Responsible Investment
Report 2019

2019

60

th

Anniversary

Nomura Asset Management Co., Ltd.

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Responsible Investment Report 2019

Nomura Asset Management
Nomura Asset Management celebrated its 60th anniversary on December 1, 2019. We meet the asset
management needs of a diverse range of clients, from individual investors to institutional clients such as large
pension funds and corporations. Based on our philosophy of “It’s all about the client”
our offices in Tokyo, New York, London, Singapore, Kuala Lumpur, Hong Kong and elsewhere collaborate tomeet the expectations of our clients around the world.
Ratio of AUM by Asset Class
Institutional Investors

Alternative

28%

Multi-Asset/Balanced

2%

7%

36%

Equity58%
1984

Investment trust

January

Investment trust

Launched the Medium-Term
Japanese Government Bond
Fund, the first of its kind inJapan

February

Launched Japan’s first foreign securities
investment fund following theabolishment of the 50% limit on foreign
securities holdings

Investment trust

Launched a bond investment
trust

1976

AUM reach¥1 trillion

1969
Investment trust

Established London branch
office1980

1974
January

AugustBegan management ofJapan’s first index fund

1970

1961

NAM product

17%

1980

1960
Opening/establishmentof overseas office

Individual
Investors

55%

1972
Investment trust

MMF, MRF,
Other
Fixed Income

Assets under management

Investment trust December

13%

Institutional
Investors

72%

Launched the Company’s first openend stock investment trust (“OpenNo. 1”)

3%

Alternative

Individual Investors

1960

Multi-Asset/Balanced

9%

EquityAssets Under
Management(overall)Fixed Income

Opened New York
Representative Office

September

1987

1986
Investment trust

Launched Nomura Capital Fund of Japan
Began US pension fund management(Japanese stock investment products in the US)

AUM reach¥10 trillion
March

Launched the Long-Term
Government Bond Fund
(Nickname: “Top”)

NAM’s History

1959
December 1

Established Nomura
Securities Investment
Trust Co., Ltd.

April 1

Began business
operations

1967
April

Established the Securities Investment Management
Department in Nomura Research Institute (NRI).

1969
January

NAM’s Strengths by the Numbers

01

Established the Securities Investment
Management Department in Nomura
Securities

1981
December 1 Established Nomura Investment
Management Co., Ltd. merging
functions of the Securities Investment
Management Department in
Nomura Securities and the Securities
Investment Management Department
in Nomura Research Institute (NRI).

(As of December 2019)

Establishment 60th anniversary
in December 2019

Assets under management(Asset Management Division)

1959

¥

55.6trillion

Employees in head office/branch
offices

13branch offices
1,472employees

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2006

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2008

Established Malaysia
branch office

2014

2011
Opened Shanghai representative office

ETF March<NEXTFUNDS>
Launched and listed 17 TOPIX-17 ETF
series ETFs

ETF September

2019

Opened Taiwan officethrough a joint venture

Investment trust

NovemberAnnounced Japan’s first fundmergerInvestment trust May
Launched the East Japan Revival Support
Bond Fund (redeemed in May 2016)

Launched and listed the Tokyo Stock
Exchange REIT Index ETF

2019
AUM reach¥50 trillion

2005

2001
ETF June/July

Investment trust

Launched and listed the Nikkei 225 ETF
and the TOPIX index ETF

1988

October

Launched the Nomura Global 6 Assets
Diversified Fund, a balanced fund sold throughJapan Post

2016

1995

Established Singapore branch
officeEstablished Hong Kong branch
office

AUM reach¥40 trillion

ETF April
Launched the Nikkei 300
Stock Index Listed Fund, thefirst ETF in Japan

2014

1996

AUM reach¥30 trillion

Established Sydneybranch office2006
AUM reach¥20 trillion

1990

2000

1992

1998

Investment trust May
Launched MMF

Investment trust April
Launched MRF

2010

2018

2015

2004
Opened Dubai
branch office

2019

2007

Formed business partnershipwith American Century
Investments (ACI)ETF May
Launched and Listed the Japan
Empowering Women ETF

ETF August
Launched and listed the Gold-Price-Linked ETF,
Japan’s first ETF using index-linked bonds

Investment trust

October

Launched the ACI Advanced
Medical Impact Fund

1997

2019

Established Nomura Asset Management Co., Ltd. merging functions of
Nomura Securities Investment Trust Co., Ltd. and Nomura Investment
Management Co., Ltd.

December
60th anniversary

World’s 5th largest ETF AUM
Domestic market share

Market share in the ¥113 trillion domestic
publicly-offered investment trust market

45.0%

27.6%

No. 1

Average years of experience among
employees involved in investment andresearch-related operations (in Mar. 2019)12.8years

02

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Nomura Asset Management

Responsible Investment Strengths
2019

2001

Long-term commitment
to responsible investment
The first strength is our long history of engaging in responsible investment. The roots of thecurrent Responsible Investment Committee lie in the Proxy Voting Committee established in 2001.
Subsequently, the ESG Committee was established in 2011. The ESG Committee became the
Responsible Investment Committee as part of a reorganization and an integration from 2014 to2015. Based on many discussions over the years, and always remaining conscious of our mandate
from clients, we have fostered a culture that is supportive of responsible investment, respects
diverse opinions from a large number of professionals, and values lively discussion.
History of Responsible Investment
2001

Proxy Voting Committee established

2004

Management of SRI Index Fund commenced
Management of governance fund commenced

2010

UK Stewardship Code adopted

2011

2014

2016

Conflict of Interest Management Policy
formulated and Responsible Investment
Council established
Stewardship Codes in Singapore,
Hong Kong and Taiwan adopted

ESG Committee (now the Responsible
Investment Committee) established

UK Office acquired Tier1 evaluationfrom UK FRC*

United Nations-supported Principles for
Responsible Investment (UN PRI) signed

Proxy voting results disclosed individuallyJapanese version of the Stewardship Codeadopted2017

ESG Committee reorganized into Responsible
Investment Committee

2018

Self-evaluation disclosed

2019

Support for TCFD. Strengthening ourcompany-wide efforts to tackle climatechange.

Proxy Voting Committee reorganized into
Stewardship Committee

2015

Responsible Investment Department
established

Responsible Investment Group and ESG
specialists established
Stewardship Committee integrated into
Responsible Investment Committee

Malaysian Stewardship Code adopted

Formulated our ESG Statement*UK FRC
Abbreviation for the Financial Reporting Council in the United
Kingdom

Building a strong responsible
investment platform
The second strength is our robust responsible investment platform. Our systems, processes andorganization have undergone continuous reform to reflect and respond to the changing needs ofinvestors and wider society. One example is the Responsible Investment Council, which wasestablished in 2016 as an oversight body of the Responsible Investment Committee.
Independent outside directors make up the majority of the Council, thus enhancing themanagement of conflicts of interest. Having the Council monitor Committee discussions in realtime is an unprecedented initiative in the industry.

Organizational Structure for Responsible Investment
Responsible
Investment
CouncilSupervision/verification/
recommendations,etc.

Responsible
Investment Committee
Secretariat: Responsible
Investment Department

Formulation ofpolicies, supervision
initiatives, etc.

Reports on activities,
proposals of issues,etc.

Investment
and researchdivision

Main activities
Dialogue with portfolio
companies(engagement)

03

Proxy voting

Integration into
investment decisions(ESG integration)

Collaborative/public
activities

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Global, diverse personnel and researchcapabilities with respect to responsible
investment
The third strength is our global and diverse personnel and their research capabilities. A large
number of portfolio managers, analysts and ESG specialists working in one of the largest active
management institutions in Japan are committed to applying their analytical abilities and insights
to responsible investment.

LondonShanghaiTokyo
Hong Kong

Malaysia

Frankfurt

Singapore

TaiwanEmphasis on responsible investment
discussion and debate
The fourth strength is the emphasis we place on exhaustive discussions. In 2019, the most heateddebates in the Responsible Investment Committee were those concerning M&A as well as director
election proposals made by shareholders. On many occasions, there were splits in opinion, or the
Secretariat’s plans were overturned. The members of the Responsible Investment Council were alsopresent at Committee meetings and actively participated in discussions without limiting themselves
to monitoring conflict of interest.
We believe that such rigorous monitoring structure and interactive discussions bring productive
results, and consider this to be one of our key strengths.

Responsible Investment Committee Meetings
January – December 2019

Responsible Investment
Committee

18

Regular 4 times

times
Ad hoc14 times

Responsible Investment
Council4

times

Regular 4 times

Ad hoc 0 times04

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Responsible Investment Report 2019

CEO Message
Junko Nakagawa
President & CEO
Nomura Asset Management Co., Ltd.

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We create economic and social value
through the asset management businessAs a responsible institutional investor
As a responsible institutional investor, Nomura AssetManagement aims to realize a sustainable and prosperous
society by helping clients to build wealth. Today, as symbolized
by the SDGs, rather than simply pursuing economic value
through their business activities, investors can encouragecompanies to generate social value by solving problems thatexist among various stakeholders through their businessactivities. In addition to helping clients build wealth throughthe asset management business, we support the creation ofsocial value by the companies held in our portfolios by realizing
a virtuous cycle of investment (investment chain) throughengagement and other efforts. We believe that by doing so we
can promote sustainable economic growth and a prosperous
society, which will ultimately lead to more affluent lives for ourclients. In March 2019, we formulated our ESG Statement inwhich we identified important ESG issues for us. Based on our
ESG statement, we will continue our business with an emphasison these ESG issues and fulfill our responsibility as an asset
manager, while reflecting them in our stewardship activities,
investment, and research.

Initiatives on climate change
In 2019, the world witnessed first-hand the risks thatclimate change can bring. Disasters included the loss offorests due to massive wildfires, a heatwave acrossEurope, severe drought in Africa, as well as theunprecedented damage in Japan caused by increasingly
fierce typhoons. In our ESG Statement, we have identified
climate change as an especially serious issue, and we have

Corporate Principles

been bolstering our efforts to combat climate change.
The issue of climate change cannot be solved overnight,
but we recognize that ongoing initiatives are needed, as
this issue could have a tremendous longer term impact on
corporate value. In March 2019, we pledged our support
for the Task Force on Climate-related Financial Disclosure(TCFD). While advancing such organizational initiatives,
we have also begun monitoring the greenhouse gas
emissions and other data for the portfolios we manage.
We will pursue initiatives to address climate change byapplying the results of our monitoring in engagement withportfolio companies and in all of our investment activities.

Contribution to the advancement ofsociety through asset management
The essence of the asset management business lies in fulfillingsocial responsibilities through the provision of high-quality
products that offer excellent performance and through services
that meet clients’ expectations. From this perspective, in
addition to responsible investment, we continue our efforts to
help clients understand the importance of building wealthsustainably by expanding our lineup of ESG investment
products and supporting financial education. Since sustainablegrowth has become a global goal, it is essential for us to offer
products and services that would support wealth creation forour clients. Our corporate principles are “Maximizing Value,”“Advanced Expertise,” and “Confidence and Responsibility.”
Based on these corporate principles, we will continue toadvance our responsible investing efforts in order to enhance
corporate value of our portfolio companies and realize asustainable society.

