actual circumstances, including dramatic changes to the business climate occasioned by the COVID-19 pandemic and other factors
ﾠAs a result of the above, it has become difficult for the company to communicate effectively
with investors and others regarding their goals for earnings levels over the medium term
Background to the issues
ﾠRapid deterioration in short-term business results due in part to dramatic deteriorations in the businessclimate precipitated by the COVID-19 pandemic
ﾠRegarding the revision of the mid-term plan, consideration should be given to the consistency with thestock compensation scheme, which will be a trigger for the achievement of the targets in the plan
ﾠThe company has the advantage of strong sales expertise. However, there is a risk that the company’s
lack of clarity on medium- and long-term target figures could precipitate declines in employee motivation

Issues

Suggested
ﾠDisclose more proactively about new product development and R&D in the funcmeasures totional products business, and clearly state the efficiency and profitability that theresolve these issues business aims to achieve
ﾠConduct reviews of cross-shareholdings, cash levels, and allocations
ﾠFurther enhance the in-company positioning of IR and strengthen communication

SuggestedﾠRestore reciprocal communication with the stock market by announcing the reesmeasures totablishment of new target figures under the medium-term business plan; or, defer
resolve these issues the prospective achievement date for the medium-term business plan
ﾠFor the stock compensation scheme too, align the new targets under the medium-

Anticipated situation after Entrenchment of the expectation and reputation of the company as a R&D-oriented
company with highly efficient management resources and profitability.
addressing the issues

Anticipated situation ﾠConsolidation of employee vectors and improved motivation towards achievement of the newafter addressing the
medium-term business plan, as a result expediting the pace of earnings recovery and expansion
ﾠReturn of displaced investors (valuation recovery) due to restoration of reciprocal comissues

term business plan, which has the potential to enable alignment of employee vectors, thus leading to restored motivation (dispelling concerns of low motivation)munication with the stock market and improved trust in the company

Company’s response
The company has to date failed to actively disclose information on new product development and R&D
owing to a preoccupation with impacts on business aspects. However, it has now acknowledged the needto revisit this issue. The company will endeavor to proactively disclose on new product development and
R&D alongside raising the overall level of IR.

47

Daiwa Asset Management Co. Ltd.

Company’s response
It was apparent that the company had also begun to feel the need to review the ongoing medium-termbusiness plan. They commented that they would be pleased to use our proposals as reference.

Sustainability Report 2022

48

gement teamEngagement Team
Discussions with senior management from mediumand long-term perspectives

Overview
Daiwa AM emphasize the role of engagement in enhancing corporate value, andestablished the Engagement Team in June 2015, bringing together analysts andfund 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 mediumand long-term perspective, and as far as possible, dialog is held with senior managers of the company in question, including the CEO. The Engagement Teamdraws up the agenda for the dialog in advance, and clarifies its purpose.
In addition, besides collating relevant issues by implementing KPI management(visualization) with respect to engagement progress status, the Engagement Teamalso shares information about engagement progress status within the company.

ActivityIn the most recent fiscal year, the Engagement Team undertook
engagement with 52 companies. With the growing importanceof ESG measures in relation to the process of medium- andlong-term value creation for companies, there has been a focus
on expanding dialog in relation to the environmental and social(ES) aspects of ESG, which in the past has tended to be insufficient relative to dialog relating to the governance (G) aspect.

In the most recent fiscal year, the Engagement Teamfocused in particular on the social (S) aspect of ES, andaimed to expand the content of dialog relating to humanresources strategy, such as gender diversity, and the supply
chain. The Team undertook repeated dialog with companies relating to the importance of the ES aspects for building corporate value over the medium- and long-term.

Engagement Activities

e

a
ng

Engagement Meetings focused on E and S

7meetings

13%
Engagement Meetings relating tomanagement issues, etc.

87%

CASE 04 >45meetings

Company D (Retail business)

ﾠLow profitability structure of regional stores with ongoing issues of excessive costs
and declineﾠUndervaluation of owned assets
Background to the issues
ﾠHigh-cost structure of business model during high economic growth period
ﾠPaucity of strategies to realize tangible asset values

IssuesﾠVisualization of costs and establishment of systems to verify cost effectiveness
SuggestedﾠMonetization strategies for prime client base aligned to the changing conditions
measures toresolve these issues of the times
ﾠUtilization strategies for assets owned by the company which leverage theirstrengths

Anticipated situation ﾠImproved profitability of retail businessafter addressing the ﾠGrowth centered on prime client base of affluent urban and regional customers
ﾠRevaluation of the company’s assets through tangible realization of real estate values
issuesCompany’s response
The company has begun to review its earnings structure and has furthermore given higher strategic priority to affluent customers in its client base target. Moreover, the company has strengthened its communication with investors, and has begun to hold business briefings on a separate basis from earnings briefings
for direct business to affluent and institutional clients, online services, and other areas. In addition, theimportance of increasing corporate value has become a common understanding, as evidenced by the factthat the president is now being asked to exchange opinions on strategies.

49

Daiwa Asset Management Co. Ltd.

Sustainability Report 2022

50

sCompany E (Wholesaler)trdship teamﾠPBR of the company is under 1.0x based on its reputation as a domestic vendor
ﾠThe company has made some progress in strengthening its unique products andservices in the IT field. However, it has yet to achieve sufficient results in terms of
its performance over the course of a sustained period
Background to the issues
ﾠFor B2C products, a mature market, the company are price leaders or at comparable levels. Meanwhile,
pursuit of a marketing strategy of retroactive pricing has resulted in a decline in brand value among
consumers, with low profitability levels and poor stability
ﾠThe company’s failure to create a human capital portfolio to strengthen the IT field has meant that perhead employee productivity is also failing to increase

Issues

Suggestedmeasures toresolve theseissues(Stewardship Section)
Dialog on proxy voting matters and governance framework

Overview

ﾠIncrease awareness of profitability in B2C; curtail over-investment in terms of “personnel/commodities/money”; and achieve and foster stability in the company’s
profitability infrastructure (“cash cows”)
ﾠEstablish optimal configurations for the company’s human capital strategy towards
the realization of this vision, and proceed with a review of methods to secure
human capital as well as the personnel systems to help achieve thisThe five members (as of the end of December 2022) of the Stewardship Section’s Responsible Investment Department have main 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 from the investee
company that is needed for making decisions regarding the exercise of voting rights. In addition, during the course of the dialog
with the investee company, the Team outlines the proxy voting
strategy and Daiwa AM’s expectations of the investee company interms of corporate governance, with the aim of having consensus
with the investee company.

Anticipated situation Enterprise centered on B2C products will become a cash cow business, with growth
after addressing the achieved by leveraging the vast quantities of customer information accumulated in thecompany’s capacity as a vendor. Developing the IT solutions business will facilitate repuissues
tation gains as an IT solutions company with the potential to facilitate a high valuation

Actions taken by the company
The company’s IT solutions business has begun to see improvements to its levels of profitability as well as
growth in areas in which it did not previously measure up to the competition due to its seniority system,with both profitability and growth now at comparable levels or exceeding those of rival firms. They havealso reviewed excessive spending in their B2C business and achieved stability by surpassing capital costs
in return on invested capital (ROIC.)
Company’s response
The company has successfully built relationships that allow it to seek a wide range of input, not only as it
relates to engagement but also on improving communication with investors and shortcomings in the integrated report, as well as other areas that will help them improve their corporate value.

Feedback from companies we engage with

Company

D（Retailer
business）

Your company has long supported us as one of our important investors.
In discussions with us, Daiwa AM’s advisors have been candid in their opinions about our strategy and direction froma medium- and long-term perspective, rather than focusing on short-term performance. These opinions are based on ascrupulous and courteous attention to the particular circumstances of our company. We have also benefitted from avariety of opinions on cash allocation, ESG initiatives, and other areas. These have proven opportunities to engage in vital
dialogs to help bridge gaps between the market and our company.
We have meanwhile received advice, rooted in our company strategies, on strategic disclosure as part of briefing
sessions, a key issue for our company. By putting this into practice, we are also benefiting from the support of many
investors. The management team is additionally looking forward to ongoing twice-yearly meetings with Daiwa AM, atwhich we will continue to cordially discuss the results of investor surveys and gaps with the market.
We will continue to give it our all to ensure that we meet these expectations.

In recent years, the topics discussed at governance meetings have
no longer been limited to matters relating to the exercise of voting
rights and to governance framework; they have expanded toinclude medium- and long-term profitability, the business environment and ESG. In particular, as there has been an increase in thenumber of meetings held in relation to ESG and integrated reports,
the Stewardship Team has also been making a serious effort tocollect information and accumulate know-how relating to ESG. 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 indialog with investee companies; for example, members of bothteams may be asked to attend meetings, when necessary.

