2019 / 2020

CONTENTS

2 Executive Message
3 Interview on Growth and Conﬂicts of Interest
9 Purposes of Stewardship Activities
11 Stewardship Activity Focus Topics for 2018/2019
13 Stewardship Activity Initiatives
13
17
23
27

Overview
Engagement
Exercise of Voting Rights
Addressing ESG Challenges

29 Challenges for SMTAM
29
32

TCFD Initiatives
ESG Integration Enhancement

This is a booklet issued by Sumitomo Mitsui Trust AssetManagement Co., Ltd. to report on its stewardship activities

35 Reference

and promote clearer communication and understanding.
Eﬀorts made throughout the Sumitomo Mitsui Trust Group
include striving to provide stakeholders with value andcollaborating on ESG activities with scope to boost thelong-term company value of the Group over time based ontransparency.
Sumitomo Mitsui Trust Holdingsʼ website(https://www.smth.jp/en/csr/) includes a full report andprovides additional reports on topical areas other than
Stewardship,such asEnvironmental Real Estate.

Natural CapitalandOur aim at all times is to be an asset management company
with closer relationships with our clients.
At Sumitomo Mitsui Trust Asset Management (the Company ), our top priority is to strive
consistently to boost the value of clients assets entrusted to us in the medium to long term andactively promote stewardship activities as part of this aim. This volume Stewardship Report
2019/2020 ‒ the third edition of the report ‒ systematically summarizes our stewardship activities.
Since the initial report, we have been working to enhance the content, while incorporating thevarious comments received from clients. Topics in this volume include activities from 2018 to 2019and how we responded to the recently noted TCFD; eﬀorts which were honored with the Tokyo
Financial Award (in the ESG Investment Category) in February 2019. This is also something we
attribute to the support of our customers. We will continue to meet our responsibilities as one ofJapanʼs largest asset managers and do all in our power to contribute to the long-term developmentof our clients assets and society.

Representative Director
and President

Executive Oﬃcer
Responsible for
Stewardship Development Dept.

Yoshio Hishida

Hiroyuki Horii

2

Yasuhiro Yonezawa

Chair of Stewardship Activities Advisory Committee
Professor, Graduate School of Business and Finance, Waseda University

Hiroyuki Horii

Executive Oﬃcer
Responsible for Stewardship Development Dept.

We intend to grow alongside investee companies
based on managing conﬂicts of interest.

One year has passed since we merged with the asset management department of Sumitomo Mitsui Trust Bank.
We reviewed our stewardship activities to date and exchanged views on how to go forward.

We feel more confident in ongoing managementof conflicts of interest (Yonezawa)of its status as a business partner of the Sumitomo Mitsui
Trust Group, we are ensuring all relevant parties are awareof the situation. The Stewardship Activity Advisory

Horii One year has passed since Sumitomo Mitsui Trust Asset

Committee (hereinafter referred to as Advisory Committee )Management and Sumitomo Mitsui Trust Bankʼs asset

members are devoted to visualizing and advancing themanagement department merged in October 2018. Eachoverall voting rights exercise process by checking theentity has rolled out a range of initiatives to help manage

content of the Voting Guidelines and the appropriateness ofconflicts of interest before the merger. For example,

the process leading to the exercising of the decision.

Sumitomo Mitsui Trust Bank made the process of exercisingby disclosing specific andYonezawa The impression I get is that the process ofdetailed underlying rules in the Guidelines for Exercise of

exercising voting rights involves in-depth scrutiny from

Voting Rights published in February 2017. Shoring up thismultiple perspectives up until the final decision on exercisingvisibility aspect is an important component of managing

said rights is made. The Advisory Committee is consulted on

conflicts of interest. Since the second quarter (from April tothe adequacy of the decision-making process for proposals

June) 2017, we started disclosing the Result of Exercise of

not stipulated in the Voting Guidelines and those requiring

Voting Rights on individual proposals. As well as for anddiscussion due to possible conflicts of interest. Detailed

against, reasoning was also provided and with full disclosurematerials and explanations are provided at meetings.

voting rights

3

more visible

We intend to grow alongside investee companies based on managing conﬂicts of interest.

The Voting Guidelines were also revised in January 2019,reflecting the revision of the Corporate Governance Code inJune 2018 and I felt this process was based on considerable

Engaging corporate managers in discussion froma business perspective is increasingly important (Horii)

research and analysis. As well as what Mr. Horii mentioned,

Horii Under these circumstances, the key aspect to focus on

we continue to receive various consultations and produce

during our companyʼs stewardship activities is sustainable

reports from a neutral perspective.

corporate growth , which, in turn, depends on us
understanding the company in depth and then conveying ourHorii I consider it crucial for the Advisory Committee

thoughts thereafter. The stand-out feature in our case is themembers to examine a range of aspects from a third-party

collaboration between the analyst in the Research

perspective and this third-party status is why it is well-placed

Investment Department and the Stewardship Officer in theto manage any conflicts of interest effectively. Given that the

Stewardship Development Department. With analysts as

success of stewardship activities is contingent on investee

industry and corporate professionals and stewardshipcompanies improving issues and growing in the medium toofficers as ESG professionals, both parties collaborate tolong term, we need to be convincing enough to advise them.

pool and build on their respective competencies to promote

We believe promoting stewardship activities and managing

corporate improvement. To further expand this initiative

conflicts of interest properly will facilitate the practicalworldwide, meanwhile, we are also promoting the overseas

application and thorough implementation of fiduciary duty

assignment of members tasked with overseeing stewardshipand with that in mind, the pointers and proposals from

activities.

various sources were very gratefully received.
Yonezawa While actually examining reports of engagement
Yonezawa Prior to the merger, I was on the Sumitomo Mitsui

activities, one of the cases stood out ‒ namely an

Trust Asset Managementʼs Fiduciary Duty Advisory

engagement case by an analyst working with theCommittee and trust bank itself was sometimes seen as

pharmaceutical industry ‒ a post that really involves

conflicting with the interests of our committee. Accordingly,

investigating both the industry and the company in detail. He

we decided to separate the investment department from theleveraged that aspect to probe even deeper still and brought

trust bank and integrate it with Asset Management,

up some home truths to the company about how it should

whereupon the overriding priority became refining thechange and how this would benefit the shareholders. I wasprocess of conflict of interest management.

surprised to see scope to discuss in that kind of detail andIn that context, we discussed the need for in-housealso to see that such feedback really was taken seriously byadvanced information management and personnel system

the person in charge from the company.

reform and implemented the same. I absolutely agree thatbeing convincing is a must when it comes to putting

Horii Actually, I think the company chooses the investors

stewardship activities into practice properly and I think thewhom they engage in dialog carefully. This choice shouldhuge efforts channeled to date to address conflicts ofinclude consideration of whether or not the counterpart is ainterest have helped establish confidence.

major company shareholder and whether or not meeting the4

Yasuhiro Yonezawa

Professor, Graduate School of Business and Finance,
Waseda University

With a career path starting as a researcher with the Japan Securities
Research Institute, a Visiting Associate Professor at the Osaka University
Graduate School, Professor of Social Engineering at the University ofTsukuba, Professor at the Faculty of Business Administration at
Yokohama National University and ﬁnally a Professor at the Waseda
University Graduate School of Finance, he has occupied the present
position since April 2016. In October 2017, he was appointed Chair of
the Fiduciary Duty Advisory Committee at Sumitomo Mitsui Trust AssetManagement Co., Ltd., then, in January 2018, Chair of the Stewardship
Activity Advisory Committee and External Director of the same from
October the same year.

investor would benefit the company. In this case, there is no

corporate action guidelines and principles and are engaged

scope for such evaluation, except where investors

in various activities to address ESG issues. We intend tothemselves can make tangible contributions to the company.

leverage the relationships and expertise accumulated

With this in mind, our analysts have focused on analyzing thethrough this process in our own engagement activities andindustry and company and expressing their views as

develop these activities in the UK, where we have alreadyinvestors from the same perspective as the company.

established a base and in the United States, where we plan
to establish a base in near future.

Yonezawa I think the remit of analysts is set to go beyond
just forecasting company performance and stock prices andYonezawa I understand that you will continue to leverage

the need to discuss with corporate‑top management from ayour expertise in engaging with US and European

business perspective will become increasingly important.

corporations as Sumitomo Mitsui Trust Asset Management as

Conversely, although the issue of promoting personnel

you boost networking in Tokyo, the UK and the US. I thinkassignment overseas was discussed, I think expanding the

becoming even more active as well as boosting the content

scope of activities with overseas companies will entail aand level of expertise would be the ideal, by improving

range of issues that need to be addressed. How will you

access to local information.

handle this?
Horii Although we pride ourselves on domestic operations
for ESG analysis and engagement, we are also expanding the5

Independent external directors are paving
the way for diversity (Horii)

scale of our overseas operations concurrently. We signed theHorii This year saw us participate in the 30% Club Japan as a

United Nations Principles for Responsible Investment (PRI)

member of the Investor Group, aiming to boost theimmediately after they were launched in 2006 and havepercentage of women in the board of directors of TOPIX100

always taken ESG into consideration when making

companies to 30% by 2030. Diversity at the board ofinvestment decisions, while monitoring the latest

directors is a priority focal point for us right now anddevelopments. To date, we have signed more than ten global

discussion on diversity among board members has

Hiroyuki Horii

Executive Oﬃcer,
Sumitomo Mitsui Trust Asset Management Co., Ltd.
After working as a securities company analyst, joined Sumitomo Trust
Bank (now Sumitomo Mitsui Trust Bank) in 1998. Following spells as
Head of Research Investment and Stewardship development Manager,in the present post since October 2018. His work centers on
systematizing evaluation of non-ﬁnancial information and ESG byleveraging more than 30 years of research work experience.

proliferated recently. When you consider the nature ofterms of diversity, the fact that they operate externally paves

diversity though, first and foremost, I think it starts by

the way for a range of opinions, which, for example, could beallowing external directors onto company boards. Various

those unique to female directors. I think having external

aspects of the Voting Guidelines have also been tightened

directors in place will see diversity become synonymous withup and this trend is also something I would like to discuss

management.

with you.
Yonezawa What you just pointed out is crucial - I believe
Yonezawa First of all, the issue of external directors - I

companies promoting diversity may thrive and have higher

believe having them is crucial. I can see the benefit of having

stock prices. This is not because diversity has improved

external directors, both during normal times when things arethem, but because companies originally motivated togoing smoothly but particularly in emergencies or when aimprove have become more diverse and their performancecompany runs into severe difficulties. This is because wehas been boosted accordingly. Conversely, companies thatneed to respond to any shortcoming in governance byfail to grasp the nettle and take on the challenge of making

speaking and acting in a way that protects the interests ofsuch changes see the composition of their directors remainminority shareholders. Despite the cost external directors

largely unchanged and give the impression of sticking to theincur, I think such costs should be considered a given andold ways. Little wonder that performance and stock prices

efforts commensurate with such costs should be made in thealso remain static in this case. The real forces of change arearea of advisory and monitoring functions.

intangible and engagement is a must when assessing such
intrinsic values.

