April 2024

UK Stewardship Code

Foreword

At Sumitomo Mitsui Trust Asset Management, weunderstand trust is earned not given. We havecultivated long-standing relationships of trust withindividual investors and public and private pension
clients in Japan. We also offer our funds and solutions
in overseas markets through our subsidiaries including
UK-registered Sumitomo Mitsui Trust International.
In 2021, we established our corporate vision statement:‘Your goals are our goals. Your success is our success.’
This philosophy is aligned with the needs of our diverse
stakeholders, including employees, customers, business
partners and local communities.
The concept of rewarding our diverse stakeholders has
no borders. We believe that our response to the UK
Stewardship Code is consistent with the universal andglobal approach we seek to foster.
Through unceasing efforts to maximise the return on
the assets entrusted to us and to solve wider social
issues, we hope to continue to earn the trust that has
driven our business since its establishment in 1986 andhas made us one of the largest asset managementcompanies in Japan and Asia.

A pioneering approach to ESG
A surge in interest in ESG and sustainable investing has
led to a discussion about the role asset managers
should play both in Japan and globally. We strongly
recognise the importance of our role to promote theconcepts of ESG and sustainability through discussions
with various stakeholders in Japan and abroad.
We have been a pioneer among Japanese asset
management companies in acquiring advanced
knowledge in sustainability by leveraging our strengthand collaborating with various global initiatives.
Issues related to the natural environment, human rights,
and corporate governance are global in nature. In thissense, we believe that we can return the knowledge wehave gained from overseas activities and contribute to
the further enhancement of the Japanese market.
One example is our participation in the UK's 30% Club,an initiative that asks companies to commit to diversity
as a business objective and aim for at least 30% female

representation. This is an important issue for Japanesecompanies and our clients, and I have personallyparticipated in a related initiative, the 30% Club (Japan)
since its inception. I also served as chair of its Investor
Group until March 2024, when my term expired. The
initiative has already yielded results, with every TOPIX
100 firms expected to have female board
representation by spring next year.
We have also seen the benefits of meeting global
best-in-class standards elsewhere too. For example,
Japanese equities has seen a significant increase ininterest from overseas investors in recent years. The
origins of this trend can be found in the Japanese
Stewardship Code and Corporate Governance Code,which were established in 2014 and 2015 respectively.
These codes have paved the way to solving structuralproblems unique to Japan, such as cross-shareholdings
and increasing board independence.

Responding to regulatory change
The rising interest in ESG and sustainable investing has
also resulted in rapid progress in the delivery of global
regulations such as Sustainable Finance Disclosure
Regulation and Task Force on Climate-related Financial
Disclosures. This has been mirrored in Japan with the
Cabinet Office Ordinance on Disclosure of Corporate
Information requiring disclosure on sustainability
approaches and initiatives from January 2023.
In response to these trends, we have extensively
reviewed and updated our internal process andstructures. This included the establishment of ourSustainability Committee in October 2023.
We have consolidated various sustainability-related
responsibilities, developed frameworks for several
sustainability processes, and reorganised the authorityof the Sustainability Committee to enhance its
governance functions. We also recently established a
Sustainability Planning Team to enhance oursustainability capability and address a wide range ofsustainability issues.
As regulations in Japan and abroad continue to evolve,
asset management institutions will be required tooperate more effectively and efficiently. In addition tocomplying with regulations, we will fulfil our role bydiscussing changes and responding to the needs of our
stakeholders in Japan and overseas. Through efforts tomaximise the return on assets and to realise aprosperous society, we hope to continue to earn thetrust that drives our business.

Yoshio Hishida
Representative Director and President

Contents
Principle 1

3

Principle 2

10

Principle 3

18

Principle 4

21

Principle 529

Principle 632

Principle 7

38

Principle 850

Principle 953

Principle 1066

Principle 1179

Principle 1282

Case study index

93Principle 1
Signatories’ purpose, investment beliefs, strategy, and culture enable stewardshipthat creates long term value for clients and beneficiaries leading to sustainable
benefits for the economy, the environment and society.

At Sumitomo Mitsui Trust Asset Management (SuMi TRUST AM) helping our clients to prosper in the medium tolong term is foundational to the success of our asset management business.
Our clients entrust us with approximately ¥86 trillion in assets under management, making us one of the largest
asset management companies in Asia. Assets under management include ¥71 trillion in the investment advisorybusiness and approximately ¥15 trillion in the investment trust business.
We are committed to rewarding the trust our clients place in us and retaining our leading position in key
markets. This includes a 21.0% share of the DC investment trust market in Japan.
The following is a breakdown of assets under management by asset class and client type.

Chart 1.1 - Client overview
AUM breakdown by asset class
9%

Retail investor

Others38%

Total
JPY85.7tn
Fixed Income

AUM breakdown by client type54%
Equities

17%

17%

Mutualfund

Sovereign Fund

4%

Other

11%

55%
Publicpension

13%
Corporate pension

83%
Institutional Investor(Source: SuMi TRUST AM, as of end-September, 2023)

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UK Stewardship Code 2024

(Source: SuMi TRUST AM, as of end-September, 2023)

Principle 1

As a responsible institutional investor, which has endorsed the Japanese version of the Stewardship Code andis a signatory to the UN PRI, we aim to maximise investment returns and contribute to the sustainable growth ofcompanies and society as a whole by encouraging investee companies to address ESG issues throughengagement, voting and the incorporation of ESG factors into the investment decision-making process.
PURPOSE
Our purpose is driven by our corporate philosophy,
vision, and mission. It is delivered through our corevalues, see Chart 1.2.

VISIONYour goals are our goals. Your success is our
success.

CORPORATE PHILOSOPHY
With a broad global perspective, we exchange ideas
with diverse stakeholders and continue to explore
possibilities that will lead to a better future. We willtake on the challenge of creating a meaningfully
enriched society.

MISSION
We strive to create the new standard of asset
management that acknowledges the aspirations of
all our investors and stakeholders and work witheach of you every step of the way.

Chart 1.2 - Core values• Stand in the shoes of others and engage in dialogue with empathy.
• Have self-awareness and seek constant self-improvement.
• Expand curiosity and transform awareness into action.
• Create synergies by bringing unique personalities together.
• Pursue quality and value that goes one step ahead.
• Look ahead to the future, continuously challenging ourselves.
(Source: SuMi TRUST AM)

Company History

Business Model and Strategy

Our heritage dates to 1986 with the establishment of
Chushin Capital Management Co, Sanshin CapitalManagement Co. and Sumishin CapitalManagement Co. The current organisational
structure was established in October 2018 byintegrating the asset management functions of
Sumitomo Mitsui Trust Bank.

Our relationship with our clients is characterised byenduring relationships and long-term objectives,
which is a foundational principle of our trust bankheritage of asset management and administration.

We are the core asset management firm within the
Sumitomo Mitsui Trust Group. Sumitomo Mitsui
Trust Group will celebrate its 100th anniversary in
2024.

In addition to maintaining and strengthening
relationships of trust with clients, we are focused on
improving profitability through more efficient
operations, providing new investment services, andoffering unique investment opportunities.

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Client overview - home market
Institutional investor
As the asset management company of Japan's
largest trust bank group, our business model iscalibrated to deliver both independent asset
management services to institutional clients andto offer integrated services with the group's
institutional investor clients such as pension
funds.

Retail investor
In terms of retail business, our primary focus is on
designing and engineering products to meet
evolving client needs.
We have a track record for managing innovative
funds with an enduring advantage over competitor
offerings. Flagship funds include a global technology`5G` fund and J-REIT real estate funds. We havelaunched a decarbonisation fund that offer benefits
for investors with a medium to long-term
perspective.
In addition, we are seeking new ways to engage andexpand assets under management from our retailcustomers through digital marketing and services.

We have a track record for
managing innovative funds with anenduring advantage overcompetitor offerings.
Client overview - overseas market
Assets under management for overseas investors
exceeded ¥3 trillion. Our clients are primarily
institutional investors, public pension or sovereign
wealth funds. In terms of geographical dispersion,
we target clients in Europe, US, Southeast Asia andthe Middle East. We offer solutions including
Japanese active equities as well as Japanese andglobal passive solutions.

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UK Stewardship Code 2024

Although our portfolio management functions arelocated in Japan, the depth and breadth of ourexpertise allows us to differentiate our offering andexpand our business model from Japan to overseas
markets.
Another key competitive advantage stems from ourexperience and knowledge gained throughengagement activities in Japan, both through a
top-down approach based on ESG themes and abottom-up approach that leverages detailed
interaction with investee companies.
Furthermore, we are harnessing our expertise gained
from engagement on ESG issues in the US andEurope and by participating in related global
initiatives to share knowledge with institutional
investors and investee companies in Asia and Japan,
which still lag global best practice.

Management
Our company structure is composed of the Board of
Directors, who oversee the overall governance, andan Executive Committee, with the role of driving thecompany's growth, and relevant committees
supporting the Executive Committee.
The relevant committees with delegated authority
include the Investment and Risk Committee, theProduct Committee and the new Sustainability
Committee, which was established in October 2023.
All our executive team have experience, knowledge,
and background in the investment managementbusiness.
The composition of our Board of Directors ismanaged to reflect appropriate skillsets and relevant
experience. We also place a significant weight on the
independence and diversity of the board with four
independent outside directors, representing half ofthe board, two foreign nationals, and two women,
see Chart 1.3.

Principle 1

Chart 1.3 – Details of board of directors
Non independent directors

Foreign nationals

Men

Independent external directors

Women(Source: SuMi TRUST AM)

Only two executive officers, participate in the board of directors. Since our chairman is on the board, thepresident is effectively the only executive officer of the board.

Human Resources
In terms of our workforce, we have 713 employees,
including overseas entities, with high retention rates
and diverse specialties. Within the investment teams,
the average tenure of our analysts is approximately
18 years and the average tenure of our fundmanagers approximately 16 years, as of September
2023.

Our investment philosophy and theimportance of ESG
Our pursuit of medium- and long-term investment
returns on the assets entrusted to us by our clientshas led to a significant emphasis on sustainable
investing practices, including stewardship and ESG
integration.
This is a reflection of the long-term investment
horizon of our clients and beneficiaries in Japan,
which is our core business base. This includes
pension funds, mainly Japanese public pensions, butalso increasingly retail investors deploying DC andNippon Individual Savings Account (NISA). NISA is a
tax exemption investment programme introduced by
the Japanese Government, as a source of long-term
investment funds, in line with the Japanese
Government's advocacy of 'new capitalism'.

The role our stewardship activities is particularly
important given our significant passive fundmanagement client base who are universal asset
owners seeking to raise market returns, or so-called
beta. Our strength in terms of number of fundmanagers, analysts and other personnel withinvestment management experience, as well as ourleadership in practical stewardship activities, allows
us to benefit from the medium- and long-termbusiness strategies of portfolio companies.
Furthermore, as one of the largest asset managementcompany in Japan and Asia, we have an importantrole to play in guiding companies and clients inJapan and Asia about global best practice gained
from engagement within advanced economies ofEurope and the US.
To this end, we have been actively accumulatingknowledge through participation in a number ofglobal initiatives, as well as from dedicatedstewardship staff assigned to overseas offices. We areleading in stationing dedicated stewardship staff tooverseas offices in asset management industry inJapan.

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Our Stewardship activity
As a 'responsible institutional investor', ourstewardship activities are driven by our
responsibilities related to engagement, voting, andincorporation of ESG factors into investment
decision-making process.
Our engagement activities can be categorised into
1) our independent dialogue with portfolio companies,2) dialogue with portfolio companies throughinternational and domestic initiatives, and
3) engagement activities outside of our portfolio
companies, such as policy engagement withgovernment departments, policymakers andregulatory bodies, more details in Principle 4.

We exercise our voting rights in approximately 2,500
Japanese companies and 2,700 foreign companies,
as of June 2023.
By fully utilising our employees advanced expertiseand fiduciary spirit, we are able to provide solutions
in a timely manner and ensure effective client
reporting.
We are proactively promoting initiatives to develop acompetitive advantage in the field of ESG andsustainable investment, including productdevelopment, while giving due consideration to ourstakeholders, see Chart 1.4.

Chart 1.4 - SuMi TRUST AM Sustainable investment activities
Year

Details

2003

Launched Japanese Equity SRI investment trusts for retail investors.

2004

Launched SRI funds for DC.

2006

Signed UN PRI.

2010

Launched Chinese equity SRI investment trusts.

2014Japanese Stewardship Code successful application.

2015

MBIS® (non-financial information assessment) introduced.

2017

Stewardship Development Department established; Stewardship Activities Advisory Committee
established.

2019

Impact investment products developed and seeded in Japan.

2020

Global Equity Impact Fund seeded, revised SSC successful application.

2021

SMT ETF Carbon-efficient Japanese equities listed.

2022

Bloomberg MSCI Global Total Sustainability A+ Index-linked Bond Fund is launched for pension trusts.

2023

Sustainability Committee established.
(Source: SuMi TRUST AM)

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UK Stewardship Code 2024

Principle 1

ESG Materiality
ESG Materiality is positioned as the cornerstone of
SuMi TRUST AM's stewardship activities. Materiality
refers to ESG issues that are relevant to valueenhancement and sustainable growth. We haveinvested heavily in improvements to the governanceand monitoring capabilities related to our ESG
Materialities, which we discuss further in Principle 2.
Our new Sustainability Committee established in
October 2023 is responsible for devising our ‘ESG
Materialities’ through an annual review process. The
views of clients, initiative organisations, investee
companies and other stakeholders, as well as internal
departments are all critical inputs into the process.

These 'ESG Materialities' are approved by the
Executive Committee and taken into account inengagement activities and voting decisions andreflected in our own ESG score which is utilised for
ESG investment decision-making. More information isprovided in Principle 7.
We recognise that we must continue to develop oursustainability resources and in 2023 we introduced 13‘level-up’ initiatives aimed at strengthening ourcapabilities, please see Chart 1.5. Further details arealso available in Principles 4 and Principle 5.

Chart 1.5 - Level-up initiatives
Stewardship – core activities
ESG Materiality
Engagement activities
Collaborative engagement
Escalation
Voting: Diverse Voting
Exercise of Voting Rights: Stock Lending (Empty Voting)Governance
Governance system for stewardship activities
Systemic risk
Confirmation of fairness of SS report

External relations
Communication with external parties such as customers
Engagement with external vendors

Talent management
Diversity
Compensation system(Source: SuMi TRUST AM)

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Assessing effectivenessAs a 'responsible institutional investor' we aim toachieve sustainable growth and sustainability forcompanies and society as a whole. We are primarily
held to account by our clients who entrust us todeliver long term returns and favourable social
outcomes. We cover this process in Principle 6.
We complement our feedback process regarding our
ESG investing from clients with external assessments
including the UN PRI. In addition to signing the PRI in
May 2006, we formulated policies in accordance witheach of the six principles and has taken initiatives inline with the latest developments.

to be actively involved in the PRI and work tomaintain and improve our assessment. For moredetails, please see Principle 2 and Principle 5.
We also fully support the aims of Stewardship Codeand the Corporate Governance Code in thejurisdictions we operate and adherence to highregulatory standards is an important part of ourassessment of the effectiveness of our investment
beliefs, methods and strategy.
We are committed to each principle of the Japaneseversion of the Stewardship Code as summarised in
Chart 1.6.

The PRI assesses the commitment and progress onthese six principles. The latest assessment reflects ourcommitment to our obligations, and we will continue

Chart 1.6 – Japan Stewardship CodeWe are committed to each principle of the Stewardship Code as described in the table below.
Principle

Initiatives and self-assessment

Principle 1
Policy formulation anddisclosure

In light of the revision of the "Japanese Stewardship Code" published on March 24, 2020, we haveformulated and published our "Policy for Responding to the Principles of the Japanese Stewardship Code"and reaffirmed our support for the code. We will continue to revise the policy as necessary.

Principle 2
Conflict of interest
management

We have established an appropriate conflict of interest management system. We also published a summaryof the deliberations of the Stewardship Activities Advisory Committee and our committed to reviewing thesystem as necessary in response to changes in the environment and other factors.

Principle 3
Accurate understanding

We have promoted engagement activities through a top-down approach based on our ESG materiality-based
agenda, a market cap approach that focuses on market capitalization, and a risk approach that targets low
ROE companies. In addition to the trilateral collaboration among our Tokyo, London, and New York offices,
we also promoted collaborative engagement activities in Japan and overseas. The ICAP was highly evaluatedas a good example of the evaluation framework in the ICAP (Investor Climate Action Plan).

Principle 4
Dialogue with companies

We received the top rating in a survey of external evaluation organisations as "the management institutionthat implements the most effective stewardship activities overall.

Principle 5
Exercise of Voting Rights

As a result of a revision of the Guidelines for the Exercise of Voting Rights, we added criteria for gender
diversity and cross shareholdings (January 2023). In addition, we regularly disclose individual voting results
for all stocks held and all proposals (October 2022, January 2023, April 2023). In July 2023, we began
disclosing voting results in CSV format. We believe that the current measures are appropriate, but we willcontinue to target best practice.
We will continue to revise the guidelines for the exercise of voting rights, maintain transparency in theexercise of voting rights, and enhance the sophistication of the exercise of voting rights.

Principle 6
Reporting to clients andbeneficiaries

We explain our stewardship activities to clients on a regular and ad hoc basis. We have also taken theopportunity to explain our stewardship activities at external seminars and workshops. We also published the2023/2024 Stewardship Report (October 2023).
(October 2022). We will continue to report on our activities in a timely and appropriate manner, and at thesame time, improve and enhance the content of our activity reports.

Principle 7
Development of skills

We have been acquiring, sharing, and deepening our knowledge through activities at global initiatives andstudy groups. We also engaged with government agencies, various organisations, and academia to gain adeeper understanding of key issues. We also used external organisations (PRI Academy) and internal elearning programs to enhance our ESG-related knowledge. We will continue to enhance our stewardshipcapabilities through these activities.
(Source: SuMi TRUST AM)

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UK Stewardship Code 2024

Principle 2
Signatories’ governance, resources and incentives support stewardship.

As an asset management business within a wider
financial group, our governance structures ensure
the independence of our asset management
operations while generating synergies for our parent
company, Sumitomo Mitsui Trust Holdings.
We have sought improvements to our governancestructures and systems including enhancement ofcompany governance, greater diversity amongboard of directors, and the implementation of
appropriate product governance practices to ensurethat business operations are conducted in the bestinterests of clients.

Corporate governance system
Our company structure is composed of an executive

team, who drive the company's growth, andgovernance functions led by the Board of Directors
and relevant committees.
We have adopted a basic governance system of a‘company with audit and supervisory committee’
under the Japanese Companies Act.
To enhance the effectiveness of the Board of
Directors supervisory function, we have establishedseveral advisory bodies to the board including the
Fiduciary Duty Advisory Committee, the Stewardship
Activities Advisory Committee and the Human
Resources and Remuneration Committee, please see
Chart 2.1 for more details.

Chart 2.1 – Governance system
Audit and Supervisory
Committee
General Meeting of
Shareholders

Audit and Supervisory
Committee OfficeInternal Audit
Department
Representative Director
and President

Board of Directors- Fiduciary Duty Advisory
Committee

Executive Committee- Stewardship Activities
Advisory Committee- Human Resources andRemuneration Committee- Investment and Risk Committee- Product Committee- Sustainability Committee(Source: SuMi TRUST AM)
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Principle 2

Board of directors
The composition of our board is designed toincorporate a diverse range of skillsets and opinions
into company management regarding present andfuture challenges. The Board of Directors is
composed with a balance of knowledge andexperience, including ‘experience in the asset
management business’, ‘knowledge and experiencein global business’ and ‘knowledge in risk
management and compliance’. For more detail,please see Principle 1.

Outside directors
Outside directors are actively involved in various
meeting bodies and a robust exchange of views withthe executive team. A monthly liaison meeting foroutside directors is held to support decision-making
and supervise business execution. The meetings
attended by outside directors and others are listed in
Chart 2.3.
We regularly seek to review and improve ourgovernance structure. Since adopting the current
governance structure in October 2018, a third-party
survey was sent to the directors in February 2023 inorder to improve the operation of the Board of
Directors. Subsequent initiatives have targetedboard communication and timely
information-sharing before meetings to ensure
decision-making is efficient and all compliance andboard duties are captured.

Chart 2.3 – List of meetings attended by outside directors and others
Name

Frequency

General meeting of shareholders

AnnualBoard of Directors

At least once a quarter

Liaison Committee of External Directors

Monthly

Audit and Supervisory Committee

Monthly

Stewardship Activities Advisory Committee

Quarterly

Fiduciary Duty Advisory Committee

Quarterly

Human Resources and Remuneration Committee

Multiple times a year
(Source: SuMi TRUST AM)

As for details on outside directors, Yasuhiro
Yonezawa has served on the management and asset
management committees of GPIF and Public Mutual
Insurance, and Mami Sasaki has extensive
experience in financial services. Mitsuaki Iwase has
expertise in overseas and foreign affairs and good
insight into organisational governance andinformation security, which contributes tostrengthening our governance function. He has
previous experience working at the National Police
Agency. Royanne Doi, a new addition since October
2022, is highly knowledgeable in the field of global
risk compliance and has increased board diversity asa Japanese-American woman.

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Internal governance structures
The internal control system is founded on nine
critical workstreams which monitor performance andassess effectiveness. The results are reported to the
Executive Committee and the Board of Directors.
We review the appropriateness of these assessment
criteria once a year.

1. Compliance programme
We have formulated a specific plan to ensure ourcompliance and customer protection management
system, which is reported to semi-annual Executive
Committee meetings and subsequently the Board of
Directors. Based on the programme, compliancetraining is conducted for all officers and employees
and each department conducts training on internal
controls at least once a term in principle. The main
topics are insider trading, proprietary trading,prevention of transactions with anti-social forces,
conflicts of interest, and compliance hotline.

departments in charge of operations. Information onamendments to laws, regulations and accounting
standards is collected through online participation inexternal workshops and other means, and efforts are
made to ensure proper financial reporting.

2. Risk management
We formulate a specific, practical plan with theprogress and achievements regularly monitored andreported quarterly to the Executive Committee andthe Board of Directors. In addition to e-learning
training in each department, a liaison meeting ofinternal control representatives is held to promote arisk culture by informing each department ofchanges to regulations and rules relating to risk
management and sharing operational accident
cases. The risk management of our subsidiaries,
Sumitomo Mitsui Trust International and Sumitomo
Mitsui Trust Asset Management Americas, ismonitored in accordance with the regulations ofthese subsidiaries.

The executive officer in charge of finance reports
matters that have a significant impact on thecompany's business results and financial position to
the Board of Directors and the Executive Committee.
The company prepares, discloses and reports
financial statements and other relevant documents inaccordance with the Financial Instruments andExchange Act.

3. Business execution
The formulation of management strategies relating
to business execution are approved by the Executive
Committee and subsequently the Board of Directors.
In addition, a liaison meeting of external directors isheld in advance of the Board of Directors' meetings,
to ensure active discussions between internal andexternal directors. In addition, the President and, if
necessary, other executive officers report regularly to
the Board of Directors on the status of the executionof duties.
4. Management transparency
To ensure the accuracy of accounting records andthe reliability of financial reporting, and to prevent
fraud and errors, we have established accounting
rules, and assigns personnel with sufficientaccounting knowledge and experience, for the

The departments in charge of financial reporting areaudited by the internal audit department, which
reports to the Board of Directors. As a company
subject to assessment of internal control overfinancial reporting by the holding company, thecompany undergoes an internal control assessment.