ActivityIn the most recent fiscal year, the Proxy Voting Team undertook engagement with 178 companies.
The distribution of engagement activity when broken down by category is shown below.
Environmental, social and governance(ESG)

Your company’s advisors have long advised us from their perspective as one of the shareholders in our company.
（Wholesaler）
In addition to consistently providing us with honest feedback on our reputation in the capital market, we have benefitted
from their suggestions on improving our corporate value on various fronts, including our ESG initiatives, enhancement of
information disclosure, and cash allocation. They recently gave us highly instructive feedback on an integrated report that
we had published, with an emphasis on our human capital initiatives and disclosures. These are areas on which we will be
placing a particular focus going forward. Daiwa AM’s advisors have been extremely accommodating in providing proposals
for management tiers based on specific case studies. We will use these proposals as reference when considering our own
strategies, and are moreover extremely eager to do justice to the expectations invested in us.

51

Daiwa Asset Management Co. Ltd.

ROE and capital cost

10.8%

164casesCompanyE

Stewardship TeamEngagement Activities

CASE 05 >aew

Approach to dialog with investors,

16.0

%

42.3%

Capital policy

and disclosure

120cases

42cases(Cash utilization, shareholder returns, etc.)

30.9%62cases

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

Sustainability Report 2022

52

Company F（Food industry）

Topic

Crossshareholdings

Engagement Activities

CASE 06 >Overseas stocks engagement

CASE STUDY

Dialog content
Although the company has historically had cross-shareholdings amounting to slightly over 10%
of shares, its positioning in terms of business strategies is unclear, and it has not sufficiently
accounted for the reasoning behind these holdings. Daiwa AM has recommended that thecompany increase its holdings if enhancing its strategic partnerships, or at least that it become
an equity-method affiliate; and if not, that they take steps to reduce cross-shareholdings.

VietnamCompany K

Company’s response
Subsequently, the company announced a partial sale of the shares in question,
reducing its cross-shareholdings to less than 5% of total shares.

CASE 07 >Topic

Company G（Iron and steel industry）

and one of them had held the position for over 12 years, the company was informedof investor concerns about the material independence of the outside directors, andwe requested they appoint an outside director with a high degree of independence.
Company’s response
The outside director who had held the position for over 12 years tendered his
resignation at a subsequent shareholders meeting, with a highly-independent
candidate from a company outside the business conglomerate to which the previous
outside director had been affiliated, then appointed to the position.

CASE 08 >Company H（Food industry）

Topic

Director’s
remuneration

Dialog content
While director’s remuneration consisted of a fixed salary only, we recommended
that it would be advisable to introduce incentive compensation from the perspectiveof incentivizing directors to undertake appropriate risks to increase corporate value.
Company’s response
Performance-linked short-term incentive compensation was introduced at a subsequent shareholders meeting.

CASE 09 >Diversity

Company I（Electrical machinery）

Dialog content
While the company is prioritizing initiatives for the participation and advancementof women in the workplace, they have largely failed to disclose information on these
activities, which accordingly have not increased their reputation. As external appraisals of ESG are an important factor influencing corporate value, Daiwa AM requested
that they take proactive steps to disclose this information.
Company’s response
Traditionally, the company had a culture inconducive to the proactive disclosure of
information. However, with the changing times, they have come to understand theimportance of informational briefings and disclosure to stakeholders, and intend to
strive to expand their disclosure going forward.

53

Henry Nguyen Thanh Long
Daiwa Asset Management (Singapore) Ltd.
Senior Fund Manager

Dialog content

Outside directors As the two outside directors were originally from the same business conglomerate,

Topic

Company K is a major housing developer in
Vietnam, which is involved in various projects, including those to create single-family residences and condominiums. They have previously
produced one ESG report for the purpose of fundraising from the International Finance Corporation(IFC). We believed the company did not have sufficient disclosure of information relating to ESG.
Therefore, during the engagement, we encouraged
them to publish ESG reports on a regular basis,
with a view to improving perceptions of the company among investors and for long-term fundraising. Their management team has indicated to us
that they are considering incorporating ESG into
their future strategies towards the goal of regularpublication of ESG reports.

Daiwa Asset Management Co. Ltd.

Initiative details
Align with the ESG Investment Policy established in 2022,
Daiwa AM’s Singapore office actively pursues engagement
activities to enhance the corporate value of investee companies in the medium- and long-term. While the Asian region,over which our Singapore office has coverage, includes
countries such as Vietnam, where ESG has not been popular, corporate management teams in the region have pronounced interest in ESG issues and are actively discussingthem.
For E (Environment), we recognize the particular importance of this perspective for companies in the oil and gas
industry, and usually ask them about the status of green
projects. In addition, we usually emphasize on green financing in our dialogs with companies in the financial sector.
For S (Society), we focus on supply chain management
initiatives, such as efforts to eliminate forced labor.
For G (Governance), we focus on information disclosure,
how management teams treat minority shareholders, andcapital policy. We also encourage companies to publish ESG
reports on a regular basis, as there are many situations
whereby it can be difficult to obtain reliable information on
ESG in Asian contexts.

Singapore

Company L
Company L is a commercial bank in
Singapore. Daiwa AM is engaged on E (Environment), with a focus on green finance initiatives.
Their responses indicated that there was ademand for green financing aimed at renewableenergy projects, green buildings, agricultural technologies, and waste management technologies.
For G (Governance), we asked about their highequity ratio, which was a point of concern forinvestors as a factor lowering ROE. The CEO
explained that, while the current level was highdue to the accumulation of excess capital during
the COVID-19 pandemic, it was anticipated tostabilize at a future point, as the company’s policy
was to invest excess capital towards the development of new platforms.

Steps in constructive engagement implemented by analysts
Pre-engagement

During engagement

1

2

3

4

5

Conduct ESG
research based oncompany reports
and other
information madepublicly available

Single out andengage with highpriority
perspectives andfocus points in ESG
for the company inquestion

Confirm details of
ESG-related
activities at thecompany

Present issues
relating to ESG andoffer feedback

Encourage thecompany to further
promote ESG
activities

Sustainability Report 2022

54

Daiwa AM consider engagement an important means ofcontributing to improvements in asset management performance through the enhancement of the medium- and longterm corporate value of investee companies. As such wehave reviewed our engagement structures to ensure that
our engagement activities are more rigorous than everbefore. Specifically, we have: 1 expanded the membership of
our Engagement Team; 2 reviewed time allocations for corporate research analysts (increase engagement activities).
In addition, we have reviewed the scope of companies
with whom we conduct engagement, as well as our milestone management methods to implement engagement
in a more strategic manner, and adjusted these towards
our aim of realizing more highly effective engagement.

Fumiaki Saguchi
Responsible Investment General Manager

Engagement focused on the value of intangible assets
Corporate value encompasses a company’s financial value,
which will be reflected in its financial statements, and its nonfinancial value, which will not be reflected in these statements.
In recent times, the share accounted for by a company’s nonfinancial 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 of Japanese companies than isthe case for companies in other countries. This tendency may
be attributable to insufficient disclosures and a shortfall in

initiatives relating to intangible 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 to raise
the corporate value of companies. For the implementation ofthis engagement, we will utilize a Japanese version of the
Drucker Score, which we will jointly develop with the Drucker
Institute, and use this to quantify the efficacy of corporate
management, including of intangible assets, with a view toenhancing the effectiveness of our engagement.

Strategic engagement
In-house ESG score

Daiwa AssetManagement

Investeecompany

Corporate value

Feedback

Corporate value

Drucker Score

Intangible assets Actualization Intangible assets
Tangible assets

Intangible assets
Tangible assets

Tangible assets

Increase

Intangible assets
Tangible assets

Engagement plan and key issues for 2023
In our new engagement framework, we will aim to conduct
highly effective engagement activities by simultaneously raising the capacities of each person responsible for engagement
and by strengthening the cooperation among our teams.
We will continue to actively engage in dialogs with companies which have clear management issues, while also
undertaking to actively engage with companies which we

55

Daiwa Asset Management Co. Ltd.

have determined as having significant issues relating to
ESG Materiality, with the aim of resolving these ESG issues.
In addition, we will establish engagement frameworks which
focus on intangible asset value, as described above. We will basethis on exploring ways to identify and select the companies which
will be subject to this engagement, identify issues, and share ourfindings with those companies with whom we are in active dialog.

Measures relating to the TCFD

Enhance engagement framework

Measures relating to the TCFD

Engagement plan for the next fiscal year

Measures Relating to the TCFD
In this section, we introduce measures that address climatechange related issues through stewardship activities undertaken
in line with the disclosure framework recommended by the Task
Force on Climate-related Financial Disclosures (TCFD).

TCFD Disclosure Items
Governance

Disclosing aspects of governance concerned with climate change related risks
and opportunities

Daiwa AM discloses our ESG Investment Policy, which has been
deliberated on and approved by our Stewardship Committee,
as well as the ESG issues to which our company attaches particular importance, and climate change is positioned as one key
aspect. Regarding the ESG risk, including greenhouse gas emissions, of our investment portfolio, the Responsible Investment
Department performs monitoring, and makes effective use ofthis information in investment decision-making and engagement by sharing it with the company’s fund managers andanalysts. The Department also reports to the Stewardship
Committee on a regular basis, and discusses current monitoring status and the formulation and implementation of ourStrategy

Engagement Policy in regard to ESG issues. The Chair of the
Stewardship Committee reports on matters relating to ESG risk
and the content of the Stewardship Committee’s discussions tothe company’s Board of Directors.