Horii While the advisory remit is important, a task even morecrucial which we want to assign to external directors in

Horii Right. We donʼt see the relationship between

investee companies is their role of monitoring the board of

shareholders and companies as confrontational but from thedirectors. External directors must function as advocates forperspective of companies with concerns over elements suchgeneral shareholders and demonstrate their abilities in theas shareholder proposals, takeover defenses and activists,

event of any governance failure that emerges. Similarly ininvestors may seem a hindrance. However, as ROE (return6

on equity) increases, corporate value and stock prices rise, I

However, the bank operated solely as a creditor and offered

think that a flow of investment returns is likely to follow sovarious advice designed to ensure that money, once lent,

when I discuss with companies, I try to emphasize the need

could be returned. Thereafter, the main bank systemforbusinesses and investors to target a win-win

collapsed and the debt ratio also declined after repayments

relationship. Conversely, sharing awareness of risks is also

made on borrowed funds by companies. As banks grew

important - major and unintended examples of which

increasingly unable to communicate, it was inevitable that

include E (Environment) and S (Society) related to ESG

shareholders and investors would become the prime movers.

and particularly climate change above all. We see it as

Even so, I believe that at that time, companies lacked any

imperative to address climate change and this is an area weinsight into how to nurture dialog with shareholders andare working on. But we also consider the ESG concept

investors. It would be logical for investors to makecrucial to minimize such medium to long-term risks, including

recommendations to boost corporate value from thethe issue of governance deficiencies. How should we urge

shareholder perspective via stewardship activities, especiallycompanies to deal with medium to long-term risks as

engagement. Companies should be in no doubt of theinvestors and encourage improvements? What are yourimportance of dialog with shareholders and investors now

thoughts on this?

that there are no banks to protect them.
I would also like to reaffirm the need for companies to take

Investors fostering companies throughengagement activities (Yonezawa)

risks for growth. Although Japanese companies haveremained sluggish in recent years, I would like them to seethem address this need and engage it.

Yonezawa What we have to underline is that shareholders

7

and corporations are not hostile. From a researcherʼsHorii As an investment organization, requesting

perspective, up until around the time the bubble economy

companies to take on risks for growth is a must, whileburst in 1990, the main bank system was the benchmark andalso controlling unnecessary risks. Although growthconsiderable dialog ensued between banks and companies.

requires investment, sustainable growth is absolutelyWe intend to grow alongside investee companies based on managing conﬂicts of interest.

contingent on investing in human resources as well as

investors. We acknowledge the need for institutional

capital and research and development. Conversely, ourinvestors to take on new challenges to meet thebusiness is exposed to various risks, but the nature of

expectations of our stakeholders.

ESG issues makes it difficult to determine when they will
occur. Even so, such risks can be controlled to a certain

Yonezawa I mentioned banks just a while ago and how

extent by acknowledging their existence. We realize how

banks often used to nurture companies, but what often

crucial it is as an investment organization for the entire

transpired as a result was start-up companies progressing toinvestment chain to require business companies tobecome companies with global status and the same mayachieve medium- to long-term growth, given that clients

apply to investor engagement activities going forward.

entrusted with funds seek medium- to long-term
investment management.

Horii In this situation, I think that investors themselves, as I
mentioned from the start, must be capable of proactively

Yonezawa Customers with medium- to long-term investments

self-starting, enhancing their capabilities and engaging inare said to be more interested in ESG and that is something

dialog with companies from a business perspective. In thisconsidered very convincing or reasonable.

sense, we need to raise the level of our stewardship
activities one or two steps further, but I think we are on theHorii We acknowledge the growing interest in ESG every day,right track. Referring to what you just mentioned, helping

which we are actively striving to address. Although the risk

companies grow with engagement, I think that companies

aspects of ESG tend to come to the fore, our business also

understand it when we invest in them with that attitude.

harbors opportunities , which we would like to focus on
more in future and incorporate them into our investment.

Yonezawa I hope that you will continue to make further

Furthermore, as opportunities are linked to growth, I would

improvements.

like to promote stewardship activities underpinningcorporate growth by accurately determining opportunities as

Horii Thank you very much.

8

Purposes of Stewardship Activities

Stewardship Activity Focus Topics for 2018/2019

Stewardship Activity Initiatives

Purposes of Stewardship Activities

Investee Companies
Sustainable GrowthPursuing SDGs in partnership with investors

Earni
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hdr
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Supporting value creationin the investment chain.

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growthagewdan

Investme
EnhancInformation disclosure

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Engagement
Constructive Dialog

Exercise of voting rights

9

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gementChallenges for SMTAM

Reference

Sustainable growth of investee companies drives growth in earnings,
and growth in earnings drives growth in dividends and wages which, ultimately,
beneﬁts household economies and the growth of the economy as a whole.
All of this together is known as the investment chain.
At SMTAM, we actively utilize our role as an asset manager in the investment chain
to support our investee companies create value, leading to maximum returns for our clients,
while at the same time contributing to the achievement of SDGs.

Clients and Society
Medium-to-long-term investment return growths t m enRei
nve

nt Chainement

t of earnings

for growth of the global economy

Total commitment to our clients and our world

10

Purposes of Stewardship Activities

Stewardship Activity Focus Topics for 2018/2019

Stewardship Activity Initiatives

Stewardship Activity Focus Topics for 2018/2019
At SMTAM, we believe we have an important role to play in the investment chain as a responsible institutional
investor. Towards that end we are fully committed to the Stewardship Code and Corporate Governance Code, as
reflected in our domestic and overseas engagement efforts, exercise of voting rights and various other activities.
Below is a brief summary of the activities SMTAM was involved in between October 2018 and October 2019.

2018

2019

OctoberJanuary

May

Disclosure of voting record oneach proposal for each
investee company

Revision of Guidelines for the
Exercise of Voting Rights

PRI Working Group-driven
Engagement

Various revisions were made, including
revisions of numerical criteria related
to the composition of the Board of
Directors.

Disclosure of voting record oneach proposal for each
investee company

SMTAM participatedin the Palm Oil PRI
working group that
met in Malaysia.
Through this working
group, we pursued
engagement withpalm oil producers
as well as financial
institutions that play
important roles inthe value chain.

February

May

Tokyo Financial Award

30% Club JAPAN Signatory

SMTAM was the first company toreceive the Tokyo Financial Award, a
new initiative established by Tokyo
Governor Yuriko Koike as part of theTokyo Metropolitan Governmentʼs
Global Financial City: Tokyo Vision.

SMTAM was a founding signatory of
the 30% Club Japan Investor Group,and has begun undertaking initiatives
aimed at promoting investee company
on diversity.

We disclosed the details on our
website, whenever we exercised ourvoting rights on proposals involving
investee companies in Japan.

January, April, July
October

ICJ SR Seminar
Representatives from SMTAM
participated as instructors at the 16th
SR Seminar hosted by ICJ in Tokyo andOsaka, where they spoke about thesignificance of participating incollaborative engagement and
SMTAMʼs approach to it.

November

Stewardship Activities
Advisory Committee
To ensure the independence andtransparency of stewardship activities
and manage conflicts of interest, four
regular sessions of this committee
were convened (extraordinary sessions
were separately convened to advise
on essential matters as required).

March, June, September

Stewardship Activities
Advisory Committee

11

June

Investor Agenda Signatory
SMTAM signed the Investor Agenda inaccordance with the G20 summit held
in Osaka.

Challenges for SMTAM

Reference

June

July

September

Collaboration with LGIM

Company Forest

PRI General Meeting

On June 10th, we announced that
SMTAM would collaborate on ESG
engagement activities with Legal &General Investment Management(LGIM), Great Britainʼs largest asset
manager.

As a supporter of the Action Plan forCommunity-based Cultivation of Water
Resource Forest created by the
Tokyo Metropolitan Governmentʼs
Bureau of Waterworks, SMTAM took
part in the Tokyo Waterworks
Company Forest (naming rights)
project. Through this participation, we
contributed to the protection of local
water and woodland resources, aswell as helped maintain the capacityof woodland areas to sustain
biodiversity.

SMTAM participated
as a panellist at
PRIʼs general
meeting (PRI in
Person) in Paris overthree days, from
September 10 to 12.

June

Cooperation with NPOs
Based on ISO26000 internationalsocial responsibility standards, SMTAM
collaborated with CSR Review
Forum-Japan (a non-profit organizationthat performs third-party reviews ofcorporate activities) to engage indialog with companies.

September

CII Semi-annual Conference
SMTAM attended the semi-annual
Council of Institutional Investors (CII)
Conference.

October

CA100+-driven Domestic
Engagement
AugustJuly

ICGN Annual Conference inTokyo
SMTAM took part as a sponsor in theInternational Corporate GovernanceNetworkʼs (ICGN) Annual Conference
and General Meeting.

CA100+-driven AsianEngagement
As lead manager, SMTAM pursued
engagement with PTT Exploration and
Production Public Company Limited(Thailand).

In collaboration with the California
State Teachers Retirement System(CALSTRS) and California Public
Employees Retirement System(CalPERS), SMTAM pursued
engagement with three major
Japanese manufacturing companies.

September

CA100+-driven AsianEngagement
As a collaborative manager, SMTAM
pursued engagement with Korean
steel manufacturer POSCO andelectric utility company KEPCO.

12

Purposes of Stewardship Activities

Overview

Stewardship Activity Focus Topics for 2018/2019

Engagement

Stewardship Activity Initiatives

Addressing ESG Challenges

Exercise of Voting Rights

Striving to maximize investment returns
as a responsible institutional investor.
As a responsible institutional investor, we pursue stewardship activities that are built around our three key pillars ofengagement, the exercise of voting rights and measures for addressing ESG challenges. Our aim is to use stewardship
activities as a means of helping investee companies improve their corporate value, thereby helping us to maximize
medium-to-long-term investment return on the assets of our clients. Underlying all of this is our commitment to
uphold our fiduciary duties. Because we believe that appropriate management of conflicts of interest related to
stewardship activities helps us better to fulfil our fiduciary duties, we are constantly working to improve our conflict ofinterest management capabilities.

Maximize investment return

Help improve corporate value

1

2

Engagement

3

Exercise of Voting Rights

Addressing ESG challenges

Engagement activities provide

The exercise of voting rights provides

As an investor we call for investee

opportunities to seek best practices

opportunities to call for a minimum

companies to tackle ESG issues andfrom companies, and we express ourstandard of governance. We exercise

generate sustainable growth andviews so as to contribute to thevo t ing rig ht s ap p ro p riat ely and in

added value.

enhancement of corporate value overaccordance with a highly transparent

the medium to long term.

decision-making process.

Platform to support 123

Upholding our fiduciary duties
Conflict of interest management
We promote initiatives aimed at providing client-oriented products
and services in line with the Policies regarding the Fiduciary Duties of the Sumitomo Mitsui Trust Group.

13

Challenges for SMTAM

Reference

Stewardship Activities Promotion Framework
Stewardship activities promotion is principally the responsibility of the Stewardship Development Department, which works in conjunction withhighly experienced analysts in the Research Investment Department. Within Japan, we pursue our own independent activities, as well as capitalizeon the platform provided by the Institutional Investors Collective Engagement Forum (IICEF) to pursue joint engagement.
Outside Japan, we dispatch representatives from Tokyo to meet with overseas companies, as well as rely on the independent engagement effortsof our London office; additionally, we carry out engagement through global initiatives and undertake collaborative activities with LGIM. All
stewardship activities are reviewed and reported on by the Stewardship Committee and by the Stewardship Activities Advisory Committee, themajority of whose members are independent, outside experts.