Corporate Slogan

Maximizing Value
Advanced Expertise
Confidence and Responsibility

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Responsible Investment Report 2019

ESG
Statement

We formulated our ESG Statement in March 2019. This statement
shares with our stakeholders the direction of our ESG-related
activities and how we will respond to environmental and social
risks, while the statement also aims to show how we will strive
to realize a sustainable environment and society. We recognizethat efforts to solve ESG issues are important in order tosupport a virtuous cycle in the investment chain. As a responsible
investor, we encourage our portfolio companies to operate with
an emphasis on good ESG practices, and we ourselves will also
conduct operations with a focus on ESG.

Nomura Asset Management ESG Statement https://www.nomura-am.co.jp/corporate/service/pdf/esgstatement.pdf

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E Climate Change

We will request portfolio companies that operate in businesses
that could have a negative climate change impact to properly
manage transitional and physical risks related to greenhousegas emissions, etc. and incorporate their response to climatechange in their management strategy.
At the same time, we will hold continued dialogue with thecompanies in our portfolios to encourage the transition ofindustrial structures towards a decarbonized society, so thatproblems can be addressed through technological innovation.

E

NaturalResources

We will hold ongoing dialogue with portfolio companies
engaged in business activities that have potential tonegatively impact natural capital and biodiversity, and wewill encourage them to establish and implement measures
to limit their impact on the environment, as well as
appropriately incorporate their responses to business issues
into their management strategies.

SocialResponsibility

If a portfolio company has a potential negative effect onhuman rights, including society, child labor and forced labor,
in addition to applicable laws and regulations, we encourage
the portfolio company to respect international human rights
standards such as the UN OHCHR’s “Guiding Principles on
Business and Human Rights.” We also encourage portfolio
companies to appropriately disclose information so that theirpolicies are available externally.

Environment

Environment

S
Social

G Governance

Governance

SDGs
Sustainable
Development
Goals

SDGs

We urge our investees to establish appropriate corporate
governance structures, so they are able to address ESG issues
that may lead to enhancing their corporate values ina sustainable manner.

Solutions to the various ESG issues presented in the SDGs canbe viewed positively as new business opportunities, and may
encourage portfolio companies to appropriately reflect thesein their management strategies. We also request appropriate
information disclosure so that companies’ policies andactivities are clearly understood by external parties.

08

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Responsible Investment Report 2019
RelatedESG Issues

E

Climate Change

Mitigation/Adaptation
Innovation

NaturalResources

Environment

Water/forests
Biodiversity
Livestock/breeding

SocialResponsibility

SocialSignature Timing

June 2015

Established in 2000. This is a global
project in which institutional
investors around the world
encourage companies to disclose
their strategies to combat climatechange as well as their specificgreenhouse gas emissions. Current
areas of focus include climatechange, water and forests.

Diversity
Access to healthcare

December 2019

Sustainable Blue Economy Finance Principles
SBEFP

Signature Timing

June 2019

Signature Timing

July 2019

A livestock industry-related institutional investor initiative
launched in 2015 by Jeremy Coller, the founder of Coller
Capital (U.K.). The initiative educates people about livestockindustry risks, including the impact on the environment, as
well as food safety (antibiotics) issues.

These are financial principles for realizing a sustainablemarine economy formulated by the European Commissionin March 2018. The principles promote investment
activities to protect marine ecosystems and solve marine
problems such as marine plastics.

Access to Medicine Foundation
Access to Medicine Index

30% Club Japan (Investor Group)

July 2019

Signature Timing

Founded in 2003 by Dutch entrepreneur Wim Leereveld.
The organization encourages the pharmaceutical industry
to do more to help low- and middle-income countries
who have limited access to medicine. Signatories support
the foundation’s index.

ICGN

Executive compensation
Successor planning09

Signature Timing

An investor initiative in which
institutional investors collaborate(group engagement) to encourage
the world’s largest corporate
greenhouse gas emitters to disclose
information related to climatechange. The initiative was establishedin December 2017, and the action
period was set at five years.

FAIRR

The International Corporate
Governance Network
Independent officers

Sustainable
Development
Goals

March 2019

December 2019

A group of asset owners and asset managers that engages
in constructive dialogue with the boards of directors andsenior management of portfolio companies, with the aimof highlighting the importance of gender diversity withinsenior management and realizing such gender diversity.

Governance

Governance

SDGs

Signature Timing

A private-sector led task force
launched in December 2015 by the
Financial Stability Board (FSB) thatencourages enhanced information
disclosure related to climate change.

Farm Animal Investment Risk and Return

Signature Timing

Human rights

G

Climate Action100+

TCFD

DecarbonizationS

The Task Force on Climaterelated Financial Disclosures

CDP

Environment

E

Related Initiatives to which
Nomura Asset Management is a signatory

SDGs

Signature Timing

The Asian Corporate
Governance Association
ACGA

December 2018

Established in 1995 to promote
effective corporate governancestandards and foster responsible
investment to advance efficient
markets and sustainableeconomies worldwide.

Signature Timing

December 2018

Established in 1999 to engage in
research and provide corporate
suppor t and education related
to corporate governance inorder to promote corporate
governance in A sia.

Japan Stewardship
Initiative
JSI
Signature Timing

November 2019

Aims to identify practical issues
between asset owners and asset
managers and to support efficienttransmission of information aimed
at advancing and deepening
stewardship activities.

As the successor to the Millennium Development Goals (MDGs) established in 2001, theSustainable Development Goals (SDGs) are international goals that aim for a sustainable andbetter world by 2030, and are part of the “2030 Agenda for Sustainable Development” which
was adopted at the UN Summit in September 2015. There are 169 targets for the 17 goals, andthe SDGs pledge to “Leave No One Behind.” The SDGs are universal and do not apply only todeveloping countries. Japan is also proactively working towards these goals.

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Other Related Initiatives that
Nomura Asset Management has Joined

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Nomura Asset Management’s Rolein ESG Issues

The United Nations
Global Compact
UNGC
Signature Timing

June 2015

Non-binding action principles
advocated by then UN SecretaryGeneral, Kofi Annan, at the Davos
Forum in 1999. It encourages
businesses and groups worldwide to
take actions in the areas of humanrights, labor, the environment andpreventing corruption.

Principles for
Responsible Investment
PRI
Signature Timing

March 2011

The UN PRI (United Nations’Principles for Responsible
Investment) are a set of principles
formulated in April 2006 that
require investors to incorporate ESG
into actual investment analysis anddecision-making processes.

The financial principles
toward the formation ofa sustainable society

for Financial Action( Principles)
for the 21st Century
Signature Timing

Role asan institutional investor
Impact on economic cycle asinstitutional investor
Create a virtuous cycle ofinvestment funds, and realize
sustainable economic growth and aprosperous society

NomuraAsset Management

Solving ESG issues
Creating social impact

January 2012

Formulated in October 2011 basedon a proposal by the Ministry of theEnvironment’s Central Environmental
Council as action guidelines forfinancial institutions that wish to
fulfill their responsibilities and roles
as required for the formation of asustainable society.

The United Nations
Environment Programme –Finance Initiative

Role asan operating company
Directly impact society
as an operating company

UNEP FI
Signature Timing

January 2019

UNEP FI is a partnership establishedbetween the United Nations
Environment Program (UNEP) andfinancial institutions worldwide.
Since its establishment in 1992,
UNEP FI has been cooperating withfinancial institutions and regulatory
authorities to promote a shift toa financial system that integrates
economic development with ESG
considerations.

Solve social issues through asset formation(poverty, health and welfare,active participation of women, education)

Signed as Nomura Group10

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Responsible Investment Report 2019

TCFD
Advancing ESG integration by analyzing and evaluating climate-relatedrisks and opportunities
Encouraging companies to incorporate climate change measures into
their management strategies through constructive dialogue withportfolio companies
Climate change is one of the most important ESG issues in the management strategies of portfolio companies.
Through our TCFD initiatives, we will contribute to the realization of a decarbonized society by enhancing themanagement of climate-related risks and opportunities and by having portfolio companies include climatechange measures in their management strategies through engagement.

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We recognize that decarbonizing society is an
issue that needs to be addressed over the longterm, and that accomplishing this will be a major
challenge. However, we feel that nothing willchange when it comes to dealing with climatechange unless specific actions are taken by
investors, who play an important role inproviding funds and engaging in dialogue withportfolio companies.
While continuing constructive and amicabledialogue with portfolio companies, we will
cooperate to work on climate change issues
and contribute to the realization of adecarbonized society.

President & CEO
Nomura Asset Management Co., Ltd.

Junko Nakagawa

Keynote address at the Forum on Decarbonizing Management(November 19, 2019) co-hosted by
Ministry of the Environment Government of Japan and CDP

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Nomura Asset Management’s TCFD Initiatives
In response to a request from the G20, the TCFD (Task Force on
Climate-related Financial Disclosures) was established in
December 2015 by the FSB (Financial Stability Board) to provide
information on climate-related risks (transition and physicalrisks) and opportunities, and to consider measures financial
institutions can take.
Following the 2008 global financial crisis, and reflecting on
the harm caused by short-term focus for investments,
momentum grew for an emphasis on risk management for
medium- to long-term investment. Meanwhile, extreme
weather around the world has caused enormous damage tocompanies, and has also had a significant impact on thebalance sheets of financial institutions, including property
and casualty insurance companies. Given thesecircumstances, in order to keep the financial system stable,
it has become important for companies that financial
institutions invest in and lend funds to, to disclose theirclimate-related financial information under a unified
framework. This led to the establishment of the TCFD.
In June 2017, the TCFD submitted the TCFD
Recommendations (final report) to the FSB, and made thereport public. Subsequently, the TCFD has issued two Status
Reports (September 2018, June 2019).
We support the TCFD, as in addition to recognizing climatechange as one of the most important ESG issues in our ESG

13

Statement, we understand the importance of climate-related
financial disclosures by portfolio companies. We have also
been a member of the TCFD Consortium since its
establishment in May 2019. Utilizing the Green Investment
Guidance formulated by the Consortium in October 2019,
through engagement we actively encourage portfolio
companies to support the TCFD, disclose climate-related
financial information, and integrate climate-related risks andopportunities into their business strategies. Through these
initiatives, we are helping to stabilize the financial systemwith respect to climate change, improve the transparency of
capital markets, as well as advance investment with respect
to climate-related risks and opportunities.
In this section, we disclose our climate-related governance,
strategy, metrics and targets, as well as risk management
based on the TCFD Recommendations, and discuss theresults of our climate-related analysis in our portfolios.

Nomura Asset Management isa member of GIG Supporters.