Framework

Stewardship Committee

Board ofDirectors

Acting entity

Regarding the actual and potential impact of climate change related risks andopportunities on the organization’s business, strategy and financial planning,
this is disclosed in cases where it constitutes materiality

The impact of climate change on companies can be seen as
including both risks that could negatively impact corporate
value, such as flooding, or controls on greenhouse gas emissions, and opportunities that could enhance corporate value,such as being a company that possesses technology which canbe used to reduce greenhouse gas emissions or respond toclimate change. Daiwa AM strives to monitor the risks andopportunities for investee companies by making effective useof data from external sources. The content obtained by analyzing these data is reflected when evaluating companies, and iseffectively utilized in the selection of investee companies and in
portfolio risk management. We also aim to enhance the corporate value of companies and reduce their risk by encouraging
them, through engagement, to implement decarbonization.

Common climate change related risks and opportunities
Transitional risks

Physical risks

Opportunities

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.

Reputationalrisk

Becoming less highly valued andmore negatively judged byconsumers

Increased demand for products, etc.
Products
and services with a smaller environmental footprint
Resilience

Energy diversification aimed atachieving greater resilience

Reflection in corporate value
Sustainability Report 2022

56

Disclosing how organizations identify, evaluate and manage risk relating toclimate change

Daiwa AM uses disclosed information, data from externalvendors, and the research and engagement conducted by
Daiwa AM itself, to monitor the climate change related risks
and opportunities for companies. Daiwa AM has also put inplace a framework for utilizing external vendors’ data as a basis

Indicatorsand targets

for measuring greenhouse gas emissions, and conducting
climate change risk scenario analysis, for individual funds andindividual asset classes, thereby enabling risk to be monitored
and managed on a regular basis. More details of the specificanalysis methods used can be found in the following sections.

Where information is deemed to be of key importance (i.e., materiality), theclimate change related risks and opportunities are evaluated, and measurement
criteria (indicators) and targets are disclosed for the use of management

Daiwa AM uses the total greenhouse gas emissions,carbon footprint, and carbon intensity of its portfolios asgreenhouse gas emissions related indicators for individual funds and asset classes, and performs monitoring
and analysis of them. Based on this data and its own

original research, Daiwa AM undertakes engagement
activities with companies to encourage them to decarbonize, and aims to achieve net zero carbon dioxide
emissions by 2050.

Analysis of the Main Indicators Relating to Total
Greenhouse Gas Emissions, etc.
Daiwa AM compared the total carbon emissions, carbon
footprint, and weighted average carbon intensity foreach of the asset classes that we invest in against
respective benchmarks per class. The carbon footprint isa measure of the emissions (per million US dollars
invested) by portfolio size; while carbon intensity is anindicator for the carbon emissions by sales volume ofinvestee companies (per million US dollars equivalent ofturnover). Analysis and monitoring are conducted foreach of these to identify climate change risks.
Carbon footprint and weighted average carbon intensity
for Japanese corporate bonds were found to exceed thebenchmark values. This was, however, attributable to theUpstream

inclusion in the portfolio of corporate bonds of electric
power companies, at a weight higher than the benchmark.
In addition, as recommended by the TCFD, these werecategorized as upstream or downstream, as illustrated in
the below table for Scope 3, with the relevant emissions
for each calculated and listed here for the first time. Daiwa
AM intends to actively promote the decarbonization of its
entire supply chain, by establishing a detailed understanding of total carbon emissions of our investee companies in
Scope 1, Scope 2, and Scope 3, and with a particularemphasis on Scope 3. We will subsequently deploy thisdata in engagement activities with these companies,
including our investee electric power companies.

The company

Downstream

Portfolios’ total carbon dioxide emissions(tons of CO2 equivalent)(tons of CO2 equivalent)

Scope1, 2
Daiwa AM

BenchmarkDisparity

Domestic stocks

5,494,325

6,367,039–14%

Overseas stocks

355,353

360,370–1%

Domestic
corporate bonds

441,007

182,496

142%

Overseas corporate
bonds

70,686

186,784–62%

6,361,371

Total

Total greenhouse gas emissions（Total of Scope1, 2, and 3）

7,096,689

60,000,000

Daiwa AM

40,000,000

20,000,000

0

–10%

Domestic
stocks2,342,118 2,506,342

1,341,227 1,077,196

623,949 1,214,293

OverseasstocksDomestic
corporatebonds

Overseas
corporatebonds(tons of CO2 equivalent)(tons of CO2 equivalent)

Scope3 Upstream

Domestic stocks

Scope3 Downstream

Daiwa AM

Benchmark16,535,670

17,761,710

499,761

Overseas stocks

537,468

Disparity

Daiwa AM

BenchmarkDisparity–7%

Domestic stocks

28,869,507

33,262,327

–13%

–7%

Overseas stocks

1,487,004

1,608,504–8%

479,146

560,670–15%

421,495

732,747–42%

31,257,152

36,164,248–14%

Daiwa AM

BenchmarkDomestic
corporate bonds

421,074

334,030

26%

Domestic
corporate bonds

Overseas corporate
bonds

131,768

294,762–55%

Overseas corporate
bonds

17,588,273

18,927,970

–7%

Total

Total

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 ©2023 MSCI ESG Research LLC. Reproduced by permission.

Carbon footprint of portfolio (Scope1, Scope 2)(tons of CO2 equivalent / million USD invested)

186.8

200
150
100

62.1

72.0

57.5

77.3

58.3

62.0

50

23.5

0

Domestic stocks

Overseas stocks

Domestic corporate bonds

Overseas corporate bonds

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

(tons of CO2 equivalent / million USD turnover)

Scope 3

Scope1

Scope3

Scope2

Benchmark57,391,075
50,899,503

Measures relating to the TCFD

Risk
management

400

Benchmark

352.6

300
1

Materials
and raw
materials

74CommutingTransport/delivery* Other: ② Capital goods, ③ Fuel and energy
related activities not included in Scope 1 or Scope2, ⑤ Waste ⑥ Business trips, ⑧ Leased assets

11 Product use

Fuelcombustion

Electricity use

Daiwa Asset Management Co. Ltd.

12 Product waste* Other: ⑨ Transport/delivery, ⑩ Productprocessing, ⑬ Leased assets, ⑭ Franchises,⑮ Investments

Scope 1: Direct greenhouse gas emissions by the businesses themselves (fuel combustion, industrial processes)
Scope 2: Indirect emission from the use of electricity, heat, and steam, supplied by other companies
Scope 3: Indirect emissions other than Scope 1 or Scope 2 (emissions by other companies associated with activities by businesses)

57

188.3

200
100

100.6

182.4

172.7

137.0

108.3

117.5

0

Domestic stocks

Overseas stocks

Domestic corporate bonds

Overseas 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 ©2023 MSCI ESG Research LLC. Reproduced by permission.

Sustainability Report 2022

58

Warming potential analysis shows the degree to which
average global temperatures will rise by the year 2100,
through the corporate business activities that the companies in the current stock portfolio are expected to
conduct over this period. In this way, it is possible toverify whether the current investment portfolio is in linewith 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 pre-industrial levels during
the period up until 2100.” As a result of comparing ahypothetical portfolio of all Daiwa AM’s shareholdings
with the benchmark, we were able to confirm that wewould improve on the benchmark by around -0.2℃.

Warming potential
Rise intemperature

Formulae
Daiwa AM

Shares benchmark

2.6 C

2.8 C

°

°

Disparity–0.2℃

Source: Some information is derived from ©2023 MSCI ESG Research LLC. Reproduced by permission.

The figure on the right shows the percentage of companies which have obtained SBT certification from among
the portfolio component issues. The SBT certification
process is administered by the Science Based Target
Initiative, whereby companies set targets for reductions
in greenhouse gas emissions consistent with scientificfindings to mitigate increases in global average temperatures to less than 1.5 degrees Celsius. As a result ofcomparing Daiwa AM’s stock portfolio with the benchmark, we were able to confirm that around 3.1%pt morecompanies have obtained certification than the benchmark value.

Percentage of companies which have obtained
SBT certification
Disparity

3.1%ptTotal Carbon Emissions

Carbon Footprint

Total greenhouse gas emissions associated with the portfolio
Unit is tCO2e（CO2 equivalent）
Greenhouse gas emissions of investee companies are Scope
1,Scope 2, and Scope 3

Total carbon emissions divided by the market value of theportfolio
Unit is tCO2e/million USD (investment)
Greenhouse gas emissions of investee companies in total
carbon emissions are Scope 1 and Scope 2

Total carbon＝
emissions

Notes:
1. The Daiwa AM stock portfolio is a virtual portfolio that combines Daiwa AM’s
domestic stock and overseas stock portfolios.
2. The MSCI ACWI Index was used as the benchmark.