5. Company's subsidiaries
The Corporate Planning Department monitors ourinternational subsidiaries, Sumitomo Mitsui TrustInternational (UK) and Sumitomo Mitsui Trust AssetManagement Americas, to ascertain the status ofbusiness execution and to understand the risks
associated with them in order to manage themappropriately. In conducting monitoring, theCorporate Planning Department also takes into
account various rules and approaches to risk
management activities of the departments in chargeof risk and works closely with the relevant
departments to identify issues within the company.
6. Sumitomo Mitsui Trust GroupWe comply with the management principles of theSumitomo Mitsui Trust Group and strives to establish
an appropriate group management system. We
share issues and problems with Sumitomo Mitsui
Trust Holdings, by reporting matters at the Board of
Directors and management meetings, as well as thestatus of business execution.
In compliance and risk management, mutual
cooperation is carried out with the Compliance

UK Stewardship Code 202412

Principle 2

1. Compliance programme
We have formulated a specific plan to ensure ourcompliance and customer protection management
system, which is reported to semi-annual Executive
Committee meetings and subsequently the Board of
Directors. Based on the programme, compliancetraining is conducted for all officers and employees
and each department conducts training on internal
controls at least once a term in principle. The main
topics are insider trading, proprietary trading,prevention of transactions with anti-social forces,
conflicts of interest, and compliance hotline.

departments in charge of operations. Information onamendments to laws, regulations and accounting
standards is collected through online participation inexternal workshops and other means, and efforts are
made to ensure proper financial reporting.

2. Risk management
We formulate a specific, practical plan with theprogress and achievements regularly monitored andreported quarterly to the Executive Committee andthe Board of Directors. In addition to e-learning
training in each department, a liaison meeting ofinternal control representatives is held to promote arisk culture by informing each department ofchanges to regulations and rules relating to risk
management and sharing operational accident
cases. The risk management of our subsidiaries,
Sumitomo Mitsui Trust International and Sumitomo
Mitsui Trust Asset Management Americas, ismonitored in accordance with the regulations ofthese subsidiaries.

The executive officer in charge of finance reports
matters that have a significant impact on thecompany's business results and financial position to
the Board of Directors and the Executive Committee.
The company prepares, discloses and reports
financial statements and other relevant documents inaccordance with the Financial Instruments andExchange Act.

3. Business execution
The formulation of management strategies relating
to business execution are approved by the Executive
Committee and subsequently the Board of Directors.
In addition, a liaison meeting of external directors isheld in advance of the Board of Directors' meetings,
to ensure active discussions between internal andexternal directors. In addition, the President and, if
necessary, other executive officers report regularly to
the Board of Directors on the status of the executionof duties.
4. Management transparency
To ensure the accuracy of accounting records andthe reliability of financial reporting, and to prevent
fraud and errors, we have established accounting
rules, and assigns personnel with sufficientaccounting knowledge and experience, for the

The departments in charge of financial reporting areaudited by the internal audit department, which
reports to the Board of Directors. As a company
subject to assessment of internal control overfinancial reporting by the holding company, thecompany undergoes an internal control assessment.

5. Company's subsidiaries
The Corporate Planning Department monitors ourinternational subsidiaries, Sumitomo Mitsui TrustInternational (UK) and Sumitomo Mitsui Trust AssetManagement Americas, to ascertain the status ofbusiness execution and to understand the risks
associated with them in order to manage themappropriately. In conducting monitoring, theCorporate Planning Department also takes into
account various rules and approaches to risk
management activities of the departments in chargeof risk and works closely with the relevant
departments to identify issues within the company.
6. Sumitomo Mitsui Trust GroupWe comply with the management principles of theSumitomo Mitsui Trust Group and strives to establish
an appropriate group management system. We
share issues and problems with Sumitomo Mitsui
Trust Holdings, by reporting matters at the Board of
Directors and management meetings, as well as thestatus of business execution.
In compliance and risk management, mutual
cooperation is carried out with the Compliance

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Management Department and the Risk Management
Department of the holding company in formulatingplans and revising internal regulations, and issues tobe addressed and matters to be communicated areshared at Group affiliate company compliance
meetings, etc. The Group also shares information on
issues to be dealt with and matters to becommunicated at Group affiliate compliance
meetings.
7. Information storage and management system
For the General Meeting of Shareholders, the Boardof Directors and the Executive Committee, minutes
are prepared to record the proceedings and themain points of proceedings, respectively, and arestored together with the relevant documents. Of
these, for the Executive Committee and Board of
Directors meetings, following the introduction of
paperless meeting operations from May 2018, theoperation of storing the electronic media used has
been added.
For documents, paperless operation has beenpromoted since October 2020, and documents for
the General Meeting of Shareholders, the Board of
Directors and the Executive Committee are stored
using this workflow system. In addition, specificimplementation plans for information security risk
management and customer information
management are addressed semi-annually by the
Board of Directors as part of a Risk Management
Plan. The occurrence of information-related
accidents, together with other operational
accidents, is reported monthly to the Executive
Committee.
8. Internal audit
In accordance with the Group Internal Audit Basic
Policy set out by the holding company, an internal
audit plan sets out basic policy, including priority
items, and is approved by the Board of Directors
with the prior consent of the Audit Committee. The
executive in charge reports internal audit results to
the Audit Committee, the Board of Directors and thePresident. The Audit Committee is usually informed
monthly, while the Board of Directors is informed
quarterly.

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UK Stewardship Code 2024

In the internal audit in FY2022, the Board of Directors
adopted a new internal audit plan with the following
key action points:
1) 'Organisational Management Audit' changed andstreamlined.
2) 'Business Theme Audit', reorganised from thebusiness section and implemented together withthe special theme audit and regular theme audit.
3) The Company established an Audit Committee
Office and a system for reporting. In principle, theAudit Committee meets monthly, and the director
in charge of internal audit and the head of theInternal Audit Department attend as observers to
exchange opinions with the Internal Audit
Department, and to exchange informationnecessary for the effective implementation of the
Audit Committee's activities.
9. Audit and Supervisory Committee
The Company has established an Audit andSupervisory Committee and has developed areporting system to the Audit and Supervisory
Committee. In addition to attending meetings of theBoard of Directors and other important meetings
deemed necessary by the Audit and Supervisory
Committee, such as the Executive Committee, theAudit Committee members hold hearings andexchange opinions with the Chairman and President,
the executive directors, the executive officers andthe general managers of each department. In
principle, the Audit and Supervisory Committee
meets monthly, and the director in charge of internal
audit and the head of the Internal Audit Department
attend as observers to exchange information andopinions with the Internal Audit Department, andother information necessary for the effective
implementation of the Audit and Supervisory
Committee’s activities.

The internal control system isfounded on nine criticalworkstreams which monitor
performance and assess
effectiveness.

Principle 2

Stewardship governanceIn response to changes among clients, regulators andthe wider society we have made significant
investment in developing and upgrading ourgovernance during the reporting period. This
included the establishment of our Sustainability
Committee in October 2023.
The Sustainability Committee was set up tostrengthen the monitoring function in light of theincreasing scope of activity and more granular
reporting requirements of clients and regulators. The
Sustainability Committee is co-chaired by the officer
in charge of the Stewardship Development
Department and Business Planning Department.
The committee has consolidated various
sustainability-related responsibilities and has
developed new frameworks for several sustainability
processes. The new body is also more functional thanthe previous governance structures in reviewing andevaluating activities.
For example, the Sustainability Committee is
responsible for reviewing input from customers,
portfolio companies, regulators, global stewardshipinitiative organisations and other stakeholders, aswell as internal departments to devise our ESG
Materialities and for conducting an annual review toensure their effectiveness and relevance. The resultsof the annual review and ongoing review arereported directly to the Executive Committee and the
Stewardship Activity Advisory Committee.
Another important change to our stewardshipgovernance reflects the shifting sustainability
environment with a greater focus on actively
learning from engagement and communication with
global clients, national regulators and otherinternational stakeholders. To date, we havedeveloped our ESG-related activities as a leading
asset manager through communication with clientsin our base in Japan. However, we have placed a
new emphasis on narrowing the gap withinternational best practice and seeking to raise
standards where possible.

Improving customer evaluations
We are working to ensure customer-oriented
business operations by upgrading productgovernance through effective measures based on the
PDCA (Plan-Do-Check-Act) cycle. As part of thisinitiative, we reviewed our product governanceframework in 2023. We have also improved theframework for monitoring suitability of products,
post-launch setting and return monitoring.
In order to enhance product governance, we havealso established the ESG Product Management
Process, which includes consideration of global ESG
investment-related regulations. Our ESG productaccreditation criteria include not only the applicationof ESG investment methods, but also the following
requirements:
1) The portfolio must have ESG characteristics andthese characteristics must be measurable,
2) ESG-related disclosure must be appropriate, and
3) for ESG investments by outsourced asset
management companies, products must be
evaluated in accordance with the "Guidelines for
Due Diligence on Outsourced Investment
Management".
Finally, we have invested in processes and systems
that contribute to ESG investment as well as investingin related data and research capacity. This enables us
to better measure the ESG characteristics of eachportfolio, as well as the appropriate disclosure of
information on the status of ESG investments.

Stewardship - Independent governanceIn addition, to our internal review and assessment wealso seek independent assessment of ourstewardship activity through the Stewardship
Activities Advisory Committee. This quarterly meeting
comprises of three independent experts (thechairperson is Yasuhiro Yonezawa, an external
director) and one internal person.
The committee deliberates on revisions to the voting
principles and reports on stewardship activities.
Specifically, the committee deliberates on theapproval or disapproval of proposals for which there

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are no provisions in the voting principles, theappropriateness of the interpretation of the voting
principles for individual proposals, and theverification of the decision-making process forexercising voting rights for proposals that may cause
conflicts of interest.

Fiduciary Duty Advisory Committee
meetings
The Fiduciary Duty Advisory Committee, which meetsquarterly, comprises four independent external
experts (chaired by external director Mami Sasaki)
and one internal member. The committee regularly
discusses the company's stewardship, engagement
and voting activities and reports to the Executive
Committee and the Board of Directors.

Chart 2.4 – UN PRI Assessment

Assessment
In order to secure further objective and independent
assurance of our stewardship activity, we signed up to
the UN PRI initiative at its inception in 2006 and pay
close attention to their regular evaluation of ourcapabilities based on each of the six principles.
We were delighted to be highly commended in a
number of categories during the most recent
evaluation despite a tightening of requirements andincrease in standards for 2021, please see Chart 2.4
for more details. We will continue to be actively
involved in the PRI and work to maintain and improve
our assessment.

2023

Policy Governance and Strategy★★★★★

Indirect

Listed equity - Active★★★★

Fixed Income - Active★★★★

Listed equity - Passive equity★★★

Listed equity - Active quantitative★★★★★

Listed equity - Active fundamental★★★★★

Fixed Income - SSA★★★★★

Fixed Income - Corporate★★★★★

Hedge funds - Multi-strategy★★★★

Hedge funds - Long/short equity★★★★★

DirectConfidence building measures★★★★
(Source: SuMi TRUST AM)

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UK Stewardship Code 2024

Principle 2

Stewardship resources
SuMi TRUST AM invests extensive personnel resources in its stewardship activities. Our engagement activities,
which is a major part of our stewardship activities, are conducted in collaboration with the Stewardship
Development Department, ESG specialist, and analysts in the Research Department, professionals in industrial
company analysis. Headquartered in Tokyo, we also have dedicated engagement staff in New York and London
to facilitate stewardship activities on a global basis.

Chart 2.5 – ESG specialist and analysts

Stewardship Development Department

21 members
Generalmanager

13 in charge ofdomestic equities

7 in charge of
foreign equities– The average number of years of investment experience is 22.6 years.
– 4 are women.

Research Department

25 members
Head

Deputy head

17 equity
analysts– The average of 16.0 years experience in management.
– 2 are women.

6 credit
analysts

Overseas offices (1 in Europe, 1 in the Americas), with the average years ofexperience is 16.9 years.

(Source: SuMi TRUST AM, as of end-September 2023)

In addition, we are working to build ESG capacity
across the enterprise through internal and external
training initiatives. Internal capacity-building
initiatives include employees attending the PRI
Academy, with 25 participants from the Stewardship
Development Department and the investment front
offices. In addition, the Stewardship Development
Department runs specific training courses throughout
the year on a range of ESG topics, themes andstrategies. Recent topics include ‘ESG investment
flows’, ‘Status of ESG issues’, ‘ESG information
disclosure - 'TCFD', ‘ESG/sustainable investment’ and‘Trends at domestic/overseas asset managers’.

Stewardship incentives
The company has put in place a range of incentives

to ensure behaviours and compliance consistent with
our stewardship commitments and to raise standards
to global best practice.
At a leadership level, long-term incentives for
executives reflect the achievement of various targets
under the Net Zero Asset Managers Initiative. In
addition, the number of engagements, content of
information of stewardship activities and outcomes are
set as criteria for remuneration and personnel
evaluation, particularly in departments deeply involvedin engagement activities, so that the personnel arehighly motivated to engage in these activities.
The ESG Investment Policy is incorporated into
incentives for all the employees in the investment
department and are monitored at least once a year.

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Stewardship systems and processes
One of the most important recent enhancements to
our ESG research capability is the upgrading of our
in-house ESG scores and establishment of the ESG
Score Management Process in 2022.
In principle, an in-house ESG score is assigned to theinvestment universe of all assets. Based on ESG
Materialities, our ESG score is a quantitative
assessment calculated with reference to ESG datafrom external vendors, and qualitative results are
obtained through research and engagement
activities by our analysts and ESG specialists. Our
ESG score compliments, our proprietary,
non-financial information evaluation tool MBIS ®
which is used for assessing a company's medium- tolong-term sustainable growth potential, see moredetails in Principle 7.

ESG Data
In addition to the ESG score, we hold a large amountof basic ESG data, including data on inhumane
weapons for ESG negative screening, andgreenhouse gas emissions for use in engagement,
regulatory compliance, information disclosure, etc.
Fund managers can refer to them via a tool that
displays scores by issue/portfolio, enabling thesharing of evaluations across the company.
In relation to engagement, we use a mix of
information sources to conduct assessments ofcompanies and promote initiatives to increase
corporate value including MSCI and FTSE scores,
company reports, responses to CDP, andscandal-related information from Sustainalytics and
ISS-ESG (Ethix).
The integration of our ESG scores and data
management into our investment process is
explained in more detail in Principle 7.

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UK Stewardship Code 2024

In relation to engagement, we use
a mix of information sources to
conduct assessments of companies
and promote initiatives to increase
corporate value including MSCIand FTSE scores.
Service providers
Given the importance placed on stewardship as acore function, our use of outsourcing services ishighly selective. Where we do utilise external service
providers, we do so where we see critical value-add
for our clients and beneficiaries. The main areas ofexternal service providers are ratings companies, ESG
data and information providers. We cover this topic inmore detail in Principle 8.

Proxy advisors
In exercising our voting rights, we use services from
ISS, which is our sole proxy advisor, on a selective
basis. In terms of the final exercise of voting, ourvoting guidelines and information on corporate
initiatives and policies obtained through engagement
activities are critical. However, for overseas equities
proposal analysis reports and exercise
recommendations from ISS are utilised as inputs into
our decision-making process.
In terms of our domestic equities, ISS
recommendations are also applied to exercise
decisions on proposals of our own group companies
and proposals dedicated to executives from ourgroup companies from the perspective of
appropriate management of conflicts of interest. We
do not use ISS execution services for domestic
equities.

Principle 3
Signatories manage conflicts of interest to put the best interests of clients andbeneficiaries first.

Our parent company Sumitomo Mitsui TrustHoldings (SMTH) recognises the importance ofbuilding sustainable business models that meet thelong-term interests of clients. To ensure products
and services reflect the long-term welfare of ourclients, SMTH established the Fiduciary Duty
Planning and Promotion Department in 2016.
Based on the Policy on SMTH Group's Fiduciary Duty
Initiatives and the Principles on Customer-Oriented
Business Operations published by the Financial
Services Agency, we have created the following
Fiduciary Duty Action Plan.

Action plan
1) Formulate clear and rational investment andengagement policies that maximise the interest of
our clients and are executed on the best possible
terms and conditions for customers.
2) Develop products and services that meet thediverse needs of our clients and changes in thesocial environment, such as the aging of the
population.
3) Empower clients’ decision-making throughseminars and the provision of timely andappropriate information on market informationand trends; as well as the disclosure of appropriate
and easy-to-understand information on
remuneration and fees.
4) Ensure professional development and retention ofhuman resources and develop personnel
evaluation system, while promoting understanding
and practice of fiduciary duty among officers andemployees.

5) Build and strengthen governance to ensure
independence and transparency in management
and independence from the holding company andaffiliated sales companies.
Based on the commitments set out in the action
plan, we direct our efforts at SuMi TRUST AM toclient-oriented products and services and seek tobuild appropriate governance to protect clients’interests.

How we identify conflicts of interest
While we strive to faithfully perform investment
management operations for our clients, werecognise the risk that this may not always be thecase. Conflicts of interest may occur when there is an
incentive to prioritise the interests of those otherthan the customer. Alternatively, they may occur
when there is a considerable disparity in knowledge
or information regarding products and services
between our Group companies and our clients andbeneficiaries.
We take a proactive approach to identifying
transactions that are susceptible to conflicts ofinterest. We identify the following key transaction
types that cause conflicts of interest:
1) Best market rate and trading conditions
2) Client disclosure or consent
3) Information disclosure between group companies
or departments
4) Change in terms or methods5) Cancellation of the transaction

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How we manage conflicts of interest
To enshrine our fiduciary duties, we have establisheda conflicts of interest management system, see Chart
3.1. Conflicts of interest that arise in relation to
stewardship activities shall be strictly managed inaccordance with internal rules for managing conflictsof interest and for investment management
operations with the aim of putting the interests ofcustomers and beneficiaries first.

Chart 3.1 – Examples of conflict of interest management methods
Conflict/potential conflict

Transaction type

Details

Control mechanism

Operation andmanagement of fundBest market rate andtrading conditions

There is a concern that thefund will be traded at
unfavourable rates orterms.

Internal review by risk andaudit review fairtransaction/trust condition(market rate/level)

Exercise of influence within
the group1) Client disclosure orconsent2) Information disclosure
between groupcompanies ordepartments

Concerns that, when ourfunds invest in shares ofcompanies with which thecorporate sales
departments of groupcompanies have business
relationships, the corporate
sales departments may
request to exercise voting
rights in favour of theissuer of the shares.

Rules and guidance
Exercise of voting rights
based on voting guidelinesand disclosure of results(Source: SuMi TRUST AM)

In principle, we conduct conflicts of interest
management through the conflict of interests
management policy, see Chart 3.2. A summary of ourglobal conflicts of interest policy is disclosed below.
https://www.sumitrust-am.com/conflict-interest-management-policy
During the reporting period, we have strictly applied
our conflicts of interest policy to issues related to
stewardship. The compliance department did not
point out cases of conflict of interests.

Conflicts of interests related to voting
rightsThe Sustainability Committee, in consultation with the
Stewardship Activities Advisory Committee, is
responsible for the principles for the exercise of voting
rights. The officer in charge of the Stewardship
Development Department has exclusive authority over
all matters related to the exercise of voting rights,
independent of the executive authority of otherdepartments, thereby minimising any conflict of

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UK Stewardship Code 2024

interest that may arise in the exercise of voting rights.
The Stewardship Activities Advisory Committee, of
which the majority of members are external experts,
advises and reports on the following:
1) Matters relating to the revision or abolition of
voting principles and other rules impacting voting
decisions.
2) Matters relating to companies to which therelevant rules are not stipulated in the principles
related to the decision to exercise voting rights.
3) Improvements concerning engagement andvoting cases which are likely to give rise toconflicts of interest, such as those involving
companies that are business partners of SuMi
TRUST AM.
The Sustainability Committee is responsible formonitoring the implementation of voting principles
and all voting results are reported to the
Sustainability Committee on an annual basis.

Principle 3

Conflicts of interests related to groupcompany

Conflicts of interests related to officers
and employees

One example of conflicts of interests related togroup companies relates to voting rights. To avoid
conflicts of interests regarding shareholder
proposals for candidate directors of the parent
company, Sumitomo Mitsui Trust Holdings, groupcompanies, and those who have a close relationshipwith us or our parent company (such as current
executives), we use the advice of a proxy advisory
company based on our proxy voting principles, andafter confirmation by the Stewardship Activity
Advisory Committee. At general meetings held from
July 2022 to June 2023, 12 companies were judged
through this process.

To mitigate employee conflicts of interest we have
put in place robust controls relating to
intra-department communication, information
disclosure and personnel transfers. We also regularly
conduct education and training for offices andemployees, and thoroughly inform them about the
management of transactions that may cause conflictsof interest.

Chart 3.2 – Conflict of interests
Intra-departmentcommunication

Operational business departments are restricted from communicating information withthe following departments of our group companies.
・Corporate loan business and planning departments
・M&A operations related departments
・Respective departments for stock transfer agency services businessInformation
disclosure

Employees in each investment department are prohibited from disclosing non-public
information related to fund management activities to group companies, except whenpermitted by laws and regulations.

Personneltransfers

Employees in the following departments of affiliated companies and the investment
trust sales promotion departments are restricted from being assigned or appointed toimportant decision-making positions in the operation and stewardship activities ofeach investment department.
・Corporate loan sales and planning departments (5-year time limit)
・M&A operations related departments, departments for stock transfer agency
services business (1-year time limit)(Source: SuMi TRUST AM)

How we monitor conflicts of interest
In order to appropriately monitor conflicts of interest, we have established a Compliance Department which
controls conflicts of interest. The verified results from the compliance supervision are reported to the Board of
Director on a regular basis. The Board seeks to ensure that the interests of our customers are not unduly
harmed and includes independent outside director to ensure the effectiveness of supervision.

The Board seeks to ensure that the interests of our customers are notunduly harmed and includes independent outside director to ensure theeffectiveness of supervision.

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

Risk management
At SuMi TRUST AM, risk management capabilities
are at the heart of our value proposition for clients,
and we believe risk management excellence
supports our sustainable growth.

Risk management policy
Based on the risk controls established by our parent
company Sumitomo Mitsui Trust Holdings, ourmanagement policy and internal control policy, we
have established our company’s risk management
policy.

Through risk management, we aim to identify,
evaluate, monitor, control and reduce risks, while
verifying appropriateness and reviewing risk
management activities. Our risk management policy
aims to ensure sound management, generate profits
through risk-taking based on management
strategies, and support sustainable growth.
The Risk Governance Structure defines the roles andresponsibilities of the Board of Directors, theExecutive Committee, and Directors, Executive
Officers, and Officers in charge of risk management.

Chart 4.1 – Risk governance structure21

1. Board of Directors

2. Executive Committee

3. Directors, Executive Officers, andOfficers in charge of Risk
Management

1) Establish and disseminate risk
management policy.
2) Formulate policies for risk
identification, assessment,
monitoring, control andreduction.
3) Formulate and disseminate a risk
management plan.
4) Clarify the roles andresponsibilities of the Executive
Committee and the responsible
officers with respect to risk
management.
5) Establish policies regardingorganisational structure, including
the establishment andauthorisation of risk management
related departments.
6) Assign knowledgeable andexperienced managers to the risk

1) Resolve and disseminate rules
and regulations that stipulatearrangements for risk
management in accordance withthese rules and regulations.
2) Resolve arrangements for
identification, assessment,
monitoring, control and reductionof risks.
3) Establish risk management
related departments, assign
knowledgeable and experienced
personnel and grant necessary
authority.
4) Establish a system to ensure theindependence of the risk
management related
departments and to exercise acheck-and-balance function.
5) Establish a system to ensure1) Directors and Executive Officers
shall be fully aware thatneglecting risk management may
have a significant impact on theachievement of strategic
objectives and they shall manage
with an emphasis on risk
management.
2) Officers in charge of risk
management related
departments shall fully
understand the location of risks,
types and characteristics of risks,and methods for identifying,evaluating, monitoring, andcontrolling risks, as well as theimportance of risk management.
Based on this understanding, theyshould appropriately recognize
the status of risk management

UK Stewardship Code 2024

Principle 4

management related department
and grant necessary authority.
7) Establish a reporting system forthe risk management related
departments to report on thestatus of risks and risk
management on a regular or
as-needed basis.
8) Regular or as-needed reviews of1) through 7) above based onreports on the status of risk
management.

compliance with risk management
policy and ensure effective risk
management in relevant
departments.
6) Analyse the status of risk
management, evaluate theeffectiveness of risk management,
and verify problem areas basedon the results of reviews by the
Audit and Supervisory Committee
Office, internal and external
audits, and reports from risk
management related
departments.
7) Establish a framework for
improvement and follow-up on
problem areas.
8) Establish a system for
consultation and reporting to theholding company.
9) Periodic or as-needed review of1) through 8) above based onreports on the status of risk
management.

and consider policies and specificmeasures to develop andestablish and maintain an
appropriate risk management
framework.