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Governance
Our Board of Directors and Executive Management Committee
both recognize that climate-related risks and opportunities
have important impacts on our business as well as medium- tolong-term management targets, and have therefore created an
appropriate governance system along with carrying out
monitoring.
Although Nomura Asset Management is an asset managementcompany under the Nomura Group, based on our Conflict ofInterest Management Policy, the decision-making in theInvestment and Research division is separated frommanagement decision-making bodies such as the Board of
Directors and the Executive Management Committee. In
addition to preventing non-public information related toinvestment and research from being communicated to
management in advance, we are working to address climate
issues in investment and research in a manner that ensures theindependence of decision-making for investment and research.
Under this system, the Responsible Investment Department,
which is responsible for responsible investment as a whole, acts
as the TCFD Secretariat for monitoring climate-related risks andopportunities, and handles all administrative work.
The ESG specialists in the Responsible Investment Department
work with the portfolio managers and the equity analysts tomanage portfolios by monitoring GHG (greenhouse gas)emissions and ESG scores of portfolio companies, analyze
scenarios, and assess transition risks, and also work tounderstand the climate-related risks and opportunities of
portfolio companies. Analytical data such as GHG emissions,

ESG scores, and scenario analyses compiled by the Secretariat
are shared with investment managers and analysts, and used
for company analysis, engagement, and investment decisionmaking, in addition to being regularly reported to the
Responsible Investment Committee comprised of officers fromthe Investment and Research division.
Based on these reports, the Responsible Investment Committee
members, including the executive in charge of the Investment
and Research division, the CIOs (chief investment officers) ofeach asset class, SIOs (senior investment officers), the head of
the Equity Research Department, and others, ascertain the
climate-related risks and opportunities of investment portfolios
and portfolio companies, assess the impact on our businessand portfolios, and discuss measures to be taken. Following
this, the chair of the Responsible Investment Committee
reports the matters reported to the Executive Management
Committee, which allows senior management to monitor
climate-related risks and opportunities, and determine theappropriate allocation of management resources and makeother relevant decisions.
The details are ultimately reported to the Board of Directors via
the Executive Management Committee. Through this process,important information about portfolios’ climate-related risks
and opportunities is shared with a wide range of decisionmakers, from management to personnel responsible forinvestment and research, and is appropriately monitored by the
Board of Directors and the Executive Management Committee.

Nomura Asset Management’s Governance for TCFD

Monitoring

ReportingBoard of Directors
Reporting

Investment Department
Portfolio managers

Portfolio
management

Equity Research
Department
Analysts

Responsible Investment
Department
ESG specialists

Monitoring/Analysis/
Engagement

Responsible
Investment Investment
and Research Committee
division
TCFD
Secretariat(

Responsible
Investment
Department)

Monitoring
Monitoring

Executive
Management
Committee

ReportingMonitoring/Engagement
Portfolio
companies
Disclosure

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Strategy
The climate-related risks and opportunities which we haverecognized are shown in the table below.
Climate-related risks and opportunities impact corporate value as
they affect companies’ financial statements, including the balance
sheet, income statement and cash flow statement. At Nomura
Asset Management, ESG specialists work with portfolio managers
and analysts to analyze the impact of climate-related risks andopportunities on a company's business, management strategy,
and financial projections, and then incorporate these analyses
into our investment strategies, ESG scores, stock price ratings,
and other metrics. Analysis results based on corporate GHG
emissions and ESG scores are utilized in engagement after making
comparisons with benchmarks and other metrics, and are used to
improve the corporate value of portfolio companies. If no signs ofimprovement based on engagement are seen in a company, we
consider reflecting this in our investment decision-making.
All of our investment products are subject to climate-relatedmonitoring. We conduct scenario analyses on the impact ofclimate-related risks and opportunities on our portfolios using
information provided by external data vendors, and use theresults of analyses in our investment strategies, portfolio
management, and engagement. One possible way to build aportfolio that is consistent with the 1.5°C and 2°C targets set
out in the Paris Agreement is to adjust the weighting of certain
holdings against the benchmark or divest of certain holdings.
However, this only a technical and superficial action, and will
not lead to effective climate change measures including climatechange mitigation and adaptation efforts. We recognize that as
an asset manager we play an important role in encouraging
companies to promote climate change countermeasuresthrough engagement by continuing to hold shares of companies
that have relatively high GHG emissions, and we will continue toactively contribute to climate change countermeasures throughthese types of activities.

Climate-Related Risks and Opportunities
Risks and Opportunities

Transition
risks

Short- Medium- Longterm
term
term

Impact on finances

Policies/laws

Introduction of carbon pricing (carbon tax, emissions
trading) or regulations/penalties on products/services

Expenditures

Technology

Expenditures and/or technological risks in order toreplace existing products/services due to competitorsdeveloping low-carbon products/services, fossil
fuel-related facilities, etc. becoming stranded assets, andto transition to low-carbon technologies (including losses
on investments in new low-carbon technologies)(including impairment losses)

Consumer activity/
preferences

Changes in consumer activity/preferences due toheightened awareness of climate change and thedecarbonization of society

Revenues

Raw materials
Expenditures

Soaring raw materials expenditures due to climatechangeExpenditures

Reputation

Reputation risk due to climate change, such as
worsening view of the overall industry (to which acompany belongs)

Revenues

Acute

Acute risks due to intensification of abnormal weather
events, including typhoons and flooding

Physicalrisks
Chronic

Chronic risks due to changing rainfall patterns, larger
volatility in weather patterns, higher temperatures,and sea level rise

Renewable energy

Solar, wind, geothermal, biomass

Energy conservation

Energy-saving products, EMS (energy management
systems), cogeneration

Hydrogen

Production, transport, storage technologies for(CO2 -free) hydrogen, hydrogen electric power
generation, fuel cells

Low-carbon mobility

Electric automobiles, fuel cell vehicles

Opportunities Real estate

15

Description

ZEB/ZEH (zero-energy buildings / zero- energy houses),
smart cities

IncomeExpenditures
IncomeIncomeIncomeIncomeRevenues
Expenditures (including impairment
losses)IncomeRevenues
Expenditures(including impairment losses)

IncomeRevenues
Revenues

IncomeExpenditures
IncomeRevenues

IncomeRevenues

Expenditures
IncomeRevenues

Expenditures
IncomeDisaster prevention/
mitigation

Resilient products/services to prevent/mitigate
disasters

Revenues

IncomeMedicines/functional
foods

Medicines/functional foods to address infectious
diseases and rising temperatures

Revenues

IncomeMeat substitutes/labgrown meats

Meat substitutes (plant-derived), lab-grown meats

Revenues

Income

CCUS

CCU (Methanation, artificial photosynthesis, etc.), CCS

Revenues

IncomeFinancial products

Climate change-related financial products

Revenues

IncomePortfolio
NAM companies

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Metrics and Targets
In order to evaluate climate-related risks and opportunities inaccordance with our own strategy and risk management
process, we are measuring the following four metrics
recommended by the TCFD for each of our portfolios.
carbon1 Totalemissions

Total GHG emissions related to portfolio

carbon emissions divided by the portfolio’s
2 Carbon footprint Total
market valuecarbon emissions divided by net revenues
3 Carbon intensity Totalof portfolio companies allocated to the portfolio
The weighted average (based on weight in theportfolio) of emissions per unit of revenues ofeach company in the portfolio

Weightedcarbon4 average
intensity

We also construct our own ESG scores, which are used by
portfolio managers in the Investment Department forcorporate analysis and investment decisions. Furthermore, we
consider carbon pricing effective when analyzing the above
four metrics and ESG scores, while referring to the levels
announced by the portfolio companies and the levels
consistent with the 1.5°C and 2°C targets.
On Pages 16-19, we analyzed climate-related risks andopportunities for four portfolios we manage:
Japanese equities, global equities, Japanese bonds, and global
bonds. For our analysis, we use data and analysis methods
provided by Institutional Shareholder Services (ISS).
For equities benchmarks,we used TOPIX for Japanese equities
and MSCI ACWI ex-Japan for global equities. Bonds only

include corporate bonds, and do not include government
bonds or other public bonds.
The analysis revealed that the total carbon emissions of ourJapanese equities portfolio and global equities portfolio wereless than the total carbon emissions portfolios of the samemonetary amount and comprised of the same stocks andweightings as the benchmarks. The ratio of total carbon
emissions accounted for by each industry is characterized by ahigh ratio from Materials and Utilities, as well as a relatively highratio from Energy and Industrials. The same trend is seen in theindustry ratios for weighted average carbon intensity.
Going forward, as goals in managing climate-related risks andopportunities, we will work to create climate change-related
funds and reduce GHG emissions in our portfolios. In addition,
we have joined major initiatives related to climate change, suchas the PRI, TCFD, and CA100+, and through engagement wewill continue to encourage portfolio companies’ efforts
towards a decarbonized society and their participation inclimate change-related initiatives.
In addition to the above, as its responsibility as a globallyoperating corporate group, Nomura Group is committed tosolving climate change issues through its businesses andreducing the environmental impact of its business activities. In
December 2018, Nomura Group formulated medium- andlong-term CO2 emissions reduction targets for the entire Groupon a global basis. The global targets include reducing CO2
emissions (total) 32% by FY2030 (medium-term) and 65% by
FY2050 (long-term) compared to FY2012 emissions.

Total Carbon Emissions(Million tCO2e)

Scope 1

Scope 2

Scope 3

(Million tCO2e)

150

Scope 1

12200

Scope 3

10.8

169.6

149.4

Scope 2

9
6

100
50
0
NAM’s Japaneseequities portfolio

Japanese equities
benchmark

15.9

22.0

NAM’s global
equities portfolio

Global equities
benchmark

3

1.6

0
NAM’s Japanese bonds
portfolio

NAM’s global
bonds portfolio*For equities, total carbon emissions have been calculated using the company’s ownership stake versus total market capitalization. For bonds, total carbon emissions
have been calculated using adjusted enterprise value (total market capitalization + total debt).
*“Global” means the world excluding Japan; the same shall apply in this TCFD section.

Ratio of Total Carbon Emissions by Industry
EnergyMaterials

Industrials

Consumer Discretionary
Consumer Staples
Information Technology

Utilities

NAM’s Japaneseequities portfolio
NAM’s global
equities portfolio
NAM’s Japanesebonds portfolio
NAM’s global
bonds portfolio
0%

20%

40%

60%

Financials

80%

Other

100%

*Industries whose composition ratio of the Global Industry Classification Standard (GICS) is less than 1% are not included in industry classifications.

16About Nomura Asset Management P01-22

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Responsible Investment Report 2019

Weighted Average Carbon Intensity and Ratio by Industry
NAM’s Japaneseequities portfolio

95

Japanese equities
benchmark99

NAM’s global
equities portfolio

190

Global equities
benchmark

206
0

50

100

EnergyMaterials

Industrials

Financials

Information Technology

150

Consumer Discretionary
Communication Services

200

Consumer Staples
Utilities250(tCO2e/US$ million)

Health Care

Real Estate

Other

NAM’s Japanesebonds portfolio

569

NAM’s global bonds
portfolio

286
0

100

200

300

400

500

600
(tCO2e/US$ million)

Scenario analysis
We compared the total carbon emissions of our Japaneseand global equities portfolios (only Scope 1 in this scenario
analysis) with the 2°C, 4°C, and 6°C scenarios agreed to in
the Paris Agreement. These three scenarios are set out in an
IEA (International Energy Agency) report.
The scenario analyses confirmed that global equities
portfolio is likely to reach the total carbon emissions
permitted in the 2°C scenario earlier than our Japaneseequities portfolio. This is because our global equities
portfolio includes shares in the energy, materials, andutilities sectors in emerging and developing countries,
where GHG emissions are increasing in tandem witheconomic growth. Our analysis also hints at the importanceof calling on measures to address climate change across themarket, as our investment portfolios include many passive
investments.