SMTAM representative

Stewardship
Committee

Engagement policy andactivity reporting

Report(Planning, engagement, exercise of voting rights)
ReportExercise of Voting Rights
Policy approval and results
reporting for the exercise of
voting rights

Collective Engagement Forum

Institutional Investors
Collective Engagement Program

Host meetings, etc.

Listed company

Comprised of three independent, external
experts (the majority of members) and one

ReportEngagement

Stewardship Activities
Advisory Committee*1

dialogRecommendation

Collective(authorized decision maker)

Joint engagement (domestic)

Inquiry

Program participation

Stewardship
Development Department
Officer in Charge

Engagement by overseas offices

British office

Stewardship Development
Department(including collaboration with LGIM)

11 members

US office(planned)

Cooperation

Global initiative-driven activities*2

Addressing ESG Issues(Engagement)

ESG activities policy andactivities reporting

Research Investment
Department
6 members
Credit analysts

20 members

Corporate analysts(as of the end of September 2019)*1 Please refer to our website for previous meeting minutes (available only in Japanese)
https://www.smtam.jp/company/policy/stewardship/activity̲status/*2 See pages 37-38 for a list of activities

At our London Office, we collaborate with the Tokyo head office to pursue engagement and ESG-related
research aimed at companies in Europe. Our engagement efforts include directly meeting with companies in a

British Office
Activities

broad range of sectors, from energy and power production to consumer goods, and we involve ourselves in
activities which help address societal challenges and improve corporate value (we had 43 successful
engagements between April and September 2019). Additionally, we seek out collaboration with outside groups
who conduct specialized, ESG-related research, such as PRI, the UK-based 30% Club and Access to Medicine.
We also relay specialized information back to Tokyo from Europe, which is a leading region with regard to ESG.

Sumitomo Mitsui Trust International
Tetsuro Takase

14

Purposes of Stewardship Activities

Overview

Stewardship Activity Focus Topics for 2018/2019

Engagement

Exercise of Voting Rights

Stewardship Activity Initiatives

Addressing ESG Challenges

Engagement

1

At SMTAM, we view engagement activities as opportunities to seek best practices from companies, and we communicate ourviews so as to contribute to the enhancement of corporate value over the medium to long term. Gaining a proper understandingof a companyʼs state of management and business situation is crucial to engagement. The ESG experts in our Stewardship
Development Department work together with industrial corporate analysis professionals in the Research Investment Department
to conduct in-depth engagement from both an ESG and business perspective, utilizing our proprietary MBIS®* non-financial
information evaluation tool.

Exercise of Voting Rights

2

At SMTAM, we view the exercise of voting rights as an opportunity to call for a minimum standard of governance and consider it
to be one method of governance-related engagement. We emphasize three key points when exercising voting rights: (1)high-quality governance that respects shareholder interests; (2) efficient utilization of shareholders equity for sustainablegrowth; and (3) appropriate action in the event an incident occurs that damages corporate value. We disclose our guidelines forthe exercise of voting rights based on these criteria, and also actively pursue engagement with companies with respect to theexercise of voting rights.

Addressing ESG Issues

3

It is important to address ESG issues which can affect investee companies medium-to-long-term growth. ESG issues reside in
non-financial domains and do not manifest themselves in financial reporting, but they may have a considerable impact on
corporate value over time. It has long been our practice to actively address ESG issues, and when the Principles for Responsible
Investment (PRI) were established in May 2006 in order to prompt institutional investors to factor ESG considerations into theirinvestment decision-making processes, SMTAM was among the original signatories. We have also participated in various
international initiatives which originated with the PRI and which led to trailblazing ESG activities being undertaken worldwide.
As a signatory to the PRI, we endeavor to pursue upside potential and curb downside risk by incorporating ESG factors into ourinvestment decision-making process and aim to maximize medium- to long-term returns for our clients.

*See page 33

15

Challenges for SMTAM

Reference

Conflict of Interest Management
The Sumitomo Mitsui Trust Group has established and publicly released its Policies regarding the Fiduciary Duties of theSumitomo Mitsui Trust Group. We promote initiatives aimed at providing client-oriented products and services in line with thesepolicies. As we step up our stewardship activities, we believe that proper management of conflicts of interest relating to these
activities will contribute to deeply embedding fiduciary duties into the way we do business; hence, we have put in place a
conflict of interest management system.

●Conflict of Interest Management System

Inquiry /Recommendation

Board of Directors

Stewardship
Development Department
Officer in Charge

Inquiry /Recommendation

Fiduciary Duty
Advisory Committee

Sumitomo Mitsui Trust Holdings
Discussion / Enhancement

Sumitomo Mitsui Trust Asset Management

Board of Directors

Management meeting

Stewardship
Activities Advisory Committee

Inquiry /Recommendation

Preliminary
discussion

Conflicts of Interest Committee

Conflicts of Interest Management
Enhancement Committee

Fiduciary Duty Discussion Panel (cross-company)
Discussion / Enhancement

Stewardship
Development Department

Fund management
departments

Supervision

Discussion / Enhancement

Group companies
Sumitomo Mitsui Trust Bank

Conflict of interest management /Monitoring

Middle offices

Board of Directors

×Management meeting

Preliminary
discussion

Conflicts of Interest Management
Enhancement Committee

Corporate Sales Division

Restriction on personnel transfers, information exchange and interaction

16

Purposes of Stewardship Activities

Overview

Stewardship Activity Focus Topics for 2018/2019

Engagement

Exercise of Voting Rights

Stewardship Activity Initiatives

Addressing ESG Challenges

Improving Investee Corporate Value and ROE via Engagement
By this point, we have engaged with a broad range of companies representing roughly 90% of the total market
capitalization of TSE1. This fiscal year, our challenge is to further expand the scope of companies with which we engage
and to qualitatively deepen those engagements. We are working to achieve this in a variety of ways, including applying
a top-down approach to engagement on prescribed focus topics and conducting in-depth analyses on companies withwhich we have ongoing engagement.
Moving forward, we will continue to pursue activities which contribute to better medium-to-long-term corporate value
and ROE, thereby improving the overall market and securing excess returns which will help us in maximizing
medium-to-long-term investment returns for our clients. We are also focused on making our engagement activities more
efficient and effective by identifying the challenges that each of our investee companies faces. Improving the ROE ofinvestee companies requires helping them rethink capital allocation, restructure business portfolios and improve
corporate governance; at the same time, it requires helping them focus on challenges which could undermine ROE in
the future, such as climate change or labor practices that need to be addressed. At SMTAM, we comprehensively
ascertain each and every E,(Company)

S and G challenge trustee companies face before pursuing engagement activities.

Number of Companies Engaged(Company)

250

Number of Companies Taking Corporate Action*

800

729
600

760

200

201

612
150

141

400
100

357
200

255

99
64

50

35
0

End of June2015

End of June
2016

End of June2017

End of June2018

End of June
20190

End of June2015

End of June
2016

End of June2017

End of June2018

End of June
2019

Company numbers are cumulative*Corporate action aligning with opinion expressed by SMTAM

SMTAM Engagement Process
To achieve effective engagement, our analysts use non-financial information

Pre
pa
r

analysis results and the like to help them identify management issues and

ons
ini
op

d
an

r
nito
mo

e

Rec
or
d

Prepare opinions

formulate effective and coherent opinions.

Check in advance
We first submit the opinions formulated by each analysts to an internal review.
This both helps improve and standardize opinion quality among the analysts.

o

ni

dv

s

an

res

ce

Exp

pi

on

s

Che

ck

in

a

Activities conducted in line with the above process
are counted in our total number of engagements(simply being in contact with a company is not counted as an engagement)

17

Express opinions
Our analysts meet with investee company executives and express their opinions.
At each meeting, a written oath stating the analysts will not make any material
proposals nor acquire insider information is signed and mutually recognized.

Record and monitor
After the meetings, we record investee companies responses to the analysts
opinions. We monitor the companies for any changes in management and thenutilize this information when identifying management issues for the next
engagement.

Challenges for SMTAM

Reference

Engagement Example Cases - Domestic
C ASE 1Non-manufacturing
Company A

Climate Change
Greenhouse gas emissions reduction
Business strategy

Analystʼs Perspective
As a logistics company whose business expansion is highly likely to create an increased environmental load, it is essential that environmental
targets be included as mid-term planning KPI in order to enhance the sustainability of corporate value improvement. Also, with a growing,
quantitative contraction in materials handling taking place over the medium-to-long-term in Japan, limiting the risk this poses to profitability(when Japanese business accounts for a high proportion of business assets and sales) will be a key challenge.

Opinion from SMTAM
The truck-centric transportation sector accounts for a large portion of
CO 2 emissions volume by industry. With the company currently in
discussion over its medium-term business plan, it seems to us that therequired course of action is for it to capitalize on its expertise withvarious shipping modes (including trains, ships and airplanes) so it can
set Scope 3-focused (i.e., emissions volume encompassing
manufacturing, shipping, etc.) medium-to-long-term CO 2 reduction
targets while also actively expanding sales to customers.

We view the medium-to-long-term contraction in materials handling tobe the largest business risk facing the domestic logistics segment,
which accounts for 60% of consolidated sales. In our opinion, thecompany needs to perform a detailed revision of its business portfolio
to reduce business in less populated regions and increase it in thethree major metropolitan areas.

Company Response
Although there are a variety of different environment-related indicators,
medium-to-long-term CO 2 reduction is a priority for which we arecommitted to investing the necessary costs to achieve. We will look
into incorporating it into our next medium-term business plan.

As you have pointed out, we need to perform a revision of our
medium-to-long-term business portfolio for the domestic logistics
segment. In less populated areas we will undertake a balanced
contraction of business tailored to the local characteristics of eacharea, and, in turn, we will make the three major metropolitan areas ofJapan our primary focus. Towards this end, we are discussing making
revisions to our corporate group personnel system to allow personnel
transfers between areas, and we are considering introducing ROIC
targets for each area.

Company Action
With a view towards realizing its long-term vision, the company
announced specific CO 2 emissions reduction targets as KPI to beachieved by fiscal year 2023.

In its mid-term business plan released in February 2019, the company
announced that it would fundamentally reform its less profitablebusiness by strengthening its Japanese business and revising its
business portfolio.

Evaluation by SMTAM
We approve of the companyʼs announcement of specific CO2 emissions reduction targets.
Moving forward, we will monitor the progress being made to reduce CO2 and to improve the profitability of domestic logistics business.

18

Purposes of Stewardship Activities

Overview

CASE 2
Manufacturing Company B1
Manufacturing Company B2

Stewardship Activity Focus Topics for 2018/2019

Engagement

Exercise of Voting Rights

Stewardship Activity Initiatives

Addressing ESG Challenges

Water Resources and Marine Pollution
Addressing marine plastic pollution
Business strategy

Analystʼs Perspective
Asia is at the center of the marine plastic pollution problem, particularly because of the large volume of PET bottles, straws and otherdisposable plastics. Ideally, the problem would be handled with the establishment of a recycling system in Asia, but because Asia takes ingarbage from developed countries, including Japan, this problem is not just the responsibility of Asia. It is becoming increasingly important thatJapanese companies, particularly the chemical companies that produce the plastic and the food companies that utilize it, get involved inaddressing this problem.

Opinion from SMTAM<Chemical Manufacturer B1 (plastic producer)>
Because it is disposable plastics that are the problem when it comesto marine plastic pollution, we predict the impact on businessperformance would be negligible. On the other hand, we believe thatin order to avoid having an environmental stigma also applied toautomotive industrial plastics and other plastics we are focusing on (asthere is growing business potential), the chemical industry as a wholeneeds to take action.