(Source: SuMi TRUST AM)

At SuMi TRUST AM, we operate a three-line defence risk governance system which includes risk managementby the investment departments (1st line defence), risk management by risk management related departments(risk management department, compliance department, investment risk management department) (2nd line
defence), risk management by the internal audit department (3rd line defence).

Chart 4.2 – Risk management

Three lines defence

1st line defence

Each business division is expected to understand the risk characteristics of its operations
and have policies in place to identify and review risks as a risk owner. Risk management
needs to be conducted independently and with self-awareness.

2nd line defence

Risk management and compliance departments simultaneously monitor first-line risk andsupport the business divisions with dedicated risk expertise.

3rd line defence

The internal audit department is responsible for reviewing the effectiveness andadequacy of risk governance systems and processes independently of the first- andsecond-line defences. If deemed necessary, it will request corrective action or notify
management of its concerns.
(Source: SuMi TRUST AM)

Despite these rigorous protections, we accept that risks in the execution of our business are inevitable. We
closely monitor risk in two principal areas: investment management risk and operational risk.

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Investment management risk

The results of monitoring activity are reported every
month in principle to the Investment and Risk
Committee, which consists of senior managementfrom the investment division and the risk
management division, and if necessary, discuss anddecide on improvement measures. In addition, theInvestment and Risk Committee annually report to
the Executive Committee, which consists of thepresident and the management team.

As part of the first line of defence, the Investment
Department is obligated to meet standards
stipulated by each client mandate and to implement
risk controls as specified by each fund. For example,
to avoid credit risks the fund manager may exclude
firms that do not meet specified requirements basedon criteria such as an inadequate financial position,
loss-making or no dividend.
In addition, our Investment Risk Management
Department is dedicated to monitoring fundmanagement activity independent from theinvestment department. The team has personnel
with knowledge of investment theory, business laws,
securities trading regulations, and IT skills necessary
to conduct monitoring work.

The Board of Directors considers the location ofrisks, the types and characteristics of risks, methods
for identifying, evaluating, monitoring, controlling,
and reducing risks, sophistication and review of risk
management, and the importance of risk
management.

Chart 4.3 – Major items for monitoring investment management risk
Risks associated with investment management
Market risk
Credit risk
Liquidity risk
Compliance associated with fund management
Status of compliance with operational guidelines
Status of compliance with laws and regulations
Managing transactions with potential conflicts of interest(Source: SuMi TRUST AM)

Operational risk

appropriate risk control activities, and respond tochanges in the environment.

The second important source of risks relates tooperational risk, which we recognise as an
unavoidable risk that arises in the execution of ourbusiness, see Chart 4.4 for major items. The
company regularly implements risk register measures(Risk and Control Self-Assessment) in which all
departments identify operational risks that hinder
their own departmental targets, implement

The Risk Management Department plays a central
role in collaborating with other risk management
departments, analyses and evaluates the results ofimplementing these risk register measures, andregularly reports them to the Executive Committee.

Chart 4.4 – Major items for operational risk
• Business processing risk
• Information security risk
• Conduct risk
• Event risk

• System risk
• Legal and compliance risk
• Human resources risk
• Reputational risk
(Source: SuMi TRUST AM)

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Principle 4

Identification of market-wide and systemicrisk
In addition, to investment management risk andoperational risk it is also important to define andidentify market-wide and systemic risk. One example
of systemic risk is when the insolvency of an individual
financial institution spreads to other financial
institutions, other markets, or the entire financial
system. We consider this a definition whichcorresponds with that applied by the Bank of Japan.
Another example of systemic risk is any risk which is
non-diversifiable. It may represent any risk that isimbedded in the market, whether it necessarily resultsin market instability or creates imbalances it has thepotential to amplify investment management risks andoperational risks, which can result in systemic risks.
In terms of our approach to systemic risk, we start witha recognition of investment management risk andoperational risks as identified above. We then consider
the transmission and amplification of these risks within
the financial market.
One example relates to a risk of disruption to financial
services that is caused by an impairment of failure of allor parts of the financial system. Another important
example is climate change, which we have identified
as one of our 12 ESG materialities. It is included as partof Sustainability Risk in the Risk Management
Standards (the highest level of the company's
standards).
Climate change risk is a risk driver that amplifies
investment management and operational risk. This is
in line with our interpretation of climate change risk as
a risk driver based on the Task Force on
Climate-related Financial Disclosures (TCFD) in the UK,
i.e. a factor in the internal environment or external
environment that is a primary cause in the occurrence,or changes/transitions in potential incidents.
Therefore, identifying and controlling climate change
risk in fund management means we can detect thepotential amplification of investment management
and operational risk that can lead to systemic risk andhelp mitigate this risk.
Furthermore, climate change risks are defined as‘various matters that are a result of the progression of
global warming driven by human-induced economic

activities. Changes in weather patterns caused by global
warming can alter ecosystems and cause damage tofood, water, health, and the economy, adversely
affecting sustainable social and economic activities. For
more detailed information on our strategy towards
addressing climate change risk, please see below orrefer to our TCFD report in our Stewardship Reportwhich is available on our homepage.
We also recognise the growing interest of market-wide
and systemic risks for our clients. We have identified
this area as one of our 13 ‘level-up’ initiatives, which we
introduce in Principle 1. To better address systemic risk,
we will consider further improvements in identifying
and responding to systemic risks, especially related toclimate change, in the next year and future years.

A company-wide approach to climatechange as a systemic risk
There is an urgent need to systematically address theimplications of climate change. This includes both risks
and opportunities that will impact the funds wemanage on behalf of our clients. We recognise how
climate change risks impact our business management
through the following three routes: damage to thevalue of assets under management, loss of entrusted
assets and of newly entrusted opportunities, and lossof business continuity; all of which can ultimately
worsen our finances and threaten our viability as acompany.
SuMi TRUST AM evaluates the climate change risk ofassets under management by asset class, and thenintegrates the asset classes to evaluate all owned
assets. The evaluation methods include:
1) Fixed point analysis (Greenhouse gas emissions,etc.)2) Transition pathway analysis
3) Portfolio resilience analysis related to climatechangeHow have we put this into action?
Taking action to address climate change is of upmost
importance and we have conducted a wide range ofengagements to solve issues across various industries.
For example, we are focusing on approximately 100
companies that have a significant impact on total
greenhouse gas (GHG) emissions and are promoting
effective activities, see Case study 4.1.

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Case study 4.1 – Global 100 Climate Change Companies

AP Moller Maersk

Company
ActivityCountry: Denmark

In 2018, AP Moller Maersk became one of the first major European shipping companies
to set a 2050 carbon neutral target. To improve the credibility of its ambitious targets, thefirm needs to substantiate measures and actively disclose progress.
As one of our 100 focused companies on climate change, we have been actively engaged
in dialogue with them since 2019. Our engagement has focused on climate change issues
and related disclosure.

Outcome

Building on previous progress, the carbon neutrality target has been improved to net zeroin 2040 - from the original net zero target of 2050. The firm also plans to target 25%
green fuels by 2030. However, we expect greater disclosure to increase the certainty ofrealising the target.

Assessment

As we are entering the execution phases of its climate transition plan, we will ask thecompany to provide concrete details of its energy mix and the role of future technologicaland supply/demand trends on investment decisions. One verifiable KPI is the ratio ofgreen energy in the fuel mix. In addition, critical details such as the management of pricepass-on to customers remain insufficient.

Improvement

We will also increase the frequency of our engagement with the company. To date, wehave conducted dialogue with the IR head and IR manager every two years. Goingforward, to intend to hold interviews with the IR head and manager once every one to two
years and participate in ESG events organised by the company.

Case study 4.2 – Voting rights

Financial company

Company

25

Country: Japan

Activity

The company received a shareholder proposal to strengthen its climate change responseat the 2022 AGM. We voted in favour of the shareholder proposal because the carbon
reduction targets in its investment and loan portfolio were only for the power sector andthe company's stance on climate change response was deemed inadequate.

Outcome

In favour of shareholder proposals (2022) ⇒ against (2023)
The company's GHG reduction targets as of May 2023 covered only three sectors (power,
oil & gas and coal). However, it has subsequently set targets for two sectors (steel andautomobiles) by the end of 2023 and presented a plan to set targets for all nine
high-GHG emitting sectors by the end of 2024. Consequently, we opposed theshareholder proposal in 2023, as the company has made considerable progress inaddressing climate change and it will be possible to ascertain emissions coverage in the
future. The percentage in favour of the shareholder proposal for climate change action
decreased to 27.1% in 2022 and 20.7% in 2023.

UK Stewardship Code 2024

Principle 4

In exercising voting rights, if an investee company
does not respond to a request for engagement, or if
there is no improvement in the situation despite
continuous engagement, we will vote for shareholder
proposals against the appointment of directors. For
more details and case studies please see Principle 12.

Collaborative engagement
In order to address systemic risks and approve
market functioning, we recognise the value ofworking with others to strengthen our influence inthese critical areas. In the area of climate change, we
joined the Net Zero Asset Managers initiative(NZAMI), a global initiative of asset managers, andhave committed to working towards achieving net
zero GHG emissions from our portfolios by 2050.
In May 2022, we set an interim 2030 target for the
GHG emissions of our assets under management.
Specifically, 50% of our assets under management(approx. ¥85 trillion at the end of June 2021) aretargeted to halve their carbon footprint (GHG
emissions per unit) compared to 2019. The assets
excluded from the target are mainly sovereign bonds
and we will consider adding them to the target
assets.

1) Engagement
2) Exercise of voting rights
3) Investment considerations
4) Providing clients with investment opportunities
5) Engagement with clients
6) Enhancing SuMi TRUST AM’ s response to climatechangeWe believe that in order to realise net zero, it isimportant to take an all-participant approach, aiming
to eliminate the 'negative externalities' themselves.
We acted as a contact point and conducted four
consultations with Japanese asset managementcompanies regarding their NZAMI membership andsetting of interim targets. In addition, SuMi TRUST
AM’s president spoke at a webinar for asset
managers to promote NZAMI membership. We
supported these companies to join the NZAMI,
among others.

Advisor to Asian signatories

When NZAMI asked its members to introduce
policies to achieve net zero, we functioned as anadvisory board to the Asian signatories andencouraged them to consider regional approaches to'Just Transition' through 'real solutions', including
consideration of regional characteristics in Asia.

To achieve these goals, we deploy methods
including:Case study 4.3 – Collaborative engagement
In 2021, a Japanese electric component company committed to carbon neutrality through its entire
value chain including production, procurement and the use of products and services by FY2050.
However, progress on specific initiatives towards net zero was insufficient. As a result, we conducteddialogue through collaborative engagement with other asset managers. The company subsequently
announced interim plans to reduce CO2 emissions by 100 million tonnes per year by 2024. We
welcome this step, but we still believe the company’s emissions targets lacks sufficient disclosure. We
plan further dialogue with executive officers, with a firm focus on KPIs, such as how to link the plan tofinancial indicators.

Case study 4.4 – Collaborative engagement
As co-lead manager in collaborative engagement with a major US asset owner, we engaged with aJapanese steelmaker requesting detailed reductions of value-chain emissions. The company
subsequently announced a plan to reduce emissions and supply carbon-neutral steel. However, theexisting plan is on a domestic consolidated basis rather than a more comprehensive approach that
includes all global operations. We also judged that the company’s response has been lagging peers.
We are considering future escalation options, which we will disclose as the engagement deepens.

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At SuMi TRUST AM, we actively participate in industry
initiatives seeking to solve ESG issues from a global
perspective. Our proactive approach on collaborative
engagement through global initiatives is covered in
more detail in Principle 10.

Collaboration with regulators
The Stewardship Development Department
coordinates engagement with government
departments, policymakers and regulatory bodies.
We use our market position, industry knowledge andexpertise to shape the nature of future regulation sothat our clients' interests are best protected.

Case study 4.5 – Public policy engagement
We met with the Strategic Planning Office, Energy Planning Agency, Ministry of Economy, Trade andIndustry to discuss the 2030 power generation mix stipulated in Japan’s 6th Strategic Energy Plan.
From our company perspective, there are many points that are unclear and difficult to realise in theplan. These include:
1) a deceleration in the development of renewable energy sources and emergence of suitable land
shortages.
2) the degree of difficulty in realising new nuclear power plant replacements reflected in the basic
plan.
3) zero-emission thermal power plants and decarbonisation through the use of CCS/CCUS.
4) the necessity of utilizing carbon tax as a financial resource to promote energy conservation andinnovation.
During our discussion, there was a recognition that the utilisation of nuclear power is indispensable forachieving carbon neutrality in 2050. We were able to confirm a positive attitude toward the promotionof energy conservation and introduction of zero-emission thermal power generation through the useof CCS/CCUS, as well as the design of incentives and review of the tax system through theintroduction of carbon taxes and carbon credits.

Case study 4.6 – Public policy engagement
Another important forum of engagement the Financial Services Agency's ‘Corporate Governance
Forum’. As a global investor and the only ICGN board member from Japan, we have an importantrole to play in the development of a globally interoperable sustainability disclosure frameworks.
Following our discussion with the regulator in September 2023, we conducted engagements withcompanies regarding new sustainability reporting and disclosures standards and discussed potential
bottlenecks. In particular, we discussed improving disclosure ahead of the adoption of new
sustainability disclosure rules in Japan scheduled for 2025, and consistent with the standards
developed by the International Sustainability Standards Board.

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Principle 4

Case study 4.7 – Public policy engagement
As an example of policy advocacy, we sent a letter to the Brazilian government requesting that it
disclose information on the state of conservation, management, and development of the Amazon aspart of the activities of the PRI/Ceres Forest Conservation Working Group, and we have held
independent dialogues with the Governor of the Brazilian Central Bank and the Ambassador to Japan.
The Company's independent dialogue with the Governor of the Central Bank of Brazil and theAmbassador of Brazil to Japan is also highly regarded by the Working Group. We recognize thatthese evaluations are equivalent to level 1, the highest rating on the Investor Climate Action Plans’
Expectations Achievement Level scale.

Settlement risk

Geo-political risk

In capital markets, financial institutions have intricate
settlement relationships, so reducing settlement risk
leads to stabilization of financial transactions andreduces systemic risk. Settlement risk is defined as
the risk that issues may arise due to payment not
being made as scheduled for whatever reason.

Another example of systemic risks relates togeopolitical risk. Geopolitical risks amplify investment
risks and operational risks and include the adverse
impact of heightened political, military, or social
tensions on regional and the global economy. For
example, the February 2022 Russian invasion of
Ukraine and Western economic sanctions placed
unprecedented restrictions on Russian financial
markets.

At SuMi TRUST AM, from the perspective ofcontrolling the foreign exchange settlement risk of
the funds, we introduced Continuous Linked
Settlement (CLS) in March 2023 for approximately
90% of the foreign currency asset balance of funds
managed by our company.
CLS is a payment method in which two different
currencies traded in a foreign exchange transaction
are delivered simultaneously at a CLS Bank, which islicensed as a special purpose bank by the Federal
Reserve Board of the United States.
Through this initiative, we have reduced thesettlement risk associated with foreign exchangetransactions for the funds we manage.

In capital markets, financial
institutions have intricate
settlement relationships, so
reducing settlement risk leads tostabilization of financialtransactions and reduces systemicrisk.

Given the seriousness of the events in Ukraine, we
engaged with index providers to provide input on the
exclusion of Russian assets from relevant indices andpricing implications for fund valuation purposes. The
result of this engagement was the removal of thecountry's assets from the benchmark index. Please
see Principle 11 for more details.
We are dealing with existing exposures and, where
possible and appropriate, will consider options for
reducing exposures in a prudent manner that
protects client interests and mitigates unintended
consequences. We are closely monitor events andcontinually review our decisions should there be amaterial change in the status quo.

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

Stewardship activities
Our stewardship activities are led by the Stewardship
Development Department in collaboration withexperienced analysts in the Corporate Research Unitof the Research Department.
Our stewardship activities are reported to the
Sustainability Committee, which was established in
October 2023, and the Stewardship Activity Advisory
Committee, which is comprised of a majority of
independent experts. The Sustainability Committee was
set up to monitor our stewardship activities in light of
their increasing scope and the more granular processes
and reporting requirements of clients and regulators.
The Sustainability Committee meets monthly, andthe Stewardship Activity Advisory Committee meetsquarterly. At these meetings, the committee
deliberates on revisions to the voting principles andreviews reports on stewardship activities.

In order to strengthen the governance structure
further, the activities of these committees aremonitored with reports made to the Executive
Committee on an annual cycle.

Regular review
It is important that policies and processes related to
stewardship activities are regularly reviewed andassessed for effectiveness. Our starting point is oneof continuous self-improvement based on frequentdialogue with clients.
One example relates to our ‘ESG Materialities’ and‘ESG Investment Policy’, which was established in 2019.
These policies require regular review, with the mostrecent revision in August 2022. We have upgraded ourcapabilities in three key areas: harmonizing definitions,
responding to regulatory change, and improving
communications, see Chart 5-1.

Chart 5.1 – Upgraded capabilities
Harmonising definitions related to
ESG

Responding to regulatory
guidance

Communication improvements

New definition of ‘ESG integration’

Addition of purpose

Enhanced explanation of each ESG
Materiality

New definition of ‘ESG products’and establishment of ‘ESG productguidelines’

Addition of contents of approach
attitude

Enhanced description of sovereign
ESG score

New definition of ‘in-house ESG
score’ and establishment of ‘ESG
score guidelines’
Clarification of the definition of ‘ESG
Materiality’ and enhancement of
explanations for each ESG Materiality.
(Source: SuMi TRUST AM)

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Principle 5

Another example of when assurance activities
resulted in meaningful revision in our process relates
to our Principles for Exercising Voting Rights. Basedon internal and external review and assurance thefollowing policies changes have been effective since
January 2023:
1) Opposition to the election of directors when there
are no female directors on the board has been
expanded from the TOPIX 100 Index to the TOPIX
500 Index.
2) The Company will oppose the election of
directors, in principle, if the company has
excessive cross-shareholdings.
Our revisions to voting policies are not simply
constrained to our shareholding in equities. We havealso made improvements to our voting standards forJapanese real estate investment trusts andinfrastructure funds in response to unitholder
proposals in REITs and the establishment ofinvestment trusts investing in infrastructure funds for
DC clients.

Internal assurance

An essential part of our stewardship is regularly
communicating our activity to clients including ourannual Stewardship Report and quarterly or
bi-annual reports as requested. Our client
communications go through a rigorous review tomeet appropriate controls and compliance.
The annual Stewardship Report is also approved by
the general manager of the Stewardship
Development Department and reported to the
Sustainability Committee and the Stewardship
Activities Advisory Committee.
One area of improvement relates not only to theaccuracy of the information provided by the annual
Stewardship Report but also the fairness of theinformation provided. We have identified fairness of
the Stewardship Report as one of 13 ‘level-up
initiatives’, please see Principle 1.
We have also introduced an enhanced process thatassesses relevance for a global audience andensures compliance with laws and regulations ofjurisdictions other than Japan.

In addition, following the UN PRI assessment of theselection and monitoring of outsourced investment
management companies, it was determined that
there was room for improvement in the level ofmonitoring. As a result, the content of the
Responsible Investment Questionnaire foroutsourced investment management companies was
significantly expanded and monitoring upgraded. At
the same time, SuMi TRUST AM reorganised its
outsourced products through the development ofregulations regarding ESG product certification. The
ESG product certification is also applied to our
in-house products.

An essential part of ourstewardship is regularly
communicating our activity toclients including our annual
Stewardship Report and quarterly
or bi-annual reports as requested.
External assurance

In terms of our external assurance, the PRI
assessment is a key external evaluation of ourstewardship activities. The PRI assessment is a reportthat PRI signatory institutions are required to submit
annually. This is reviewed by senior members of the
Stewardship Development Department and reported
to Sustainability Committee, please see Principle 2
for more details.
We consider the assessment an important way tobenchmark our activities and take measures toaddress items that require improvement. For
example, in the last PRI assessment, there was aquestion regarding the disclosure ratio of voting
rights in listed stocks. Since previously only domestic
stocks had been disclosed, we have started
disclosing information on foreign stocks as well.
Our main motivation for utilising external forms ofassurance is to establish a competitive advantage overthose firms that are unable to meet the demanding
requirements of these international standards.
We also believe that external assessment helps topromote the benchmarking and upgrading of our

UK Stewardship Code 202430

stewardship capabilities. In preparing the various
reports and assessments, many internal teams
collaborate on the output including the client
departments, investment departments, and businessplanning department. External assessment helps
unify our efforts and reduce silos within the firm.
Despite our efforts to harness both internal andexternal assessment of our stewardship capabilities,
we recognize the limitations of largely a voluntaryand self-assessment approach to assurance. With
multiple competing standards and methodologies,
as well as rapidly shifting client preferences acrossregions, there is a risk that the assurance landscaperemains fragmented. We will continue to seek asolution to external assurance, which has become apressing need for the industry.

We also believe that external
assessment helps to promote thebenchmarking and upgrading of
our stewardship capabilities.
Client-centric approach

The ultimate adjudicator of whether our reports are
fair, balanced, and understandable is the client. We
report to our clients on our stewardship activities on

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UK Stewardship Code 2024

an annual, semi-annual, and quarterly basis asrequested.
Our stewardship activities are evaluated on a regularbasis, with our clients regularly commending their
sophistication and improvement. In Principle 6, we
provide multiple examples of how client feedback
has supported and improved our stewardship
activity.
However, we recognise that clients may be lacking in
the information or resources to validate claims
related to stewardship activities from all asset
managers. In particular, greenwashing, where claims
are unverifiable, or competence-washing, where
professionals lack necessary skillsets, remain
concerns.
Of course, assurance is a vital tool to combat
information asymmetry. However, the market forassurance is underdeveloped, with concerns about
the cost if the standards cannot differentiate
providers effectively.

The ultimate adjudicator ofwhether our reports are fair,balanced, and understandable isthe client.

Principle 6
Signatories take account of client and beneficiary needs and communicate theactivities and outcomes of their stewardship and investment to them.

Client dialogue is vital to our business success. Our stewardship activities have become an important source ofengagement with our clients. This reflects both a rise in inbound enquiries as well as outbound efforts to
educate clients as to the importance of stewardship activities for the improvement of corporate value ofinvestee companies.
We manage assets globally, but our clients are primarily located in Japan, see Chart 6.1. We recognise that thepenetration of ESG varies by region, with Japan and Asia having greater scope to develop to meet global
standards. As a global asset manager, we have an opportunity and responsibility to work with clients with advanced
knowledge and opinions to tackle global issues and raise standards relating to sustainability across regions.

Chart 6.1 – Customer attributes
Customer attributes(institutional investors, retail)
Retail investor

Sovereign Fund
Other

Client's regional exposure
Overseas

5%

17%
17%

Mutual
fund

4%

55%

Total
11% JPY85.7tn Public
pensionTotal
JPY85.7tn

95%

13%Corporate pension

Japan

83%
Institutional Investor

Regional Exposure by Asset Class
Asset ClassJPY TnJapan

Overseas

Equities

45.87

54%

41.88

3.99

Fixed Income

32.29

38%

32.28

0.01

Others

7.55

9%

7.53

0.03

Total

85.71

100%

81.69

4.02

(Source: SuMi TRUST AM, as of end-September 2023)
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Our capabilities related to stewardship, which
impacts outcomes over mid- to long-term time
investment horizon, are particularly important for our
long-term institutional investor base, which comprises
a significant portion of our clients, see Chart 6-1.
The Company also has a large Japanese retailinvestment trusts and DC client base. After a long
period of economic stagnation, Japanese retailinvestors are increasingly seeking to align theirinvestment horizons with their long-term investment
goals. In response, we are engaged in financial
education and the dissemination of ESG-related
information in conjunction with the provision offinancial products which offer outcomes aligned toour clients’ long term interests.