NAM’s Japanese equities portfolio(Million tCO 2e)120

2°C scenario

4°C scenario

6°C scenario

NAM’s global equities portfolio

80

40

0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050

(year)

NAM’s global equities portfolio(Million tCO 2e)6

2°C scenario

4°C scenario

6°C scenario

NAM’s domestic equities portfolio

4202019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050 (year)17

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Risk Management
We classify climate-related risks into transition risks andphysical risks. A company's climate-related transition risks areheavily dependent on the company's GHG emissions. Based on
the TCFD Recommendations, we measure four portfolio metrics(refer to “Metrics and Targets”) and compare them with thebenchmarks and industry peers.
In addition, we feel it is important to analyze GHG emissions
throughout the life cycle of a company's products and services,and use emissions and avoided emissions throughout the
global supply chain disclosed by companies on acomplementary basis. Meanwhile, for companies’ climaterelated physical risks, we use information provided by external
data vendors. With respect to climate-related transition risks
and physical risks, we refer to the information disclosed bycompanies as well as information provided by external data
vendors. If such information is insufficient, during engagement
activities we directly ask companies about the status of theirefforts to address climate-related risks. In 2019, we carried out

117 ESG engagements in Japan focusing on environmentrelated risks and opportunities.
In managing climate-related risks, the Responsible Investment
Department (Secretariat) works with the portfolio managers
and equity analysts to regularly measure GHG emissions andmonitor ESG scores. The results of these analyses are reportedby the Responsible Investment Department to the Responsible
Investment Committee, and then to the Board of Directors via
the Executive Management Committee. If we determine thatclimate-related risks will have a significant impact on ourbusiness, business strategy, or financial projections, we willencourage improvement through our corporate engagement
activities. At present, the Investment and Research division istaking the lead role in identifying, evaluating and managing
climate-related risks, but we are considering integrating thisprocess into our comprehensive risk management at the overall
company level.

Transition Risk Analysis – Energy Generation Mix (Portfolio, Benchmark, 2°C Scenarios)
as the benchmarks, the ratio of fossil fuels is higher incomparison to the energy generation mix in 2030 and 2050
under the 2°C scenario.
By increasing the ratio of renewable energy in our portfolios
through engagement with portfolio companies, we will
strive to reduce the transition risk from fossil fuels, as well as
reduce the total carbon emissions and weighted averagecarbon intensities of our portfolios.

The graph below compares our portfolios, the benchmarks,
and power mix based on the power generation volume in
the 2°C scenario. The 2°C scenario, based on IEA forecasts,
shows the energy generation mix that is likely to limit thetemperature increase in 2030 and 2050 to less than 2°C
above pre-Industrial Revolution levels.
While the energy generation mix of both our domestic
equities and global equities portfolios are almost the same
(%)
100

80

Fossil Fuels

5
10

10

5

7

7

78

77

16

1

21

16

20

1

NuclearRenewables

Other

13

5
13

12

22

5

4
40

13

63

70
60

61

63

60
15

40

41

20

17

7

0
NAM’s
Japanese
equities
portfolio

Japanese
equities
benchmark

NAM’s global
equities
portfolio

Globalequities
benchmark

NAM’sJapanesebonds
portfolio

NAM’s
global bonds
portfolio

2°C scenario
in 2030

2°C scenario
in 2050

18

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Responsible Investment Report 2019

Physical Risk Analysis
ISS analyzes the physical risks of industries and regions fromlong-term and catastrophic perspectives. We use the results ofanalyses performed by ISS to understand the physical risks(acute and chronic) in our portfolios for each industry andregion, and refer to this information when considering

Industrial Analysis of Physical Risk (Acute)

allocations for industries and regions. The results of analyses ofphysicals risk for each industry and region in our portfolios are
as follows. These results show the industries and regions withrelatively high physical risk.

*The % in the table are the total weights of each GICS sector in each NAM portfolio

EnergyMaterials

Industrials

Consumer
Discretionary

Consumer
Staples

Health Care

Financials

NAM’s Japaneseequities portfolio

1%

6%

21%

18%

8%

9%

8%

13%

NAM’s global
equities portfolio

4%

3%

9%

8%

8%

19%

20%

NAM’s Japanesebonds portfolio

0%

4%

13%

10%

2%

0%

NAM’s global
bonds portfolio

6%

4%

4%

6%

2%

Information Communication
ServicesTechnology

Utilities

Real Estate

Other

8%

1%

5%

0%

16%

6%

4%

2%

0%

36%

2%

2%

27%

4%

0%

3%

39%

2%

7%

4%

1%

22%

Utilities

Real Estate

Other

Industrial Analysis of Physical Risk (Chronic)
EnergyMaterials

Industrials

Consumer
Discretionary

Consumer
Staples

Health Care

Financials

NAM’s Japaneseequities portfolio

1%

6%

21%

18%

8%

9%

8%

13%

8%

1%

5%

0%

NAM’s global
equities portfolio

4%

3%

9%

8%

8%

19%

20%

16%

6%

4%

2%

0%

NAM’s Japanesebonds portfolio

0%

4%

13%

10%

2%

0%

36%

2%

2%

27%

4%

0%

NAM’s global
bonds portfolio

6%

4%

4%

6%

2%

3%

39%

2%

7%

4%

1%

22%

Information Communication
ServicesTechnology

Low riskMedium risk

Regional Analysis of Physical Risk (NAM’s domestic equities and foreign equities portfolios)

Low risk

19

Medium risk

High risk

High risk

Proxy Voting P37-46

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Our Future Initiatives to Address Climate Change
In these analyses, we can gain a detailed and comprehensive
understanding of climate-related risks and opportunities in our
portfolios by utilizing both the framework recommended by
the TCFD as well as data and analysis methods provided by ISS.
In particular, although the total carbon emissions and theweighted average carbon intensities of our domestic andglobal equities portfolios are lower than those of thebenchmarks, the scenario analysis shows the timing of when
the total carbon emissions of each portfolio will reach the level

allowed under the 2°C scenario. The analyses of transition andphysical risks also enable us to identify the industries andregions in which we should pay attention to the fossil fuelexposure and physical risks of our portfolios.
Going forward, through engagement with portfolio
companies, we will pursue the following initiatives in order toreduce climate-related risk in our portfolios and promote
investment in climate-related opportunities.

Nomura Asset Management

Portfolio Companies

Actively participate in climate change
countermeasures through climate-related
initiatives we have joined such as PRI, TCFD, andCA100+, cooperating with other investors andsharing best practices
Further raise the level of TCFD disclosure and
ESG integration related to climate change
Develop climate change-related financial products
Develop financial analysis/valuation techniques
utilizing carbon pricing

Support TCFD and climate-related financial disclosure
based on the TCFD Recommendations, including
scenario analysis and GHG reduction targets
Incorporate climate change countermeasures into
KPI for executive compensation
Attain approval of science-based targets andcommit to them
Provide information to CDP, join RE100
Introduce internal carbon pricing
Disclose Scope 3 and avoided emissions that enable
GHG emissions to be assessed in the life cycle ofproducts and services and throughout the supply chain

Monitoring of GHG Emissions in Individual Funds

ColumnIn Nomura Asset Management's TCFD Initiatives, we analyzed and evaluated climate-related risks and opportunities for all of ourportfolios, but we also monitor the GHG emissions of individual funds using the following four metrics recommended by TCFD.
The results of monitoring are shared with each investment officer. In addition, these results are regularly reported to the Executive
Management Committee and the Board of Directors through our Responsible Investment Committee.
If GHG emissions are high compared to the benchmarks, we check the contributions from the fund’s constituent stocks or bonds, ensure awarenessof climate-related risks and opportunities during engagement with portfolio companies, and discuss their efforts to reduce GHG emissions.

Total Carbon Emissions

Carbon Footprint

Absolute GHG emissions associated with a portfolio
Unit: tCO2e(CO2 equivalent)current value of investment

Total carbon emissions for a portfolio normalized by the market value of the portfolio
Unit: tCO2e/US$ million (investment amount)total carbon emissions

issuer's Scope 1 andScope 2 GHG emissions

issuer's market capitalization

market capitalization of portfolio

Carbon Intensity

Weighted Average Carbon Intensity

Volume of carbon emissions per million dollars of revenue (carbon efficiency of aportfolio)
Unit: tCO2e/US$ million (revenues)

Portfolio’s exposure to carbon-intensive companies and metric recommended by
TCFD
Unit: tCO2e/US$ million (revenues)
current value of
issuer's Scope 1 andinvestment
Scope 2 GHG emissions
market capitalization
the revenues of portfolio companiesof portfolio

Total carbon emissions
current value of investment
the revenues of
portfolio companies
issuer's market capitalization

Weighted Average Carbon Intensity

Weighted Average Carbon Intensity and NAM’s Own
Climate Change (E1) Score(tCO2e/US$ million)
600

9

400
321

300
200

183
102

88

Fu
nd
1
hm 1
ar
k3
Be

nc

k2
ar

hm

9

10

nd

Fu

nc

8

nd

Fu

7
nd

nd

Fu

Fund1

8

Fund5
Benchmark1
Fund4

7

Fund6

Fund2
Fund3

6

Fu

6

k1

nd

ar

Fu

Be

nc

hm

4

29
5

77

73

Be

145

nd

3
nd

Fu

1

2
nd

Fu

Fu

67

41

Fu

59

nd

0

118

nd

105

Fu

100

Climate Change (E1) Score

505

500

0

50

100

150

200

Weighted Average Carbon Intensity (tCO2e/ Million USD)

20

About Nomura Asset Management P01-22

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Responsible Investment Report 2019

Higher investment
returns

Clients(individual investors,
pension funds, etc.)

Funding, monitoring

ReportingNomuraAsset Management

Oversight,
verification,
advice, etc.

Nomura Asset Management’s
As a responsible institutional investor, Nomura AssetManagement aims to create a prosperous society by helping
clients build wealth. To this end, we must strive to provide
better products and services by improving the quality of ourinvestment products in a way that encourages portfolio
companies in which we invest to achieve sustainable growth.
At the same time, portfolio companies in which we invest are
being called on to operate sustainable businesses by
efficiently utilizing the funds they have raised. The businessactivities of these portfolio companies can generate economic
value for a large number of stakeholders, including
employees, business partners and shareholders.

the Responsible
Investment Council
Oversight, verification,
advice, etc.

Forming policies,
oversight of initiatives,etc.

the Responsible
Investment Committee
Reports on activities,
define issues, etc.

21

investment andresearch

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Enhancement ofcorporate value

Prosperous
society

Portfolio companies(practice desirable management)

Ideal Investment Chain
These companies will also gain acceptance in society byaddressing social issues through their own business practices,
thereby achieving sustainable growth. This will eventually bereflected in the investment returns enjoyed by clients,
including individuals, pension funds and others who entrust
their assets with us.
We believe that by creating this kind of chain of virtuous
cycles, our investment activity will enable us to realize
sustainable economic growth and a prosperous society,ultimately leading to wealth creation for our clients.