<Beverage Manufacturer B2 (plastic user)>
Marine plastic pollution is a problem that gets talked about, but plastic
usage remains high, including among beverage manufacturers that use
it to manufacture PET bottles. Although a growing number ofcompanies are switching from plastic to paper straws, are similaralternatives being explored for PET bottles? Also, similar to thesituation in the logistics field, is collaboration with competitors neededin order to catalyze action to address this problem?

Company Response
We feel that the impact on business performance accompanying a
reduction in the usage of disposable plastics would be negligible. As formeasures to address the risk of an unfounded souring of public opinion
with regard to industrial plastics, the chemical industry as a whole,through the industry groups which represent it, is committed tocombating marine plastic pollution. Furthermore, we recognize that thelack of established recycling systems in Asia presents a fundamental
challenge to any effort to address the marine pollution problem.

・Although complete elimination of PET bottles is an unrealistic goal, thequestion is how much reduction is achievable? We are aware of
biodegradable plastic technology, but applying this technology will
require an industry-wide effort.
・First, the recycling rate needs to be brought as close to 100% as
possible. A new office has been established to study the feasibility ofswitching to paper containers. Also, similar to the situation in thelogistics field, we think of containers as an area of non-competition for
manufacturers. The industry as a whole needs to review and revise thesupply chain.

Company Action
The Japan Initiative for Marine Environment has been established by five organizations representing the chemical industry. In order toaddress the marine plastic problem, the company adopted an approach involving (1) organizing and disseminating information, (2)responding to trends within Japan, (3) engaging with Asia, and (4) accumulating scientific findings.

Evaluation by SMTAM
We will monitor bioplastic and recycling technology development trends as well as the status of chemical industry group-led initiatives toaddress the marine plastic problem. Additionally, we will continue to pursue dialog with beverage manufacturers and other plastic users toencourage them to address the marine plastic problem.

19

Challenges for SMTAM

ReferenceC A SE 3

Promotion of ESG
Information Disclosure

CASE 4

Manufacturing
Company C

Social issues
Capital productivity

Manufacturing
Company D

Business strategy
Business restructuring
GovernanceAnalystʼs Perspective

Analystʼs Perspective

With drug-resistant bacteria-related problems such as nosocomial
infection becoming more severe worldwide, major antibiotics
manufacturers have an opportunity to contribute to society byactively addressing these problems rather than treating them associal responsibility-related risks to avoid. Also, another issue isthe reduction of cross-shareholdings, primarily those withwholesalers, which are a legacy of past business practices
implemented as part of efforts to increase capital efficiency.

The company possesses significant product development strengthand has several distinctive products which its competitors cannot
match. On the other hand, the disconnect between thecompanyʼs significant product development strength and its ability
to generate revenue is a notable problem. It appears that there isroom for improvement in those organizational operations andother systemic elements that are causing the company as a wholeto perform at a sub-optimal level.

Opinion from SMTAM
Drug-resistant bacteria arebecoming a serious problem
worldwide within the field of
infectious agents which thecompany puts extra focus on.
Given how little awarenessthere is in Japan about thisgrowing danger, we feel a moreproactive and visible stance inaddressing this problem isneeded.

Regarding cross-shareholdings
with client pharmaceuticalwholesalers, it is our opinion
that, from the standpoint of
capital efficiency, these need tobe reduced further.

Opinion from SMTAM
North American automotive
business A has been in the
red since fiscal year 2016. The
growth potential of business
A is poor in comparison toother businesses, and it is seen
as being lower in importanceamongst business overall; thus,
we recommend considering
selling business A andredirecting its management
resources towards a businesswith high growth potential.

Company Response
Addressing the problem ofdrug-resistant bacteria is our
mission. And we are committed
to actively communicating
our intentions and specificinitiatives for addressing it as acompany.

Regarding our cross-shareholdings
policy, a rapid and substantial
sell-off is made difficult by the
impact that the gains from such asell-off would have on our profit
and loss statement; nevertheless,
we intend to continue reducing
our cross-shareholdings withwholesalers.

Company Action
In M a y 2 019 , t h e c o mp a n yissued a public commitment
and plan of action foraddressing the problem ofdrug-resistant bacteria. It
declared that, at a time whennumerous other pharmaceuticalcompanies were diverting
resources away from researchand development in the field of
infectious disease, the company
was looking to the future bytaking on a leading role in thedevelopment of antibacterial
agents and the promotion of
their correct usage anddistribution.

The annual securities report
released by the company inJune 2019 for the financial year
ending March 2019 confirmedthat the company reduced its
cross-shareholdings by 20%
compared with the end of theprevious financial year.

Business B has expanding
deficits which are negatively
impacting the companyʼsfinancial results. Despite the factthat this problem has become
more and more manifest since
the financial period ending
March 2017, the company
seems to have been slow totake any action. On top of this,low price orders for the financial
period ending March 2018 havefurther exacerbated the business
B deficit. We feel that the head
office needs to be guiding
revenue management rather
than leaving the responsibility toeach individual company.

Company Response
Although we are not particularly
opposed to letting go ofbusiness A, even if we did
decide to sell it, we would firstneed a rejuvenation in its
business results.
Given the current trend towards
lightening within the automotive
industry, we want to keep holdof the technology of business
A in order to continue using itin the future.

As you pointed out, we haveallowed our individualcompanies too much discretion.
We plan to establish a sales
management headquarters
within the head office that willrevamp pricing strategies for thecompany as a whole.

Company Action
In December 2018, the company
announced it was pulling out ofbusiness A. In March 2019,business A in North America
was transferred to anothercompany, whil e a t ar g e t o f
September 2020 was set forthe conclusion of business A
in Japan.

In April 2019, the company
announced that it would shift
from a four-company structure
to a two-division organizational
structure in order to strengthen
its strategic capacity andgovernance through greaterin t r a - b u s i n e s s s y n e r g y a n dcross-functional capability.

Evaluation by SMTAM

Evaluation by SMTAM

We approve of the companyʼs public commitment and plan ofaction for addressing the problem of drug-resistant bacteria, which
has been backed up by its proactive and visible stance.
We also approve of the reduction in cross-shareholdings which
has been undertaken by the company but will continue to engage
in dialog with it to encourage even further reductions.

We greatly approve of the companyʼs decision to withdraw froman unprofitable business and put in place more robust revenue
management structures and systems. We will continue to engage
the company in dialog about using its shift to a two-divisionorganizational structure to steadily reduce the deficits incurred bybusiness B.

20

Purposes of Stewardship Activities

Overview

Stewardship Activity Focus Topics for 2018/2019

Engagement

Exercise of Voting Rights

Stewardship Activity Initiatives

Addressing ESG Challenges

Engagement Example Cases - Global
At SMTAM, our emphasis on ESG engagement activities extends worldwide. We focus on (1) engagement activities thatare based on action principles or guidelines, such as the PRI, (2) activities aimed at addressing misconduct and otherproblems in accordance with international norms, and (3) independent activities aimed at promoting greater efficiency incorporate management and the establishment of outstanding corporate governance. For example, our (1) engagement
activities that are based on action principles or guidelines, like the PRI, include active efforts to help companies with ESG
issues limit their risk, such as by serving as the lead manager handling PRI working group promotion.

C ASE 5
Glencore

CASE 6
Switzerland Resource Mining Company (CA100+ target company)

USA

Low-quality used vehicle online auction company(Thirty Percent Coalition target company)

Backing Corporate Governance Reform

Climate Change

・Greenhouse gas emissions reduction

21

Copart・Diversity

Engagement Specialistʼs Perspective

Engagement Specialistʼs Perspective

Among mining and resource extraction companies, those whosebusiness involves coal mining have financial exposure which
requires mitigation. Scenario-based business planning, such as for
future capital rationing or stranded asset risk avoidance, needs tobe disclosed.

As the company works to expand its business operations, having adiverse Board of Directors will help ensure the effectiveness ofbusiness management decisions and requires hiring a broad rangeof human resources.

Opinion from SMTAM

Opinion from SMTAM

Globally speaking, this company is seen as having a major impact
on greenhouse gas emissions and is a target company of the
CA100+ initiative.
It is our view that (1) disclosure and implementation of plans to
reduce greenhouse gas emissions to the levels set under the Paris
Agreement; (2) disclosure of information in line with therecommendations of the TCFD (Task Force on Climate-related
Financial Disclosures); and (3) creation of climate-change related
governance systems and structures are needed.

Of the S&P 500 Index companies, Copart is the only company
without any female directors on its Board of Directors. We believethat hiring more women and increasing diversity in general willcontribute to better management efficiency and more effective
personnel hiring and business decision-making. We recommend
making concerted efforts to expand diversity.

Company Response

Company Response

As you have pointed out, we have significant exposure to the coalindustry and are aware of the risks presented by a transition to a
low-carbon society, particularly the potential stranding of coalassets. Our intention is to put greater emphasis on high-quality
coal, whereby we can increase our profitability without increasing
our production volume, while at the same time reducing ourcontribution to global warming.

Our personnel hiring is handled primarily on the basis of merit.
Although we cannot provide a specific time-frame, we are awareof this issue and will announce our diversity enhancement plans at
an appropriate point in the future.

Company Action

Company Action

In February 2019, the company announced limits on the size of its
coal production.

In July 2019, the company appointed a woman to the position of
Outside Director.

Evaluation by SMTAM

Evaluation by SMTAM

We approve of the companyʼs expressed intentions to optimize its
coal business and assets. We will continue to engage thecompany in dialog about measures it can take to help mitigate
climate change.

While this issue is not one which can be evaluated with aone-size-fits-all approach, Copartʼs response addresses it only at abare minimum and does not meet the ideal level of at least 30%
female representation among directors. We will continue toengage Copart in dialog about expanding its hiring of female
personnel and improving the diversity of its Board of Directors.

Challenges for SMTAM

Reference

C ASE 7

CASE 8Elbit Systems

Israel Military and defense-related company

BAYER

Germany Agrochemical and Pharmaceutical Company

Promotion of ESG Information Disclosure

Social Issues

・Information disclosure related to concerns
about cluster bomb manufacturing

・Handling of lawsuit risks

Engagement Specialistʼs Perspective

Engagement Specialistʼs Perspective

Because of the exposure to humanitarian concern-related
reputational risks that cluster bomb manufacturing presents,
it would be preferable that the company withdraw from thisline of business.

Bayer needs to implement measures to mitigate the risks of andeffects from potential lawsuits related to the agrochemical
products of a purchased company.

Opinion from SMTAM

Opinion from SMTAM

Cluster bombs are classified as inhumane weapons under the Oslo
Convention and other international conventions, and their
manufacture and use is prohibited. We are concerned that thepurchase of national defense companies risks exposing Elbit
Systems to cluster bomb-related business. We feel that thecorporate reputational risks are too great to justify any
involvement in cluster bomb manufacturing. At the very least, Elbit
Systems needs to clarify and disclose its risk and future plan ofaction with regard to this line of business.

Following its purchase of an agrochemical business that wasannounced in 2015 and concluded in 2018, lawsuits over the issue
of weedkiller carcinogenicity were launched against Bayer. Becauseof this, we think it is essential that Bayer disclose relevant
information to investors, such as the maximum anticipatedcompensation, in order to dispel any lingering uncertainty.