2) Our President, Yoshio Hishida, participated in the
Cabinet Office's ‘Study Group for Realizing a
Virtuous Cycle of Female Participation andEconomic Growth’ convened under the Minister ofState for Gender Equality to consider increasing
the percentage of women among ‘executive
officers or equivalent positions’ in Japan, January2023.

A critical component of our client communications
efforts is the disclosure and clarification of our own
stewardship policies. In addition to disclosing ourstewardship policy on our website, we also disclosethe details of our activities through the following:3) A SuMi TRUST AM representative participated inthe ‘9th Nikkei FT Communicable Diseases
Conference’ as a panellist at the Antimicrobial
Resistance Sub-committee, giving a presentationon our company's initiatives to increase pullincentives for the development of new drugs,
November 2022.

1) Annual Stewardship Report2) PRI assessment
3) TCFD report
4) Voting results

Our capabilities related to
stewardship, which impacts
outcomes over mid- to long-termtime investment horizon, areparticularly important for our
long-term institutional investor
base, which comprises a significant
portion of our clients.
Industry Forum

To disseminate our thinking and actions related toour stewardship activity and to facilitate two-way
communication with our clients we also participate inindustry forums.

33

1) Our Chairman David Semaya participated as apanellist at the ‘Net Zero Delivery Summit’ hosted
by the City of London. David spoke about SuMi
TRUST AM’s engagement efforts on credible,
high-quality climate transition plans made byinvestee companies, May 2023.

UK Stewardship Code 2024

4) A Stewardship Development Department
representative spoke at a ‘UN PRI Interview on
ESG practitioner: webinar on trends surrounding
biodiversity and Taskforce on Nature-related
Financial Disclosures’, June 2022.

What are clients asking from us?

We seek to understand our clients’ needs regarding
stewardship activities by reviewing an annual client
survey. The results are reviewed by the Stewardship
Development Department and inform processes,organisational structure and strategy related to
stewardship. Chart 6.2 highlights that client interest
relates to voting rights and engagement activities.
These areas have come under increased scrutiny
since the establishment of Stewardship Code inJapan in 2014. In recent years, we have also
witnessed a noticeable increase in interest in global
initiatives and have responded accordingly.

Principle 6

Chart 6.2 – Our clients’ interest
50%
2018

2019

2020

2021

2022

40%
30%
20%
10%
0%

General Stewardship
Activities

Engagement
Activities

Proxy Voting

Global Initiatives(Source: SuMi TRUST AM)

For clients outside the scope of our stewardshipsurvey, such as overseas clients, we engage in
two-way dialogue with asset owners and areincreasingly asked to include ESG-related items in
RFPs and other documents when communicatingwith clients and when applying for new mandates.
In recent years, we have received many inquiries
from clients in Asia, where ESG issues are often
considered to be relatively less developed, such as
the exercise of voting rights, and we are increasingly
explaining our engagement activities and voting
initiatives.

Aligning stewardship activity with clients'
needs
Voting rights
We are committed to increasing the value ofinvestee companies, to the benefit of our clients,
through the exercising of voting rights. To gain client
understanding of our voting decisions we disclosedetails of our voting principles and results to ourclients.
If we identify a divergence between the customer policy
and our company principles in exercising voting rights
through the above engagement, we will explain to asset
owners our voting intentions and seek understanding

through departments in charge of clients.
Of course, not all differences can be resolved. In
these cases, we are willing to consider overwriting
our company voting principles with the client’s policyor, after a discussion with the Sustainability
Committee, seek to enhance our voting rights
principles to better reflect changing customer
preferences, please see Principle 12 for more details.
Any such revisions will be disclosed in advance andbe accompanied by an explanation, if necessary, toinvestee companies.
Efforts are made to increase the effectiveness ofcorporate value improvement by disclosing therevised content in advance and gaining
understanding from asset owners through client
departments. If there are ultimately differences
between the customer policy and our company's
principles regarding the exercise of voting rights,
we will consider adopting a policy that overwrites
our company's principles with the customer
policy.
For example, as a result of a difference between acustomer's voting criteria and our voting principles,priority is given to the customer's voting criteria(non-uniform exercise) for the relevant customer
account.

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Case study 6.1 – Voting rights

Chemical company

CompanyCountry: JapanEngagement
Objective

We have been in dialogue with the company for some time about the need to appoint
female directors. However, since no women had been appointed as candidates for
directors at the 2022 General Meeting of Shareholders, we opposed directors who had
been in office for more than three years.

OutcomeCompany proposal opposed (last year) ⇒ in favour (this year)
77.3% in favour in 2022, 93.7% in favour in 2023.

Result

The company requested further dialogue after the 2022 General Meeting of Shareholders
due to the low approval rate for the election of directors, and we explained how we had
included the election of female directors in its voting criteria. Since a female director
candidate was proposed at the 2023 General Meeting of Shareholders, we voted infavour of the election of directors, except for outside directors who were in breach of the
independence criteria. The percentage in favour of the President increased from 77.3% in2022 to 93.7% in 2023.

Strengthened global capabilities
Another area we have sought to align ourstewardship activity with client needs relates to ourclients’ desire for greater international engagement
and a more proactive global approach, which iswell-aligned with our strategy.
For example, a pension scheme pointed out that
there was room for improvement in our overseas
engagement system in order to align with ourdomestic capabilities. To remedy this situation, we

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established a new base for stewardship activities in
New York in July 2020 to supplement our legacy
bilateral engagement system centred in Tokyo andLondon. This has allowed us to more than double
our overseas engagements over the last five years.

This has allowed us to more thandouble our overseas engagements
over the last five years.

Principle 6

Case study 6.2 – Overseas capabilities
Company

Archer Daniels Midland Co

Country: US

Activity
Topic

As a major US grain trading company, the sustainability of Archer Daniels Midland Co’s
success is dependent on environmental issues including climate change and water
resources.

Engagement
Objective

Our engagement has focused on monitoring and control of soya production and its
supply chain, which is a major cause of deforestation in Brazil. We have conducted a
dialogue with the firm since 2020, both independently and collaboratively through the US
NGO group Ceres and the Initiative for Policy Dialogue (IPDD). As part of this activity, wesent a letter requesting full traceability of the supply chain, including all direct and indirect
suppliers of Brazilian soya, disclosure of a policy for dealing with offending suppliers, atarget to achieve zero deforestation soya by 2030, and a cut-off of supplies of Cerrado
soya, a vulnerable savannah grassland.

OutcomeResult

The company announced a target of 100% traceability of direct and indirect suppliers in
Brazil, Paraguay and Argentina by 2022 and a zero deforestation by 2030. In May 2023,
the company upgraded its target to zero deforestation by 2025. The company’s latest
Sustainability Report also presented an action plan to achieve the 2025 zero deforestation
target. The plan includes (i) conducting a comprehensive deforestation risk assessment,
including the supply chain; (ii) further strengthening direct and indirect suppliermonitoring in high-risk areas; (iii) developing a measurement protocol and supplierengagement plan to manage deforestation-free soybean; and (iv) working towards
third-party verification.
Despite these efforts, media reports have indicated deforestation continues apace andwithout independent verification we have characterized ESG data provision as high risk.

Assessment
Did outcome
meet ourexpectations?

Until Brazilian deforestation - especially the ever-increasing conversion of the Cerrado
Savannah to agricultural land - is addressed, we consider the response of relatedcommodity companies, especially beef and soya, insufficient. In terms of KPIs, ADM
discloses the percentage of deforestation-free soya twice a year which we will monitor toensure it is aligned to its 2025 zero deforestation target. We will also question executive
management on their views on mitigating risks and capturing business opportunities
through these activities.

Improvement
Future action

While we welcome the progress on new initiatives to address deforestation, we plan to
conduct further dialogue targeted at improving transparency. For example, the 2023
Sustainability Report announced the establishment of a traceability system for suppliers.
However, the policy for dealing with non-compliant suppliers and the cut-off period
remain unclear.

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Another important consequence of our expanded overseas engagement capacity is the ability to participate inglobal initiatives, a growing area of interest for our clients which is aligned with our strategy (see Chart 6.2). We
provide an example of how our participation in the Financial Sector Deforestation Action Initiative resulted in apositive outcome, see Case Study 6.3.

Another important consequence of our expanded overseas engagement
capacity is the ability to participate in global initiatives

Case study 6.3 – Global initiative
The Financial Sector Deforestation Action Initiative (FSDA) is an organisation that was launched at
COP26 with 30 financial and investment institutions. We received a request from our client to educate
Japanese companies on global ESG themes, and using this framework, we began joint engagementon the issue of deforestation, which is still unfamiliar in Japan.
Deforestation is a particularly important issue for tyre companies, which are dependent on land usage
to source rubber. Using our global capabilities, we conducted engagement with leading European
tyre companies (Michelin and Continental) and were able to provide an international comparison to alarge Japanese tyre company and present a compelling case for improvement. The Japanesecompany which has relatively advanced ESG capacities compared to other Japanese companies
recognised that there were further advancements required to reach global standards. In August 2022,
the company announced plans for the commercialisation of Guayule, an alternative for existing natural
rubber, to help meet its goal to use 100% sustainable materials by 2050.

Clients’ future needs
Our approach is not just reactive but also includes
monitoring and anticipating future trends related to
ESG. An example of this approach is our focus onwater management. This is an under-developed areaof expertise in Japan, allowing us to engage withcompanies. For example, we engaged with a large
Japanese trading company on water resource
management. The company was unfamiliar with thisissue but after further discussions recognised its
importance. As a result, it implemented the Taskforce
on Nature-related Financial Disclosures’ approach ona trial basis in the marine aquaculture industry,
analysing and disclosing the impact of its activities onnatural capital.

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UK Stewardship Code 2024

We have also been able to align our engagement inJapan with the interests of our overseas clients. For
example, in response to a request from an Asian
asset owner when communicating about thesophistication of engagement initiatives, we
explained our initiatives on water resource
management and gained the understanding of theclient. The water resource initiatives were also
requested by a Japanese pension scheme and assuch reflects requests received from both domestic
and overseas clients.

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

To meet our stewardship responsibilities, we
integrate the analysis and evaluation of ESG
information into our investment processes with theaim of maximising medium to long term investment
returns for clients and beneficiaries.

ESG Analysis
Our analysis and investment decision-making are
grounded in ‘ESG Materiality’ as defined by thecompany. It is informed by several in-houseassessment tools and by non-financial information
obtained through stewardship activities.

ESG Materiality
In making ESG investments, SuMi TRUST AM
considers ESG Materiality a critical component ofassessments of all our ESG investments.
Our new Sustainability Committee established in
October 2023 is responsible for implementing thecompany’s process with regard to ESG Materiality
and conducting a regular review process. The viewsof clients, initiative organisations, investee
companies and other stakeholders, as well asinternal departments are all critical inputs into theprocess.
ESG Materiality is discussed at the new Sustainability
Committee and 12 Materialities are identified foreach of E, S and G - three risks and an opportunity and approved by the Executive Committee.

Chart 7.1 – SuMi TRUST AM’s 12 ESG Materialities
ESG Materiality① Climate Change

Risk/Opportunity

Future Acitivities

Risk

For companies with high emissions, we will encourage thetaking of specific effective action as soon as possible. For
2030 interim targets, we will continue having engagementswith management for requesting the formulation of viable
and specific action plans for the transition path according to
the industry while also raising reduction targets in line with
the Paris Agreement.

Risk

Maintaining and improving natural capital and biodiversity
are important obligations for people living today. In addition
to efforts for achieving zero damage to natural capitalthrough the conservation of water resources and forests, aswell as responsible land use, we will encourage corporate
actions that aim to restore and thus maintain and improvenatural capital and biodiversity.

E② Natural Capital

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Chart 7.1 – SuMi TRUST AM’s 12 ESG Materialities (continued)

ESG Materiality③ Pollution & Waste

Risk/Opportunity

Risk

To realize a circular economy, it is essential to strengthen
cooperation among industries and among companies at eachstage of the value chain. We will encourage corporate actions
for establishing a circular economy including thedevelopment of products and services that take resource
recycling into consideration along with education/awarenessactivities for consumers.

Opportunity

It is essential to find balance between resolving
environmental issues and achieving economic returns in orderto achieve social and corporate sustainability. We willencourage companies to take the initiative to realize this andto improve corporate value.

Risk

In addition to risk management by establishing a humanrights policy and establishing and operating a system forhuman rights due diligence, we will also encourage proactive
information disclosure on related initiatives for improving
corporate value. We will encourage improvement ofcommunity sustainability by reducing the supply chain loadand “just transition.”

Risk

While utilizing human capital by promoting DE&I
management, we will continue conducting engagements forrequesting initiatives to improve corporate value. These
initiatives include enhancing employee engagement,
disseminating corporate philosophy and business strategies,
and fostering each employee’s ability to create value.

Risk

From the perspective of well-being, we will encourage
initiatives for maintaining/managing the health and safety of
employees, and for improving the ability of each employee tocreate value for increasing corporate value. We will also
continue having engagements for requesting initiatives toimprove external evaluations through active information
disclosure on improving access to medicine globally.

Opportunity

We will promote initiatives for business that resolves social
issues by creating employment opportunities and job
support. We will also encourage companies to shift to abusiness model that is sustainable within communities withaging populations and declining birthrates.

E④ Environmental
Opportunities⑤ Human Rights &Community⑥ Human CapitalS⑦ Safety &Responsibility⑧ Social
Opportunities

G ⑨ Behaviour

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Future Acitivities

Risk

A backcast perspective based on a long-term vision isimportant for a company’s medium-term management plan.
We will continue to have discussion with management
personnel on setting goals through backcasting as external
uncertainties increase, and on their achievement, along withthe resolution of various issues.

Principle 7

Chart 7.1 – SuMi TRUST AM’s 12 ESG Materialities (continued)

ESG Materiality⑩ Structure

G ⑪ Stability & Justice⑫ GovernanceImprovement

Risk/Opportunity

Future Acitivities

Risk

We will encourage the improvement of corporate value
through the establishment of a diverse board of directors
necessary for realizing its purpose, corporate philosophy, andlong-term vision.

Risk

We will continue to engage with companies that haveexperienced misconduct, encouraging actions to prevent its
recurrence and to improve management discipline, as well as
requesting the establishment of risk management processes
to prevent such incidents beforehand.

Opportunity

We will promote the improvements to corporate value by
encouraging the establishment of a foundation that allows
each director to demonstrate their potential and to fulfill theirrol.
（Source: SuMi TRUST AM）

Adjustment of 12 ESG Materialities
themesIn August 2022, we made the following adjustments
to the 12 ESG Materialities themes with the aim ofenhancing the sophistication of engagement.
1) 'Social Opportunities' replaced 'Sustainable
Communities'. By adding the perspectives of'promoting the expansion of products and services
that solve social issues' and 'fair transition' to theexisting theme of 'building sustainable social
infrastructure and business models', the aim is tobroaden the scope of dialogue on both solvingsocial issues and creating business opportunities.
2) We added 'natural capital and resource
protection', which we consider to be of increasing
importance, to the existing high-priority themes of'climate change', 'promotion of corporate
behaviour' and 'governance reform.’
The 12 ESG Materialities framework allows us toselect and prioritise stewardship activities. This canvary depending on whether a top-down orbottom-up approach is required to meet our client
outcomes. For an explanation of how the top down

and bottom-up approach to engagement differ inpractice please see Principle 9.

In-house ESG score
In-house ESG score refers to our investment
evaluation index, which is assigned from an
investor's perspective. SuMi TRUST AM calculates its
own ESG score reflecting information and analysis
obtained through research and engagement
activities by our analysts as well as external ESG
data.
In the evaluation of in-house ESG scores, bottom-up
research and engagement activities by our analysts
and fund managers are reflected in the ESG score asa qualitative evaluation.
While the ESG Materiality defined by the company isused as the basis for the assessment of thecompany's ESG score, the assessment methodology
reflects the characteristics of each asset class (moredetails below).

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Chart 7.2 – Investment universe evaluation based on in-house ESG score
SuMi TRUST AM in-house ESG score - Overview by asset
Target assets

StocksBonds(1) Evaluation
items

Stocks12 important ESG materialities(2) Quantitativeevaluation

Various datafrom theWorld Bank, etc.

External ESG data, etc.

ESG evaluation by
Sumitomo Mitsui
Trust ResearchInstitute

External ESG
data, etc.

Utilization of information and analysis results acquired through research activities
by analysts and engagement activities(3) Qualitativeevaluation(4) In-house ESG
score

REIT

Japanese equity Foreign equity

Corporate bonds(Japan/Foreign）

Sovereign

J-REIT

G-REIT

Principally, we give an in-house ESG score on the investment universe for the whole asset. The in-house ESG score is our investment
evaluation index given from the perspective of investors after analyzing the impact of opportunities and risks resulting from ESG issues onnations, companies, etc. It is calculated based on ESG materiality by utilizing external ESG data and by reflecting information acquired
through research activities by analysts and engagement activities, and then reflecting the analysis results. In order to select brands anddetermine the investment weight, we add company performance, financial status and valuation for stocks and REIT, and add credit evaluationand spread evaluation for Sovereigns and corporate bonds.
（Source: SuMi TRUST AM）

In order to maintain the quality of the ESG score, theitems and content of the qualitative assessment havebeen categorised into five areas:1) public information not yet considered by data
providers2) company's engagement results3) governance assessment with a focus on 'executive
power'
4) opportunity assessment on environmental andsocial issues5) modification of the assessment weight allocation

In principle, for foreign equities and foreign
corporate bonds, we have sought to make theevaluation more comprehensive by utilisingquantitative data to evaluate individual companies'
environmental and socially beneficial products andservices.
Although there are differences in the use of such
quantitative data between domestic and foreign
assets, the ESG assessments are calculated using thesame approach based on ESG Materialities, so theyremain mutually comparable.

Case study 7.1 – ESG scores
The quantitative evaluation of the ESG score of a leading Japanese chemical company, based onservice provider data, is E4, S2 and G1, while the composition of the board of directors and risk
management are rated low by the data provider for G. On the other hand, the qualitative evaluation
by analysts is upgraded for E4, S2 and G3.
Although the composition of the board of directors and risk management are rated low by the data
provider, our qualitative assessment by our analysts suggests the governance score should be higher.
The management has a clear strategy, and the four internal directors are well balanced in terms of theskills matrix. Furthermore, the company's high level of executive talent is a valuable asset given theagility required to respond to rapidly changing business conditions in the sector.

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Principle 7

We also use a non-financial information evaluation
tool MBIS®. MBIS® is a proprietary system forassessing a company's medium to long term
sustainable growth potential. MBIS® collects,
analyses and evaluates information that cannot be
expressed in financial information, such as thevalue-add and sustainability of products and services
offered by the companies covered by the analysts,
the governance systems that support the provision ofvalue-add, and the degree of social andenvironmental impact that forms the basis forsustainable growth, please see Chart 7.3 for moredetails.
M stands for Management, B for Business Franchise, I
for Industry and S for Strategy, and each evaluation
item also incorporates an assessment of our in-house
ESG score for domestic equities and domestic
corporate bonds. In addition, the evaluation
incorporates the concept of the SDGs and is basedon an awareness of the 17 goals.

Case study 7.2 – MBIS®
The MBIS® score for Japanese machine tool manufacturer is 16.5 points. The MBIS® breakdown is asfollows: M (management) 4 points, B (business franchise) 5 points, I (industry) 3 points, S (strategy) 4
points; for M (management). The president’s leadership and agile decision-making was highly related
through meetings with the company's management team. Regarding B (business franchise), thecompany's complementary product and geographical relationships with European companies it has
acquired in the past is a differentiating factor, and its customer base has strengthened as a result of
increased business with global companies; regarding S (strategy), the company believes that theacquisition of a European company, which was a major corporate success, has enhanced its prospects
for growth in the future. The company believes that the prospects for future growth are increasing.
The company is also working with suppliers to reduce CO2 emissions by switching to CO2-freeelectricity and solar power generation.
The formula for the above MBIS® total points is: M x 2x + B x 1x + I x 0.5x + S x 1x, giving a total of
16.5 points.

Chart 7.3 – MBIS® Process

I

S

Business Franchise

Industry

Strategy

Organisational ability(Checklist 5 items)
Differentiating factor(Checklist 5 items)
Client base
(Checklist 3 items)
Market growth potential(Checklist 2 items)
Competitive environment(Checklist 5 items)
Skillful investment(Checklist 5 items)

Reference

ESG materiality

B

Management

External ESG data / Qualitative evaluation

Overall MBIS® score

M

In-house ESG scores

Management group(Checklist 5 items)

Skillful withdrawal(Checklist 2 items)（Source: SuMi TRUST AM）
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Information on stewardship activities is managed via
an engagement support tool. Stewardshipinformation is shared internally on the platform andused for voting decisions and fund managers'
investment decisions. In addition, depending on the
ESG issues faced by the company, the fund manager
is also involved in the engagement dialogue and uses
stewardship activity information for investment
decisions.
The portfolios we manage use a variety of investment
strategies to meet the investment objectives of eachof our clients. ESG investment methods are used inappropriate combinations according to thecharacteristics of the investment objectives,
investment targets, investment strategies, as
described below in ESG Investment Methodology
and In-house ESG Score.

ESG Investment methodology andin-house ESG Score
ESG investment methodology for in-house
investment products
The ESG investment method for conducting ESG
investments is defined in the following:
1) ESG negative screening
Under certain criteria, we exclude companies from
our investment universe who have significant
problems from the perspective of ESG, such as
those that manufacture inhumane weapons andthat conflict with international codes.
2) ESG positive screening
We actively invest in companies with high ESG
ratings within each sector.
3) Integration of ESG-related information
We incorporate knowledge obtained fromanalysing/evaluating non-financial information
including ESG into processes regarding selecting
brands of each fund and building portfolios in an
explicit and systematic manner.
4) Topic investment
We establish topics regarding ESG and organize
and manage funds that mainly incorporatecompanies related to it.

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5) Impact investment
We form and manage funds with an explicit
purpose of having a positive impact on society
from the ESG perspective, as well as producing
economic investment return.
6) Engagement
We hold constructive dialogues on ESG topics withinvestee companies as an opportunity to seek bestpractices from companies and improve their value
over a medium to long term.
7) Exercise of voting rights
We call for minimum standards and value
improvement in investees by reflecting ESG factors
in voting “for” or "against” an agenda item in theexercise of voting rights.

Integration by asset class
In principle, our ESG investment methods areintegrated across all the asset classes we invest,
please see Chart 7.4. However, there is variation in
how they are used as we explain below.
In terms of our in-house ESG score, domestic equities
and corporate bonds, foreign equities and corporate
bonds and Real Estate Investment Trusts (REITs) all
use an evaluation method based on three measuresof non-financial information: environmental and social
opportunities, an assessment of risk management
and an assessment of management execution fromthe perspective of governance.
For sovereigns, the evaluation method is based onwhether countries are adequately addressing
environmental, social and governance issues, taking
into account their governance structures and thepeople and land. For J-REITs, the evaluation method
is based on whether each investment corporation andasset management company appropriately consider
and addresses environmental, social and governanceissues.
For domestic equities and J-REIT, the quantitativescore is used to select stocks and determine
investment weightings, adding performance, financial
condition and valuations. For sovereign andcorporate bonds, the quantitative score is used tocreditworthiness and spread assessments to selectstocks and determine investment weights.