Enhancement ofcorporate value

Increasedsustainability

Solvingenvironmental
and social issues

analysts
portfolio
manager

ESG
specialists

22About Nomura Asset Management P01-22

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Responsible Investment Report 20191

Engagement
We engage in constructive dialogue with companies regarding importantfinancial and non-financial risks and opportunities
We select target companies from among our portfolio companies through regular screening, and carry out
engagement based on an ESG perspective as well as other important themes. Our corporate analysts and
ESG specialists, each possessing a high level of expertise, work together to carry out engagement.
We strive on a daily basis to deepen mutual understanding with portfolio companies and make the outcomesof our dialogue more constructive.

23

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Our Basic View on Engagement
We have established a basic policy for engagement as part ofour responsible investment policy, formulated by the
Responsible Investment Committee, the highest decisionmaking body for responsible investment. Here is an overview ofour engagement policy.
We believe that engagement, or constructive dialogue withportfolio companies, starts with a thorough understanding of
the target company and its business environment as well as its
future. We also view engagement as one of the most powerfulmeans to fulfill our stewardship responsibility.
The definition of our engagement is to “exert an influence oncompanies based on a deep understanding of them so thatthey will be able to enhance their corporate value and achievesustainable growth by operating in desirable ways.” Merely
seeking improvements from companies with ESG issues is notengagement. We believe that an important role of engagement
is also to directly communicate our support and approval as aninvestor to companies that operate in desirable ways. We value
four basic stances on engagement. We are convinced that
supporting the enhancement of the corporate value andsustainable growth of companies through ongoingengagement activities will contribute to the medium- tolong-term growth of assets entrusted to us by our clients.

4 basic stances
1
Engage in dialogue witha cordial and constructive attitude

2
Work to understand non-financial
information, including companies’
efforts to address ESG issues, and thestrategies and philosophies behind them3
Listen to the views of portfolio
companies on the efficient use of capital,and communicate our thoughts

4
When a serious scandal or accident
has occurred, promote soundmanagement by hearing the causes
and measures to prevent recurrence24About Nomura Asset Management P01-22

Engagement P23-36

Responsible Investment Report 2019

Our View on Desirable Management
We emphasize five factors in increasing corporate value (seefigure below). Our basic policy for responsible investment ininvestment management defines four points as desirable
management by portfolio companies, and these four points
cover the five elements supporting corporate value as shownin the figure below. We believe that putting these into
practice will enhance corporate value and allow forsustainable growth.

1 Appropriate initiatives for social responsibility(=

3

Initiatives on environmental and social issues (ES))

2

Value creation through efficient utilizationof capital

3

Adequate functioningof corporate governance4

Appropriate information disclosure anddialogue with investors(=

1

Business strategy,

2

Financial strategy)( = 4 Corporate governance (G))( = 5 Disclosure/dialogue)

The key to engagement is consistency in 1 – 5 . We must
avoid having companies fall into a situation of “governancefor the sake of governance” and superficial initiatives onenvironmental and social issues. Of particular importanceare the direction and consistency with issues of 1 and 2 ,business and financial strategies. For example, in the case of
4 corporate governance (G), we first share business andfinancial issues with portfolio companies and then discuss
what is needed to oversee the management teams trying tosolve these issues. See Page 29 for specific examples.
The same applies to 3 environmental and social issues (ES).

First, we share with portfolio companies the issues that will
have a significant impact on the sustainable growth ofbusiness over the medium to long term (materiality).
Materiality varies depending on the nature of a company’sbusiness, but typical examples include the issue of climatechange in the heavy manufacturing industry and the way
employees work in the service sector. After that, we engage
in deep discussions with the company about the materiality
issues we have shared. Specifically, these discussions coverwhat goals management is setting, what initiatives are being
taken at worksites, and how the board of directors is
involved. Just taking measures inside the company does not
inform investors and other stakeholders outside thecompany, so we may also encourage appropriate disclosure.

Enhancement ofcorporate value

Portfolio companies

Increasing earnings

1 Business strategy
Seniormanagement

2 Financial strategy

Increasedsustainability

3 Initiatives onenvironmental/social
issues (ES)5 Disclosure/dialogue
4 Corporate
governance (G)Directors(Board of Directors) /Auditors

Election

Institutional investors

Higher investment returns

25

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Engagement Process
With respect to Japanese equities, the approximately 2,400
Japanese companies whose shares we hold (as of the end of
December 2019) are targets for engagement. Throughscreening based on our ownership ratios and other factors,
we have selected key target companies that require further
examination on top of regular dialogue. There are more than
300 key target companies, and they account for more than
75% of the market capitalization of all companies listed on
the First Section of the Tokyo Stock Exchange, and make up
more than 80% of the total amount of our investments inJapanese equities. Among these companies, we carry out
dialogue after establishing an order of priority based on the
ESG issues and key topics. Portfolio companies are also
increasingly reaching out to us to initiate dialogue.
In order to manage our engagement progress, we
implement “milestone management”, setting the period forindividual engagement topics at three years. By managing
PDCA (Plan, Do, Check, Action) progress using a fixed
timeline, we can efficiently formulate a dialogue schedule
for subsequent phases and evaluate the results. To measure
results, we check whether a company has advanced to thenext stage, in other words whether or not the improvement
process for an issue is ongoing.
Our engagement is based on one-on-one direct dialogue
with companies. Almost half of the meetings are withmembers of senior management (directors and executive
officers), and depending on the issue we then engage indeeper dialogue with employees in specialized departments.
We decide the main topics based on the opinions of theanalysts and ESG specialists in charge, but during dialogue weusually discuss multiple topics rather than just one key topic.

Meetings with analysts andsenior management
Total number of contacts with portfolio companies
Japanese companies, January – December 2019

Approximately

5,600

Of these, number of 1-on-1 dialogues at company

Over

2,100

Number of dialogues with executives and above

Over

900

Engagement meetings
Total number of engagement topics(total number of companies)

793
656

2019

topics (399 companies)
2018

topics (345 companies)

76%

16%

21%

8%
Ratio by topic

15%
11%

29%
Ratio

Numberof topics

Previous
year

Business strategy

16%

128

116

Financial strategy

8%

63

51

ESG-related meetings

76%

602

489

Environmental
SocialGovernance
Proxy voting-related

15%
11%
29%
21%

117
87
231
167

101
96
143
149

793

656

Total

26

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Responsible Investment Report 2019Engagement and Milestone Management
Engagement topics are divided into five categories: 1
Business strategy, 2 Financial strategy, 3 Environmental andrespective opinions, but often times the two sides areunable to reach an agreement. Continuing to state youropinion is important, but that alone is not enough to figureout the status of progress. Therefore, we keep track ofprogress by setting specific goals and managing themilestones to achieve them. Milestones are divided into fivestages, with three-year time periods set for each. By setting
clear goals and timelines, we can ensure that PDCA cycles
function effectively. During actual engagement meetings,
there are many different topics to focus on, and thefollowing section describes two typical patterns.

social issues (ES), 4 Corporate governance (G), and 5
Disclosure/dialogue. We discuss each topic with companies,
share our recognition of the issues, and communicate our
opinions as a shareholder. If we receive an explanation fromthe company concerning our opinion and our views are inalignment, we discuss the company’s efforts up to thatpoint, and then conclude engagement on that topic.
Otherwise, we move on to the next step.
In engagement, companies and investors state their

Management of PDCA Progress

P

LAN

Recognition of topics and issues
Selection of target companies

D

Engagement
ESG evaluation

C

Milestone management(Keep records/
progress evaluation)

A

Performance review
Policy review

O

HECK

CT

Examples of Milestone Management*1 (see P30)
Company Company Company Company

1

Communicate issues toportfolio company

2Company sharesa recognition of the issues

3

Company formulates
countermeasures

4

Company implements
countermeasures

5

Conclusion

Number of meetings

Discovery ofsubsequent topics
and issues

A

B

C

D

3

3

2

1

10

First
meeting19

Period*2

months21monthsmonths

1: Communicate issues; 2: Share recognition; 3: Formulate countermeasures;4) Implement countermeasures; 5) Conclusion
2: Three years as a target

Status of Milestone Management
In 2019, there were a total of 399 engagement cases. Currently,
we are managing milestones for a total of 193 companies.
Of these, 63 companies are already at “Step 5: Conclusion.”With respect to the topics we set as goals, corporate
governance (G) was the most common, followed byinitiatives for environment and social issues (ES) anddialogue/disclosure, in that order. For business strategy andfinancial strategy, most engagement cases followed Pattern
2. Therefore, there were many discussions, but relatively few
cases in which goals were established.

27

Milestone Status (number of companies)
Communicate issues toportfolio company

63

62

Company shares a recognitionof the issues
Company formulates
countermeasures

5

Company implements
countermeasures

21

42

Conclusion

Initiatives on environmental
Corporate governance (G)and social issues (ES)Disclosure/dialogue

Business strategy

Financial strategy

Cases discussed

77

62

44

137

79

Cases with goals set

0

2

40

115

36

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Pattern 1 (Hold discussions and manage milestones for individual topics)
For example, this is a pattern of discussing 4 corporate
governance, and setting goals and managing milestones forsituation in mind, including its 1 business strategy and 2
financial strategy, and set goals for particularly importantmatters (Ex: Company B, Page 30). Individual topics are
wide-ranging, and in many cases, 2 financial strategy is
discussed together with 1 business strategy, and 5

4 corporate governance. In many cases, the issues are
relatively basic, such as the lack of outside directors
possessing management experience, or a company nothaving committees related to nomination and/or
compensation. Even in such cases, we keep the company's

1Businessstrategy

2

Financialstrategy

3

disclosures/dialogue is discussed together with any of theothers from 1 – 4 .

Initiatives on environmental andsocial issues (ES)Discuss with company and share the issue recognition
Set goals for topics discussed

Pattern 2 (Discuss 1
When it comes to2

Corporate governance (G)5Disclosure/
dialogue

Communicate opinions as a shareholder

Progress to milestone managementbusiness and financial strategy, milestone management for 3 – 5 )business strategy and 2 financial
strategy, which are directly linked to corporate value,
discussions often fail to result in an agreement between us
and companies. It would be great if companies understoodand accepted our views, but it is difficult to continue
engagement if there are differences in opinion and clear
goals cannot be established, which limits expectations forenhancing corporate value over the medium to long term
and achieving sustainable growth.
Given this, we establish topics for which goals are relatively
easy to set, including 3 and 4 ESG as well as 5 disclosure1

1

and dialogue, and encourage companies to implement
countermeasures on their own (Ex: Company A, Page 29).

Business strategy

2

Financial strategy

Discuss with company and share the issue recognition

Worried about commitment

Initiatives on environmental andsocial issues (ES)Communicate opinions as a shareholder

Worried about sustainability

Set goals for topics discussed
3

4

4

Insufficient explanation

Progress to milestone management

Corporate governance (G)5Disclosure/dialogue28

About Nomura Asset Management P01-22

Engagement P23-36

Responsible Investment Report 2019

Examples of Engagement
Here, we introduce some examples of engagement. Company A is an example that corresponds to the typical Pattern 2 discussed
on the previous page. The goal of enhancing stock compensation was related to corporate governance, but Company A’s responsewent beyond that.