Greenhouse gas reductions targets(SBT certification)

Measures relating to the TCFD

Warming potential analysisi(Market value of investment i×Σ
GHG emissions i
Investee company’s EVIC i*n)

Investee company’s

Carbon footprint ＝Total carbon emissions
Market value of portfolio

Carbon Intensity

Weighted Average Carbon Intensity

Total carbon emissions divided by sales of investee companies
allocated to portfolio
Unit is tCO2e/million USD (sales)
Greenhouse gas emissions of investee companies in total
carbon emissions are Scope 1 and Scope 2

Weighted average of per unit sales for each company with theweight of each company in the portfolio
Unit is tCO2e/million USD (sales)
Greenhouse gas emissions of investee companies are Scope 1
and Scope 2

Carbonintensity＝i(

Total carbon emissions
Market value of investment iΣInvestee company’s EVIC i*n×)Investeecompany’s sales i

Weighted average＝carbon intensityi(Market value of investment i

Investee company’s
GHG emissions i×Σ
Investee company’sMarket value of portfolionsales i)

* Enterprise Value Including Cash:
EVIC = Market capitalization of equity (ordinary stock, preferred stock, and other stock classes)＋Interest-bearing debts (book value)＋Non-controlling interests(book value)

39.2% 36.1%
Announcement of the Net Zero Asset Managers
Initiative Targets

Daiwa AM

Shares benchmark

Notes:
1. The Daiwa AM stock portfolio is a virtual portfolio that combines Daiwa AM’s
domestic stock and overseas stock portfolios.
2. The MSCI ACWI Index was used as the benchmark.
Source: Some information is derived from ©2023 MSCI ESG Research LLC. Reproduced by permission.

The Net Zero Asset Managers initiative (hereafter“NZAMI”) is a global initiative by asset management companies to achieve net zero greenhouse gas (GHG) emissions at investee companies by 2050, and was launched
in December 2020.
Daiwa AM joined NZAMI in December 2021, and wehave recently announced our intermediate targets under
the initiative.
Our intermediate target under the initiative for theyear 2030 will focus on 67% of Daiwa AM’s 23 trillion yen(as of October 31, 2022) of managed assets, with the aimof reducing greenhouse gas emissions per unit by 50%
compared to 2019 levels. The assets which will be targeted under the initiative will be credit assets, and will
not include assets such as sovereign bonds, for which it
is not possible to calculate greenhouse gas emissions
based on portfolio holdings as of this time.

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 lower thanthe benchmark and that the portfolio’s climate changerisks were low.

(tons of CO2 equivalent / million USD invested)

Daiwa AM

BenchmarkDisparity

Domestic stocks

121,046

141,552–15%

Overseas stocks

10,035

11,564–13%

Domestic
corporate bonds

824

5,136

–84%

Overseas corporate
bonds

2,829

4,340

–35%

Note: The benchmarks used were the same as those used in the previous section
for the portfolio’s total carbon dioxide emissions.
Source: Some information is derived from ©2023 MSCI ESG Research LLC. Reproduced by permission.

59

Daiwa Asset Management Co. Ltd.

Sustainability Report 2022

60

Proxy Voting

Proxy Voting

Proxy Voting
Our Vision for Proxy Voting
The corporate principle of the Daiwa AM emphasizes using the financial and capital markets to contribute towardsocial and economic development. We believe that the exercise of voting rights can play a very important role inachieving such goals. Accordingly, we have made public the details of Daiwa AM’s Proxy Voting Policy, so that as
many people as possible can be made familiar with the Policy. In particular, we feel that helping investee companies
to understand the reasons behind decisions as to whether or not to vote in favor of particular proposals can makea positive contribution toward constructive engagement with investee companies.

5.
Criteria relating tocross-shareholdings

WEB For more details, please visit the following webpage (in Japanese).
https://www.daiwa-am.co.jp/company/managed/guideline_03.pdf

About the Proxy Voting Policy
ﾠThe Proxy Voting Policy is updated on an ongoing basis to reflect the information and knowledge obtained through dialog

6.

Main Changes in the Proxy Voting Policy in 2022

Criteria relating to
executivecompensation/
allocation of newshares to third parties

with investee companies
ﾠSpecific criteria for determining whether to vote in favor or against proposals are formulated and made public
ﾠThe TOPIX 17 industry categories, which are more in line with the actual circumstances of investee companies, are used
for determination as to whether to vote in favor or against proposals based on relative comparisons within the industry

1.
Criteria relating tocorporate scandals,etc.

2.
Criteria relating to thenumber of outside
directors

3.
Criteria relating tocash-rich companies

4.
Criteria relating tofemale corporate
officers

61

Daiwa Asset Management Co. Ltd.

In cases where it has been deemed that a serious event that undermined public trust in thecompany has occurred, such as an illegal or anti-social act, or a corporate scandal, Daiwa AM
previously opposed the reappointment of all candidates for Director or Audit & Supervisory
Board Member. However, from the viewpoint of continuity of management operations andthe effectiveness of measures to prevent recurrence, the criteria on corporate scandals
have now been changed such that Daiwa AM will only oppose the reappointment of
those candidates who have been deemed responsible for the event in question.
Criteria under Japan’s Company Act have been amended to require companies listed on
the Prime Market of the Tokyo Stock Exchange to have at least two outside directors,
with outside directors comprising at least one third of the membership of a company’sboard of directors (at least two outside directors and more than half of the membershipof the board of directors for companies with a parent company or majority shareholder).
Daiwa AM previously used the ratio of short-term liquidity to total assets or turnoveras an indicator of the inadequate utilization of shareholder equity despite a company
possessing extensive shareholder equity or cash assets. However, we have now
decided to use the ratio of net cash to total assets as an indicator after deeming that
it would be more desirable to gauge the presence or absence of surplus cash using
net cash with interest-bearing debts deducted. At the same time, we have raised theminimum DOE threshold to take into account values of current market averages.

Having excessively high levels of cross-shareholdings has the potential to lead to
reductions in capital efficiency as well as reductions in management discipline. For
this reason, in March 2021, Daiwa AM instituted criteria regarding cross-shareholdings. Our policy previously allowed for a given level of cross-shareholdings used inconjunction with ROE, and provided that management was being conducted toensure high capital efficiency. However, it has since been decided not to allow use inconjunction with ROE, as we concluded that companies with high capital efficiency
should be aiming to further improve ROE by reducing cross-shareholdings. At thesame time, we decided to disclose the reference values for excessive ownership at
Daiwa AM from the viewpoint of clarifying the criteria used to reach decisions.
In the past, the threshold for determining if a sweeping dilution of share value dueto the introduction or revision of a stock compensation scheme was more than 10%of the total number of shares issued or outstanding. However, this criterion has
been lowered to at least 5%, as it could be deemed that, at 10%, the financial loss
due to a dilution of existing shareholders could exceed any incentive effect for company executives and others. Based on this approach, the criteria for determining
dilution in disposal of treasury shares as a result of allocation of new shares to third
parties with respect to a foundation have also been lowered to at least 5%.

Issues for Ongoing Consideration

Effectiveness ofoutside directors

Daiwa AM has deemed that determinations on the independence required of outside
directors should be made subject to more stringent criteria. While we do not currently
require that outside directors satisfy the status of independent directors when determining the numbers of outside directors, we will actively consider incorporating determinations on the number of independent outside directors going forward.

Cross-shareholdings

At present, the reference value for excessive ownership of cross-shareholdings is
20% or more of net assets. However, we will actively consider lowering these numerical criteria going forward. Daiwa AM also recognizes that the practices of requestingthat business partners own shares in a company or of refusing approaches to sellshares in a company are problematic. We will seek improvement at companies
engaged in these practices through engagement, and deliberate on the incorporation of this into our criteria for proxy voting going forward.
WEB Please visit our company website for more details of these and other issues for consideration (in Japanese).
https://www.daiwa-am.co.jp/company/managed/revguideline.pdf

As a company’s decision-making organ, the board of directors makes judgments thatenhance its corporate value. As such, Daiwa AM considers it desirable that a board of directors be comprised of members with a diverse range of skills and attributes. In particular,
the appointment of women, who make up around half of the general population, can be
regarded as an indicator of diversity. With this in mind, in March 2021, we first establishedcriteria regarding the requirement that at least one female corporate officer (i.e. director or
auditor) be appointed at companies included in the TOPIX 100 index. Since then, a majorityof the companies included in the TOPIX 100 have appointed female corporate officers. In
addition, for those companies which have yet to do so, we confirmed that proactive inhouse efforts for the training and development of female corporate officers throughengagement and other means were underway. Therefore, the scope of these criteria
has been extended to encompass companies included in the TOPIX 500 index.

Sustainability Report 2022

62

Proxy Voting

Proxy Voting Process

Case study in which specified deliberations were prescribed under the Proxy Voting Policy
Proposed by Proposal type

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 with investee companies through the proxy voting policy and outcomes, thereby
contributing to enhancements to the corporate value of investee companies.