Principle 7

Chart 7.4 – ESG integration across asset classes
12 important ESG materialities

All active products: Screening by ESG related issues

ESG screening

Corporate
bonds(Japan)ESG integration

Japanese
equityESG investment
evaluation(Non-financial
information)

Corporate
bonds(Foreign)

Sovereign

J-REIT

G-REIT

Investment universe evaluation based on in-house ESG score

Evaluation
by MBIS ®

Reflection toinvestment
decisions

ForeignequityEvaluation
by MBIS ®

Investment decision-making in line with portfolio characteristics

ESG monitoring

Sustainability Committee（Source: SuMi TRUST AM）

Service providers
In order to improve the effect of ESG investments, we
examine and try to understand the evaluation
purpose, method, and restrictions for ESG evaluationand data used to allow us to perform ESG evaluations
and ESG investments for investees.
This commitment extends to external service
providers and the data they supply. We havedeveloped a comprehensive approach to evaluatingthese service providers including the following:1) breadth of coverage of the data provided2) transparency of the purpose and methodology of
the assessment
3) organisational structure and governance4) the level of support and service provided5) the quality of dialogue with the service provider6) the commitment of the service provider'smanagement to our services
In addition, to assessing the service providers at a
provider-level we also assess individual data series.
For example, all resources from an external data
provider used in-house ESG score are assessed for
applicability or compatibility with our own objectives
and definitions.

For example, we require data that enables us toassess our 12 ESG Materialities, in line with both risks- including exposure and risk management elements- and opportunities, risks in terms of both exposureand risk management, compliance with the Global
Compact, and corporate scandals and traceability of
the assessments. The data must be traceable to theassessment of corporate misconduct and its
evaluation, and the data must be available forcountries to assess our 12 ESG Materialities as well.
As well as assessing the suitability of data services
from external providers we also engage in an
ongoing dialogue with data providers on improving
data enrichment and clarifying data definitions andspecifications.
We also consider the data provider's capacity to
evolve their offering in line with regulatory change.
For example, we use Bloomberg’s Sustainable
Finance Disclosure Regulation (SFDR) data solution
which generates ‘Principal Adverse Impact’ indicators
in a manner that is compliant with SFDR
requirements.

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Meeting clients ESG investment needs
At SuMi TRUST AM, we believe that providing a wide range of ESG investment products for active strategy,
passive strategy, and other assets are an important part of our work as ‘Responsible Investors’ from the following
perspectives:• Stewardship Activities can encourage companies to change their behaviour through ESG investment.
• Provide a variety of investment opportunities makes it possible for clients to contribute toward better
sustainability for society and companies, as well as investment return.
In order to align our stewardship with client investment needs and timeframes we have a range of ESG-related
products.

Japan equity impact fundWe launched the Japan Equity Impact Fund in October 2019 after various discussions and deliberations withclients and global organisations. The fund has an explicit objective of making a positive impact on society froman ESG perspective, alongside economic investment returns.
The fund invests over the long term in companies for which solving SDG issues is itself a growth driver. It sets an'impact KPI' for each company to measure the degree to which ESG issues are solved and to guide ourengagement. The portfolio construction process consists of five key stages as set out in Chart 7.5.

Chart 7.5 – Portfolio construction process

All listed stocks in Japan

Evaluation of corporate practical business ability
and growth potentials

Impact evaluation

Stocks with
impact KPIs

Portfolio（Source: SuMi TRUST AM）

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Principle 7

Global equity impact fundaddition, the fund is characterised by regularmeetings with corporate analysts and ESG specialists
based in overseas offices in London, New York,
Hong Kong and Singapore.

We have also launched the Global Equity Impact
Fund, allowing us to expand the investment universeof our ESG capabilities. This fund makes long-term
investments in companies in which solving ESG
issues is a growth driver; and aims to further enhance
corporate value through active dialogue withcompanies. It also uses quantitative analysis to
identify groups of companies to invest in. In

The fund investment process is anchored on thefirm’s in-house research and data capabilities, see
Chart 7.6.

Chart 7.6 – Overview of investment process
ESG research
ESG
Exercise of
voting rights
PM

AN

ESG

Quants research
Corporate research
PM

QA

AN

PM Portfolio managers
QA Quants analysts
AN Corporate analysts
ESG ESG specialists

Investment decisionPM

Impact KPI
PM

AN

ESG

（Source: SuMi TRUST AM）

ESG Passive investment strategy
We believe that developing and providing
investment products that address climate change
issues are an effective way to accomplish net zero
greenhouse gas emissions from investee companies
by 2050. Next, we introduce one of our passive
investment strategies.
In 2018, SuMi TRUST AM launched a passive productfor the S&P/JPX Carbon Efficient Index-tracked typestrategy, and in 2021, the tracked ETF was listed on
the Tokyo Stock Exchange.
1) Index features
Adopting rules such as increasing the weight ofcompanies who have sufficient information
disclosure on greenhouse gasses and companies
who have high carbon efficiency (lowcarbon-emissions-per-sale) and can be expected
to help promote company information disclosureand carbon efficiency.
2) Expected impact from investment
Since it is investment to weight-tilt type indiceswhere TOPIX stocks are the universe, it limits thegap with TOPIX and aims for the same level ofrisk/return, while also aiming to improve thecarbon efficiency of the investment portfolio
compared to TOPIX. Stocks of companies where
information disclosure related to greenhouse gas
are insufficient or those with low carbon efficiency
are also held. Continuing investment in suchcompanies is in harmony with the purpose of ourstewardship activities, which is engagement andexercise of voting rights as a shareholder to raise
the whole market.

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Fixed income ESG investment strategy

Due to the difference in product characteristics,
there are differences between stocks and bonds
investment related to the significance of ESG
integration and investment points. Althoughbondholders do not have voting rights, as a direct
funder, we believe that they have an important
position for corporate management. Therefore, as abondholder, while we have the right to ask investee

companies to take measures for medium- tolong-term growth and to reduce downside risk, we
also believe we have responsibilities to request
social contribution.
ESG information is utilised according to the flow in
Chart 7.7 for fixed income management. Details of
how ESG factors are integrated into spread levelevaluation are shown in Chart 7.8

Chart 7.7 – Flow of ESG information utilisation for bonds(1) Selectnon-investablesecurities

Stewardship
Development
Department[Take ESG into consideration and identify non-investablesecurities]
Prohibit investing in companies that manufacture inhumane
weapons. This applies to all assets.

Have an outlook for the spread with a top-down approach and decide on a position building policy basedon spread situation judgment considering a credit cycle.

(2) Evaluatecreditworthiness[Give in-house rating with ESG factors taken into consideration
when evaluating creditworthiness]
Credit analysts- Take ESG factors into qualitative determination (Evaluate using
MBIS® and in-house ESG scores.)- Set G (Governance) as the centre of focus.

(3) Evaluate
spreadPortfolio
managers[Take ESG factors into evaluation of spread level]
Based on the required spread level according to the in-houserating of the company, give comprehensive consideration to ESG
factors, liquidity, and supply/demand, and determine theappropriate spread level for the company.

Build portfolio(4) Evaluate
portfolio, etc.

Portfolio
managers

For securities with low ESG scores, portfolio managers and credit
analysts work on engagement cooperating with relevant
departments.
Change investment decisions depending on the status ofinitiatives to address ESG issues in investee companies.
（Source: SuMi TRUST AM）

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Principle 7

Chart 7.8 – Relationship between spread evaluation and ESG evaluation
ESG evaluation
High

C

A

Can be owned

Actively invest
SpreadOvervalued

Bargain

D

B

Sell / Not owned

Improve ESG
evaluation throughengagement

Low

A Actively invest

It is a bargain and has a high ESG evaluation, so active investment is likely (purchase/hold).

B Improve ESG evaluation through engagement
It is a bargain, but the ESG evaluation is low. Effort to improve ESG evaluation through engagement.

C Can be owned (Possible to own but subject to sell (Not owned))
It is overvalued, but the ESG evaluation is high, so it can be owned.

D Sell / Not owned

It is overvalued, the ESG evaluation is low, and the spread may widen (price decline) in the future, so it is subject to sell (Not owned).
（Source: SuMi TRUST AM）

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Chart 7.9 shows the securities selection process and a schematic diagram of ESG integration for government
bond investment and corporate bond investment. For government bond investment in particular, financial
soundness and politics are scored in our country score. For political score, each country is evaluated and given ascore on environmental aspects (E) such as climate change, social aspects (S) such as human capital, andgovernance aspects (G) such as legal system and political stability. This is equivalent to an ESG score.

Chart 7.9 – Securities selection process for government bond and corporate bond investment
ESG integration for government bond investment
Screening
Screening of investment target government
bonds using quantitative model
Rating/Liquidity: Determination of target
investment countries
Financial soundness evaluation(SuMi TRUST AM Country Risk Score):
Determination of investment
upper limit ratio
Maximization of
expected return:
Determination of
investment allocation

SuMi TRUST AM Country Risk Score

ESG factor
Politics

FiscalIntegration
Financingof foreign
currency

PortfolioMarketESG integration for credit investment
Screening
Screening of companies based on whether
they manufacture inhumane weapons
Evaluation of creditworthiness /sustainability (In-house rating)
Quantitative model[Financial information]

Qualitative determination[Non-financial information]

Evaluate spread

Integration

Qualitative determination

ESG factor
Business

FinanceLiquidity

Portfolio（Source: SuMi TRUST AM）

Our ESG approach is broadly consistent across geographies. We are committed to continuously evolving ourcapabilities to address client needs.

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Principle 8
Signatories monitor and hold to account managers and/or service providers.

We utilise external vendors and service providers to enhance our services and to increase the benefits to clientsand beneficiaries. All service providers are regularly monitored through ongoing engagement.

Service providers relating to stewardship activities
We use several external service providers and rating agencies as part of our stewardship activities. A summary ofthese is provided in the table below.

Chart 8.1 – Service providers
Service providers

Brief description of purpose

MSCI Inc.

ESG assessment/analysis

Institutional Shareholder Services, Inc.

Emissions analysis
Voting rights exercise

Sustainalytics Japan Inc.

ESG Screening
Regulatory compliance (SFDR/PAI)
Voting rights exercise

Bloomberg L.P.

ESG assessment and analysis
Regulatory compliance (SFDR/PAI)

Refinitiv Japan K.K.

Screening (anti-money laundering)

Factset Research Institute Inc.

ESG assessment/analysis (RBICS)

FTSE Russell

ESG assessment/analysis

Governance Visions

Voting rights exercise

ICJ, Inc.

Voting rights exercise

Sumitomo Mitsui Trust Research Institute Co., Ltd.

ESG assessment/analysis(Source: SuMi TRUST AM)

In addition, we conduct regular engagement with
policy authorities, industry associations and initiative
organisations as part of our multi-stakeholder
engagement.
The two main types of service providers include:
1) Proxy advisors
2) ESG ratings agencies and ESG data providers

These service providers are a vital source of support
to help execute our rights and responsibilities as aninvestor. Our departmental personnel are in daily
contact with the respective proxy advisors, ESG
rating agencies and ESG data providers and carryout monitoring activities, recognising that they arepart of a cycle that drives improvements in outcomesfor our clients.

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Proxy advisors
All voting decisions are taken in line with SuMi
TRUST AM’s in-house principles. Before any voting
rights are exercised, our voting recommendations
undergo intensive scrutiny including internal
approval.
Proxy voting recommendations play an importantrole in our voting decision-making process for ouroverseas equity holdings. However, it issupplementary to our in-house analysis, and we do
not use default recommendations of our proxyadvisor. Our primary proxy voting advisor is
Institutional Shareholder Services, Inc. (ISS). The
Stewardship Development Department hold weeklyinternal meetings on voting decision-making todiscuss ISS's recommendations. If there are any
concerns, we contact ISS for more details.
To ensure that we are meeting the high expectationsof our clients in this area, we dedicate significant
efforts to the exercising of voting rights and theeffective monitoring and management of our proxyadvisor.
To enhance our monitoring of voting activity, we
prepare a monthly report on 'results of the exercise
of voting rights in both domestic and foreign stocks'(approval, disapproval, non-exercise) which isreported to the Sustainability Committee. The report
includes detailed information on the number ofvotes and the total number of proposals.
SuMi TRUST AM has strengthened its analysis andmonitoring of ISS's exercise recommendations andhas concluded that there is room for improvement inISS’ understanding of misconduct.
Case study 8.1 is an example of improvement with
our proxy advisor.

Case study 8.1 – Improvement with proxy advisors
Our proxy advisor offered a recommendation to ‘cautiously’ vote in favour of a company resolution on
director appointments. However, it was unclear under which criteria the approval recommendation
was made.
We conducted a dialogue with the proxy advisor’s Head of US research in March 2023, who
confirmed the company is a significant GHG emitter but had not taken the necessary minimum
actions, such as assessing and mitigating risks related to climate change.
Based on our engagement, we advised our proxy advisor of our intention to vote against the previous
recommendation to elect the chairman of the board of directors, as they had not taken the minimum
possible response to climate change issues. Subsequently, the proxy advisor recommended against
the proposed appointment of the previous board chairman, in line with our own view.
Another example of our monitoring activities included meeting with our proxy advisor’s Head of
Research to discuss disclosure improvements, particularly for controversial resolutions. We requested
improved information provision related to the proxy advisor’s materiality assessment and more
information on engagement activity.
The company introduced its enhanced capabilities in norm-based research, controversial weapons
screening, global sanctions screening, and sector-based screening. We identified an increased
politicisation of its screening criteria. For example, our proxy advisor has increased attention onhuman rights concerns, with a particular focus on Myanmar and Xinjiang, driven by requests from US
and European clients.
As an Asian investor, we have a high interest in both regions. However, we expressed concerns about
the difficulty to obtain reliable information. We emphasised our expectation that voting

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Principle 8

decision-making should be made strictly based on accurate information.
The proxy advisor admitted that there was a commercial imperative to provide ratings for theseregions and accepted research priorities would continue to be led by customer interest. They did
agree to strive to make more accurate judgments in areas affected by human rights concerns. We
plan to follow-up on this issue on future engagements with the proxy advisor.

ESG ratings agencies and data providers
We subscribe to various ESG ratings agencies and data providers, such as MSCI and Bloomberg, to help
calculate our ESG score and interpret various disclosures. We believe that regular dialogue with thesecompanies is necessary to improve the quality of the services we receive and, by extension, to ensure that ourclients and society as a whole benefit from these services.

Case study 8.2 – ESG score calculation
Dialogue with ESG data provider takes place about once a year, aimed at identifying areas for
improvement in the actual ESG score calculation process, sharing ideas, and realising better services.
The data provider has a number of staff, who are familiar with the financial and non-financial issues of
our investee companies. This can lead to more sophisticated scores through discussions about the
gap between their views on the company and the score results, which leads to more effective
engagement activities with the companies.
The most recent meeting was held in August 2023 to review the current state of their research on ESG
activities of companies and to discuss research methods, particularly for small and mid-cap stocks,
where we have identified information gaps in their dataset.
In recent years, there have been calls for more extensive and in-depth disclosure of ESG-related
information, such as SFDR and TCFD. However, the data to calculate such disclosure has not yet beendeveloped sufficiently. This is a challenge faced by many global asset managers. We utilise the ESG
data vendor capabilities to meet disclosure obligations related to sustainability.

Data for in-house scores
Another important contribution of external data
providers relates to our own ESG score. The in-house
ESG score is an investment evaluation indicator thatis assigned based on an analysis of the impact of ESG
issues on the opportunities and risks for countries,
companies, etc.
The score is calculated by utilising external data andreflecting information and analysis results obtained
through research and engagement activities byanalysts and other parties.
External data providers include MSCI, Sustainalytics,
Bloomberg and FactSet for in-house ESG scores forequities and corporate bonds, the World Bank for

in-house ESG scores for sovereigns, Sumitomo Mitsui
Trust Research Institute and others for in-house ESG
scores for J-REITs.
For climate change risk analysis, we use climatechange-related data and climate change risk analysis
data provided by ISS.
The content of information services from external
data providers is checked and discussed with external
service providers as appropriate in the analysis
process. Frequent concerns include cleansing of data
and the upgrading of the level of the data andinformation services particularly for Japan and Asianstocks, where coverage is lower.

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

Our mission is to maximise medium- and long-term investment returns for our clients by improving the value ofinvestments and investee companies. To achieve our goals, we identify the important issues for our investments
using our ESG investment policy and 12 ESG Materialities.
We then allocate our resources to the three key areas of stewardship activities: engagement, voting andincorporating ESG factors into investment decision-making processes.
In this section will go into detail on our engagement activities, which is one of the three pillars of ourstewardship activities.
We deploy a range of engagement tools, including face-to face meetings, conference calls, and the writing ofletters to the board and/or management team outlining the areas of improvement or expectations. Please see
Chart 9.1 for more details of our engagement activity.

Chart 9.1 – Overview of engagement
Engagement by theme

Engagement by geography

Letter 2%
Mail 1%Others 0%
Transaparency
9%

APAC 9%EMEA 9%Strategy
11%

Scandals2%

Total
Environment 3,696

Governance
19%

34%

Social19%(Source: SuMi TRUST AM)(July2022-June2023)

53

Engagement by format

UK Stewardship Code 2024

Total
1,727
CapitalEfficiency
5%

Meeting
96%(Source: SuMi TRUST AM)(July2022-June2023)

Total
1,455
Japan
73%

(Source: SuMi TRUST AM)(July2022-June2023)

Americas9%Principle 9

SuMi TRUST AM chooses to devote a large amount of resources to face-to-face meetings due to the fact thatmany Japanese and Asian firms are seeking to improve best practice in shareholder engagement.
Given our mission is to maximise returns for our clients, we believe their best interests are served by educating
executive teams to align with long term value creation. This can be achieved more effectively by face-to-facemeetings. Our approach will depend on the specifics of the individual engagement.
In addition to investee companies, engagement is carried out with various stakeholders including publicagencies, exchanges, industry groups, NGOs, and academics. While engagement is something we can do on
our own, it is also done in collaboration with other investors who share the same beliefs. Engagement also
includes activities that expand the investor base.

Prioritisation of engagement
We select and prioritise engagement activities using three key approaches:1) Top-down approach,2) Market-cap approach,3) Risk-based approach.
1.Top-down approach
In 2019, our Executive Committee established an ESG investment policy and identified ESG Materialities. In
2020, we established 12 focused ESG Materialities through discussions at the Stewardship Meeting andconsultation and recommendations from the Stewardship Activities Advisory Committee, which our top-down
engagement activities are based on. The Sustainability Committee, which was established in October 2023, is
responsible for reviewing the appropriateness of the 12 ESG Materialities based on feedback from clients,
regulators and other stakeholders, for more information see Principle 2 and 7.
The selection and prioritisation of engagement in our top-down activities follows the process outlined below.
1) We select approximately 100 target companies for each ESG theme from among portfolio companies.
2) Long-term goals and intermediate targets for each ESG theme are set according to the ESG issues andmanagement level of each company (see Chart 9.3).
3) Effective engagement activities are implemented, e.g. by applying a six-stage process to affect the change
necessary to meet our targets.

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Chart 9.2 – Identifying engagement from ESG Materialities
ESG Materiality

E

S

G

① Climate Change⑤ Human Rights & Community⑨ Behaviour② Natural Capital⑥ Human Capital⑩ Structure③ Pollution & Waste⑦ Safety & Responsibility⑪ Stability & Justice④ Environmental Opportunities⑧ Social Opportunities⑫ Governance Improvement（Source: SuMi TRUST AM）

Chart 9.3 – Setting goals and targets
Corporate ESG issues

Target (Medium term)

Established in accordance withcorporate ESG management level

Goal (Long term)

Backcasting（Source: SuMi TRUST AM）

Management and monitoring
Having identified clear targets, the engagement progress is managed in six steps according to the ESG theme(see Chart 9.4). At each step, specific engagement measures are implemented. Finally, the resolution of issue isassessed and, if appropriate, further action is triggered.

Chart 9.4 – Engagement process(1) Issue setting- Identifying ESG priority issues with investee companies and setting specific topics(issues)- Setting targets (interim targets) by backcasting from topic goals(2) Issue presentation- Issues are presented during interviews with companies and engagements are held
continuously for sharing issues(3) Issue sharing (withperson in charge at
the company)- While sharing issues with the person in charge at the company, engagement isescalated to the management for implementing measures and resolving issues(4) Issue sharing (withmanagement group)- Issues are shared with the management group and best practices are introduced- Internal examination is promoted for implementing measures and resolving issues(5) Implementation of
measures- Corporate policy statements (corporate actions) are confirmed- Progress is monitored(6) Issue resolution- Target achievements are confirmed and shared with the company- If the progress is insufficient, consideration is given when exercising voting rights

Improving corporate sustainability and corporate value for investee companies（Source: SuMi TRUST AM）

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Principle 9

In order to enhance the effectiveness of engagement activity, we have implemented a monitoring and disclosure
framework that assess the progress of our top-down engagement activities.

Chart 9.5 – Engagement progress dashboard

E Average progress

Period beginning July 2022

2.9 step(Composition ratio)

End of June 2023

3.9 step

Progress in engagement

8070

Period beginning July 2022
End of June 2023

60
50
40
30
20
10
0

step1

step2

step3

S Average progress

Period beginning July 2022

2.4 step(Composition ratio)

step4

step5

step6

End of June 2023

4.0 step

Progress in engagement

7060

Period beginning July 2022
End of June 2023

50
40
30
20
10
0

step1

step2

step3

G Average progress

Period beginning July 2022

2.6 step(Composition ratio)

step4

step5

step6

End of June 2023

4.3 step

Progress in engagement

60
50

Period beginning July 2022
End of June 2023

40
30
20
10
0

step1

step2

step3

step4

step5

step6

* It is not possible to simply compare the materiality composition between the end of June 2022 and the end of June 2023, or to simply
compare steps at the end of June 2022 and steps at the beginning of the July 2022 period.
- Brands/topics are replaced as part of the annual plan for the period beginning July 2022.
- Topics (Steps 5, 6) where targets were achieved by the end of June 2022 were excluded.
（Source: SuMi TRUST AM）
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Our engagement progress dashboard provides abreakdown of the progress of engagement efforts ofbroken down by ESG theme, see Chart 9.5. In fiscal
2023, the majority of engagements progressed to
Step 4, ‘sharing issue awareness with management’.
Based on our assessment, it is important that moreengagements are progressed to stage 5 and stage 6,especially for social topics which are ranked the lowest.
We plan to focus on ensuring that the ratio of escalation
to stage 5 and stage 6 is higher going forward.
Assigning personnel to London and New York to
conduct engagement with European and US

companies is another important step in increasing thescope of our engagement of our progress
dashboard.

Multi-engagement approach
As discussed earlier, we seek to solve issues more
effectively through ‘multi-engagement’. This includes
engagement not only with investee companies, butalso with stakeholders including stock exchanges andregulators who are in a position to promotesustainability and corporate value enhancement oflisted companies through listing rules and various
regulations, see Chart 9.6.

Chart 9.6 – Multi-engagement approach

ESG Specialist

AnalystSeniorManagement

LDN Office

NY OfficeEngagement with Investee Companies (Direct Effects))
Engagement with Multi-Stakeholders (Indirect Effects)

GlobalInitiatives

Government
Policy Agency

Stock
Exchanges

Data Providers
Proxy Advisories

Academic
Institutions

Investee Companies(Source: SuMi TRUST AM)

In addition to the top-down approach, we have two
distinct approaches to engagement from abottom-up perspective.
2.Market-cap approach (bottom-up)
We initially select the companies to conductengagement with based on a quantitative, market
capitalisation criteria. We supplement this withqualitative criteria such as severity of ESG challenges
and response of firm management.
3.Risk-based approach (bottom-up)
We select companies to conduct engagement with57

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based on an assessment of firm-level risk. This
includes firms which we have voted against
management in the past, have performance issues
such as a low ROE ratio, or have been hit by scandals.

Bottom-up selection criteria
Our selection criteria for bottom-up engagement are
based on1) an assessment of discount factors and2) incentives for change based on the company’s
predisposition to listen to dialogue.