Company Response

Company Response

With regard to having no involvement in cluster bomb-related
business or any business which conflicts with international
conventions, we intend to make a clear and open announcementof our policies moving forward.

At the time that we made our purchase, we determined that wewould be able to adequately manage the risk of lawsuits, andwe do not believe that the lawsuits are indicative ofmanagement problems.
Because this matter is still being dealt with in court, it would beinappropriate to disclose monetary amounts at this time.

Company Action

Company Action

In January 2019, Elbit Systems announced a policy of having no
exposure to this line of business.

In August 2019, Bayer held an investorsʼ meeting to try anddispel any lingering uncertainty, and among the information
provided was that pertaining to Bayerʼs settlement with theweedkiller-related victims.

Evaluation by SMTAM

Evaluation by SMTAM

We approve of Elbit Systems prompt approval and disclosure ofthis policy. We have removed it from our ESG screening list ofinvestment exclusion stocks.

Given how rigidly Bayer responded to investors previously, thisclarification of the companyʼs handling with regard to areas oflingering uncertainty, including lawsuit settlements, is a step in theright direction and shows that it is listening to shareholders
concerns. We will continue to encourage Bayer to take action todispel investors concerns about the company, including the statusof the ongoing legal situation.

22

Purposes of Stewardship Activities

Stewardship Activity Focus Topics for 2018/2019

Overview

Engagement

Exercise of Voting Rights

Stewardship Activity Initiatives

Addressing ESG Challenges

Ensuring Heightened Transparency in the Exercise of Voting Rights

Applying the results of engagement activities to help us avoid the pitfalls of formalism
As a responsible institutional investor, we consider the exercise of voting rights to be an important part of ourstewardship activities. To maximize the medium- to long-term investment returns of clients and beneficiaries, we voteappropriately from the perspective of enhancing corporate value and boosting the interests of shareholders after
considering the circumstances of investee companies and the details of our engagements with them. We have alsoestablished our own Guidelines for the exercise of voting rights (hereafter, Guidelines ) and released the details ofthese Guidelines for domestic shares in February 2017 and for foreign shares in May 2017. Particularly for domestic
shares, we are increasing the transparency of our voting decisions by disclosing voting records on all proposals foreach company every quarter.

PDCA Cycle in the Exercise of Voting Rights
We have established a Stewardship Activities Advisory Committee comprised mostly of independent, outside experts in order toensure we exercise our voting rights appropriately. We conduct appropriate monitoring according to clear criteria that arederived from Guidelines which have undergone an inquiry and recommendation process carried out by the Advisory Committee.
The Advisory Committee plays an important role in the following PDCA cycle.

Guideline Preparation and Publication

P

Following deliberation by the Stewardship Committee and inquiries and recommendations
made by the Advisory Committee, the Guidelines to be used as criteria for the exercise of
voting rights are prepared/revised and approved by the officer in charge of the

ion
vis
Re

When there is a proposal which the Guidelines permit us to vote on, the Stewardship
Development Department creates a proposal for the exercise of voting rights. The proposal

P

ion
icat
ubl
dP
an

A

Proposal-specific Voting Decisions

Guidel
ine
Pre
pa
ra
tio

is approved following a review by the General Manager of the Stewardship Development

n

Gu
ide
lin
e

Stewardship Development Department.

D

Department, who checks that it conforms to the Guidelines.
If the General Manager determines that the proposal diverges from the Guidelines or is notcovered by the Guidelines, the issue will be put to the Stewardship Committee to discussand then to the Advisory Committee to verify the appropriateness of the decision-making

ns

process. The officer in charge of the Stewardship Development Department will thenc is io

os
Pr op

a

p
l-s

De

the recommendations of the Advisory Committee as much as possible.

in g

D

Analysis, Reporting and Disclosure of Voting Decisions

ot
V

ifi

c

,R
sis f
aly o
An ure
s
clo

Dis

C

e
Vo portin ting
g D ande ci
si o ns

approve the finalized proposal for the exercise of voting rights, making sure to incorporateec

C

Following the exercise of voting rights, the results are analyzed and reported to the
Stewardship Committee and Advisory Committee. Also, the results of all of our voting decisions
are made public. When we make our results public, we flag those which pertain to our clientsso that the results of our voting with respect to our clients can be externally reviewed.

Guideline RevisionA

As-needed revisions are made to the Guidelines based not only on voting results analysis but,among other things, reviews of the Stewardship Code and Corporate Governance Code forchanges indicative of societal changes; engagement with investee companies; and receipts ofAdvisory Committee feedback. The revised Guidelines are then made public.

In order to make the above process more transparent, we make our Guidelines public, release thecontent (summaries) of Advisory Committee deliberations and disclose the results of our exercise of
voting rights for each proposal voted on (as well as whether there are any business relations with
Sumitomo Mitsui Trust Group and, in the case of voting against a proposal, what our reasons are).

23Challenges for SMTAM

Reference

Guideline Revisions for the Current Fiscal Year
We implemented Guideline revisions in January 2019 (published December 2018) in keeping with the PDCA cycle described at left.
The main points of revision are shown below.

Main Points of Revision

Appointment of Directors and Auditors
Criteria

BeforeRatio of external directors at companies
with nominating committees, audit
committees, etc.

After

Our View

Opposed to appointment of all

A higher level of governance ismore of all directors.

committees. Any vote in favor when
this criteria is not met should only befavor (interim) if it is determined that
there is no hindrance to medium-reflect a currently limited pool ofavailable external director candidates.

directors if independent, external
directors do not make up one-third or(new)

However, it is acceptable to vote in

to-long-term improvement in corporate
value in terms of performance (ROE)
benchmarks.

Independence of external directors

Opposed to selection of candidates
who do not meet independently

Determination of whether to vote for oragainst is based on whether

independence.

independence has been filed with theestablished, detailed criteria for

notification of corporate officer

stock exchange and whether thisnotification can be shared withinvestors and companies.

expected from companies withmade for interim measures which

In the future, all listed companies

should have independent, external
directors in at least one-third of all
director positions.

The appointment of external directors

should be promoted via submission of
notification of corporate officer
independence and the sharing of

criteria/standards among investors andcompanies.

Retirement benefits
Criteria
Payment of retirement benefits

BeforeOpposed in cases where payment

After
Against in principle

Our View
Payment of retirement benefits isof the person in question would bestrongly based on the seniority

inappropriate or when earnings

system and is not consistent withand share price are stagnant.

a robust corporate mindset ofsustained commitment to mediumto-long-term improvement ofcorporate value and maximizing
shareholder interests.

Engagement-focused Exercise of Voting Rights
Although we take great care when creating and publishing our detailed Guidelines, we do not view them as simply cookie-cutter
standards to be robotically applied; we also take into consideration such factors as the investee companyʼs current condition andthe content of our engagement with them. Our decision on how to exercise our voting rights is then made based on acomprehensive assessment of whether or not it will contribute to improvement in the investee companyʼs corporate value. Beloware examples of instances where the results of our engagement efforts led us to vote differently from what the principle criteria of
the Guidelines would have dictated.

Increasing the Size of the Board of Directors
Investee Company A put forth a proposal to significantly increase the size of the Board of Directors (from five directors to nine, of which thenumber of internal directors would increase from three to seven). This was in conflict with the criteria for increasing Board of Director size
stipulated in the Guidelines, and, going solely by this, SMTAM should have voted in opposition to the appointment of all directors. However,Case

as a result of our engagement, we knew that the company was aware that having only three internal directors was too few, and, given thefact that four of the executive officers which it had appointed two years earlier were now sufficiently experienced to take on the role ofdirector, we recognized that the approval of these candidates would help rejuvenate the company, injecting it with new ideas andapproaches that would stimulate debate and discussion on the Board. Also, the Boardʼs composition at the time was skewed towards
directors who all originated from the same business division; this proposal would create a better balance by having directors from fivedifferent divisions. And since we did not feel that the size of the Board after expansion would be too large relative to such factors as thescale of the companyʼs business, we allowed all of these special considerations to justify a vote in favor of the proposal.

24Purposes of Stewardship Activities

Overview

Stewardship Activity Focus Topics for 2018/2019

Engagement

Stewardship Activity Initiatives

Addressing ESG Challenges

Exercise of Voting Rights

Record of exercising voting rights for Japan-listed companies
Voting Record (all company proposals)
Company Proposals
July 2018 - June 2019For

AgainstAbstention

Opposition %19,501

4,693

0

19.4％

Proposals concerning capital policies

1,742

Proposals concerning remunerationfor executives

1,042(excluding those related to articles of incorporation)

Proposals concerningcompany systems

20,878

Total proposals

24,194

Other proposals

2

Proposals concerning articles ofincorporation

530

Breakdown of voting record on company proposals
Proposals concerningcompany systems
Appointment/dismissal of directors
For

17,992

Appointment/dismissal of
corporate auditors
For

100％

2,822

100％

64

Appointment/dismissal of accounting auditors
For

50％

100％

52

52

0％

50％

100％

Introduction/renewal/abolishment of
takeover defense measures
For

For

100％

44

Against

43

1

0％

50％

Shareholder proposals

25

50％

For

15

100％

100％

67

100％

2

Other proposals

Against

515

187

50％

73

50％

0％

530

207
Against

20

0％

100％

Against

6

0％

For

For

835
165

50％

Payment of retirement benefits forresigning executives

0

1,042
Against670

0％

AgainstOther proposals concerning capital policies*2

Proposals concerning articles ofincorporation

For
100％

Restructuring-related*1

0

Remuneration for executives*3

80

50％

For

Proposals concerning
remuneration for executives

Against1,493

0％Against

64

0％

For

440

50％

1,573

Disposal of surplus funds

Against2,3820％(excluding those related to articles of incorporation)

3,738
50％

1,742

Proposals concerning
capital policies

Against14,2540％

20,878Against

2

0

0％

50％

100％

*1 This includes mergers, business transfers
and acquisitions, share swaps, sharetransfers, and corporate splits.
*2 This includes treasury stock acquisitions,decrease in statutory reserves, new shareallocations to third parties, decrease incapital, reverse stock splits, and issuanceof classified shares.
*3 This includes amendments toremuneration for executives, issuance ofstock options, introduction/alteration of
performance-linked remuneration systems,
and executive bonuses.

For

AgainstAbstention

Opposition %

10

140

0

93.3％

Challenges for SMTAM

Reference

Record of exercising voting rights for foreign-listed companies
Voting Record (all company proposals)
Company Proposals
July 2018 - June 2019For

AgainstAbstention

Opposition %29,943

3,727

0

11.1％

Proposals concerning capital policies

5,304

Proposals concerning remunerationfor executives

3,777(excluding those related to articles of incorporation)

Proposals concerningcompany systems

17,661

Total proposals

33,670

Other proposals

Proposals concerning articles ofincorporation

5,977

951

Breakdown of voting record on company proposals
17,661

Proposals concerningcompany systems
Appointment/dismissal of directors
For

100％

586

100％

254

(limits on number of directors, etc.)50％

Appointment/dismissal of
accounting auditors
For

1,873

50％

100％

778

740

For

489

For
0％

50％

Shareholder proposals

100％

100％

6

Presentation of retirement benefits

Against

6

0％

0

50％

100％

100％

194

176

18

50％

For

90

276

50％

AgainstAgainst

5,409

0％

100％

5,977

Other proposals

Against

861

0％

26

50％

0％

951

455

515

Takeover defense measures

Proposals concerning articles ofincorporation

731

Against

0％

For

100％

Against

For
100％

439

Stock options

38

50％

3,040

50％

For
100％

3,777
Against

2,601

0％

12

Mergers, corporate splits, conversions toholding company, business transfers, etc.