Shareholder

Constructive engagementwith investee companies

Proxy Voting Policy

Shareholder

Proposal
relating to
Articles ofIncorporation

Proposal
relating to
Articles ofIncorporation

Careful scrutiny of the proposal
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

3 Proposal where it is determined thatspecified deliberation is required in thiscaseSpecified deliberation

Exercise of voting rights

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)

Case Studies of Proposals Subject to Specified Deliberations
Case study of votes in favor of or against proposals at variance with the Proxy Voting Policy

The
CompanyThe
company

63

Appointment
or dismissal of
Directors

Appointment
or dismissal of
Directors

Daiwa Asset Management Co. Ltd.

Decision

Reasons

AgainstThis proposal would not be opposed on the basis of Daiwa AM’s policy on the exercise of voting
rights. However, the stock price of Investee Company A has remained stagnant for a long time
period, and the fund manager petitioned for specified deliberations on the election of a CEO
and COO, with the Stewardship Committee deliberating on the matter.
As maximizing corporate value and managerial responsibility were the issues underdeliberation, Daiwa AM voted against reappointment of both the CEO and the COO, having
deemed that management was responsible for failing to implement the robust measuresrequired to enhance corporate value and of precipitating the long-term slump in stock prices,
despite repeated engagement with the management team over the course of five years.

In favor

Reasons

AgainstInvestee Company C received a shareholder proposal requesting that they include information relating to Group governance and the effectiveness of Group governance for listed
subsidiaries in its corporate governance report.
Daiwa AM stipulates that “decisions take into consideration the status of corporate initiatives and impacts on the execution of duties in proposals calling for expanded scope of
disclosures and enhancement of initiatives relating to ESG,” with the Stewardship Committee
deliberating on the proposal.
As a result, we decided against the shareholder proposal due to there being no evidential
basis for its reasoning (namely that there was a high risk of conflict-of-interest transactions withlisted subsidiaries). In addition, the decision to vote against the proposal was based on Company C having included details of policies relating to Group management and listed subsidiaries
as required by the Corporate Governance Code in its corporate governance report.

In favor

Investee Company D received a shareholder proposal requesting detailed disclosure in its
annual report as to how its policy on executive compensation promotes the achievement oftargets for the reduction of greenhouse gas emissions.
Daiwa AM stipulates that “decisions take into consideration the status of corporate initiatives and impacts on the execution of duties in proposals calling for expanded scope of
disclosures and enhancement of initiatives relating to ESG,” with the Stewardship Committee
deliberating on the proposal.
As a result, we voted in favor of the shareholder proposal as it was deemed that directly
linking the executive compensation to the achievement of greenhouse gas emissions reduction targets would be of benefit to Company D as an important mechanism to encourage
efforts by the management team to achieve decarbonization targets, and that it would contribute to an enhancement of the corporate value.

Case Studies of Engagement Relating to Proxy Voting(Stewardship Committee)

Determination as to whether to vote in favor of the proposal

Proposed by Proposal type

Decision

While Daiwa AM’s Proxy Voting Policy would be to oppose the reappointment of director
candidates who had held office for three or more consecutive terms at Company B, an
investee company which had returned losses over three consecutive quarters and had aprice-book value ratio (PBR) below 1, the fund manager proposed that the criteria in the
Policy did not apply to this case, with the Stewardship Committee deliberating on the matter.
As extraordinary losses were the reason for the deficits, and because operating profit
increased and highest income was anticipated in the next quarter, with net profit also
anticipated to return a surplus due to the elimination of transient factors and the prospect ofstructural reform, Daiwa AM deemed that the current management team’s efforts forbusiness reform and corporate value creation had been successful, and that the criteria in
the Policy did not apply, thus voting to approve the proposal to reappoint the directors.

Relationship between proxy voting and engagement
Daiwa AM will oppose the reappointment of representative directors at companies with serious issues
relating to ESG, where improvements have not been seen despite continuous engagement, or repeatedoffers of engagement have been refused. In addition, depending on the nature of engagement, decisions
which differ from the criteria for exercise of voting rights may be made, from the viewpoint of improving
medium- and long-term corporate value and sustainability of the investee company.

Engagement case study: Company E
Overview

Investee Company E did not have a single female director in the membership of its board of
directors, and failed to put this up for discussion at the shareholder meeting.

Daiwa AM’s policy

Results ofengagement

Daiwa AM’s Proxy Voting Policy is to oppose candidates for reappointment as
representative director or representative executive officer at a company that isincluded in the TOPIX 500 index if the company does not have at least one female
director in the membership of its board of directors; or at least one female auditor, incompanies with audit and supervisory boards. Daiwa AM undertook engagementwith the company in question on the status of initiatives to promote the participation
and advancement of women as well as their approaches to diversity.
As a result of engagement, it was confirmed that the company recognized thenecessity and importance of diversity on the board of directors, and that specificinitiatives to promote the appointment of female directors were being made.
Daiwa AM thus voted in favor of the proposal to appoint a representative
director.

Sustainability Report 2022

64

Proxy Voting

Proxy Voting Outcomes and Trends
In 2022, proxy voting rights were exercised for 2,431 Japanese companies. The following table shows the statuses ofvotes by proposal for the three years past.

Proposals relating tocompany proposals

In favor

Proposals relating toproposals by
shareholders

Total

Against2022

23,1982021

22,064

1,792

2020

22,222

2,479

1,757

In favor

2020 9In favor

2022

16,6502021

15,4152020

15,0991,337

Appointment and dismissal of
Accounting Auditors

AgainstIn favor

2022

1,543 143

1,234

2021

3,307

1,643

2020

Against2022

In favor

260

3,952

2021
553

92

2020

In favor

2022

888

2021

974

2020

Payment of retirement benefits for
retiring Executives

Against

65

70

739

105

29

2021

43

98
90

2020

117

In principle, Daiwa AM is opposedto the payment of retirement
benefits but in favor if payment of
final benefits is put forward for
discussion to coincide withpayments.

Against

2022

143

39

Proposals relating to capital policy
Appropriation of surplus
In favor

Introduction, revision or abolition of
takeover defense measures

AgainstIn favor

Against

2022

1,477

34

2022 1

63

2021

1,478

32

2021 3

54

2020

1,592

15

2020

1

Other proposals relating to capital policy*2

Organizational restructuring*
In favor

Against

45

2022

98

Against

76

2022
56

2021
2020

In favor

2

34

2020

58

Against

2022

2,419

4
3

Proposals relating to Articles of Incorporation
In favor

14

Daiwa AM opposes the introduction
or continuation of pre-introduction
takeover defense measures. For
contingency-introduction takeover
defense measures, we scrutinize
the nature of these measures andbase decisions in favor or against
these after considering details suchas the particular scheme, as well asplans to enhance corporate valueon the part of both the purchaser
and the investee company.

3
91

2021

161
234

Other
In favor*1 Includes proposals relating to mergers, business
transfers and acquisitions, share swaps, sharetransfers, corporate splits, etc.
*2 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.

Against

2022

2021

598 11

2021

2020

527 102020

Recently, shareholder proposals have been on the increase, with various such proposals also having been put forward
for discussion this year.
Daiwa AM has based decisions on votes in favor of or against shareholder proposals on the following approach,principled on the application of our Proxy Voting Policy.

Approach to major shareholder proposals

68

Proposals relating to Executive compensation
Executive compensation

275

Votes in favor or against proposals by shareholders

Appointment and dismissal of
Corporate Auditors

Against

Total

Against2022 282021 17

Proposals relating to company organization
Appointment and dismissal of
Directors

In favor

2
78

Appropriation of surplus: Decisions made from the perspective of improvements to corporate and shareholder
value over the medium- and 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 of Incorporation): Consideration of theappropriateness of cross-shareholdings; measures to reduce cross-held shares; period of sale sought byshareholder proposal; appropriateness of share quantity to be sold, and other factors based on the status ofcompany’s use of shareholder equity
Disclosure of capital costs (proposals to amend the Articles of Incorporation): Consideration of the company’s
disclosure statuses (including engagement) for their medium-term management plan, capital policy and growthstrategy, with the capital costs of the company in mind
Proposals seeking responses to climate change (proposals to amend the Articles of Incorporation):
Consideration of climate change initiatives and disclosure statuses of the company

Approach to proposals to amend the Articles of Incorporation

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

Aggregate Data (2022)
Proposal on appointment and dismissal of directors
Breakdown of reasons for decisions against proposals

Decisions against

1,337

Conflict with criteria on502
independence of directors
Conflict with performance criteria 464
Insufficient number or board
composition of outside directors 226
70
Corporate scandal, etc.
Inadequate utilization of17
shareholder equity
Insufficient measures to reduce13cross-shareholding
Issue with attendance status or13
unknown attendance rate
Insufficient information disclosure 10
Conflict with criteria on female
6
corporate officers
Introduction or continuation of4
takeover defense measures
12
Other

The most common reason for decisions
against is conflicts with Daiwa AM’s criteriaon the independence of directors.
Regarding outside directors and outside
corporate auditors, we base decisions to votefor or against proposals for the appointmentof a candidate primarily on the fulfillment of
the requirements for status as independent
directors, but also consider factors such as
their tenure and attendance rates.
Further, in addition to performance
criteria and effective use of shareholder
equity, we consider the make-up of the boardof directors, taking into account the number
and board composition in terms of outside
directors and female directors, in decisions as
to whether to vote for or against proposals to
appoint representative directors.