Principle 9

Chart 9.7 – Discount factors
The three discount factors assessed are:( i ) overcapitalisation(ii) low profitability(iii) poor governance
Incentives to change focus on two items:(i) willingness to change(ii) external pressure influence(Source: SuMi TRUST AM)

Once we have identified the main discount factors, it
is important to assess the company’s willingness tochange, see Chart 9.7. Typically, this requires anassessment of whether the investee company isaligned with our aim of 'medium- to long-term
corporate value enhancement'. Even if theengagement does not lead directly to action, if theinvestee and investor are deemed to be 'in the same
boat' the company may be included in portfolios.
The receptiveness of companies to dialogue isanother key selection criteria for bottom-up

engagement. Even when it is difficult to respondpositively to an engagement, we may selectcompanies that are willing to address the content of
the engagement and explain why it is not possible totake action, when it will be possible to take action,and the reasons for not accepting the engagement.

Case study
To demonstrate our efforts to enhance and preserve
the value of our clients’ investments throughengagement activities, we have included some casestudies as follows.

Case study 9.1 – Engagement
Company

Financial Institution

Country: Japan

Activity

Dialogue with President, Vice-President, Managing Director, Head of IR
The company has lagged peers in setting comprehensive emission reduction targets,
influencing a discount factor in its share price.
Financial institutions need to set targets that also take into account their role in ensuring
companies change their behaviour.
Our engagement has focused on climate-related information disclosure related to CO2targets. The company had set reduction targets by sector for 2030. However, only threesectors have been targeted. This makes it unclear from the outside how much reduction
will be achieved overall.

OutcomeOf the nine high-emission sectors set out in the Net Zero Banking Alliance and thePartnership for Carbon Accounting Financials, the company plans to set targets - with the
exception of aluminium, cement and agriculture - by March 2024. This will cover about
70% of its investment and loan portfolios. The company has also committed to improve
the accuracy of target setting while putting in place efficient data collection mechanisms,
based on Net-Zero Data Public Utility guidelines.

Assessment

The coverage sectors and rates are now in line with other domestic peers and the gap incoverage with overseas financial institutions is expected to narrow.

Improvement

We will monitor the effectiveness of targets and indicators for the reduction plan basedon a sectoral approach. In addition, we will reiterate the requirement to set a 2030 target
for the entire investment and loan portfolio. In addition, we will promote dialogue on
efforts to deepen the reduction targets for each sector as it considers its 2035 target.

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Case study 9.2 – Engagement

Power company

Company
Activity

Outcome59

Country: Japan

President, Vice-President, Director of Corporate Planning, General Manager of IR
The company has an important role to play in helping Japan to meet its greenhouse gas(GHG) emission reduction targets. However, it needs to expedite its initiatives for climatechange and improve disclosure on its plans, while ensuring energy supply stability.
Our engagement focused on the firm’s vision, execution and disclosure of medium- andlong-term targets consistent with the Paris Agreement, while requiring concrete actions
and financial plans.
The company's environmental vision aims to reduce CO2 emissions by 40% in 2030,
which has been further revised to 46%, and achieve net zero CO2 emissions in its power
generation business in 2050.
The company’s headline target of a 40% reduction in CO2 emissions by 2030 does not
specify a detailed breakdown and we consider its path to be unclear and generalised.
The company expects thermal power generation to be zero-emission through carbon
capture and storage (CCS) and that a new nuclear power plant will be in operation.
However, there is no progress in the seismic fault examination of the new plant, and there
are risks to the effectiveness of both plans.
At the 2023 annual meeting, shareholders submitted a proposal requesting the disclosureof climate change plans. From the perspective of encouraging the company to takeaction, and since there was no problem based on our principles, we voted for theshareholder proposal.

Assessment

With regard to the carbon reduction plan, the public disclosure was limited and the
response was insufficient. We will continue to urge the company to present a concrete
plan together with a timeline for reduction and a financial plan to support theimplementation of the plan.

Improvement

If no progress is made in addressing climate change, we expressed our intention to voteagainst the proposal in the election of directors and encourage action on climate change.
The results of the annual general meeting in June showed that the approval rates key
directors had declined compared to the previous year.

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Principle 9

Case study 9.3 – Engagement
Company

Energy company

Country: Japan

Activity

Vice President, Head of Sustainability Strategy Office, Corporate Planning Department, IR
The company faces multiple headwinds associated with climate change andenvironmental regulations. Insufficient information disclosure and a high risk of stranded
assets in the coal industry are obstacles to improving company value.
Our engagement focused on better disclosure on GHG emissions targets as well as
related capital allocation. Given the nature of our interests, we targeted the Head of
Sustainability Strategy Office during the most recent engagement.

OutcomeIn the latest medium term management plan published in November 2022, the company
disclosed details of its CO2 reduction plan and investment plans and set a target of below
50% of its revenue composition from fossil fuels in 2030. The company has set its target
based only on Scope 1+2.
The new plan also includes a reduction in refining capacity from 950,000 bpd (2022) to
850,000 bpd (2025) to 650,000 bpd (2030). It showed that the 30% reduction on acapacity basis and the 20% reduction in assets account for the bulk of the plan.
The petroleum sales business, which produces the largest amount of CO2 emissions, is
expected to see an 80% reduction in Japan by 2050, and the company plans to address
the remaining 20% through CCS.
The sale of shares in the company’s Indonesia coal business, the suspension of
production, and the subsequent sale of interests in its mine in Australia, will also lead to a
decline in coal production from over nine million to approximately 5.5 million tonnes per
year.

Assessment

While the proposed downsizing of refineries is a step in the right direction, we believethat it is not sufficient as a target in itself. A clearer understanding of its intent on Scope 3
reduction is also essential.
Although some high-grade coal concessions remain, we welcome the planned 40%
reduction in its coal production. We also accept to a certain degree that there remains acase for some high-quality assets to ensure essential energy supply.
Beyond this, we support the company's policy of promoting the reduction andde-carbonisation of coal use by working on biomass fuel and blue ammonia supply inunison with domestic energy companies in the supply chain.

Improvement

We would like the company to improve its corporate value through the sale of coalinterests, setting of Scope 3 targets and obtaining Science Based Targets initiative(SBTi)
certification.
With regard to Scope 3 target setting, we plan to share the concept of targets setting
integrated with the supply chain, while introducing examples of how other companies
have set their targets. Regarding Science Based Targets initiative(SBTi), we will also keepa close eye on the trend of finalising discussions in the sectoral approach method and ask
the company to consider whether there are any elements that should be reflected in its
initiatives.

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Case study 9.4 – Engagement

Electrical equipment company

Company
Activity

Outcome61

Country: Japan

President, non-executive director, managing director
The company has suffered a number of controversies in recent years. The problems havebeen pervasive, including inspection, quality, labour issues and unauthorised access, andthe locations have also varied, pointing to a major issue in the organisational culture.
Despite these issues, the company has not taken fundamental and essential corrective
measures.
Our engagement has focused on promoting fundamental reforms to rebuild thecorporate culture and actively seek disclosure in order to restore trust both internally andexternally.
We have engaged extensively with the firm. Firstly, with the IR team and then with thesenior management following concerns that investors' opinions were not being conveyed
to management.
In September 2022, the firm’s Integrated Report (IR) provided a roadmap of measures toimprove the workplace climate and the short-term priority measures and long-term
initiatives and progress of the reform programme.
The IR also disclosed its employee engagement score as a KPI and the changes in thescore as an indicator for evaluating efforts to improve the workplace culture.

Assessment

We welcome the disclosure of a roadmap and reform programme to improve theworkplace climate. It is also commendable that progress can be monitored by setting theemployee engagement score as a KPI and disclosing the changes in the score as anevaluation indicator.
On the other hand, these initiatives may not produce results in the short term and requirecontinuous efforts under the strong will of top management, so we recognise that
long-term monitoring is necessary.

Improvement

We will monitor the progress of the roadmap and reform programme by attending analyst
interviews once every three months, as well as holding a dialogue with the top
management (President and CFO) once a year. In addition, we will monitor the
penetration of these initiatives using a series of KPI indicators. These include employee
satisfaction rate of 80% or more, work-life balance assessment of 80% or more, employee
awareness of management policy of 80% or more, implementation of operations in linewith management philosophy of 75% or more.

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Principle 9

Case study 9.5 – Engagement
Company

Electronical equipment makerCountry: Japan

Activity

Executive officer (Legal Affairs), director of the environmental management centre, headof IR promotion office
The ratio of female executives in Japan is less than half the government target of 30%.
The company has been seeking to increase the number of female managers within thecompany and to increase candidates for board positions. However, the company has notaddressed board diversity sufficiently.
Our engagement has targeted diversity on the board of directors. We understand that itis difficult to select candidates for outside directors because they overlap with candidates
from other companies, and that priority is given to internal development. However, thecompany’s explanation that there are no female directors capable of meeting the criteria
for appointment is unsatisfactory.

Outcome

The company recognises that diversity is an important management issue andrisk-mitigation strategy. However, no female directors were elected at the March 2023
General Meeting.
Subsequently, the company announced plans to appoint a female director at its 2024
AGM.

Assessment

With regard to the absence of female directors, we exercised our opposition to the
proposal for the appointment of directors. In addition, feedback was provided to theboard that diversity was the reason for the low approval rate of representative directors.
The proposed director appointment in 2024 is welcome.

Improvement

We intend to demand the company consider the appointment of female directors, bothinternally and externally, at the earliest possible opportunity. We will closely examine
disclosure on future appointments.

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Case study 9.6 – Engagement

AGL Energy

Company
ActivityCountry: Australia

Australian energy firm AGL Energy has been addressing climate change issues throughorganisational changes, including the separation of its power generation and distribution
businesses. However, it continues to operate a coal power generation business inAustralia.
The objective of our engagement was to establish effective disclosure on the firm’s
climate change planning and governance. The firm was also targeted as we believe that
addressing coal-fired power generation, which is estimated to account for 8% ofAustralia's GHG emissions, is an important element in achieving Australia's emissions
reduction commitments known as Nationally Determined Contributions.
In response to a successful resolution to appoint a board member at the 2021 AGM fromshareholders dissatisfied with the transition plan, we conducted a dialogue with thecompany requesting that climate change action be strengthened using information fromadvocacy group, Australian Centre for Corporate Responsibility, in addition to theCA100+ initiative.

Outcome

We were able to confirm progress towards net zero, including the general framework
submitted to the AGM in November 2022 and the accelerated withdrawal from coal-fired
power generation, including the early exit - 10 years ahead of schedule - of the Loy Yangcoal-fired power station in Victoria.
However, the framework plan lacks critical detail, e.g. in relation to a A$20 billion
investment plan and the development of employment measures aligned with a justtransition; while the firm’s approach to Scope 3 emissions was unclear.

Improvement

Although a transition plan has been announced, we intend to monitor the effectiveness of
its implementation, including progress on an accelerated exit from coal-fired power
generation and investment in renewable energy. We will benchmark our assessment
against industry peers and changing best practice through discussion with CA100+
members.

You can see other case studies related to our
engagement in Principle 4.

Engagement in fixed income
In principle, our engagement themes are largely
asset class agnostic and the 12 ESG Materialities areequally relevant to all asset classes. However, there
are some obvious differences in engagement basedon the practical realities of each asset class.
Although bondholders cannot exercise voting rights
as shareholders can with shares, they are considered63

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an important part of the company's corporate
governance. Bondholders have the right to demandsustainable growth and measures to mitigate
downside risk in return for the provision of funds.
We mainly exercise our rights as a bondholder
through engagement prior to bond issue. We also
have a dialogue on how to reduce GHG emissions
and set targets through the issuance of ESG bonds inorder to achieve a sustainable society.

Principle 9

Chart 9.8 Our bondholder engagement includes:
1) Confirmation of the terms and conditions of any new issue.
2) Negotiation of price (coupon) in accordance with the company's creditworthiness and market
conditions
3) Provide recommendations on the optimum maturity, issue size and bond market(wholesale/retail/overseas) and encourage the creation of a sustainable procurement environment
for companies.
4) Dialogue on how to reduce GHG emissions and how to allocate the proceeds from ESG bonds.
5) Require the use of different rating agencies and ESG assessment bodies.
6) Recommendation of issuance formats for overseas companies (Samurai Bonds/Euroyen
Bonds/Global Yen Bonds).
7) Require a clause for transformation from unsecured to secured status in cases of low credit ratingsand creditworthiness concerns.
8) Require release of collateral in cases where bondholders are subordinated due to high secured
borrowing from banks.
（Source: SuMi TRUST AM）

Case study 9.7 – Bond engagement
Company

Japanese real estate company

Country: Japan

Activity

Although profitability was high and financial metrics good, the company’s orientation
toward proactive business expansion and related business policies indicate latent
governance risk such as quality issues and sales misconducts. We characterised thecompany under “Improve ESG evaluation through engagement”.
Through dialogue with companies, we confirmed that personnel quality control is set as
the highest priority for management, the establishment of in-house manuals on sales, andthe implementation of measures for improving customer satisfaction. We conductedanalysis using online reviews by employees as supplemental material. Results indicatedhigh “job satisfaction” but low “ease of work,” so we conducted interviews regarding
measures for maintaining employee motivation and morale.

OutcomeThere are still some concerns related to governance, but we decided that investment waspossible conditional upon continuous dialogue and monitoring. As a result, we invested inthis bond premised on a high spread level relative to the rating. We will consider selling
this bond if governance risk is found that has a significant adverse impact on the businessbase and creditworthiness.

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Case study 9.8 – Bond engagement

Japanese steel company

Company
ActivityCountry: JapanFor a Japanese steel company, which belongs to an industry that emits a large amount ofgreenhouse gases, a transition strategy is an urgent issue requiring a large amount of
capital. The company confirmed disclosure including technical responses and methods for2030 interim targets are under consideration so that items such as capital expenditure
and amounts can be disclosed. The company also raised some important questions suchas whether the investment hurdle is getting higher in the steel sector and does theinvestment decision depend on whether it is an SDGs-related bond?
Our analysis indicates that the implementation of transition finance in harmony with theroadmap developed by METI is an important way to raise funds for the transition strategy.
There is the possibility that it will be gradually harder to invest depending on the amountof effort toward the transition strategy by investee companies. In addition, it is common
to make an investment decision based on creditworthiness and appropriate spread level
regardless of whether it is an SDGs-related bond or not. If economic return is the same,
we may prefer SDGs-related bonds from the perspective of social return.

Outcome

We appreciate their effort to share recognition of financial matters with investors and theirefforts toward achieving carbon neutrality by a greenhouse gas heavy industry. Our policy
is to continue encouraging them to reduce GHG emissions and to help them improve
corporate value while also having dialogue with related parties such as securities
companies, related governmental agencies, and third-party evaluation institutes to help
expand the transition finance market.

Divergence of engagement by fundcommon to Japanese and global equities.

In order to cater for clients differing needs and time
horizons, we have a range of impact funds. For
example, our global equity impact investment fundmakes long-term, concentrated investments in stocks
whose share price drivers are contributing to solving
ESG issues. In line with our 12 ESG Materialities, we
identify issue resolution areas and businesses

The target areas/businesses and engagement KPIs
are determined through consultation between the
Active Investment Department, Research
Department and Stewardship Development
Department and are reviewed on a quarterly basis.

Case study 9.9 –Impact engagement

SSE

Company
ActivityCountry: UK

We conducted engagement with a UK power company to reduce CO2 emissions andexpand renewable energy capacity. The company's accepted many investors are calling
for the separation of its renewable energy business.
However, the company expects to create synergies through a vertically integrated
business model of renewable energy generation and distribution power network business.
The risk of losing carbon capture and hydrogen business opportunities is also significant.
Our analysis indicates that the bottleneck in energy transition is the connection to the
distribution network, which is more than the expansion of renewable energy generation
capacity. We support the company's vertically integrated model, which will lead to profitable
growth for the company as well as promote energy transition. Furthermore, the integrated
business model will contribute to mid- to long-term competitiveness through theimplementation of new technologies such as CCS and hydrogen.

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Principle 10
Signatories, where necessary, participate in collaborative engagement to influenceissuers.

At SuMi TRUST AM all our stewardship activities, including engagement, voting and ESG integration in
investment decision-making, are conducted in accordance with our 12 ESG Materialities.
Engagement can take the form of individual engagement with companies, or it can be collaborative
engagement, in which we work with like-minded investors.
We actively promote collaborative engagement to support individual engagement activities, as these actions canhave an effect greater than the sum of individual companies and serve as a way to improve the functionality andefficiency of our activities.
Our participation is determined by whether (1) it is aligned with our ESG Materiality, (2) there is a synergetic
effect with individual engagement, and (3) we expect to gain new know-how in areas of nascent or complicated
ESG-related issues that require deep insight and expertise.
We proactively participate in collaborative engagement initiatives. In particular, we value working with investors
on global initiatives given the diversity of backgrounds and expertise.
As of October 2023, we are involved in or participating in 25 initiatives with further details in Chart 10.1.

We actively promote collaborative engagement to support individual
engagement activities, as these actions can have an effect greater than
the sum of individual companies and serve as a way to improve thefunctionality and efficiency of our activities.

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Chart 10.1 – Global initiatives
Title

1

UN climate change-related

Global initiatives

PRI

Affiliated working group(Year principally indicatesparticipation year)

Main accomplishments from
activities in the past year
(Principally from July 2022 to June 2023)[1] PRI Advance (2022)- As a collaboration manager, we conductedcollaborative engagement for human rights withcompanies in the raw materials sector in Korea
and China.

[2] PRI Collaborative
Sovereign Engagement(Australia) (2023)- We attended meetings with responsible
persons in the Australian government toexchange opinions.

[3] PRI Stewardship
Initiative on Nature(2023)- At the PRI Webinar Series (5 in total), we joined
as a panelist in the second webinar entitled“Climate Change Issues and Activities based on
Global Initiatives” and the fifth webinar entitled“Biodiversity and TNFD / Trends with Investors.”- As a lead manager, we continued to havecollaborative engagement mainly with Asiancompanies in Japan, Indonesia, Korea, andThailand.
As a collaboration manager, we continued to havecollaborative engagement with companies in the US.
- As a lead manager, we discussed ideal global
decarbonization pathways for the steel industry,
discussed disclosure and evaluation methods
for contributing parts to decarbonization
through provision of technologies, products,
and services from major electronics industries,
and discussed ideal disclosure on lobbying for
examining engagement contents.

2

Climate Action 100+

3
United Nations GC (Global Compact)- We participated in a panel discussion hosted by
the CDP (Singapore) at an event of the UN
water conference, and discussed water security
with ASEAN government agencies andbusinesses.

4

Specific topic-related

CDP

5
FAIRR

6
SPOTT

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[1] Sustainable Proteins(2021)- As a lead manager, we conducted collaborative
engagement with food makers in the US basedon the theme of sustainable protein.

[2] Working Conditionsin Global Meat
Supply Chains (2021)- As a lead manager, we conducted collaborative
engagement with Brazilian meat packaging
companies about their work environment.
- As a member of TAG (Technical advisory group),
we exchanged opinions with members in the
London office and discussed how to improveassessments of the natural rubber supply chain.

Principle 10

Chart 10.1 – Global initiatives (continued)

Affiliated working group(Year principally indicatesparticipation year)

Title

30% Club UK InvestorGroup,
Thirty Percent Coalition- The 30% Club UK Investor Group introducedcase studies from business companies, createdanalysis reports on diversity, and shared bestpractices related to 30% Club initiatives fromother regions.
- At the annual meeting of the Thirty Percent
Coalition in November 2022, commissioners of
the SEC (U.S. Securities and Exchange
Commission) and women and minority directors
from companies in the US were invited to apanel discussion, and reports, etc., were
presented on diversity analysis for boards of
directors of companies in the US.
- We directly participated in these activities byutilizing our 3-pole system including our officesin the US and UK, and learned about advanced
diversity activities in Europe and the US.

Access to Medicine
Foundation- As a lead manager with major pharmaceuticalcompanies in Japan, we promoted collaborative
engagement to encourage them to establish
and implement a management strategy for
improving access to medicine.
- We appeared on stage at the Access to
Medicine Index Tokyo Conference held in
December 2022, and presented our initiatives.

Investor Action
on AMR- We participated in the NIKKEI FTCommunicable Diseases Conference that washeld in November 2022 as the only investment
manager from Japan, and presented our views
and specific initiatives on AMR.

TNFD Forum- We participated in the preliminary committeethat was set up in September 2020, and alsojoined in public comments. We also participatedin and gave recommendations at the TNFD
meeting at the 15th Conference of the Parties tothe UN Convention on Biological Diversity (COP15) held in Montreal, Canada in 2022.

Specific topic-related

Global initiatives

7

8

9

10

11

Main accomplishments from
activities in the past year
(Principally from July 2022 to June 2023)

IPDD[1] Brazil Engagement
Group (2020)- As a management committee member for
supervising and managing group activities, weare involved in the operation and managementof initiatives.
- In April of 2023, we had dialogue with the new
President Lula administration of Brazil, andexchanged opinions and gave
recommendations on forest conservation in the
Amazon according to the local situation.

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Chart 10.1 – Global initiatives (continued)

Affiliated working group(Year principally indicatesparticipation year)

Title[2] Indonesia
Engagement Group(2021)

Global initiatives

Specific topic-related

11

IPDD
[3] Consumer Countries
Group (2022)

12

Investor group-related

NA100

15
CII

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- For the European Commission, we conducted
policy engagement with countries and regions(including the US, Europe, and China) thatimport and consume agricultural products andprocessed products, like palm oil and soy,which are at risk of contributing to
deforestation.

- We participated in events at the COP15 held inMontreal, Canada, and were present at theNA100 launch announcement. We were also on
stage for discussions about the purpose of its
activities.

13

Ceres

- In October 2022, we held a meeting with thegovernment and people related to financial
markets in Indonesia. A “Memorandum ofUnderstanding” was concluded with the Jakarta
Stock Exchange and IPDD for providing advice
on sustainability.

- In September 2022, we began collaborative
engagement with companies that have a soft
commodities supply chain.We encouraged
companies in Japan, Korea, Malaysia, andIndonesia as well as financial institutions thatprovide finances to such businesses, to discloseand implement effective measures for avoiding
deforestation risks by 2025.

FSDA

14

Main accomplishments from
activities in the past year
(Principally from July 2022 to June 2023)[1] Investor Water Hub(2019)- With the Valuing Water Finance Initiative, we
conducted collaborative engagement with US
fast food companies as a lead manager, and as
a collaboration manager for US beveragecompanies.

[2] Biodiversity Working
Group (2020)- We conducted collaborative engagement on
deforestation in Brazil with grain trading
companies in the US.

[3] Food Emission 50(2021)- We conducted collaborative engagement on
climate change risks in agriculture supply chainswith meatpacking companies and discountstores in the US.

[4] Paris Aligned
Investment (2021)- We participated in panel discussions of theParis Aligned Investment Working Group. We
explained the status of our efforts related tonatural capital and climate change.
- We participated in regular meetings held every
six months in the US in September 2022 andMarch 2023.
- We collected information on corporate
governance, financial markets and regulations,accounting/auditing, and diversity.

Principle 10

Chart 10.1 – Global initiatives (continued)

Affiliated working group(Year principally indicatesparticipation year)

Title

16

AIGCC

Investor group-related

Global initiatives

17[1] Energy Transition
Working Group(2023)- As a lead manager, we continue to havecollaborative engagement with major powercompany groups in Japan.

[2] Forest and Land Use
Working Group(2023)- We began participating in working groups [1]and [2] for the first time and proactively joinedin discussions on solutions to cross-sectionalenergy issues in Asia and issues related to forest
and land usage.

Natural CapitalCommittee (2021)- We are appointed to the Board of Governors.

Policy OversightCommittee (2021)- At the Japan/Korea conferences held in
October 2022, we participated in panel
discussions on corporate governance reforms
for these countries, and gave our opinions andlobbied with related organisations such as the
Financial Services Agency, Ministry of Economy,
Trade and Industry, and KEIDANREN (Japan
Business Federation).
- As a board member of the ICGN, we participate
in the Natural Capital Committee and Policy
Oversight Committee.