Nomura Asset Management

Root issue
awareness

CompanyA

Wholesale
Trade

Interviewee

Interviewee

Analysts,ESG specialists

Representative Director and SeniorCorporate Managing Director, others

When we discussed the company’s financial
strategy, we sensed that senior management lacked
awareness of the company’s stock price, and that
this was keeping the stock price from increasing.

It is important how profits and cash flows are
distributed, while maintaining a balance between
stakeholders.
Past investments have not been so good. Do you really need torush to reduce interest-bearing debt?

Prioritizing growth investment and reducing interestbearing debt over shareholder returns in order to lower
financial leverage.

We want to continue to invest proactively.

The stock market values your company less than othercompanies in the industry. Industry peers upwardly revised
operating cash flows, but you left your dividend outlook
unchanged, causing your stock price to fall significantly.
Dividends and share buybacks are completely different. Our
strategy is to pay a stable dividend, but our earnings rapidly
recovered, leading to decline in the dividend payout ratio.
While senior management is keenly aware of operating
performance, it is not focused on returning profits toshareholders. How about increasing stock compensationin order to make senior management more focused on
this?
Towards milestone management (right page)

New types of stock compensation have been developed, so
please consider them.

We will use share buybacks to correct our leverage. We
currently do not have enough equity.

We had not thought of that, so we will consider it.
We have introduced equity compensation-type stock
options, and we feel that the current level of stockcompensation is high.

You are enthusiastic about increasing earnings, butconservative when it comes to shareholder returns.
We understand that you have introduced equity
compensation-type stock options, but we want you toreform compensation in a way that raises incentives withrespect to shareholder returns.

We are currently discussing executive compensation.

Announced a share buyback program.

Future Plan
Continually convey our views as a shareholder, andmonitor the company’s stance towards shareholders
and its stock price.

29

Introduced stock compensation following the generalshareholders’ meeting.
In conjunction with the above, announced a revision to
executive compensation. The variable portion wasincreased, and bonuses linked to operating
performance were changed to reflect the nature of thebusiness. In addition, price conditions were placed on
stock compensation.

Proxy Voting P37-46

ESG Integration P47-64

Examples of Engagement (Milestone Management)

CompanyA

Revision of executive compensation
Issue

Wholesale Trade

The company needed a compensation
system highly committed to the stock pricein order to make senior management more
focused on shareholders and the stock
price.

Response

Positive
Period*1

19months(3 interviews)

Business strategies
Financial strategies
G

Goal

Enhancement of stock compensation

Interviewee

Representative Director and SeniorCorporate Managing Director, others

CompanyB

Due to past scandals, the make-up ofoutside directors has become biased
towards protecting the company. The
company needs to change this make-up toreflect the switch in its business stage.

Business strategies
Goal

Disclosure/dialogue

Interviewee

Representative Director and President,
othersCompany

Issue

ES

C

Business strategies
Financial strategies
Goal

ES
Disclosure/dialogue

Company

DInterviewee

Issue

Disclosure of information about palm oil
procurement
Director and Executive Vice President,
others21months

Business strategies
Financial strategies
G
Goal

Formulation and publication of long-termtargets other than CO2

Disclosure/dialogue
Interviewee

5 Progress*2
Completion

June 20192

Response

Positive
Period*1

10months(2 interviews)

Most recent interview

November 20192

3 Progress*2

Enhance disclosure of non-financial
information (especially ES)
The company is proactively working on
ESG, but its only long-term target relates
to CO2 reduction. The company needs tohave long-term targets for a wider range of
ESG issues, including promoting the active
participation of women.

Electronics

ES

Period*1

Enhance disclosure of non-financial
information (especially ES)
Both existing and growth businesses
use palm oil as a raw material, but thecompany has a passive stance towards
procuring certified palm oil. Need todeal with this issue and provide ample
information disclosure.

Chemicals

G

Response

Positive(3 interviews)

Outside directors with management
experienceG

June 2019

Board member composition
Issue

Food

Financial strategies

3Completion

ES
Disclosure/dialogue

5 Progress*2

Director and Executive Vice President, others

Response

NeutralFirst
interview

Most recent interview

October 20192 Progress*2*1 Three years as a target*2 1: Communicate issues; 2: Share a recognition of the issues; 3: Formulate countermeasures; 4: Implement countermeasures; 5: Conclusion

30

About Nomura Asset Management P01-22

Engagement P23-36

Responsible Investment Report 2019

Global Equity Engagement
In addition to Japanese equities, we continue to strengthen
our engagement for global equities as well. We are asignatory of stewardship codes in six countries and territories(Japan, UK, Singapore, Hong Kong, Malaysia, Taiwan), andthe investment teams in each of these offices engage basedon global cooperation.
There are many common global ESG issues for companies,
and strengthening the system for collaborating with overseas
investment teams is essential not only for overseas companies
but also for engagement with Japanese companies.
On the other hand, companies’ efforts to address ESG issues
at the working level differ depending on the laws, customs,
and circumstances in each country and each industry. In
addition, unlike Japanese equities, global equities arecharacterized by a large number of target countries andcompanies, and there are large physical obstacles such as
geographical issues. We are leveraging the expertise of each
investment team around the globe, as well as utilizing
outside resources, to create a more efficient system.
Our overseas offices are also actively engaging companies. In
2019, the total number of engagements was 127. Of these,
62 were related to environmental issues such as climatechange and natural capital, 39 concerned social responsibility,

while 26 related to governance.
The investment managers and analysts in each office decide
the engagement topics and engage with the companies. In
addition, we also carry out engagement related to certain
topics together with other asset management companies,
utilizing a collaborative engagement platform provided by PRI
and other tools.
In 2019, there was an increase in engagements in Asia. In
Asia, an increasing number of companies are actively
advancing ESG initiatives, and the environment for engaging
with portfolio companies on ESG issues has improved
dramatically.
In addition, a growing number of investment managers
recognize the need for integration incorporating ESG factors
into investment strategies. Our engagement partner overseas
is Sustainalytics (see next page).
From among the stocks we own, we either outsource
engagement to or collaboratively engage with Sustainalytics,
depending on the importance of the company that is dealing
with an ESG issue.
In 2019, we engaged more than 250 companies. Although
there was some overlap, combined with our overseas offices,
we engaged approximately 300 companies.

Engagements by Overseas Offices and/or Sustainalytics
2019/1Q

2019/2Q

2019/3Q

2019/4Q

28

28

33

38

5

5

5

Engagements byoverseas offices
Breakdown by topic
Environment
Social9

11

Governance

14

9

8
1

Breakdown by region
13

14

21
21

21

12

2

55

EuropeNorth America

18

10

22

7

7
24

23

8

Asia

Engagements by
Sustainalytics*

48

75

63

71

of which,
industrialized countries:33

of which,
industrialized countries:40

of which,
industrialized countries:46of which,
industrialized countries:26*Covers stocks in MSCI ACWI ex Japan31

Proxy Voting P37-46

ESG Integration P47-64

Joint Engagement by Topic with Sustainalytics (formerly GES)
Nomura Asset Management’s overseas offices also engage
portfolio companies. However, due to the broad scope ofcoverage for global equities, geographical and humanconstraints arise when it comes to actual engagement.
To address these challenges, in April 2017, we selected GES(currently integrated into Sustainalytics’ engagement
division) as a global equities engagement partner.
Following the integration, Sustainalytics’ engagement
services have become even more functionally advanced, andwe are leveraging the partnership to promote engagement
activities overseas.
In addition, we have introduced a system whereby we work

Topicwith Sustainalytics to narrow the scope of engagement toparticular topics, set specific time frames, and engage in a
focused manner.
There is also an aspect of impact investing, in which we
focus engagement activities on specific topics and work tosolve issues related to those topics from a global
perspective, which have an impact on society.
Currently, in addition to the initial topic of corporate
governance, we are promoting engagement related toemerging markets, climate change, plastic recycling based
economy, and sustainable seafood.

Engagement related to emerging markets
Engagement policy

Target companies. Emerging market companies have high ESG-related risks, so through engagement

Covers companies with the highest ESG risks
in each industry at individual business sites,
based on an understanding of ESG risks.
We also comply with the OECD’s Responsible
business conduct for institutional investors.

we encourage companies to build strategies to handle critical risks and opportunities. Compliance with countries’ regulations and international standards. Evaluation of business risks and opportunities (management and oversight ofproducts/services, etc.). Transparency and disclosure through reports (annual report, etc.)

Topic

Engagement related to climate change
Engagement policy

Target companies. Increase transparency consistent with key initiatives such as the CDP and TCFD

Select up to a maximum of 20 target companies
based on the following criteria. Among industry leading companies, thosecompanies that are behind in terms of CO2
reductions, both in industrialized and emerging
countries. Companies with large market capitalizations andlarge carbon footprints. Establish carbon emissions targets based on a scientific approach. Capital investment plans consistent with the 2°C scenario. Action transparency for carrying out industry body guidelines with certainty. Product development process to accelerate the creation of a low-carbon society

Topic

Engagement related to plastic recycling-based economy
Engagement policy

Target companies. Encourage companies to improve both economically and in quality by recycling
plastic. Encourage companies to shift their strategic focus to redesign and innovation

Select 21 automobile-related, electronics-related,consumer goods/packaging-related companies astarget companies. Make plastic products more reusable

Topic

Engagement related to sustainable seafood
Engagement policy

Target companies. Secure an approach for companies to evaluate and manage seafood sustainability
risk. Be sustainable environmentally as wellSelect six companies as target companies(global companies that procure wild and farmed
seafood on their own as well as from third parties,
and are also in the top 10 in global sales by seafood
companies). This is very relevant to Goals 12 and 14 of the SDGs, and encourage efforts bycorresponding companies

32

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Responsible Investment Report 2019

Examples of global equity engagement
Company in Taiwan’s capital goods sector

Teleconference in November 2019

ESG issueCompany’s understanding

Based on ocean garbage (microplastics) and the problem of waste being
moved from industrialized countries to some developing countries, there isa need to reduce virgin plastic.

Working to develop textiles using recycled plastic in order to be more ecofriendly and to respond to requests from its customers, which are global apparelcompanies and food companies.

Company initiatives

ProposalsMarketing and developing sports shoes and sportswear made fromrecycled plastic.

In addition to increasing the usage rate of recycled PET bottles, called for thecompany to develop recycling technologies for other synthetic fibers that aretechnically difficult to recycle, and to disclose information on its progress.

Company in Thailand’s food sector

Teleconference in August 2019

ESG issueCompany’s understanding

Need more ethical and sustainable seafood procurement and processing
by promoting biodiversity conservation and environmental protection in
the fishearies sector, as well as through improvements in the working
environment for fishermen.

Advancing measures to protect both the environment and human rights, inline with the comprehensive sustainability strategy formulated in 2016.