For the results of proxy voting for investee companies, Daiwa AM discloses its decisions relating to individual investee
companies and proposals the month after the general shareholders meetings are held (in Japanese).
https://www.daiwa-am.co.jp/company/managed/voting.html

65

Daiwa Asset Management Co. Ltd.

Sustainability Report 2022

66

Main Initiatives Implemented in 2022
Engagement for passive fundInternal ESG study meeting

Alterations made to the proxyvoting platform
Joined the Japan Stewardship
Initiative (JSI)Internal ESG study meeting

Signed a comprehensive business tie-up
agreement with the Drucker InstituteHeld the 2nd ESG Meeting
Revised the General Policy on Stewardship Activities (Domestic Stocks)
Internal ESG study meeting

January

March

May

February
Published the Stewardship
Report 2021
Senior Managing Director
Yuka Shimada introduced
Daiwa AM’s ESG investment
measures in an article in
Weekly Toyo Keizai magazine

Revised the ESG Materiality

Participated in the TNFD
Forum
Signed an agreement for joint
research on intellectual
property and intangible assets
with Professor Kazunari
Sugimitsu (Kanazawa Instituteof Technology (KIT)
Toranomon Graduate School)
and Professor Hirofumi
Tatsumoto (University ofTsukuba Graduate School)

Took part in the NIKKEI Integrated Report Award
Completed Version 2 of Daiwa AM’s in-house ESG
score system
Revised the Proxy Voting Policy
An interview with Daiwa AM President Komatsu,
on the topic of the importance of disclosure in
relation to ESG funds, was published in theNovember 2022 issue of Nikkei ESG
Chief Analyst Yuji Watanabe contributed anarticle to the Securities Analysts Journal(Outlined how to effectively utilize integrated
reports from buy side analysts)

July

September

November

April

June

AugustOctober

DecemberPublished the Englishlanguage version of the
Stewardship Report 2021

Revised the Proxy Voting Policy
Senior Managing Director Yuka
Shimada attended an ETF
Conference (organized by S&P
Dow Jones Indices) and gave atalk on ESG evaluation issues andutilization
Formulated ESG FundClassification Standards

Signed up to the Investor Agenda(COP27 Policy Recommendations)
Participated in a TNFD forum
Internal ESG study meeting
Took part in a Bloomberg
Investment Contest
Senior Fund Manager Iori Nakayama
attended the Human Resources
Governance Leaders Conference
and gave a talk on engagement inrelation to intellectual property

Renamed the Stewardship & ESG
Department as the Responsible
Investment Department
Restructured the Engagement
Team

Internal ESG study meeting
Participated in Advance(A stewardship initiative forhuman rights and social
issues)1

TOPICS

2nd ESG Meeting
Daiwa AM has been working to strengthen its ESG-related
dialog with investee companies. In recent years, there has
begun to be a more widespread awareness of the importance of not just environmental (E) and governance (G)issues, but also social (S) issues. Against a background of a
growing focus on intangible assets within the S field, in May
2022, Daiwa AM held an online ESG Meeting on the themeof “Human Capital Strategy,” with Senior Fund Manager
Nakayama acting as moderator. The theme of “Human
Capital Strategy” is one that investee companies have also
shown growing interest in over the past few years.
The meeting took the form of a discussion involving
representatives of seven companies, including companies
that presented case studies of cutting-edge initiatives
relating to “Human Capital Strategy” and companies whichhave recognized that this is an important management
issue and which are working enthusiastically to address it.
Another 20 companies that are considering strengthening
their initiatives in this area, which they anticipate will bevery important in the future, sat in on the discussion.
The companies that collaborated on this meeting
include many firms that are leaders in their respective
industries. We believe that these efforts will not only
enhance the quality of our ESG management, but also help
us, as an investment management company, to contributeto society by enhancing the value of Japanese companies.

The meeting participants included managers and company officers responsible for human resources affairs,
who introduced case studies of cutting-edge initiatives
that their company had implemented. The case studies
presented at the meeting focused on the integration ofhuman resources strategy with management strategy,
introduced the kinds of problems that were encountered,
what measures were adopted to address them, and whatissues the company in question is facing now. With companies that are currently facing problems asking otherparticipants for their views on how to address this kind ofissue, the meeting provided an opportunity for in-depth
discussion regarding corporate value.
After the meeting, Daiwa AM received very positive
feedback from the participating companies, and Daiwa
AM is considering continuing to hold similar events in the
future.

TOPICS

2

TOPICS

Further Enhancement of Stewardship Activities

Further Enhancement of Stewardship Activities

Further Enhancement of Stewardship Activities

3

Joint research on intellectual property
and corporate value

Business tie-up with the Drucker
Institute in the U.S.

Daiwa AM is undertaking joint research with Professor Kazunari
Sugimitsu of the Kanazawa Institute of Technology (KIT) Toranomon Graduate School of Innovation Management and Professor
Hirofumi Tatsumoto of the University of Tsukuba Graduate Schoolof Business Sciences on the impact that disclosure of information
relating to intellectual property, etc. has on corporate value.
From the perspective of improving long-term corporate value,
Daiwa AM has been engaging with companies while studying
non-financial information, with a particular focus on governance,
climate change response, and human capital strategies. The joint
research with Professor Sugimitsu and Professor Tatsumoto aims
to examine the growing impact of these ESG factors and IP strategies (including R&D) on corporate value, which is closely connected to a broad range of management foundations.
By integrating the two professors’ academic insights with
Daiwa AM’s concrete survey results and experience of undertaking dialog and engagement with companies, Daiwa AM isable to explore best practice for IP strategy that can lead toenhanced corporate value, offer recommendations, and fulfill
the role of a responsible investor. At the same time, byenhancing investee companies’ corporate value, Daiwa
AM will be able to provide
Beneficiaries with high-quality,
high-performance funds.

Daiwa AM has signed a comprehensive business tie-up
agreement with the Drucker Institute (located in California
in the US), which was founded by the American economist
Peter Drucker. The content of the agreement includes
granting Daiwa AM the exclusive right to use the Drucker
Score system, which was developed by the Drucker Instituteto evaluate American companies, within Japan, as well as
the collaborative development of a Japanese version of the
Drucker Score for use in relation to Japanese companies.
The Drucker Score is a score calculated by the Drucker
Institute at Claremont Graduate University. It evaluates how
closely a company matches the core principles derived from
Drucker’s five dimensions of corporate performance (customer satisfaction, employee engagement and development,
innovation, social responsibility, and financial strength).
The first phase of the collaboration involved the establishment of an actively-managed American equities fundusing the Drucker Score, which was due to be launched by
the end of March 2023.
Going forward, by dispatching personnel to the Drucker
Institute to learn about the Drucker Score, and by collaborating on the development of a Japanese version of the
Drucker Score and using this in engagement activities,
Daiwa AM is aiming to develop a new Japanese stock index
and new actively-managed Japanese equity funds.

The 2nd ESG Meeting in progress

67

Daiwa Asset Management Co. Ltd.

Sustainability Report 2022

68

Further Enhancement of Stewardship Activities

Self-assessment
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 theseven principles of the Code are outlined below.

1

Principle

Institutional investors should have a clear
policy on how they fulfill their stewardship
responsibilities, and publicly disclose it.
Following the revision of Japan’s Stewardship Code inMarch 2020, Daiwa AM revised its Policies regarding Japan’s
Stewardship Code in September of the same year. Daiwa AM
also formulated a General Policy on Stewardship Activities,
and made and announced revisions to its ESG Investment
Policy and its Engagement Policy. In addition, Daiwa AM
revises its Proxy Voting Policy on an annual basis, andannounces the details of these revisions so that as many
people as possible are aware of them.

3

Principle

692

Principle

Institutional investors should have aclear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities, and should
publicly disclose it.
Daiwa AM has established a Stewardship Supervisory
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 specificdetermination, in principle Daiwa AM will follow the recommendations of an external specialist organization.

4

Principle

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

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

Daiwa AM positions research on companies as a key
part of its business activities as an asset managementcompany, and is constantly undertaking the wide-ranging
collection of information through both internal and external networks, with the company’s corporate researchanalysts playing a central role, and striving to maintain an
accurate picture of the current state of companies.
Information and knowledge obtained through dialog withinvestee 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 developments that 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 andwhen implementing portfolio risk assessment.

Daiwa AM has formulated an Engagement Policy inrelation to engagement with investee companies, andthis Policy clearly stipulates the major perspectives that
Daiwa AM emphasizes in relation to engagement, including key ESG issues. In 2022, Daiwa AM formulated its
vision of best practice for the realization of sustained
corporate value enhancement by investee companies.
Daiwa AM’s corporate research analysts, fund managers
and Stewardship Team personnel all undertake engagement with companies from their own respective standpoints in accordance with the Engagement Policy, andthe knowhow obtained through these activities is sharedwithin the company.
In addition, Daiwa AM undertakes collaborative
engagement through participation in the Climate Action
100+ and PRI Advance initiatives.