Global Investor
Statement toGovernments on The
Investor Agenda
Climate Crisis (Signed
and agreed to the 2023
Investor Statement)- In the statement made in July 2023, in addition
to climate change, we repeated appeals tostrengthen measures for protecting forest
resources that are deeply connected to climatechange.
- We conducted a self-evaluation of ourstewardship activities related to climate change
according to ICAP, and disclosed it in our
Stewardship Report.

ICGN

18

The Investor Agenda

19

Net Zero AssetManagers initiative

Main accomplishments from
activities in the past year
(Principally from July 2022 to June 2023)- We have been appointed as an Advisory Group
member.
- We participated in an in-person meeting heldwith the NZAOA (Net-Zero Asset Owner
Alliance) in London as an NZAMI Advisory
Committee member.
- We conducted an exchange of opinions
between asset owners and asset managers
about initiatives for climate change issues.
- We took the stage as a representative of the
Asia region Advisory Group at the NZAM
Bi-Annual Signatories Meeting.

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Chart 10.1 – Global initiatives (continued)

Climate change-related

Title

20

TCFD Consortium

Specific topic-relatedDomestic initiatives

21

ESG Information Disclosure
Study Group

22

Investor group-related

30% Club Japan Investor Group

71

23

Institutional Investors Collective
Engagement Forum

UK Stewardship Code 2024

Affiliated working group(Year principally indicatesparticipation year)

Main accomplishments from
activities in the past year
(Principally from July 2022 to June 2023)- We participated in the TCFD roundtable, which
included investment managers and issuingbodies, and gave advice on disclosure that we,as an investment manager, expect from theparticipating business companies (participating
listed companies), along with exchanging
opinions.

- We participate as a Full Membership company
with our Senior Managing Director, Hiroyuki
Horii, serving as a Director, while other SuMi
TRUST AM employees are members of planworking groups. During the year from July 2022
to June 2023, we held monthly study groups
and regular general meetings in addition to the“Subcommittee for improving integrated
reports (targeting four listed companies),”“Subcommittee on human capital disclosure,”and “Subcommittee for analyzing therelationship between S-factor and financial
value.” We also submitted a letter with ourcomments on the ISSB public draft by the IFRSFoundation. We published a one-year activity
report in June 2023. In this way, we
strengthened relationships with member
companies and deepened our understanding of
ESG information disclosure.
- We issued progress reports including examples
of best practices for engagement in November
2022 and March 2023. We also engaged in a
public awareness campaigns by holding events
targeting female senior leaders at TOPIX
companies who are main members of theinitiative body. SuMi TRUST AM President
Yoshio Hishida served as the chair of theInvestor Group of the 30% Club until his term
expired in March 2024 Japan, and as the top
person, he is taking the lead in managing these.
- We sent letters for the six agendas set by theorganisation such as “Reduction ofcross-shareholdings” or “Enhancing governancefor parent-subsidiary listings”, and practiced
collective engagement with several companies
who responded. We are also the lead manager
for the “Enhancing governance forparent-subsidiary listings”agenda, andpracticed collective engagement with major
steel companies over the past year.

Principle 10

Chart 10.1 – Global initiatives (continued)

Title

Affiliated working group(Year principally indicatesparticipation year)

Investor group-relatedDomestic initiatives

24

Japan Sustainable Investment
Forum (JSIF)

25

Japan Stewardship Initiative (JSI)

Main accomplishments from
activities in the past year
(Principally from July 2022 to June 2023)- SuMi TRUST AM Senior Managing Director
Hiroyuki Horii is a director. Mr. Horii served as alecturer for the course operated in cooperation
with JSIF at Waseda University Graduate Schoolof Business and Finance. One of our employees
also contributed an article to the “White Paper
on Sustainable Investment” of the JSIF entitled“The Impact of Overseas Regulations on
Investors in Japan.”- We participated in meetings for examining
revisions to smart formats in 2023, andattended the annual general meeting. We also
attended the meeting for exchanging opinionswith executives of the Stewardship Asia Centre(an organisation that manages and operates
stewardship principles in Singapore) held by the
JSI in Tokyo, and participated in seminars on
corporate governance in Japan hosted by theConsulate-General of Japan held in New York,USA.
(Source: SuMi TRUST AM)

Collaborative engagement
Climate change
Climate change is one of the most importantengagement themes. We are developing a wide
range of engagement across a variety of industries.
Among these, we focus on the 100 or so companies
that have the greatest impact on reducing total
greenhouse gas (GHG) emissions on a global level asa particularly important group of companies.
To strengthen our engagement on this issue, wehave joined the Net Zero Asset Manager Initiative(NZAMI) (more details in Principle 4) and aligned with
Climate Action 100+ (CA100+), the Asia Investor
Group on Climate Change (AIGCC), Farm Animal
Investment Risk & Return, Carbon Disclosure Projectand The Investor Agenda.
We take a proactive approach to all our initiatives
including taking up management if necessary.

As a specific example, a member of our teampreviously served on the global steering committeeof the CA100+ and we continue to lead collaborative
engagements in the Asian region. As part of our
CA100+ commitments, we have asked company
executives to commit to net zero emissions byaround 2050, to set specific medium- to long-termtargets related to the transition process, and to
disclose appropriate capital investment plans in linewith these targets. In addition to encouraging
ambitious efforts that are not bound by Nationally
Determined Contributions, we have also requested
actions to reduce emissions throughout the value
chain. To support the work in Asia with CA100+, weare lead representative of the Asian Utilities
Engagement Program of AIGCC. This has led tomulti-layered engagement with companies andpolicymakers, please see case studies as follows.

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Case study 10.1 – Initiatives

SK Innovation

Initiatives

Country: South Korea

Activity
Initiative

CA100+
Climate Action 100+ is an investor-led initiative to ensure the world's largest corporate
GHG emitters take necessary action on climate change. The initiative requires them todisclose effective plans and strategies on climate change issues based on a 1.5°C
scenario. The initiative also seeks senior management commitment, for example bylinking executive remuneration to effective implementation.
SK Innovation has an upstream resources business and downstream petrochemicals andother businesses with significant GHG emissions. The company sees climate change
challenges as a business opportunity and has started a battery business for EVs. However,it requires a more profound shift away from its heritage business activities.
We developed an engagement strategy as CA 100+ lead manager for SK Innovation. As it
was a turnaround dialogue, we targeted an exchange of views with the CEO andmembers of the Board of Directors.

73

OutcomeOur expertise and experience dealing with other Asian conglomerates seeking business
transformation combined with our collaboration with the CA100+ initiative, ensured wewere able to meet with board members and secure management commitment.
In July 2021, the company announced its ‘Net Zero Roadmap 1.0’, which included Scope
1, 2 and 3 targets to achieve net zero emissions by 2050. The main thrust of the roadmap
was a major shift in business profile by reducing GHG emissions from the petrochemicals
business and investing in EV business.

Assessment

The objectives of the engagement were achieved, and climate change disclosure wassubstantially improved.

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Principle 10

Case study 10.2 – Initiatives
Initiatives

BP PLCCountry: UK

Activity
Initiative

CA100+
Climate Action 100+ is an investor-led initiative to ensure the world's largest corporate
GHG emitters take necessary action on climate change. The initiative requires them todisclose effective plans and strategies on climate change issues based on a 1.5°C
scenario. The initiative also seeks senior management commitment, for example bylinking executive remuneration to effective implementation.
BP is one of our Focus 100 companies, defined by our proprietary framework which
utilises CA100+ expertise to assess climate change-related stocks. We have been incontinuous dialogue with BP since 2020.
Our engagement objective, aligned with CA100+, is for the company to promote atransition to net-zero and to provide disclosures that increase the credibility of theroadmap. This requires disclosure on the capital allocation approach necessary to achieve
the 2050 target in terms of the medium- to long-term portfolio transformation. It is also
necessary for BP to demonstrate leadership in its entire value chain.

OutcomeSince the start of the dialogue in 2020, the company's proactive efforts including thesetting the 2050 Scope 1+2 carbon neutrality target, increasing the emission reduction
target for 2030 for Scope 1+2 to 50% (previously 30%-35%) and reducing the carbon
emissions from Scope 3 sales to zero (previously 50%) have been highly commendable.
We also welcome the disclosure of climate change targets reflected in financial KPIs,
including an increase in the EBITDA target from the entire transition energy business in2030.
BP has also disclosed plans for investment in business portfolio transformation until 2030
and targets for the contribution from renewable energy projects. We also welcome
developments such as strengthening of collaboration with supplies and customers,
including retail, automotive and power companies, on renewable energy.

Improvement

Interviews with senior IR managers have been held at intervals of 12-18 months. We will
maintain the cadence of direct dialogue, while verifying management execution throughparticipation in company’s ESG events.
In the next phase, we will focus on concrete action plans and measures to increase thefeasibility of achieving the carbon neutrality target. An example of an important KPI is theimplementation of an investment plan for the 2030 EBITDA target. We will also monitor
progress on measures to accelerate transition which involve the entire value chain. Finally,
we will use BP position as an industry leader as a case study for improvement for peers inother regions.

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Case study 10.3 – Initiatives

Japanese power company

Initiatives

Country: Japan

Activity

75

Initiative

AIGCC's AUEP (Asian Utilities Engagement Program)
The Asian Utilities Engagement Program initiative aims to promote effective engagement
on decarbonisation initiatives among Asian power companies.
We have sought to contribute to the reduction of GHG emissions in Japan through our
involvement as lead managers of engagement with a Japanese power company, which isa leading private power company in Japan, and its thermal power generation JV, thelargest GHG emitter in Japan. Our engagement focused on disclosure related to thefirm’s 2021 publication of a 2030 emissions target and ultra-long roadmap for a
carbon-free society.
We sought to escalate the engagement counterpart to the president. In addition, we
secured joint participation from the parent and joint-venture company in light of theshared responsibility for emissions reduction plan and need for a joined-up approach bymanagement.

Outcome

The company’s interim target of 44% non-fossil fuel power supply by 2030 has remained
unchanged, but the company breakdown of a specific reduction plan has increased its
credibility. In addition to the 2030 target, the joint venture has also set a 60% reduction
target for 2035, ahead of other power companies and the national energy basic plan.
The companies have also disclosed details on the roadmap for hydrogen and ammonia
co-firing to achieve zero-emissions for thermal power, as well as on the status of
infrastructure development, including fuel procurement.

Assessment

The power company has presented a concrete emissions reduction plan and progress has
been made in setting its JV reduction target for 2035. The fact that the two companies
are taking steps to realise their environmental targets in unison is evidence of the firm’s
improved environmental governance.
We accept the company’s assessment that a certain amount of thermal backup power isnecessary while the generation capacity of renewables is developed. Furthermore, thedevelopment of zero-emission technology for thermal power is essential to even out thevariability of renewable energy sources in the future.
In particular, we believe it is necessary for the JV to invest management resources in
research, development and acceleration of zero-emission thermal power initiatives.

Improvement

We aim to enhance the decarbonisation efforts of Japanese utilities through sharing
knowledge gained through collaborative engagement and concerns about technology
development. While seeking insights from the AUEP initiative on information disclosure,
we will urge that ammonia and hydrogen co-firing and mono-firing technologies are notmisinterpreted as preserving or extending the life of coal-fired power plants.
We believe that reducing GHG emissions and improved sustainability disclosure will
enhance corporate value over the long term.

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Principle 10

On climate-related issues, our Stewardship Officer
also spoke at webinars organised by PRI Japan and
the AIGCC to discuss our efforts to improveengagement and voting decisions towards net zero,and to analyse the status of setting interim targets
towards net zero for asset managers who havesigned up to join the NZAMI. A member of ourcompany has been appointed to the Advisory Groupof NZAMI, please see Chart 10-1. Furthermore, weplay a knowledge-sharing role in promoting NZAMI
membership, including the results of analysis of thestatus of asset managers who have signed up to
NZAMI.
We recognise that not all industry initiatives will suit
all asset managers. One high profile case was thedeparture of US asset manager from the NZAMI
initiative in December 2022, citing client confusion
between NZAMI commitments and the firm’s role asa passive manager. As a member of NZAMI, ouractivities are aligned with our commitments as apassive investor.
Another example of where we have strengthened
systematic and collaborative activities is in the fieldof natural capital through our work with UN PRI
Stewardship Initiative on Nature, the Coalition forEnvironmentally Responsible Economies (Ceres), the
TNFD Forum and SPOTT, an online platform forassessing commodity producers. In North America,
we participate in the Ceres Working Group on Land
Use and Climate. Our work on information disclosureand analysis with regard to natural capital has also
been facilitated by collaborative engagement
through the following organisations: The Investors
Policy Dialogue on Deforestation (IPDD), Finance
Sector Deforestation Action (FSDA) and Nature
Action 100.

Case study 10.4 – Initiatives
Initiatives

Domino Pizza

Country: US

Activity
Initiative

Ceres/Valuing Water Finance Initiative
Ceres' Valuing Water Finance Initiative is a new global investor-led effort to engage 72
companies with a high water footprint and to raise awareness of and encourage portfolio
companies to respond to water resource risks.
We are a lead manager, through our New York subsidiary, of a collaborative dialogue with
Domino's Pizza Inc. The engagement objective is to establish a comprehensive approachto addressing water resources risks, including in the agricultural supply chain, andaddressing greenhouse gas (Scope 3) issues.
In 2020, at the start of the collaborative dialogue, the company lagged its peer restaurant
chains in addressing water resource risk. However, it had started preparing a response
and was open to dialogue. The company was aware of the sustainability risk but was more
sceptical about its influence on its supply chain and was cautious about integrating
supplies into its plan.

OutcomeThrough collaborative dialogue and the sharing of environmental organisation reports
and peer best practice, the company published in 2022 a supply chain GHG reduction
target and engagement plan as well as a commitment to obtaining science-based
accreditation. However, the fact that the disclosure of water resources was limited to its
own operations for reasons of data quality, even though the majority of consumption is
attributed to the supply chain, means our objectives were not fully met.

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Case study 10.4 – Initiatives (continued)

Assessment

We conducted a constructive dialogue utilising Valuing Water Finance Initiative’s
risk-assessment tools and case studies, while recognising significant regional differences,
as well as examples of engagement with supply chains and local residents. The
knowledge we accumulated has been integrated into our in-firm water resource
assessment framework, which is used in engagement with companies worldwide. In
relation to this initiative, we have separately participated in a collaborative dialogue with aJapanese electronics company including the setting up of interviews through ourdomestic analyst relationships.

Improvement

The company plans to engage with suppliers to achieve its GHG target, and we intend tocontinue dialogue about using this opportunity to work on water resources at the sametime. We do welcome the company’s promotion of its sustainability brand as part of its
business strategy. We will push for the firm to exploit this value proposition by addressing
water risks in future engagements.

Of course, there are other important themes that require collaborative engagement. For example, to tackle theissue of health inequality we took on the role of lead manager for the Access to Medicine Foundation’s
engagement with Japanese pharmaceutical firms, please see Case study 10.5 for more details.

Case study 10.5 – Initiatives

Pharmaceutical company

Initiatives

Country: Japan

Activity

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Initiative

Access to Medicine Foundation
The Access to Medicine Foundation initiative urges pharmaceutical companies to improve
the supply of medicines for low-to-middle income countries (LMIC) and support systems
for healthcare organisations. Access to Medicines has targeted 20 global pharmaceuticalcompanies for assessment including four Japanese companies.
The project was designed to promote mutual understanding between the Access to
Medicine Foundation and the company aimed at helping to resolve an important social
issue while enhancing the company's reputation and, ultimately, corporate value. Afterprevious communication failed to yield the desired results, we took on the role of leadmanager for the company utilising our engagement expertise with Japanese companies.

OutcomeThrough the dialogue, we clarified the Access to Medicines requirements andrecommendations and top management has been proactive in addressing the issues
raised. Specifically, the new mid-term business plan (2021-2025) positioned access to
medicines as a value-creating activity and presented a consistent pipeline for future
supply to LMIC. In addition, the target number of patients to be accessed was disclosed
at the 2023 Sustainability Meeting.

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Principle 10

Case study 10.5 – Initiatives (continued)

Assessment

Although the improvement of the access to medicines system for developing countries
and disclosure is highly commendable, the evaluation of the Access to Medicine Index
indicates the gap with highly rated European and US companies has not narrowed.

Improvement

To achieve our objective, we must closely monitor the implementation of the initiatives of
the New Medium-Term Plan while clarifying issues and referencing global best practice.
We will also consult with the company regarding the evaluation results and criteria and, as
the lead manager, provide feedback to the Access to Medicine Foundation to ensure
fairness, objectivity, and accuracy of the Index.

Our commitment to global initiatives means we arealso a member of the management committee thatoversees the activities of the IPDD, a member of theBoard of Governors of the International Corporate
Governance Network, Chair of the 30% Club Japan
Investor Group until end-March 2024, and Director of
the ESG Disclosure Study Group.

A global approach
It is important that participants in these initiatives
seek to solve ESG issues from a global perspective.
We conduct comprehensive engagement globally
through our three bases in Japan, Europe (London)and North America (New York). For European and US
initiatives, the UK and US-based members
collaborate with the Tokyo team on these initiatives;
while for domestic, Asian and Australian initiatives

the Tokyo-based members take a lead. Activities andinformation from regional initiative are shared
among the three sites to improve information
gathering and the efficiency and effectiveness ofengagement and voting decisions with companies
and policymakers.
Another major benefit of participating incollaborative initiative is that it provides us with
global trends on ESG issues and investor responses.
By relaying information to Japan, we are working to
improve the overall sophistication of our stewardship
activities. For example, in 2021 we joined the FSDA
Initiative, which is a natural capital-related initiative
aimed at preventing deforestation in soft
commodities production supply chain, please see
Case study 10.6.

Case study 10.6 – Global initiative
The FSDA Initiative requests companies to address the risk of deforestation in soft commodities
supply chains such as palm oil, soya, meat production, paper and timber. There is a pressing need toaddress the risk of deforestation given both the loss of natural capital and the role forests can play insolving climate change as carbon sinks.
We participated as lead manager to a Japanese trading company to persuade the company that therisk of deforestation is a natural capital risk in addition to climate change, and we are conducting
engagement activities to educate the company on the status of the TNFD, a natural capital disclosure
framework, and to include deforestation risk as a climate change issue.
The company revised its sustainability report in March 2023, adopting the beta version of the TNFD
and clarifying its commitment to information disclosure within the framework of natural capital and the
FSDA's initiative to disclose information related to soft commodity supply chain risks.
While other countries are ahead of us in disclosing information on forest conservation, we are using
the knowledge gained from our participation to engage with and provide information to our portfolio
companies in Japan.

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Principle 11
Signatories, where necessary, escalate stewardship activities to influence issuers.

In the course of stewardship activities, we may use
different means of communication with our portfolio
companies than traditional dialogue when it
becomes difficult to increase the effectiveness of
ESG investments.
The most commonly recognised escalation methods
include voting on company and shareholder
proposals, in addition to working with otherinvestment managers and initiative groups, as well as
public statements and divestments.
In the event stewardship activities with portfolio
companies do not meet our minimum standards, wewill consider voting against company proposals forthe election of directors and the appropriation ofretained earnings or voting in favour of shareholder
proposals in accordance with our voting principles,
more details in Principle 12.
We also take a proactive approach to collaborative
engagement in areas, both domestic andinternational, where we feel that our stewardshipefforts are unlikely to meet our engagement
objectives. Although public and media statements
are feasible, it is not always an effective way toachieve our engagement objectives.
Escalation in fixed income engagements is more
limited as there is no ability to vote at meetings.
Fixed income escalation may take other measures
such as divestment or other methods to pursue ourright as bondholders.

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We also take a proactive approachto collaborative engagement inareas, both domestic andinternational, where we feel that
our stewardship efforts are unlikely
to meet our engagement
objectives.
Prioritisation criteria
Before selecting and prioritising issues for escalation,
we set clear objectives to measure the progress ofexisting engagements. As outlined in Principle 9, we
identify 12 ESG Materialities and set long-term goals
for each ESG theme and intermediate targets forengagement, depending on the ESG issues andmanagement level of each company.
We utilize our deep understanding of corporate andindustry trends accumulated through previous
engagements and draw on our knowledge of thelatest global ESG developments throughcollaborative engagement initiatives.
If we conclude that our concerns cannot be resolved
through standard activity, we may consider
escalation to achieve our engagement objectives as
described previously.

Principle 11Case study 11.1 – Voting rights
Capital management
Activity

An example of the use of voting rights as a means of escalation is our activities with aJapanese industrial equipment company. Despite strong profitability and healthy financial
metrics, the company did not disclose sufficient detail on its capital management policy
and approach to shareholder returns. In particular, we repeatedly asked for an
explanation of the company’s use of cash, it has a high net cash ratio of 35%.

OutcomeSince we did not receive a reasonable explanation of the firm’s capital policy andapproach to shareholder return, we voted against the company's dividend payout ratio in
both 2022 and 2023, which was 16% in 20% respectively, significantly below the previous
year’s 25%.

Case study 11.2 – Global initiatives
Gender diversity
Activity

Japanese companies have a low ratio of female directors and managers who are
candidates for directorships. We conducted extensive dialogue with investee companies
on improving board diversity through the development of female executives, including
the need for female role models and the creation of a comfortable working environment,with the aim of increasing the number of women active in senior positions. Despite these
efforts Japanese companies continue to lag international peers in terms of board
diversity.
To demonstrate our commitment and increase the effectiveness of engagement activities,
we escalated our activities on two fronts. First, we compiled a list of TOPIX 500
companies with zero female directors and from 2022, issued revised guidelines to oppose
the appointment of directors if no female director was included. Second, our President
took up a position as the Investor Group Chair of the 30% Club Japan until his term
expired in March 2024.

OutcomeAs a result of our commitments and continued dialogue we confirmed the appointment offemale directors at TOPIX 500 companies including Central Japan Railways, Shin-Etsu
Chemical, Sumitomo Reality and Development, OBIC, Toray Industries and Shimano.

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Divestment
We are committed to avoiding investment in companies and other entities with significant problems from an
ESG perspective, such as the manufacture of inhumane weapons or infringement of international norms.
Specifically, we exclude firms that are engaged in the production, sale and use of cluster munitions,anti-personnel mines, biological weapons and chemical weapons, which are widely prohibited underinternational treaties and for which Japan has ratified the relevant treaties.
If an existing holding is suspected of violating our stated ESG screening criteria, we will seek a direct dialogue
with the company. We will not purchase any new or additional securities. If the company refuses to meet with us
and we are unable to hold a dialogue, we escalate the issue and sell it.

We are committed to avoiding investment in companies and other entities
with significant problems from an ESG perspective, such as the
manufacture of inhumane weapons or infringement of international norms.
Case study 11.3 – Divestment
In the aftermath of the Russian invasion of Ukraine, we implemented a coordinated campaign ofengagement, escalation and divestment. Engagement was conducted with providers of equity andbond benchmarks to request that Russian assets be removed at the earliest opportunity. The
engagement facilitated the prompt removal of relevant assets from the benchmark, exclusions anddivestments.
In addition, Russian assets that were held due to trading restrictions, as well as dividend formulae andinterest that was due to be credited, were reduced to zero for fund valuation purposes, inconsultation with asset owners and auditors.

Escalation as a bondholder
From a bondholder’s perspective, the opportunities for escalation are more limited as engagements tend to
focus around new issues and there is no ability to vote at AGMs. In cases where companies and issuers are at
risk of a significant decline in corporate value due to poor governance, or where credit concerns have increased
due to poor management strategies, we will conduct thorough analysis and engagement through the channels
stated in Principle 9. In cases where our concerns are not sufficiently addressed, we will seek to prohibit active
and passive products from additional purchases or divest from our holding.

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Principle 12
Signatories actively exercise their rights and responsibilities.