Company initiatives

Proposals

In response to demands from consumers, who have become increasingly
conscious of global marine environmental issues and human rights issues
for workers, the company agreed with a global environmental NGO(Greenpeace) on an action plan to pursue sustainable seafood processing
and manufacturing based on the company's sustainability strategy. Also,
the company is introducing a monitoring system to deter over-fishing andbycatch, and to prevent illegal labor practices and human rights violations,and the company will contribute to the improvement of the overall supply
chain in the fisheries industry.

Asked for detailed evaluations and disclosure about the progress on
efforts under the action plan and the sustainability strategy. Also asked thecompany to disclose information about the food certification system andto formulate a response, after addressing the litigation related to the foodcertification system and identifying the actual problems.

Company in Hong Kong’s financial sector

Visited in July 2019

ESG issueCompany’s understanding

How can the company improve its high employee turnover rate, especially forinsurance sales staff, and how can it ensure sales activities that are compliant
with rules, such as working within permitted sales areas?

Does not view the turnover rate as being especially high compared to theindustry average, but aims to improve it. Has not seen any non-compliant
sales acts, but will strengthen compliance.

Company initiatives

Proposals

Plans to maintain a high level of employee motivation by granting company
stock, an award system, and direct hiring by field staff, etc. Will establish acode of conduct for employees and insurance agents to clarify what theyshould comply with.

Proposed the disclosure of additional benefits given to employees and thedisclosure of changes in employee satisfaction ascertained through internal
questionnaires.
Proposed that the company disclose the number of violations of the code of
conduct and the details of the accompanying penalties, thereby making iteasier for people on the outside to understand the degree of improvement
and the thoroughness of the company’s measures.

Company in China’s capital goods sector

33

Visited in October 2019

ESG issueCompany’s understanding

The company needs to identify materiality and strengthen ESG efforts. This
includes setting targets for environmental issues and building a system toprevent corruption within the company.

Waiting for the Hong Kong Stock Exchange’s ESG reporting guidelines tobe released. After they are released, plans to work on ESG initiatives inaccordance with the guidelines.

Company initiatives

Proposals

Working to increase the percentage of women on the board of directors. Has
also launched a sustainability promotion committee and has started making
regular reports related to sustainability.

Asked for the board of directors to understand the importance of ESG indicators,
and for the company to properly communicate about internal ESG initiatives tooutside parties.

Proxy Voting P37-46

ESG Integration P47-64

Cooperation with Initiatives
Access to Medicine Foundation
Access to Medicine Index
Report published every two years

In 2019, Nomura Asset Management became a signatory of theAccess to Medicine Index (ATMI), which is published every
other year by the Access to Medicine Foundation (ATMF). The
ATMF is an independent nonprofit research foundation fundedby the UK government (UK AID), the Dutch Ministry of Foreign
Affairs, the Dutch Ministry of Health, Welfare and Sport, andthe Bill & Melinda Gates Foundation.
The ATMF has partnered with the pharmaceutical industry forover a decade, with a primary goal of improving access tohealthcare for billions of people in low- and middle-income
countries who do not benefit from modern healthcare
progress. The ATMI ranks the level of support andachievements by 20 of the world’s largest pharmaceuticalcompanies with respect to global access to medicine.
Currently, 95 asset management firms with more than US$13
trillion in total assets under management support the ATMI byusing it to invest or as a tool to manage their investments.
As a signatory of the ATMI, Nomura Asset Management iscommitted to taking advantage of our position as a responsible
institutional investor to improve the activities of pharmaceuticalcompanies and expand their social influence. In particular, weare engaging global pharmaceutical companies to encouragethem to assume responsibility and allow access to currently
available drugs in low- and middle-income countries, andfurther expand such access.

Access to Medicine Index 2018 Rankings
RankingCompany nameATM Index score

1

GlaxoSmithKline plc

4.01

2

Novartis AG

3.21

3

Johnson & Johnson

3.05

4

Merck KGaA

2.90

5

Takeda Pharmaceutical Co. Ltd.

2.75

6

Novo Nordisk A /S

2.68

7

Sanofi

2.49

8Eisai Co. Ltd.

2.48
2.48

9

AstraZeneca plc

10

Roche Holding AG

2.38

11

Pfizer Inc.

2.34

12

Merck & Co., Inc.

2.32

13

Gilead Sciences Inc.

2.29

14

Boehringer Ingelheim GmbH

2.11

15

Bristol-Myers Squibb Co.

2.03

16

Bayer AG

1.88

17

AbbVie Inc.

1.88

18

Daiichi Sankyo Co. Ltd.

1.77

19

Astellas Pharma Inc.

1.46

20

Eli Lilly & Co.

1.27(source) Access to Medicine Index 2018

Message

UK officeLead portfolio manager
and analyst

Alex Rowe

Taking on the role of co-Lead investor collaborator with GlaxoSmithKline on behalf of ATMI and its
signatories, Nomura Asset Management is engaging in an ongoing dialogue with the company topush for even better access outcomes.
ATMF’s investor led company engagement program is aimed at bringing the investor stakeholder more directly
into the access discussions with pharmaceutical companies to throw added weight behind the coordinatedpush for greater commitment to global access to medicine.
In December 2019, as the lead portfolio manager of the Global Sustainable Equities Fund (see page 55),
I served as chair of collaborative engagement call with GlaxoSmithKline alongside with 13 otherglobal asset managers.
The group had a highly engaging back and forth discussion with GlaxoSmithKline, focusing on a variety ofissues, including different access strategies required for nations at different stages of economic development.
Through this collaborative engagement the importance to the investor community of corporate responsibility
with regards to access is being reinforced and supporting ATM’s vital work in improving global outcomes.
We are currently discussing the results of engagement by ATM and investors, and advancing the engagement
program to the next stage. We will continue to work with GlaxoSmithKline and other investors to reinforce theimportance of access to the investment community.
(As of December 2019)34

About Nomura Asset Management P01-22

Engagement P23-36

Responsible Investment Report 2019

Fixed Income Engagement
Nomura Asset Management also engages with issuers inour corporate bond investments as part of the investment
process. We believe that integrating ESG elements into thecorporate bond investment process leads to stronger risk
management and contributes to more stable returns, andwe feel that engagement is one of the important ways ofaccomplishing this.
In recent years, corporate sustainability has become a key
topic in corporate bond investing, based on the fact that many
issuers issue corporate bonds on a regular basis as a part oftheir financing plans, and given the fact that issue periods arelengthening amid the low interest rate environment. Whether
critically important ESG issues can be dealt with or not isdirectly related to the performance and capital costs of issuing
companies, and has a major impact on a company’s credit risk.
We believe that calling on management teams of our portfolio
companies to increase sustainability through engagement is an
important effort in corporate bond investment.
Currently, engagement in our fixed income investment
operations focuses on conveying our awareness of issues
related to ESG factors to corporate bond issuers, andencouraging them to take sustainability into consideration.
Based on our own quantitative evaluation model andqualitative research, our credit analysts first determine ESG
issues that are important to the creditworthiness of individual
issuers, and then share their views with companies throughinterviews, as well as discuss the enhancement of disclosure
and ways to make improvements regarding issues.
If continuous engagement yields signs of improvement in ESG
issues that impact creditworthiness, we will proactively invest

Primary engagement topics

E

S

G

Environment

SocialGovernanceGreenhouse gas
emissions

Product safety

Corporatephilosophy/ethics

Water resourcesmanagement

Community support

Board of directors
functions

Waste disposal

Labor practices

Compliancein the company. On the other hand, if we do not receive asatisfactory answer, and determine that the issues are notbeing dealt with appropriately, we will either decide to notinvest in the company’s corporate bonds or to reduce theirweight in the portfolio.
Corporate bonds, which are a means for companies to raise
funds, are often issued with various maturities and on thepremise of refinancing, so ESG engagement by credit analysts
can have a significant impact on issuers’ financing strategies.
In recent years, ESG-specific financing, including green bonds,
has become popular. We believe that even bond investors who
do not have voting rights can contribute to the enhancementof corporate value by impacting the decision-making ofcorporate leaders. We also think that fixed income investors
want to support corporate transformation by broadening theirefforts with respect to responsible investment.

Example of Engagement by a Credit Analyst
Company in Japan’s telecommunications services sector

35

Teleconference in November 2019

ESG issueCompany’s understanding

High employee turnover rate and sales activities with an emphasis oncompliance

Recognizes that the corporate culture which emphasizes setting excessively highsales targets and focusing solely on performance has increased risk due to thechanges in the environment surrounding the company and society’s changing
values.

Company initiatives

Proposals

We have revised restrictions on overtime and how targets are set, and enhanced
compliance training, and as a result the corporate culture and employees’ work
style have greatly changed. The turnover rate has also improved in conjunction
with these measures.

We told the company that corporate bond investors are demanding excess
spread from the viewpoint of ESG, and proposed that the company provide more
information about ESG, including this issue.

Proxy Voting P37-46

ESG Integration P47-64

Engagement Collaboration between Equities Investment and Fixed Income Investment
We are also bolstering collaboration with the equities

of sustainability, and both equity investment and fixed income

investment division which started engaging with portfolio
companies before the fixed income investment division. In therelationship with portfolio companies, it is normally said thatbonds and stocks involve different perspectives and haveconflicting interests. However, bonds and stocks are the same
when it comes to assessing corporate risk from the perspective

investment aim for an increase in corporate value.
Based on this idea, both our fixed income and equities
investment divisions share information on issuers’ ESG issues
and about engagement, and credit analysts join analysts and
ESG specialists in engagement targeting portfolio companies,and collaborate in other ways as well.

Research

Equity analyst

ESG Specialist

Cooperation

Credit analyst

Cooperation

Share engagement history

Portfolio company
Implement countermeasures

ESG Issues

Meeting withportfolio company

Shared understanding
Communicate issues

EquityInvestment

Shared understanding
Communicate issues

Business strategy
Financial strategy

Equity portfolio manager

Fixed
IncomeFixed income portfolio manager

Nomura Asset Management

Collaborative Engagement by Credit Analyst and ESG Specialist
Company that owns a power generation business unit

Dialogue in December 2018

ESG issueCompany’s understanding

The company has a business unit comprising coal-fired power generation
facilities, and one issue is its effort to address climate change with the backdropof global decarbonization. Another issue is disclosure related to its efforts toaddress climate change.

Must continue its thermal power generation business in accordance with thegovernment’s basic energy supply plan, as it must stably supply energy.

Company initiatives

ProposalsContinuing efforts to maintain stable operations with the aim of offering a stablesupply of electric power. Proactively carrying out measures in order to reduce its
environmental footprint in the region. Also, in order to address climate change,
the company recognizes the need to look into retrofitting current facilities, etc.

Communicated the need for the company to pay attention to operating funds
and market financing going forward, given financial institutions’ changing views
on coal-fired thermal power. Also conveyed the need to be able to provide TCFDcompliant climate-related disclosure.

Company that owns thermal power generation facilities

Dialogue in December 2019

ESG issueCompany’s understanding

While the company has many power generation facilities that use renewableenergy such as hydropower, a considerable percentage of its facilities are thermal
power plants. An issue is its efforts to reduce CO2 as well as related disclosure.

Advancing discussions regarding how to position thermal power generation
as a response to climate change. Also focusing on power generation basedon renewable energy such as hydropower and wind power.