Daiwa Asset Management Co. Ltd.

5

Principle

Institutional investors should have a clear policy on
voting and disclosure of voting activity. The policy on
voting should not be comprised only of a mechanicalchecklist; it should be designed to contribute to thesustainable growth of investee companies.
In November 2021, Daiwa AM revised its Proxy Voting Policy.
At the same time, Daiwa AM disclosed potential changes to the
Proxy Voting Policy that were currently under consideration, and its
expectations with respect to investee companies, in an effort tomake disclosure more useful for dialog. With regard to voting activity, Daiwa AM has sought to implement disclosure in the monthfollowing the month in which the annual shareholder’s meeting is held, has started to provide more detailed information regarding the grounds for voting decisions, andis striving to realize disclosure that is easy tounderstand. Starting from the annual shareholders’ meeting held in August 2022,
Daiwa AM has comprehensively
overhauled its disclosure
format, providing enhanced
convenience.

6

Principle

Institutional investors, in principle,
should report periodically on how
they fulfill their stewardship responsibilities, including their voting
responsibilities, to their clients andbeneficiaries.
In February 2022, Daiwa AM published its
Stewardship Report, which outlined the maincontent of Daiwa AM’s stewardship activities.

7

Principle

To contribute positively to the sustainable growth of investee companies, institutional
investors should develop skills and resources needed to appropriately engage with thecompanies and to make proper judgments in fulfilling 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.
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 engagementwith 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 May 2022, Daiwa AM held a second meeting for the exchange of views regarding
ESG, attended by representatives of seven investee companies. Besides the dialog between Daiwa AM and the investee companies, this meeting also provided an opportunity for the investee companies to share information among themselves.

Sustainability Report 2022

70

We aim to engage inco-creating sustainable value
in our investee companies,
contributing to securinghigh-quality medium- andlong-term returns.

Yuka Shimada
Senior Managing Director,
Head of Stewardship & ESG and Deputy Head of
Global Business, Fund Management Division

Integrating non-financial information into the asset management process
for a systematic, multi-layered approach
Prerequisites in our aim to contribute to our customers’ medium- and long-term asset formation
are the realization of a sustainable society and thesustained growth of the companies in which weinvest. We believe that in a rapidly changing environment, non-financial information is becoming
increasingly important for analysis and evaluationfrom a long-term perspective. We thus integrate
non-financial information, including ESG factors, inour company evaluations as an inseparable part ofour asset management process. Our asset management staff, including analysts, fund managers,
Stewardship Team, work in mutual cooperation
with a systematic, multi-layered approach.

Engaging with investee companies and utilizing external data andknowledge
Our investment philosophy is to have a better understanding of our investment targets, markets andhuman behavior so that we can engage in systematicefforts. When working to understand an investment
in, for example, a company, it is important to understand not only its performance as a result of its business activities and the distribution of that71

Daiwa Asset Management Co. Ltd.

performance. We also need to have a deep understanding of the management foundations responsible
for generating those results (financial, manufacturing,
intellectual, human, social and natural capital). An ESG
evaluation is nothing more than a process for better
understanding a company in light of societal changes
and demands.

Daiwa AM ESG evaluations are divided into risks
and opportunities, and are designed to provide a
detailed understanding of how efforts to address ESG
issues impact corporate value. In addition to mitigationof sustainability-related risks, we evaluate how thesocial value of an investee company is linked to its corporate economic value as it engages in business withhigh social value. In evaluating opportunities, we lookclosely at the hopes and potential for realizing social
value; the existence of a management foundation
capable of realizing social value; the scale and potentialof economic value; and the time frame in which that
economic value is factored into corporate value.
In this ESG evaluation process, we emphasize constructive dialog (engagement) with our investee companies. Through this engagement, we affirm thecompany’s value creation story and its effectiveness,
deepen mutual understanding, and work with theinvestee companies to achieve the creation of newvalue. This is not limited to a one-on-one format

between Daiwa AM and its investees. We believe thatproviding companies with opportunities to share withother companies the concerns they have in addressing ESG issues, and to gain insights into their own
sustained growth and improvements to governancefrom other companies’ case studies will also lead tothe co-creation of enhanced corporate value. This
becomes a valuable opportunity for us as well, tocollect information unavailable through one-on-one
dialog and to deepen understanding.
In working to understand an investment target,
there are naturally limits on the scope of analyses
that can be conducted in-house, so it is necessary toutilize outside data and knowledge. External data,like our own ESG scores, is a condensed version of
the approaches emphasized by each company. Still,
we believe that using such data with an understanding of the characteristics of and differences between
them can be a great complement to engagement
and corporate value assessment efforts.

Further Enhancement of Stewardship Activities

Message from Director Responsible for Stewardship and ESG

We emphasize the creation of systems to enhance knowledge and skills
To achieve results that go beyond individual capabilities, it is important to create systems that enhance theknowledge and skills needed in providing Beneficiaries
with high-quality medium- and long-term returns.
We have put together best practices for investee
company management, along with an Analyst
Handbook, the Business Strategy Case Studies, and
ESG Materiality Item Summary with the goal of contributing to the development, cultivation and sharing of knowledge in the ESG evaluation andengagement process.
Daiwa AM’s proprietary long-term theoretical stock
price calculation model encompasses the intrinsic
value of the stock and its reasonable stock price,which incorporate the ESG evaluation. As mentioned
earlier, ESG evaluations are separated into risks andopportunities, each of which is quantified under certain rules and adjusted in the model for factors suchas cost of capital and sales growth rate. This ESG evaluation is also reflected in our proprietary ESG score,
which also takes into account a quantitative approachfrom our Quantitative Research.
Information needed in making investment decisions, including ESG scores and engagement details,
is stored in our in-house information infrastructure, asystem that allows anyone involved in asset management to utilize the information. ESG issues for eachengagement are determined through discussions

between analysts, fund managers and the personnel
responsible for proxy voting, and the management ofengagement milestones is also shared. In addition to
engagement with important ESG issues that vary bycompany, we also strategically engage in ESG issues
that we feel are especially important.
Dialog with the overseas asset managementcompanies of our business partners is also valuable in improving expertise and strengthening oursystems. This not only allows us to gain an understand of situations overseas and their implications
for Japan, but it also provides insights into new perspectives and approaches in ESG evaluation andinvestment decisions.
The environment and social demands surrounding companies change over time, and those ESG
issues that are important for corporate sustainability
will also change. Our goal at Daiwa AM is to build astructure flexible enough to also respond to thechanging times. In ESG evaluations and integration,
our organization will continue tirelessly not only to
improve the expertise of our asset management staff,
but to refine our processes, make use of outside
resources, and consider other multi-faceted steps toimprove our operations and be flexible in execution.
Our goal is the co-creation of sustainable value in ourinvestee companies, so that we may contribute tosecuring high-quality medium- and long-term returns.
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72

Corporate Information

Corporate Information

Corporate Information

Pa r tCorporate Information

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

Established

December 1959

Capital15,174,270,000 yen

Principal
shareholder

Daiwa Securities Group Inc. (100%)

Daiwa AM’s Overseas Network
Daiwa Asset Management(America)Ltd.

Daiwa Asset Management(Europe)Ltd

Corporate Information
74

Company Overview

75

Organization Chart76

Corporate Governance Structure

77

Risk Management

London
New York
Silicon ValleyTokyo
Daiwa Asset Management Co. Ltd.
Singapore

Compliance
Daiwa Capital Management Silicon Valley Inc.

Data
78

Greenhouse Gas Emissions
Financial Data
Change in Assets under Management

Daiwa Asset Management(Singapore)Ltd.

Human Resources and Related

73

Daiwa Asset Management Co. Ltd.

Sustainability Report 2022

74

Corporate Governance Structure[Direct Supervision of the President]

Shareholder’sMeeting

Internal Audit Department[Corporate Planning]

Board of Directors

Audit &
Supervisory Board

Corporate Planning Department[Human Resources]

Human Resources Department

Representative
Directors

Audit & Supervisory
Board Member

Corporate Information

Organization Chart[Finance]

Finance & Corporate Accounting Department

At Daiwa AM, the Board of Directors is responsible forimportant decision-making on management and overseeing the execution of duties by respective directors. As
a company with an Audit & Supervisory Board, the performance of duties statuses of respective directors aremeanwhile audited independently of the Board of Directors by the Audit & Supervisory Board Members and the
Audit & Supervisory Board.
The Board of Directors is comprised of individuals
with high ethical and moral standards, in addition to

Shareholder’sMeeting[IT & Business Process Management]

IT & Business Process Management Department[Fund Operations]

Accounting
Auditors

Fund Operations Department

operational experience or specialist expertise. As of
December 31, 2022, the Board of Directors was madeup of 12 directors (including three Outside Directors,
and one female director). Outside Directors are individuals with a wealth of experience and insight from outside
the company, who audit the performance of duties bydirectors from an independent and impartial perspective, and provide advice on management based in theirexperience and insights.