Our basic voting rights principles
SuMi TRUST AM regards the exercise of voting rights
as one of its important stewardship activities toenhance corporate value and sustainable growth andto maximise the long-term returns of clients. We
focus on efficient use of capital, appropriate
corporate governance systems and consideration ofmaterial ESG issues.

When exercising voting rights, we take into accountthe fact that laws and regulations, business practices
and corporate governance have been developed
based on the economic, political and social
environment and historical context of each country,
and we make decisions in line with the actual
situation in each country.

The exercise of voting rights is an opportunity toseek minimum standards of governance and as ameans of expressing our views to enhance corporate
value and sustainable growth. We are actively
engaged with companies regarding the exercise of
voting rights.

Voting results are reported regularly to the
Sustainability Committee, which oversees
stewardship activities, together with the results ofvoting exercises based on customer policy. In
addition, we disclose voting results at the level ofindividual proposals on our website on a quarterly
basis.

Our voting decision are based on the engagement
activity with investee firms and made in accordancewith the company's voting principles.

Full details of our voting principles and disclosures
can be found here:
https://www.sumitrust-am.com/responsible-investment/proxy-voting

Revisions to the voting rights principles will befinalised by the executive officer in charge of the
Stewardship Development Department, subject tothe appropriate conditions set by the Sustainability
Committee. Revisions to the principles for exercising
voting rights, except minor ones, requireconsultation with the Stewardship Activity Advisory
Committee, which includes independent members.
The principles for exercising voting rights are highly
transparent and implemented across all portfolios inprinciple. If there are specific circumstances identified
through engagement activity with the company that
require additional consideration it is possible to makeexception to the principles through the appropriate
procedures, please see our case studies.

Use of proxy advisers
We make decisions on the exercise of voting rights
in accordance with transparent, in-house voting
principles.
In regard to foreign stocks, we use data and research
reports from advisers such as ISS for reference whendeliberating our voting decisions. The executive
officer in charge of the Stewardship Development
Department holds all authority for exercising voting
rights.
In cases where the exercise recommendation fromISS does not match our voting principles, we givepriority to our in-house voting principles. We
observe some cases where the actual voting decision
UK Stewardship Code 202482

differs from the ISS exercise recommendation.
However, incidences of divergence are low given
voting principles are provided to ISS in advance andtailored to meet our stated voting principles.
In regard to domestic stocks, we use the ISS
recommendations in the exercise of voting rights
which are subject to our conflict of interest policy. An
example of such a case is for proposals related tothe election of directors and executive officers of
SuMi TRUST AM’s parent company and Group
companies, and for proposals for the election of
directors and executive officers from the Company's
parent company, see Principle 3 for more details.

Allowing clients to choose
We recognise that there are circumstances whenclients voting policy will diverge from our principles.
If there is a difference between us and a client, SuMi
TRUST AM is committed in principle to allowing
clients to implement their own custom voting
policies in segregated accounts.
Any decision to diverge from our voting principles isdiscussed and approved by the Sustainability
Committee, which oversees stewardship activities
and approved by the executive officer in charge of
the Stewardship Development Department.
We will exercise our voting rights based on our
understanding of the client's voting policy. If wehave any questions about a client's exercise of voting
rights based on its policy, we will check with theclient through the department in charge of clients.
The department in charge of clients consult closelywith the customer to ensure that the exercise reflects
their intentions, while also evaluating the feasibilityof whether it is practically possible to exercise thevoting rights in accordance with the customer's
policies. If a customer changes its criteria forexercising voting rights, we discuss this with theclient and consider the implications for the exercise
of voting rights.
In terms of differences between our and client's
voting policy, the most frequent occurrence relates
to the appointment of directors. Cases where theresults of the exercise of voting rights have diverged
from our principles based on a client’s policy are83

UK Stewardship Code 2024

clearly identified in our quarterly voting disclosures.
In addition to the above external disclosures, we also
provide individual explanations of our stewardship
activities at the request of our clients.

Our policy on pooled and segregatedaccounts
We are committed to integrating our voting
decisions and engagement activities as anintegrated activity. Voting is one of the escalation
methods of engagement, and we believe that linking
the concept of voting with the content of dialogue
with companies in engagement will increase theeffectiveness of promoting changes in corporate
behaviour.
We do not offer a scheme for customers to exercise
their voting rights directly in pooled accounts. This is
in line with our view that our stewardship activity is a
critical service provision and should be shared for all
the funds we manage. Our allocation of resources isin line with this commitment.

Monitoring voting rights
The number of voting rights for each issue held by
SuMi TRUST AM is confirmed by the custodian. As aresult, we can monitor for each issue the voting
rights exercised by the company based on the data
provided by the custodian.
We liaise closely with custodians regarding the sharelending activity to avoid violations of lending limits
or the inability to execute any sell transaction. We
have access to the custody data in order to confirm
delivery at the time of the sell transaction.

Approach for fixed income assets
Although bondholders cannot exercise voting rights
as they can with shares, they are considered an
important part of the company's corporate
governance. Bondholders have the right to demandsustainable growth and measures to mitigate
downside risk in return for the provision of funds.
We exercise our rights as a bondholder throughengagement prior to every bond issue. Key areas offocus include optimum issue term, issue size andbond market, issuance formats for overseas
companies (Samurai Bonds/Euroyen Bonds/Global
Yen Bonds), use of different rating agencies and ESG

Principle 12

assessment bodies, release of collateral in cases
where bondholders are subordinated due to highsecured borrowing from banks. More details can befound in Principle 9.

Research based approachpractice, the limit is 5%/10% of our total holding.
To secure voting rights, shares can be recalled as set
out by the contractually commitments of the client
and the custodian and lending agent. This is toensure we have exercised our full voting rights.

By conducting research and engagement with thesame investee company from multiple perspectives,
we can increase the likelihood that the engagement
issues set for each company are solved. Our credit
analysts, equity analysts and stewardship officers
collaborate on engagement and ongoing
constructive dialogue to improve sustainability andincrease value for issuers and society.

The status of the number of on-loan shares inrelation to the lending limit in stock lendingtransactions is monitored by the custodian. In
addition, when the portfolio manager sells therelevant shares, the custodian can be contacted to
avoid violations of the lending limit itself or theinability to deliver the sell transaction due toexceeding the lending limit.

Although there are some differences between bonds
and stocks, we are unique in that our credit andequity analysts work together. The purpose is thesame; to improve the sustainability of investee
companies and society, and to increase corporate
value. Both sides perform research and engagementfrom different perspectives for the same investee
company, which makes it possible to add value toactivities and to strengthen support, allowing
companies to address ESG issues.

Although voting rights are transferred by lending
shares, the motivation to engage as an investor withan economic stake and stewardship responsibility
remains, as the shares remain recorded as a valued
asset in the portfolio and is subject to pricefluctuation risk.

The purpose is the same; toimprove the sustainability ofinvestee companies and society,and to increase corporate value.

Furthermore, with regard to empty voting the voting
rights secured in shares outside the lending limit aremanaged in accordance with the Company's voting
principles.
In standard contracts of lending transactions, there isa clause that guarantees that the borrower “will notborrow for the primary purpose of obtaining voting
rights”. In practice, the procedure of avoiding empty
voting is applied to our stock lending.

Stock lending, recalling lent stock forvoting and 'empty voting'
In regard to stock lending activity, our ‘Investment
Management Business Rules’ sets limits on lendingtransactions to ensure voting rights are fully
exercised in all cases outside the lending limit. In

UK Stewardship Code 2024

84

Voting results
Chart 12.1 – Disclosure of percentage of shares voted
Record of Exercising Voting Rights for Japanese Equity (July 2022 to June 2023)
Company proposals

Proposalsconcerningcompanysystems

For

AgainstAbstention

Total

Opposition ratio

Appointment/dismissal of directors

14,5004,198

018,698

22.5%

Appointment/dismissal of corporate
auditors

1,928

275

0

2,203

12.5%

Appointment/dismissal of accounting
auditors

96

0

0

96

0.0%

642

100

0

742

13.5%

0

91

0

91

100.0%

Disposal of surplus funds

1,469

57

0

1,526

3.7%

Restructuring-related*2

38

0

0

38

0.0%

Introduction/renewal/abolishment of
takeover defense measures

1

84

0

85

98.8%

Other proposals concerning capital
policies*3

58

0

0

58

0.0%

767

11

0

778

1.4%

4

0

0

4

0.0%

19,5034,816

024,319

19.8%

Remuneration for executives*1
Proposalsconcerning
remuneration Payment of retirement benefits forfor executives resigning executives
Proposalsconcerning
capitalpolicies(Excluding
proposalsconcerning
articles ofincorporation)

Proposals concerning articles of incorporation
Other proposals
Total*1. This includes amendments to remuneration for executives, issuance of stock options, introduction/alteration of performance-linked
remuneration systems, and executive bonuses*2. This includes mergers, business transfers and acquisitions, share swaps, share transfers, and corporate splits*3. This includes treasury stock acquisitions, decrease in statutory reserves, new share allocations to third parties, decrease in capital, reverse
stock splits, and issuance of class shares

Shareholder proposals
Total

For

AgainstAbstention

Total

Opposition ratio

39

365

0

404

90.3%

Factors that affect the result of exercising voting rights and the opposition ratio

When comparing the opposition rate to company proposals with the same period last year, there was anincrease attributed to stricter standards regarding the appointment of female directors, cross-shareholding,etc., but overall, there was a slight decrease because enhancements with the investee company governancesystems (such as an increase in number of independent external directors) offset this increase.

85

Principle 12

Record of Exercising Voting Rights for Foreign Equity (July 2022 to June 2023)
Company proposals

For

AgainstAbstention

Total

Opposition ratio

Appointment/dismissal of directors

13,872

1,722

015,594

11.0%

Appointment/dismissal of corporate
auditors

553

96

0

649

14.8%

Composition of board of directors(limits on number of directors, etc.)

332

15

0

347

4.3%

Appointment of accounting auditors

2,209

29

0

2,238

1.3%

Proposals
Remuneration for executives
concerning
remuneration Stock options
for executives Presentation of retirement benefits

3,230

487

0

3,717

13.1%

547

410

0

957

42.8%

10

2

0

12

16.7%

Shareholders’ equity

3,301

529

0

3,830

13.8%

Profit disposal and loss disposition
plans

1,567

3

0

1,570

0.2%

Establishment of share buyback
frameworks

886

48

0

934

5.1%

Mergers, corporate splits, conversions
to holding company, business
transfers, etc.

732

169

0

901

18.8%

Takeover defense measures

186

10

0

196

5.1%

1,344

375

0

1,719

21.8%

Other proposals

8,921

1,152

0

10,073

11.4%

Total

37,6905,047

042,737

11.8%

For

AgainstAbstention

Total

Opposition ratio

1,148

543

0

1,691

32.1%

Proposalsconcerningcompanysystems

Proposalsconcerning
capitalpolicies(Excluding
proposalsconcerning
articles ofincorporation)

Proposals concerning articles of incorporation

Shareholder proposals
Total(Source: SuMi TRUST AM)

UK Stewardship Code 2024

86Case study 12.1 – Voting rights

Engie SA

CompanyCountry: France

Activity
Engagement

The company's climate change strategy is a key issue in the company's business strategy.
As one of our Global 100 Climate Change Companies, we are in continuous dialogue withEngie SA to address climate change issues.
The company's current plan for 2030 is a 2°C scenario. However, it is necessary for an
update to a 1.5°C scenario, an improved post-2030 roadmap towards carbon neutrality
and investment plan targets up to 2025.

Outcome

In favour of the shareholder proposal.
Rejected with 24% in favour.
We voted in favour of a shareholder proposal seeking inclusion of the company’s climatechange strategy in the bylaws of its disclosure information. The proposal was in line with
the interests of shareholders as it contributes to enhancing the disclosure of informationon the company's climate strategy and does not unduly restrict the authority of the boardof directors.

87

Assessment

The 2030 plan based on the 2°C scenario is insufficient to be considered top tier in termsof disclosure. However, it is too early to judge whether the company is lagging, as theInternational Energy Agency and Transition Pathway Initiative scenarios are disclosed inline with the 1.5°C scenario. The company’s preparations for Science Based Targets
initiative (SBTi) disclosure at 1.5°C and improving disclosure and KPIs indicates awillingness to change.
Looking ahead, it is vital the company implements investment plans related to the
profitability of renewable energies and the transition of its gas business, as well as an
improvement of the roadmap to carbon neutrality, including medium- and long-term
investment plans.

Improvement

We intend to continue the dialogue by checking the progress of the company's initiatives,
as well as by proposing improvements in comparison to peers.

14

UK Stewardship Code 2024

Principle 12Case study 12.2 – Voting rights
Company

Swiss Re AG

Country: Switzerland

Activity
Engagement

As a member of the 30% Club and 30% Coalition in Japan, the US and Europe, SuMi
TRUST AM believes that diversity of the board of directors is essential for improving
corporate value.
We raised the issue of board diversity with the investee company. However, it explained itwill take time to move towards increasing the proportion of female directors as theindustry requires substantial professional expertise. The company has been preparing forthe appointment of female directors for the past few years.

Outcome

Against the company proposal.
79.2% in favour of the proposal.
We voted against a company proposed director at the 2022 AGM due to insufficient
gender board diversity in the board composition.
Although the candidate was eventually approved with 80% support rate, the points weraised were recognised by the management, who subsequently committed to increase
the number of female directors to 30% next year.
At the AGM in April 2023, two new female directors were appointed, bringing the ratio of
female directors to 33%.

Assessment

The increase in the ratio of women was confirmed and we believe the company has madegood progress on gender diversity. However, we believe the appointment of women is
not the end of the story. Diversity, Equity and Inclusion (DEI) initiatives and continuity
throughout the company are important, and we will continue to strengthen our diversity
initiatives for management and employees as a whole, as well as for race and otherdiversity initiatives.

UK Stewardship Code 2024

88Case study 12.3 – Voting rights

Activision Blizzard Inc

CompanyCountry: US

Activity
Engagement

We began regular dialogue with the company in 2020. We initially focused on
improvement of ESG information disclosure after our ESG screening revealed low quality.
In June 2021, the company improved its disclosure with its ESG report. However, we hadconcerns about internal working environment with complaints related to sexual
harassment and discriminatory behaviour in the workplace leading to litigation.
Subsequently, our dialogue with the company deepened into human capitalmanagement, DEI policies and improved management transparency. However, we did
not see sufficient KPI disclosure.

Outcome

We voted in favour of shareholder proposals.
67.4%. in favour of the proposal.
We voted in favour of the shareholder proposal at the 2022 AGM to report on harassment
and discrimination prevention initiatives. Given the company's lack of disclosure of DEI
targets and the ongoing controversy regarding sexual harassment, we decided that
additional disclosure of the company's initiatives would be beneficial to shareholders.
Following the passage of the shareholder proposal, the company committed to enhanced
disclosure of quantitative figures and initiatives in its Transparency Report and toreporting on an annual basis in the future.
We assessed the human capital-related disclosures as progressing rapidly. Specifically,
the Transparency Report discloses information on the workplace harassment complaint
hotline, including the number of reported complaints and substantiated complaints.
Disclosure of complaint handling is rare among major US companies.
With regard to DEI, the company is also increasing related disclosures, such as genderminority composition by job type and position within the company, gender pay gap,
gender minority breakdown of new hires and turnover, etc. With regard to workplace
diversity, the company is committed to increasing the proportion of women andminorities by 50% over the next five years and to reporting on its progress.

Improvement89

We will monitor these KPI trends and confirm the effects of efforts to improve workplace
diversity and corporate culture. Semi-annual interviews have been held in the past, andwill continue to be held with the ESG team on at least an annual basis.

UK Stewardship Code 2024

Principle 12Case study 12.4 – Voting rights
Company

BHP Group Limited

Country: Australia

Activity
Engagement

The company's climate change strategy is a key issue in the company's business strategy.
As one of our Global 100 Climate Change Companies, we are in continuous dialogue withthe company to address climate change issues.
We are a participant in CA100+ and are aware the company's benchmark assessment is
improving, but the capital allocation assessment is still incomplete. Labour andcommunity responses, such as the so-called fair transition in exiting the coal business, arealso required.
In October 2022, the company received a shareholder proposals requiring quantitative
figures and judgements for all products under all scenarios, including the 1.5°C scenario,
in audited financial statements.
The company confirmed it was examining assessment related to the effectiveness of thecapital investment in climate change measures, and would disclose more information
soon. The proposer is a signatory of CA100+ and we confirmed their views throughattendance at small meetings on the shareholder proposal.

Outcome

Against shareholder proposal.
Rejected with 19% in favour.
We voted against the shareholder proposal. The company has improved the disclosure of
information on its capital plan and Scope 3 reduction targets, which we had pointed out
as an issue. We also received a response stating that the company expects to be able todisclose more in-depth initiatives such as capital allocation assessment and Just Transitionin the CA100+ benchmark, which we raised as issues in our most recent dialogue before
the AGM.
The proponent, the Australasian Centre for Corporate Responsibility, assertion thatclimate change risk is a financial risk and should be properly reflected in the financial
statements is understandable. However, the company's assertion that in the absence of
established disclosure standards in the decarbonisation plan, information that conflicts
with the accounting standards adopted by the company risks breaching standards ishighly convincing. Given the company has made efforts and disclosures on climatechange issues and we considered the shareholder proposal as being overly prescriptive.

Improvement
Future action

In June 2023, the company reviewed its capital plan to 2030 and provided detailed
disclosure.
While we acknowledge the improvement in information disclosure in response to our
dialogue, we believe that further steps, such as disclosure on just transitions, are stillnecessary and will continue to encourage this in our dialogue.

UK Stewardship Code 2024

90

Case study 12.5 – Voting rights

JPMorgan Chase

CompanyCountry: US

Activity
Engagement

The company's climate change strategy is a key issue in the company's business strategy.
As one of our Global 100 Climate Change Companies, we are in continuous dialogue withthe company to address climate change issues.

Outcome

In favour of shareholder proposal (Item9), against (Items 6 and 12).
Item 9 voted 34.8% in favour, Item 6 voted 8% in favour, Item 12 voted 12.4% against.
In May 2023, the company received a shareholder proposals on climate change related to1) the adoption of a policy to phase out underwriting and lending for new fossil fueldevelopment (Item 6); 2) the publication of a transition plan report explaining how
financing activities will be aligned with the 2030 sectoral GHG reduction targets (Item 9)and; 3) disclosure of 2030 absolute greenhouse gas reduction targets for the oil, gas andpower sector lending and underwriting (Item 12).
In our dialogue, the company noted sector coverage has been expanded based on themateriality of its portfolio and the maturity of the sector decarbonisation pathways. The
six sectors covering the majority of global emissions, in line with the Net Zero Banking
Alliance's policy.
JP Morgan also noted that in agriculture and real estate, where transition pathways have
not yet been established, it is difficult to set Scope 3 targets for the companies financed.
The company also explained the reasons it has not incorporated reduction targets into
the overall portfolio including regulatory considerations such as the US Anti-Trust Act andthe fact that effective data is not yet available.
Absolute-based targets will be disclosed by the end of 2023. However, the company
believes it will be difficult for financial institutions to obtain SBTi accreditation, with the
exception of some European banks.
We expressed our view that further efforts, such as expanding to all sectors and obtaining
science-based certification, as well as enhanced information disclosure, is necessary.

Assessment

91

We voted in favour of the resolution related to Item 9. As shareholders, we should seek toimprove the effectiveness of the transition strategy and comprehensive disclosure of
information. The company has not clearly disclosed timelines and other information on its
decarbonisation strategy, and we considered that additional information, including
specific strategies and milestones, would be useful for shareholders.
On the other hand, we voted against the resolution related to item 6. The elimination oflending and underwriting in certain sectors is a possible tool in accelerating the transition
strategy. However, a proposal to identify individual strategies that impact on lending
reluctance was deemed overly prescriptive.
We also accepted that there are some hurdles to the reporting of absolute GHG
reduction targets, such as the lack of an established definition for absolute basis in thearea of underwriting and voted against the proposal related to Item 12.

UK Stewardship Code 2024

Principle 12Case study 12.6 – Voting rights
Company

Printing Company

Country: Japan

Activity

Our voting guidelines state that we will oppose proposals for the election of directors forcompanies with excessive cross shareholdings, unless there are unique circumstances thatmerit an exception.

Outcome

In favour of company proposals (exception criteria).
In March 2023, the company announced a target for the sale of cross shareholdings
representing a substantial ¥220 billion over five years from FY2023 to FY2027,
representing a reduction to less than 10% of net assets.
As the reduction plan meets our criteria, we applied the exception and voted in favour ofthe proposal for the appointment of directors. We intend to closely monitor whether thecompany is in line with the divestment target.

Case study 12.7 – Voting rights
Company

Information technology

Country: Japan

Activity

Our voting guidelines require us to oppose the appointment of responsible directors, i.e.
those who have been in office for more than three years, for any company reporting an
operating loss for three consecutive terms, unless an exception is warranted.

Outcome

In favour of company proposals (exception criteria).
In this case, our engagement with the company identified a number of mitigating factors
including (i) the company's earnings deficit was due to upfront investment costs toincrease future corporate value, (ii) the user churn rate is low at 1.3%, and (iii) thecompany plans to be profitable in terms of EBITDA in FY11/2024.
We plans to suspend the application of the exception criteria if it fails to achieve its initialcompany plan or if it fails to become profitable in terms of EBITDA in FY11/2024, as the
exception criteria are expected to be applied for a period of more than three years.

UK Stewardship Code 2024

92Case study index
Principle 4– Signatories identify and respond to market-wide and systemic risks to promote a well-functioning financial system.

Case study – Global 100 Climate Change Companies
4.1 AP Moller Maersk

p25

Case study – Voting rights
4.2 Japanese financial company

p25

Case Study - Collaborative engagement
4.3 Japanese electric component company
4.4 Japanese steel company

p26
p26

Case study – Public policy engagement
4.5 Ministry of Economy, Trade and Industry
4.6 Financial Services Agency
4.7 Brazilian Government

p27
p27
p28

Principle 6– Signatories take account of client and beneficiary needs and communicate the activities and outcomes of theirstewardship and investment to them.

Case study – Voting rights
6.1 Japanese chemical company

p35

Case study – Overseas capabilities
6.2 Archer Daniels Midland Co

p36

Case study – Global initiative
6.3 Japanese tire company

p37

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

Case study – ESG scores
7.1 Japanese chemical company

p41

Case study – MBIS®
7.2 Japanese machine tool company

p42

Principle 8– Signatories monitor and hold to account managers and/or service providers.

Case study – Improvement with proxy advisors
8.1 Kinder Morgan, Inc.

p51

Case study – ESG score calculation
8.2 Data provider

93

UK Stewardship Code 2024

p52

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

Case study – Engagement
9.1 Japanese financial institution
9.2 Japanese power company
9.3 Japanese energy company
9.4 Japanese electrical equiptment company
9.5 Japanese electrical equiptment company
9.6 AGL Energy

p58
p59
p60
p61
p62
p63

Case study – Bond engagement
9.7 Japanese real estate company
9.8 Japanese steel company

p64
p65

Case study – Impact engagement
9.9 SSEp65

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

Case study – Initiatives
10.1 SK Innovation
10.2 BP PLC
10.3 Japanese power company
10.4 Domino Pizza
10.5 Japanese pharmaceutical company

p73
p74
p75
p76
p77

Case study – Global Initiative
10.6 Japanese trading company

p78

Principle 11– Signatories, where necessary, escalate stewardship activities to influence issuers.

Case study – Voting rights
11.1 Japanese industrial equiptment company

p80

Case study – Global initiatives
11.2 Gender diversity

p80

Case study – Divestment
11.3 Russia

p81

Principle 12– Signatories actively exercise their rights and responsibilities.

Case study – Voting rights
12.1 Engie SA
12.2 Swiss Re AG
12.3 Activision Blizzard
12.4 BHP Group Limited
12.5 JPMorgan
12.6 Japanese printing company
12.7 Japanese information technology company

p87
p88
p89
p90
p91
p92
p92

UK Stewardship Code 2024

94