30

For

Against0％

Against

1,843

0％

100％

1,300
50％

For

3

Remuneration for executives

AgainstEstablishment of share buyback frameworks

Against251

100％

Profit disposal and loss disposition plans 1,3120％Proposals concerning
remuneration for executives

508

50％

For

Board of Directors

0％

0％

72

50％

For

1,997

Against

514

0％

2,505
AgainstFor

Appointment/dismissal of
corporate auditors
For

Shareholders equity

1,647
50％

5,304

(excluding those related to articles of incorporation)

Against13,301

0％

14,948Proposals concerning
capital policies

568

50％

100％

For

AgainstAbstention

Opposition %

720

350

0

32.7％

26

Purposes of Stewardship Activities

Overview

Stewardship Activity Focus Topics for 2018/2019

Engagement

Exercise of Voting Rights

Stewardship Activity Initiatives

Addressing ESG Challenges

ESG Activity Focus Topics
In 2019 - 2020, our ESG activities will continue to revolve around the four key topics of (1) climate change, (2) water
resources and marine pollution, (3) backing governance reforms, and (4) promoting ESG information disclosure. We
intend to share our awareness of these ESG issues with companies and step up our efforts that contribute to theirimprovement by encouraging companies to draw up and disclose timeline-based measures.

Climate Change
Overview

Water Resources and Marine Pollution
Overview

Under the Paris Agreement that came into force in November 2016,

In addition to the stable securement of water resources, water risks

signatory nations globally agreed to hold the increase in the global

refer to the various water-related problems that affect corporations,average temperature to well below 2°
C above pre-industrial levels

such as contamination of water quality, marine plastic pollution, andand to pursue efforts to limit the temperature increase to 1.5°Ceven the flooding of riverways. OECD anticipates global water

above pre-industrial levels, in order to ensure sustainability.

demand will increase 55% by 2050 if the use of water continues atFurthermore, the Intergovernmental Panel on Climate Change

its current pace. As such, the lack of global water resources and the(IPCC) published its Special Report on Global Warming of 1.5°
C inproblem of water resources management are garnering much

October 2018, which calls for the reduction of greenhouse gasinterest as vitally important environmental issues for society as aemissions to net zero as soon as possible. The use of fossil fuels

whole. At SMTAM, we call on companies to disclose an integrated

must be significantly phased out if these goals of bringing global

code of conduct for water resources management.

warming under control are to be met. At SMTAM, we realize that

The problem of marine plastic pollution stems from the improper

businesses that consume a lot of energy, especially coal, run thedisposal of plastic products which end up in the worldʼs oceans andrisk of ending up with stranded assets in the future; at the same

remain there for extended periods, polluting the water andtime, we view companies with technology which contributes toseriously harming marine life and ecosystems. Not only do fisheryg r e enhous e g a s r e duc t ion, or c omp anie s making r el a t e dindustries bear the brunt of marine plastic pollution, the companies

investments, as promising investment opportunities.

that manufacture and use plastics are also exposed to reputational

In this way we properly assess the risks and opportunities related

risk and even their business operations can be negatively affected.

to climate change and, through our engagements, work to

At SMTAM, we continue to call for measures to be taken

contribute toward the smooth transition to a society with low or

throughout the entire supply chain to address this problem.

net-zero carbon emissions.
Specific Activities

Continued call for policies aimed at addressing marine plastic

Pursuit of engagement activities through the framework of thepollution.

CA100+ initiative.

Explanation of the need for greater awareness of water resource

Pursuit of engagement activities in collaboration with LGIM.

risks and for publicly disclosing a water resource management

Continued engagement with major greenhouse gas-emittingcode of conduct, along with encouragement for action in line

companies both in Japan and overseas.

with the code of conduct.

[Relevant SDGs]

27

Specific Activities[Relevant SDGs]

Challenges for SMTAM

Reference

Backing Corporate Governance Reforms
Overview

Promotion of ESG Information Disclosure
Overview

Society and companies need to work to bolster their

ESG information is becoming increasingly important as informationcompetitiveness by recruiting and harnessing talented personnel,

by which long-term investors evaluate corporate value. Investors do

regardless of their race or gender. At SMTAM, we call on investee

not evaluate ESG as separate, external factors; rather, they look atcompanies to put in place systems and structures capable of

how ESG factors are incorporated into the medium-to-long-term

adapting to global business expansion and changes in the businesscorporate value creation process, and how they affect corporate

environment. We also actively engage in activities aimed atbusiness model sustainability and strategy feasibility.

encouraging investee companies to guarantee the independence of

A t S M T A M , w e e x pl ain t he imp or t anc e o f dis cl o sing t his

their Board of Directors, to make effective use of human capital, and

ESG-related information to investors - in clear and easily understoodto respect diversity. Especially with respect to the hiring of female

language - via integrated reports, securities reports, corporate

personnel, we are a signatory to the 30% Club and Thirty Percent

governance reports, websites and other resources, and we actively

Coalition initiatives in the UK and US, respectively, and have madeencourage investee companies to do so.

active use of the knowledge and expertise that these provide. Also,in May of 2019, we participated in the establishment of 30% ClubJapan and have since been involved in the full-scale implementation

Specific Activities

Encouragement of companies to disclose information regardingof its activities within Japan.

the attainment of the SDGs (i.e., their contributions to solving ESG

Another important issue is that of group governance. For listed

issues and how those, in turn, contribute to earnings).

companies with a controlling shareholder or equivalent major

Promotion of identification of materiality and disclosure via

shareholder (i.e., listed subsidiaries), we feel there is a risk ofintegrated reports as information for investors (engagement

structural conflict of interest between the controlling shareholder

activities through IICEF).

and general shareholders. We therefore encourage information

As an asset management corporate supporter of the TCFD (seedisclosure accompanied by action to avoid such conflicts of interest.

the next page for more information), promotion of effective
corporate information disclosure as well as initiatives aimed atSpecific Activities

Support for higher levels of independence on company boards

appropriately linking this information disclosure with investment
decision-making.

and the promotion of diversity, such as higher ratios of female
directors.
Pursuit of engagement activities in collaboration with LGIM.
Promotion of efforts to disclose information and prevent
conflicts of interest with regard to the issues of publicly listedparent/subsidiary pairs and cross-shareholding.
Promotion of sustainable improvements in earnings power andappropriate capital allocation (balance between growthinvestments and surplus cash returns).

[Relevant SDGs][Relevant SDGs]

28

Purposes of Stewardship Activities

TCFD Initiatives

Stewardship Activity Focus Topics for 2018/2019

Stewardship Activity Initiatives

ESG Integration Enhancement

Support for Recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD) and Disclosure of Information
Status of Examination of TCFD-based Information Disclosure
In February of 2019, SMTAM endorsed the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
Here, we will explain the direction that SMTAM is taking with regard to climate-related information disclosure in line with therecommendations announced by the TCFD.
Established by the Financial Stability Board (FSB), the TCFD has issued recommendations aimed at reducing the risk of financial
market instability by having companies analyze their medium-to-long-term business risks and opportunities stemming fromclimate change and then provide financial disclosures reflecting this analysis.
Financial institutions need to play a leading role in finding and implementing solutions to environmental and societal
sustainability-related challenges. As a member of the Sumitomo Mitsui Trust Group, which declares itself to be the number one
financial institution in Japan for ESG management, one of our core principles is to use asset management as a means ofcontributing to the sustainability of society while improving corporate value. Our endorsement of the TCFDʼs recommendations
represents a clear reiteration of this principle. By using our engagement with investee companies to advocate for disclosure ofclimate change information as well as to encourage concrete action to address the problem of climate change, we are helping
improve the sustainability of investee companies and, by extension, the market as a whole.
The recommendations announced by the TCFD call for companies and other organizations to disclose climate change-related
information in the four core areas of (1) governance, (2) strategy, (3) risk management and (4) metrics and targets. We are
currently examining each of these areas and plan on disclosing the relevant information during the 2020 fiscal year. Below is apartial overview of the current TCFD disclosure-focused climate change-related risk management that we conduct for our
portfolio.

TCFD climate change-related
information disclosure standards
Promotion of
information disclosure

TCFD framework

Climate changerisks

Responsible
institutional investors

Implementation of
information disclosure

Climate change
opportunities

Reflected in business strategies and risk management

Listed companies

Ascertainment of financial implications

Utilization in investment
decisionsDisclosure in annual financial reports, etc.

Enhancement of reliability
and comparability of information

29

Utilization in
self-assessments

Challenges for SMTAM

Reference

TCFD Disclosure-focused Climate Change-related Risk Management for the SMTAM Portfolio (Overview)
Risk Analysis and Assessment
At SMTAM, our policy is to assess the climate change risk of our portfolio for each asset class and, by extension, assess our asset
management as a whole. Our assessment method involves using (1) fixed point analysis based on the disclosed share listing names
held in our portfolio, along with their performance figures, and (2) transition pathway analysis based on future climatechange-related scenarios. The results of this assessment will be put to use in our engagement activities and other endeavors.
As an example, the following is a summarized disclosure of analysis results related to domestic shares managed by SMTAM. The
analysis was carried out using the data and analysis methods of an outside organization*1.
(1) Fixed Point Analysis (for entire domestic share portfolio; data is current as of the end of June 2019)
This is an attempt to ascertain the status of Greenhouse Gas Emission Exposure and other conditions at a fixed point in time, based on investee company disclosure dataand other information. Total greenhouse gas emissions for all investee companies represented by domestic shares managed by SMTAM is 96.3 million tCO2e*2, which isslightly below the total emissions for an equivalently sized portfolio with the same share listing names and composition ratio as our main benchmark (TOPIX). Bothportfolios have similar trend lines when scope and industry-specific emissions are compared.
Looking at industry-specific emissions shows that utilities and materials account for 70% of total emissions. Notably, even when we look at portfolio emissions per unit ofsales, we see that these two industries still contribute nearly 60% of total emissions.