Audit &
Supervisory Board[Legal & Compliance]

Board of Directors

Audit & Supervisory
Board Member

Legal & Compliance Department

Fiduciary Duty Advisory Committee[Risk Management]

Stewardship Supervisory Committee

Risk Management Department
Fund Management Division

Executive Committees

Investment Planning Department

President

Global Business Department

Internal Audit Department

Responsible Investment Department
Research Department

Executive Management
Committee

Beta Management & Investment Solution Department
Advisory Fund Management Department
Active Fund Management Department I
Active Fund Management Department II

Product Committee

System Investments
Planning Committee

Risk Management
Committee

Sustainability Committee

Marketing DivisionMarketing Planning Department
Wrap/ETF Business Department
Disclosure Department
Product Planning Department
Financial Institutions Department I
Financial Institutions Department II
Financial Institutions Department III

Committee name

Overview

Members

FD Advisory
Committee

Checks and balances on committees, etc.
involved in formation and management of funds

Chair: Outside Director
Members: Outside Directors, Risk Management

StewardshipSupervisory
Committee

Oversee conflict of interest management instewardship activities

Chair: Outside Director
Members: Outside Directors, Legal &Compliance

Financial Institutions Department IV
Financial Institutions Department V
Institutional Marketing Department
Pension Business Department

As of April 1, 2023

75

Daiwa Asset Management Co. Ltd.

Sustainability Report 2022

76

At Daiwa AM, we are striving to enhance our risk management systems by actively involving management in risk
management; developing risk management systems
aligned to the characteristics of the company’s particularrisks; identifying overarching risks based on integrated risk
management; and making efforts to clarify the risk management process, all based on the general policies on risk
management as determined by the Board of Directors.
The Risk Management Committee is established as a
sub-committee of the Executive Management Committee and is involved in the identification of major risks,namely risk events of extreme consequence in terms ofimpacts on management. It also determines specificmeasures for risk management and monitors the Key
Risk Indicators (KRI) for major risks, while reporting regularly on the status of various risks.
Daiwa AM defines investment risks (exposure risks
for trust properties of investment assets and contract
assets of discretionary investment contracts), operational risks (risks pertaining to the company’s opera-

Greenhouse Gas Emissions
tions), and financial risks (risks pertaining to thecompany’s financial activities) as risks to be managed,
and has established methods for the management ofeach of these risk categories.
In managing investment risks, the company has
defined and implements monitoring for the three subcategories of risk of market risks, credit risks, and liquidity risks.
Operational risk management meanwhile is divided
into the seven sub-categories of risk of administrative
risks; system risks; information security risks; compliancerisks; legal risks; human risks; and tangible assets risks.
We have designated the personnel with jurisdiction overthese respective risks and are conducting Risk Control
Self-Assessment (RCSA) as part of our preemptive activities, while formulating measures to prevent operationalrisks from recurring.
For financial risks, management is implemented basedon the establishment of holding limits on investment securities and credit limits on deposits, among other steps.

Compliance

FY2022 Compliance Initiatives
The four compliance initiatives in FY2022 are given on
the right. These initiatives are formulated and developed
as compliance programs after obtaining the approval of
the Board of Directors. Progress reports are given to theBoard of Directors on a quarterly basis and made available for viewing to all company officers and employees
via the in-house intranet. Our Legal & ComplianceDepartment are aspiring to becoming industry leaderswhile supporting each and every company officer andemployee in the execution of their work duties while
taking ownership of the risks involved in such.

77

Daiwa Asset Management Co. Ltd.

(tCO2)FY2020

FY2021

455.8

79.0

FY2021

FY2022

Scope1+2*1

Scope3*Category 6 Business trips*3
2Category 7 Employee commuting*3
Category 8 Upstream leased assets*

4*1 Aggregation periods are April 2020 to March 2021, and April 2021 to March
2022*2 Aggregation periods are January to December 2021, and January to December
2022*3 Business trips, employee commuting: Calculation based on amount oftransportation expenses paid out*4 Upstream leased assets: Calculation based on fuel amounts for leased vehicles
employed as company cars

74.7

224.8

103.0

125.2

8.9

6.3

Notes:
1. Calculated using data obtained from Tokyo headquarters and overseas
subsidiaries
2. Calculated in accordance with methods stipulated under the Act on the
Rationalization etc. of Energy Use and the Act on Promotion of Global WarmingCountermeasures (disclosure figures are rounded off).
3. Since April 2021, Daiwa Securities Group, Inc. have transitioned to renewableenergy sources for electricity used at the group’s headquarters building, whichhouses all Group companies, including Daiwa AM.

Financial Data

(Million yen)

FY2017FY2018FY2019FY2020

FY2021

Operating revenue

83,24476,725

70,13465,90674,948Operating profit

18,411

16,572

14,525

14,067

18,551

Ordinary profit

18,741

16,961

15,62914,616

19,089Current net profits

12,67011,87010,566

9,389

12,738Change in Assets under Management(Trillion yen)

25

Daiwa AM’s Compliance Framework
As an asset management company, Daiwa AM are
expected to fulfill our social responsibilities, including
those relating to stewardship, while managing the valuable assets of our customers and achieving the greatest
possible performance on investment purposes. Compliance challenges 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 and specialized compliance framework.
In this context, the Legal & Compliance Department
at Daiwa AM play the role of a “navigator” to support theundertakings of the company’s officers and employees
from legal perspectives, and as a “guardian” to support
the appropriate management and control of compliance

Data

Data

Risk Management

Datarisks. This is to ensure that an autonomous awareness ofcompliance is fostered among each and every officer
and employee, as well as to enable them to execute
working duties oriented by their “Visions” (the futures
they aim to create) and facilitated by their “Values”(guidelines for their actions).
Improving Daiwa AM’s
CompetitivenessFirst-line (sales) divisions

22.6

20

15.8
15

23.6

11.8

14.9

13.2

16.1

17.2

17.5

March 31,2018

March 31,
2019

16.4

10
5
0
March 31,2013

March 31,2014

March 31,2015

March 31,2016

March 31,2017

March 31,2020

March 31,2021

March 31,2022

Risk Ownership

Human Resources and Related
Second-line(administrative) divisions
Legal & Compliance Department

Navigator & Guardian

December 31, 2022

9.9％

14.1％

39.0％

Ratio of female employees
Ratio of female managers
Ratio of female members of the Board of Directors

Enhance compliance support for all departments, inparticular those on the front-line
Strengthen Legal & Compliance Division’s ability andcapacity to respond to enquiries and offer
consultation
Collate and simplify access to internal compliance
data
Distribute compliance data internally in a timely
mannerDecember 31, 2021

Ratio of female employees hired*1

Difference in average duration of service between men
and women*1
Employment rate of persons with disabilities
Average overtime per worker per month*1

Percentage of paid leave taken*

1

Percentage of childcare leave taken*1*1 Data is for FY2020 (April 2020 to March 2021) and FY2021 (April 2021 to March 2022)

9.1％

33.3％

40.4％
8.3％

57.1％

Men 15.6 years

Men 15.8 years

Women 14.5 years

Women 14.8 years

12.9 hours

10.5 hours

2.1％

78.7%

Male 100％

Female 100％

2.4％

82.7％

Male 100％

Female 100％

Sustainability Report 2022

78

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 in question, before making a decision as to whether or not toinvest based on their own judgement.

Key points to note: 1 Regarding the fees payable by customers (assuming a consumption tax rate of 10%)Fees payable by thecustomer directly

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 ofpurchase0 to 3.3%(tax
included)Compensation for product explanationor provision of product information atpurchase, provision of investment
information, and executing transaction

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

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

Deducted from the proceeds ofredeemed amount and transferred totrust assets to cover 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 threeparties of sales company, management company, and trustee company
from the trust assets as investment
and management expenses for units
in investment trust

The maximum fee payable will bearound 55 yen per day if 1 million
units at the 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 forcustody 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 whichfunds will be invested are charged separately. Some investment trusts may also charge fees based on the performance of investments or handling fees forredemption.
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 moredetails.

Key points to note: 2 Regarding investment trust risk
As the investment trust invests in marketable securities, the price of which fluctuates significantly, thenet 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 a savings 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.

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 (hereinafterreferred to as “Information”), but none of the ESG Parties give any guarantees regarding the originality, accuracy and/or completeness of any of the 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 internaluse; it may not be reproduced or disseminated 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 asolicitation to purchase or subscribe to any product. Potential investors should refer to and read the content of theprospectus of each fund product, available from the sales company, prior to their investment decision.
The content of this report is based upon sources believed to be reliable, but their accuracy, correctness or completeness are not guaranteed. The performance of investments, if referred to herein, 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 theindexes, 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 a recommendation 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.
All images presented in this report are for illustrative purposes only.

Management Company
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

Memberships

79

Daiwa Asset Management Co. Ltd.

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

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80