Comparison of Annual Greenhouse Gas Emissions

Industry-speciﬁc Breakdown of Greenhouse Gas Emissions for the SMTAM Portfolio(amounts in millions of tons of CO2e)

100

General consumer goods and services

96.3

97.6

Daily necessities

5%

Utilities
80

15%

37%

Scope 360

Capital goods and services

3%

40

Information technology

Scope 2

20

*3

33%

Scope 10

Energy3%
4%

SMTAM Portfolio

Materials

Benchmark (TOPIX)(According to the Global Industry Classification Standard)Comparison of Greenhouse Gas Emissions per Unit of Sales*4
Telecommunications and services
Finance
Daily necessities
Health care

SMTAM Portfolio

Information technology
Real estate
Materials

Capital goods and services

Utilities

EnergyGeneral consumer goods and services

Benchmark(TOPIX)
0

20

40

60

80

100

120

140

(amounts in tCO2e per million US dollars)*1 Institutional Shareholder Services Inc.
*2 ton of CO2 equivalent*3 Scope 1: Direct emissions (direct emissions produced by the companyʼs factories, oﬃces, vehicles, etc.)
Scope 2: Indirect emissions (energy source-related emissions for which the company is indirectly responsible, such as those stemming from the companyʼs power consumption)
Scope 3: Other indirect emissions (emissions from the entire supply chain, i.e., not only the companyʼs emissions but also emissions related to company activities upstream and downstream)*4 Scope 1 + Scope 230

Purposes of Stewardship Activities

Stewardship Activity Focus Topics for 2018/2019

TCFD Initiatives

Stewardship Activity Initiatives

ESG Integration Enhancement(2) Transition Pathway Analysis
Transition pathway analysis assesses how the portfolioʼs climate change risk will change in the face of different scenarios for future climate change. The projected
greenhouse gas emissions of the portfolio are compared with the projected carbon budgets calculated according to different climate change scenarios, and thisproduces an assessment of the portfolioʼs resilience relative to the different scenarios over time. The portfolio was specifically compared against the 2℃ scenario*5 of theParis Agreement, as well as a 4℃ scenario and 6℃ scenario. Assuming the current level of the portfolio is maintained, its emissions would remain within acceptable levels
for the 2℃ scenario until 2037, after which time it is highly likely to exceed them.

Estimated Future Greenhouse Gas Emissions of the Portfolio in Comparison with Various Climate Change Scenarios*6(amounts in millions of tons of CO2e)80

6℃ scenario
70

60

4℃ scenario

50

40

SMTAM Portfolio

2℃ scenario

30

20

Exceeds permissible emission volume in 2037
10

0

2020

2025

2030

2035

2040

2045

2050 （year）

Assessment Results and Direction of Future Response
Based on the fixed point analysis and transition pathway analysis, our current portfolio of domestic shares as a whole is not at any
major risk relative to the benchmark; however, we recognize that a problem is likely to emerge in the future if the current pace ofemissions is maintained, as they will eventually exceed the level permitted under the 2℃ scenario.
We are therefore actively pursuing the following initiatives aimed at reducing greenhouse gas emissions. With regard to the
TCFDʼs climate change-related requirements for governance, strategy, etc., we are currently investigating options for how best toachieve them.
Evaluate the status of investee companiesʼ initiatives aimed at promoting efforts which contribute to the transition to a low or net-zero carbon emissions society,such as greenhouse gas reduction, renewable energy use, energy-saving measures adoption and fossil fuel alternatives-based product development.
And use active engagement to promote information disclosure and action with regard to the problem of climate change.
Utilize collaborative engagement activities (IICEF, CA100+, PRI, etc.) with other institutional investors to encourage investee companies to disclose climatechange-related information and take action.
Work with the TCFD consortium and other relevant government authorities and organizations to recommend adoption of climate change-related information
disclosure by stock exchanges and other financial institutions both within Japan and overseas.

*5 A multinational, international convention (agreement) on climate change reduction adopted at the 21st Conference of the Parties of the UNFCCC in Paris on December 12, 2015.
The long-term goal of the Agreement is to hold the increase in the global average temperature to well below 2°
C above pre-industrial levels and to limit the temperature increase
to 1.5°
C above pre-industrial levels.
*6 Scope 1 only31

Challenges for SMTAM

Reference

ESG Integration Enhancement
Since 2015, we have sought to apply ESG integration to the active management of domestic shares, domestic
corporate bond investments and other operations by incorporating MBIS®, our proprietary developed non-financial
information evaluation tool, into traditional investment methods. As soon as these efforts got on track, they
immediately started producing results; so, in order to further accelerate them, we have worked to enhance ESG
integration by expanding our methods and target assets (see Figure 1-4 below).
We are currently also revising our approach to ESG-minded stock screening. With regard to the stock of companies
which manufacture Controversial Weapons, specifically cluster bombs and anti-personnel mines, it has always been
our policy to remove them as active fund investment candidates when their corporate situation does not makeengagement possible. We have added biological and chemical weapons as reasons for exclusion, and this now
extends not only to the companies stocks but also bonds. Japan has signed and ratified conventions prohibiting thedevelopment, production and stockpiling of these four categories of weapons, as well as governing their destruction.

New initiative

Revision (updated)

1

ESG Materiality

ESG screening

All active products: ESG-minded stock screening

Enhancement target process
Sumitomo Mitsui Trust
Research Institute

ESG investment evaluation(non-financial information)

ESG integration

External ESG data vendors, etc.

Reflection
in investment
decisions

ESG monitoring

Quantitative assessment based on proprietary and external data in light of SMTAM materiality

Domestic shares

Domestic bonds

Foreign shares

Foreign bonds

J-REIT

2

2

3

3

4

MBIS®-based
evaluation(enhancement)

MBIS®-based
evaluation(enhancement)

In-house ESG score

In-house ESG score

In-house ESG score

Consideration in line with portfolio characteristics

Management and risk committee

32

Purposes of Stewardship Activities

TCFD Initiatives

Stewardship Activity Focus Topics for 2018/2019

Stewardship Activity Initiatives

ESG Integration Enhancement

Identification of ESG Materiality
We have performed identification of ESG
materiality. Previously, we have used the UN
Global Compact as our ESG guidelines whendeveloping our response policies for ESG issues;

Risks

however, based on a review of the SDGs, theSASB (Sustainability Accounting Standards
Board), etc., we have reorganized our ESG
investment evaluation items and response
policies within a framework of ESG materiality.

Opportunities

E (Environmental)

S (Social)

G (Governance)

Climate Change

Human Rights &Community

Behavior

Natural Capital

Human Capital

Structure

Pollution & Waste

Security & Liability

Stability & JusticeEnvironmental
Opportunities

SocialOpportunities

GovernanceImprovement

MBIS® Evaluation Enhancement
The MBIS® is our proprietary, non-financial information evaluation tool which we have used since 2015 to evaluate domestic sharesand bonds. Our analysts use MBIS® to help them gather, analyze and evaluate non-financial information which cannot be expressedin terms of financial data for the companies they cover; such information includes the level and sustainability of added value for acompanyʼs products and services, the governance system which supports the added value the company provides, and thecompanyʼs impact on the societal and environmental foundations which sustain its growth. MBIS® is an acronym which stands forManagement (M), Business Franchise (B), Industry (I) and Strategy (S). It is the M which comes into play when evaluating
efforts aimed at risks associated with ESG issues, and it is the S which comes into play when evaluating efforts aimed atcommercializing and capitalizing the opportunities associated with ESG issues.
Now, in line with the newly established ESG materiality framework, we are reorganizing and revising the MBIS® evaluation items
pertaining to ESG issues and are working to enhance MBIS® evaluation through, among other means, the use of external ESG data
vendor-driven ESG evaluations. Although the concept of the SDGs has already been a part of our evaluations, we are working tobolster it further so that we incorporate the 17 goals more fully into our engagement and evaluation.

Strategy execution capabilities
ESG initiatives
Improvement and innovation capabilities● Capital and investment eﬃciency

ESG Materiality (new)●●●Checklist (14 items)

B

Business FranchiseI

Industry

S

Strategy

Client value● Client base● Barriers to entry●

Checklist (7 items)
Market assumptions● Competitive environment● Regulations and policies●

External ESG data, etc.*

M

Checklist (20 items)

Management

Risks

E (Environmental)

S (Social)

G (Governance)

Climate Change

Human Rights &Community

Behavior

Natural Capital

Human Capital

Structure

Pollution & Waste

Security & Liability

Stability & JusticeEnvironmental
Opportunities

SocialOpportunities

GovernanceImprovement

Checklist (10 items)
MarketingEarnings contributions from ESG
Business portfolio● Investments, M&A, etc.
●●●

Opportunities

Strengthen Connection with SDGs

*Evaluations conducted by analysts using external ESG data and other resources for reference

33

https://www.un.org/sustainabledevelopment/Challenges for SMTAM

Reference

Utilization for In-house ESG Scoring and Stock Selection
Clarifying core ESG evaluation factors as part of establishing ESG materiality has made it possible to perform in-house ESG scoring,even in regards to the stocks of foreign companies and other assets outside the scope of MBIS® evaluation. Using ESG materiality
as a base, we identify the ESG issues of investee companies and then utilize external ESG data and other resources to perform
three-tiered, in-house ESG scoring. This score is taken into account when qualitatively assessing earnings and valuation in the caseof shares, or creditworthiness or spread in the case of corporate bonds, and it is thus reflected in stock selection.*
Also, amongst domestic shares, in-house ESG scoring enables ESG evaluation of companies not covered by our analysts. For
domestic corporate bonds as well, in-house ESG scoring is used for stock selection in addition to the traditional MBIS® evaluation.

ESG Integration Enhancement in J-REIT Funds
ESG Integration Enhancement
In order to maximize medium-to-long-term investment return for our customers, we prioritize sustainable growth in the value ofinvestment shares. In the area of J-REIT management, it has been our practice to independently evaluate each investment
corporationʼs ESG efforts, such as the environmental-friendliness of owned properties, and to then make investment decisions withresults of this evaluation in mind. There has been remarkable progress in the ESG efforts of the various investment corporations,and the Sumitomo Mitsui Trust Research Institute, which advises us on J-REIT management, has also developed an ESG evaluation
system which provides us with ESG scores that have allowed us to enhance ESG integration in J-REIT management.
(4)Financial status evaluation(1) Owned property
quality screening（2）Managing company
qualitative evaluation(5)Other qualitative evaluation

Excess investment
returnstrategy

ESG evaluation enhancement

Portfolio decision
ESG evaluation by SMTAM（3）Individual brandinvestment equity valuation

External ESG evaluation

Sumitomo Mitsui Trust Research Institute

Provision of ESG evaluation for all listed companies

J-REIT ESG Evaluation by Sumitomo Mitsui Trust Research Institute
The Sumitomo Mitsui Trust Research Institute (SMTRI) is a think-tank established in 1988 which specializes in urban and realestate-related research and consulting. Thanks to the firm foundation which it has built after many years of research and study inthese areas, SMTRI not only provides real estate investment evaluation-related research services but also robust consulting
services for the domestic and foreign real estate markets, real estate finance and infrastructure and PPP.
With regard to J-REIT analysis, SMTRI has served as an investment advisor to institutional investors since the start of J-REIT in
March 2004.
Now, SMTRI uses the J-REIT-related knowledge it has cultivated over many years to enable it to evaluate the appropriateness of
individual investor corporations handling of ESG issues, which is based on publicly available documentation, and to provide
investors with ESG scores for J-REIT.
Evaluations look at four major considerations: the ESG promotion framework and initiatives related to the environment, society
and governance. Each item has its own checklist by which it is scored. The checklists are developed based on a comprehensive
survey of the various initiatives disclosed by the individual investment corporations and then they are selected in considerationof how well they address SDGs as well.
*Scheduled to be completed by December 201934

Purposes of Stewardship Activities

Stewardship Activity Focus Topics for 2018/2019

Stewardship Activity Initiatives

Responding to the Stewardship CodeAt SMTAM we are addressing the principles of the Stewardship Code via the initiatives described in the table below.
And, moving forward, we will continue to fulfill our stewardship responsibilities.

Principle 1
Policy formulationand disclosure

Principle 2
Conflict of interest
management

Initiative

Self-assessment

・We formulated and disclosed Sumitomo Mitsui Trust Asset・We think our response at present is appropriate, but weManagementʼs Guidelines on the Principles of Japanʼswill review our response from time to time when we deem

Stewardship Code.

it necessary.

・As the managing company of the Sumitomo Mitsui Trust・We think our response at present is appropriate, but weGroup, we have put in place an essential conﬂict ofwill continue to work at improving our conﬂict of interest

interest management system.

management capabilities as environmental changes andother factors warrant.

・W e h a v e d i s c l o s e d s u m m a r i e s a s n e e d e d o f t h edeliberations of the Stewardship Activities Advisory
Committee.

Principle 3
Accurate understanding

・We applied a top-down approach to engagement on

・By March 2018, we had engaged with companies whichprescribed focus topics, conducted in-depth analyses on(cumulatively) cover 90% of the total market capitalizationcompanies with which we have ongoing engagement andof TSE1. The amount of corporate action undertaken in

made other conscious eﬀorts to improve and enhance theline with the content of engagement is also increasing.

quality of our engagement.

Moving forward, we will continue to pursue further
qualitative enhancement.

・We increased the relative level of engagement that wedevote to social and environmental issue responsivenessPrinciple 4
Dialog with companies

and misconduct prevention agenda development.
・W e p u r s u e d e n g a g e m e n t w i t h d o m e s t i c i n v e s t e ecompanies based on the CA100+ initiative.

・We undertake engagement activities that are not biased
towards any speciﬁc agenda.
・The activities that we undertake based on the CA100+
initiative are focused on both achieving results as well asaccumulating knowledge.

・We disclosed our voting records on all proposals for all

・We think our response at present is appropriate, but weissues we hold (in Oct 2018 and Jan, Apr, and Jul 2019).

will work to maintain and enhance the transparency of our
exercise of voting rights going forward.

Principle 5
Exercise of voting rights

・We revised and published our Guidelines for the Exerciseof Voting Rights (in Jan 2019).

・Moving forward, we will continue to revise our Guidelines
for the Exercise of Voting Rights in a timely andappropriate manner, taking into consideration such factors
as environmental changes facing companies and changing
corporate governance practices.

・W e c o n t i n u e t o p r o v i d e e x p l a n a t i o n s a b o u t o u r
stewardship activities to asset owners.

Principle 6
Reporting to clientsand beneficiaries

Principle 7
Development of skills

35

・W e t h i n k o u r r e s p o n s e a t p r e s e n t i s a p p r o p r i a t e ,considering our direct reporting to asset owners, ourhosting of client seminars, the release of our Stewardship・We released our 2018/2019 Stewardship Report in
December 2018.

Report, and the enhancement of information disclosed on
our website.

・We began issuing reports in a smart format which oﬀers

・Moving forward, we will endeavor to report in a timely anda uniform format for reporting on asset manager

appropriate manner and also improve and expand thestewardship activities.

content of our activity reports.

・In June 2019, reached an agreement with Legal & General

・We collaborate with LGIM in pursuing engagement

Investment Management (LGIM) on ESG activity-related

activities which are results-focused and which facilitate thecollaboration.

development of stewardship activity skills via theaccumulation of more and deeper knowledge.

Challenges for SMTAM

Reference

Active Involvement in the Principles for Responsible Investment (PRI)
Established with the support of the United Nations, the Principles for
Responsible Investment (PRI) encourage institutional investors toincorporate environmental, social and governance (ESG) factors into theirinvestment decision-making processes. The 100 signatory institutions to
the PRI at the time of its launch in April 2006 represented total assets
under management (AUM) of US$6.5 trillion, but as of March 2019, the

PRI Assessment of SMTAM 2019
Strategy and governance(comprehensive assessment)

A＋Integration status of listed equity
into responsible investment

A＋

Active ownership in listed equity

A＋

number of signatories had increased to 2,372, representing total AUM ofaround US$82 trillion and a strong indication of the growing importance of
responsible investment. Since becoming a signatory to the PRI in May
2006, we have drafted policies in accordance with the six principles andEngagement

A＋

Exercise of voting rights

A＋

implemented initiatives in light of the latest developments.
The PRI evaluates each signatory with respect to their commitment to andprogress on implementing the six principles based on their reports. A
score of A+ is the highest, while E is the lowest. As shown in the table to
the right, we have collected favorable scores on the whole and received aFixed income investment (e.g., government bonds)

A

Fixed income investment (e.g., corporate bonds)

A

comprehensive assessment score of A+ for the fifth year in a row. We willcontinue with our active involvement in the PRI going forward and will
make every effort to maintain and improve our ratings.

We will incorporate ESG issues into investment analysis and decision-making processes.
Principle 1

We analyze and evaluate non-ﬁnancial information, such as management thoroughness, strategy execution capabilities, and capacity for reform, withthe aim of identifying improvements in or maintenance of sustainable corporate value at investee companies. Furthermore, we seek to implement
initiatives (ESG integration) that utilize the knowledge gained from our analyses and evaluations in our investment management operations.

Principle 2

We will be active owners and incorporate ESG issues into our ownership policies and practices.
We conduct engagements and exercise voting rights with ESG issues in mind; through these activities, we encourage investee companies toimplement appropriate initiatives to tackle ESG challenges.

Principle 3

Principle 4

We will seek appropriate disclosures on ESG issues by the entities in which we invest.
We seek appropriate disclosure of ESG issues from investee companies.

We will promote acceptance and implementation of the Principles within the asset management industry.
We actively promote engagement and awareness-raising activities with investee companies so these Principles gain acceptance and are
implemented in the asset management industry.

Principle 5

We will work together to enhance our eﬀectiveness in implementing the Principles.
We collaborate with investment institutions in Japan and overseas through participation in PRI-sponsored working groups and involvement insignatory bodies established with the aim of resolving ESG issues in order to improve eﬀectiveness in implementing the Principles.

Principle 6

We will report on our activities and progress towards implementing the Principles.
We implement these Principles and produce and issue reports that meet the requirements for signatories to disclose their activities and progress
towards implementing them.

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Purposes of Stewardship Activities

Stewardship Activity Focus Topics for 2018/2019

Stewardship Activity Initiatives

Cooperating with Global Initiatives
As a signatory to international guidelines and principles for corporate conduct, we engage with investee companies
while cooperating with the United Nations, overseas companies, NGOs, and other organizations to implement
activities in keeping with our signatory commitments.

Signatory to the Principles for Responsible Investment

Signatory to Climate Action 100+

SMTAM became a signatory to the UN-supported Principles for

Climate Action 100+ is a five-year joint engagement initiative

Responsible Investment (PRI) in May 2006 when it wasthat started in December 2017. It targets companies thought toestablished as a spin-off from the UN Global Compact andbe major greenhouse gas emitters. This initiative is based on the

United Nations Environment Programme Finance Initiative (UNEP

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

FI). The principles encourage institutional investors, such as

through joint engagements with signatory bodies such as the PRI

pension funds and asset managers, to incorporate environmental,

and Ceres, it calls on the worldʼs top 100+ greenhouse gas

social and governance (ESG) factors into investment

emitters to disclose information. SMTAM is responsible for thedecision-making processes. SMTAM participated in the water

Asia-Pacific region in conducting its engagements.

risk, palm oil and forest conservation working groups andengaged with investee companies regarding these issues.

Signatory to AIGCC
Signatory to Ceres
The Coalition for Environmentally Responsible Economies (Ceres)is an NGO promoting corporate initiatives relating toenvironmental issues such as global warming. Ceres actively

The Asia Investor Group on Climate Change (AIGCC) is an
initiative that aims to create awareness among asset owners andfinancial institutions in Asia about the risks and opportunities
pertaining to climate change and low-carbon investments.
SMTAM actively participates in engagements through the AIGCC.

carries out engagements through its network of 150 institutional
investors mainly in North America.

Signatory to CDP
Signatory to the United Nations Global Compact
Proposed by former UN Secretary-General Kofi Annan, the UN
Global Compact is a set of principles for business conduct
regarding human rights, labor, the environment andanti-corruption. Signatory companies are called on to takemeasures toward implementing the principles. In July 2005, theSumitomo Mitsui Trust Group signed the compact, becoming thefirst Japanese bank to do so, and declared its resolve to act as agood corporate citizen by complying with and promoting thecompact. The Group also became a member of the Global
Compact Network Japan (GCNJ), in which signatory companiesof the UN Global Compact participate.

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Formerly the Carbon Disclosure Project, the CDP is aninternational NGO founded in 2000 to address environmental
issues such as climate change. Every year this project sends
questionnaires to the biggest companies by market capitalizationin major countries and the response rate from the companies isgradually increasing over the years. The responses are usually
made public and the CDP also releases its scoring of company
initiatives. This scoring is increasingly being used as a key
measure of corporate value.

Challenges for SMTAM

Reference

Signatory to FAIRR

Signatory to ICGNSMTAM participates in the Farm Animal Investment Risk & Return

The International Corporate Governance Network (ICGN)(FAIRR) initiative, a joint engagement organization that addresses

exchanges information and views related to corporate

issues mainly in the fishery and livestock industries. SMTAM also

governance issues on a global scale and provides various support

takes part in FAIRRʼs collaborative engagement program,and consultation services so that companies can execute

Sustainable Protein Supply Chains. The FAIRR initiative raises

outstanding corporate governance practices.

awareness of material ESG risks and opportunities caused byfishery and farming products for the target companies andcontributes to the improvement of corporate activities. SMTAM
aims to globalize its engagement activities and by doing so,
acquire knowledge and establish its presence.

Signatory to CII
The Council of Institutional Investors (CII) is an NPO establishedin 1985 by mainly major institutional investors for the purpose of
sharing information and views about corporate governance andSignatory to Access to Medicine
Access to Medicine is a foundation that brings together leading
asset managers and asset owners from Europe and the US.
These signatories call for the major global pharmaceuticalshareholder rights. Twice a year SMTAM attends the CIIʼs global
conferences of signatory organizations in the US and internallyshares the high value-added information it gleans from theconferences to enhance its stewardship activities.

companies to raise awareness about medical services andimprove access to medicine in developing nations. SMTAM is
stepping up its engagements with global pharmaceuticalcompanies.

Signatory to Investor Agenda
The Investor Agenda is a collaborative initiative among
institutional investors which seeks to promote climatechange-related action and the transition to a low-carbon society.

Signatory to Thirty Percent Coalition (US), 30% Club (UK) and 30% Club Japan

It was established in February 2018 by asset managers who are

These investor networks promote greater diversity on the boards

and institutions). Signatories collaborate with one another onof directors at investee companies. SMTAM is a signatory andactive participant with both the US-based Thirty Percent
Coalition and the UK-based 30% Club Investor Group. In May
2019, SMTAM also became a founding signatory of the 30% ClubJapan Investor Group and, as part of the Group, has been
undertaking initiatives aimed at promoting investee company
diversity.

PRI, CDP and Ceres signatories (approximately 480 organizations
investment, corporate engagement, investor information
disclosure and policy proposal efforts. SMTAM became asignatory to the Investor Agenda in June 2019, which coincidedwith the G20 Summit in Osaka where the leaders of the worldʼsmajor nations were discussing policy recommendations for swift
action on climate change. The Investor Agenda provides aframework within which to offer proposals in line with the Paris
Agreement to governments around the world.

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Inquiries:

Sumitomo Mitsui Trust Asset Management Co., Ltd.
Stewardship Development Department (ss̲oﬃce̲hp@smtam.jp)
Please send any inquiries regarding this Stewardship Report to the above email address.