Company initiatives

Proposals

Enhancing disclosure of climate-related information and working on TCFD
scenario analysis, and making progress so as to be able to announce these in thenext integrated report. Aiming to operate power generation facilities in line withthe decarbonization trend by advancing demonstration tests of coal-fired power
generation using new technologies, and promoting efforts to both provide astable supply of power and achieve decarbonization.

Conveyed that it is important to proactively report on substantial efforts toward
renewable energy not only in reports, but also at investor meetings. Also
communicated that we wish to continue the discussion about addressing the
rapid changes in the funding environment from financial institutions and themarket, as well as about risks associated with the company’s funding strategy.

36About Nomura Asset Management P01-22

Engagement P23-36

2

Proxy Voting
We exercise voting rights with an emphasis on the effectiveness of ouractions through a disciplined and robust decision making process
We conduct proxy voting with respect to various kind of proposals made at the shareholders’ meetings of theportfolio companies in which we invest, including the election of directors.
In accordance with the proxy voting guidelines, we have adopted a disciplined voting process, and for proposals
requiring qualitative judgment, we engage in thorough discussions that will lead to improvements in corporate
value and promote highly-effective corporate governance.
At the same time, we have established the Responsible Investment Council, and have built a system to manage
conflicts of interest in real time.

37

Proxy Voting P37-46

ESG Integration P47-64

Responsible Investment Report 2019

Concept of Proxy Voting
In proxy voting, we focus on the corporate governance of
portfolio companies. The basic structure of corporate
governance is that directors and auditors are elected at ashareholders’ meeting, and directors (the board of
directors) and auditors supervise senior management
through nominations, compensation matters, and audits.
Accordingly, the following three aspects are particularly
important in proxy voting: the election of directors(nomination), executive compensation (compensation) andthe election of auditors (audit). In addition, theappropriation of surplus is important when it comes toJapanese companies because Japanese companies are often
criticized for retaining a large amount of cash and deposits
and being unwilling to return profits to shareholders
through dividends and share buybacks. Moreover, proposals
submitted by shareholders have also been increasing inrecent years. Due to differences in legal systems, it is easier
to make shareholder proposals in Japan than in Europe andthe United States, and these proposals can often have a
direct impact on the management of companies.
Accordingly, these proposals must be considered carefully.
We regard proxy voting as part of our engagement withportfolio companies, and we make judgments on proposals
by all portfolio companies in accordance with our own
proxy voting guidelines. To ensure that proxy voting will not
be carried out as a “governance for the sake ofgovernance,” we have decided to limit the participation on
proxy voting to the minimum level that is absolutely
required, and in more involved cases we exert an
influence through engagement based on the portfolio
company’s situation.
On the other hand, we make rigorous judgments regarding acompany’s responsibility on business results through proxyvoting, and we may object to a company’s proposals if the
management performance is poor or if there is misconduct.

Basic Corporate Governance Structure

Shareholders’ meeting
Election

Directors (Board of Directors) / Auditors
Oversight(nomination, compensation, audit)

Senior management

38

About Nomura Asset Management P01-22

Engagement P23-36

Proxy Voting Process
The proxy voting process is as shown in the figure below. In
addition to the Responsible Investment Committee, which is thehighest decision-making body, the Responsible Investment
Council has been established to prevent conflicts of interest.
Please refer to Page 41 about the conflict of interest. We will
begin by explaining the process for formulating the proxy voting
guidelines. The Responsible Investment Committee engages indeliberations based on a draft prepared by the secretariat, it
revises the draft as needed, and then makes a final decision.
The Responsible Investment Council then meets after the
Responsible Investment Committee to examine possible
conflicts of interest. The members of the Responsible
Investment Council attend Responsible Investment Committee
meetings and monitor any conflicts of interest from thedeliberation and decision stages. One unique feature our policy
is that rather than reviewing decisions after they are made, theprocess of monitoring and reviewing conflicts of interest is
integral to the decision-making process. Next, the process of
forming a judgment on these proposals can be broadly divided
into three patterns. The secretariat decides on proposals thatcan be judged according to the proxy voting guidelines (do not
require qualitative judgment), but other proposals (that do

Members(as of December 2019)require qualitative judgment) are discussed and decided on at a
Responsible Investment Committee meeting. In addition, for
proposals that involve conflicts of interest, similar to when
formulating the proxy voting guidelines, a Responsible
Investment Council meeting is held and the conflicts of interest
are monitored and reviewed while referencing the opinions ofmultiple proxy voting advisory firms. The Responsible
Investment Committee and the Responsible Investment Council
hold regular meetings four times a year, while extraordinary
meetings may also be held as required. In 2019, the Committee
held 18 meetings and the Council held four meetings.
Characteristics of the Proxy Voting Process

Robustness

A robust decision-making process centeredon the Responsible Investment Committee

Comprehensive
discussions

The Responsible Investment Committee
itself decides to agree with or oppose
proposals, rather than simply ratifying thesecretariat’s proposal

Conflict of interest Real-time monitoring by the Responsible
Investment Council
management
Refer to Page 3~4 for more information about the Responsible Investment Committee

Responsible Investment
Committee

Responsible Investment Council

Responsible Investment
Department

Eight people involved indecision-making forinvestment and research(The Responsible Investment
Council members participate
in Responsible Investment
Committee meetings)

One (1) Chief Conflict Officer
Two (2) independent outside
directors

Preparation of
proposals

Reviews from the perspectiveof conflicts of interest
Holds deliberations and makes
Advises the Executive Management
decisions based on theCommittee and/or the Responsible
secretariat’s proposals
Investment Committee to make
Makes revisions to theimprovements
required and reports
secretariat’s proposals as required to the Board of as
Directors and the Audit
and Supervisory Committee

Formulationof theguidelines

Process of formulating
proxy voting guidelines

Decidewhetherto agree oropposeQualitative
judgment notnecessary
Qualitative
judgment isnecessary

Decidewhetherto agree oropposeNo conflictsof interest

Qualitative
judgment isnecessary*

Decidewhetherto agree oropposeThere is a
conflict ofinterest*This includes proposals of group affiliates.

Reference

Opinions from multiple proxy voting advisory firms

39

Judgments on proposals are made inaccordance with the proxy voting guidelines

Secretariat

Role

Proposaljudging
process

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Responsible Investment Report 2019

Overview of Proxy Voting Standards for Japanese Companies
Here, we explain our Proxy Voting Standards for JapaneseCompanies (the “Proxy Voting Standards”). Please refer toour website* for details.

Proxy Voting Standards and their summaries

Proxy Voting Guidelines Structure
Global Basic
Policy for
Proxy Voting

Proxy VotingStandards forJapanese companies

Application
to Japanesecompanies

In the following cases, we will oppose a company’s proposal

Rigorously judge corporate actions and responsibility
to deliver business results■M&A or other corporate action does not protect theinterests of minority shareholders

Judgment made and the responsibility taken to deliver
business results by the management and the board of
directors will be scrutinized and rigorously judged.

■An act that could cause significant damage toshareholder value (misconduct, etc.) is discovered■Return on equity (ROE) is stagnant

Composition of (Board of) Directors
A certain number of outside directors is necessary tosupervise the management team. Particularly in acompany where there is a controlling shareholder (suchas a listed subsidiary), there are concerns about a conflictof interest with the controlling shareholder, therefore ahigher level of supervision is required.

Independence of outside directors
A certain level of independence is required for outside
directors in order to supervise senior management.
In order to prioritize effectiveness,we ensure that thestandards for independence are not too stringent.

■The number of outside directors falls short of theminimum level (refer to Page 41 for details)■Notification as an independent executive is notconfirmed■An outside director has worked for or has otherwise
been part of a company that is a major shareholder■The attendance rate for board of directors’ meetings isless than 75%

Effectiveness of outside directors■It is obvious that the outside director did not fulfill the
expected tasks such as the appointment and dismissalof senior management and the supervision of conflictsof interest between the company and the management
team or controlling shareholders

Outside directors must effectively supervise senior
management.

Because the process for determining executive
compensation must be transparent, there must be
appropriate supervision (compensation governance).

■In a company where the outside directors fall short of amajority and an independent compensation committee
has not been established, a proposal for executive
compensation or executive retirement benefits above acertain level is submitted

Appropriate incentives■The stock compensation is designed so as to encourage
the management team to be short-term oriented

Appropriate compensation governanceAlthough stock compensation is important as amanagement incentive, it can be counterproductive if notproperly designed.

■The persons to whom the stock compensation is given
are not appropriate■The stock compensation could lead to excessive dilution

Effective utilization of financial assets
It is essential that financial assets are utilized effectively
to enhance corporate value.

■Financial assets are not utilized effectively, andshareholder returns (dividends and share buybacks) are
not appropriate* http://www.nomura-am.co.jp/corporate/service/responsibility_investment/pdf/vote_policy.pdf

40About Nomura Asset Management P01-22

Engagement P23-36

Summary of Revisions to Proxy Voting Standards (November 2019)
Corporate governance reforms are changing and have become increasingly focused on effectiveness, rather than just making
changes “on paper.” Japanese companies are being asked to strengthen supervisory functions, including nomination andcompensation, as well as managing conflicts of interest between senior management and major shareholders. In the November
2018 revisions, we added new items related to roles expected of compensation committees and outside directors (such as theelection and dismissal of senior management members and oversight of conflicts of interest). Revisions this time around alsoemphasize strengthening of the supervisory function. The main changes are discussed below.
1. In order to strengthen the supervisory function, we raised the minimum requirement for the number of outside directors.
Organizational design

Company withcorporate auditors

Before revision

After revision

There is no controllingshareholder

2

2.However, 3 if there are more than
12 directors.

There is a controllingshareholder (listed
subsidiary, etc.)

Average ROE in past three fiscal
periods is at least 8%: 2
Average ROE in past three fiscal
periods is less than 8%: 1/3

1/3

2

1/3

Company with Audit & Supervisory Committee,
Company with Nominating Committee, etc.

2. If a minimum baseline level of compensation governance (a majority of the directors are outside directors, or there
is an independent compensation committee) is in place and there is proper oversight, the upper limit for dilution is10%. (Prior to the revision it was 5% regardless of the current status of compensation governance.)
3. Reflecting the increase and diversification of shareholder proposals requesting director elections, we made changes
so that these proposals can be judged alongside company proposals (before the revision, we opposed shareholder
proposals if the person presented for the company proposal was appropriate).
4. As factors for judging corporate restructuring and capital policies, based on the fact that the possibility for
conflicts of interest with minority shareholders have increased and the initiatives to protect the interests ofminority shareholders have become more important, these will be clearly included in the Standards.

System to Manage Conflicts of Interest
Members of the Responsible Investment Committee, the highest
decision-making body, include, in principle, only persons
involved in investment and research decision-making, whilepeople in a position with a conflict of interest or people with thepossibility of acting on behalf of such persons are excluded. In
addition, under the Audit and Supervisory Committee, we haveestablished a Responsible Investment Council that comprises
only the Chief Conflict Officer and persons in independent
positions with respect to our company, including independent
outside directors. This committee monitors stewardship
activities, especially proxy voting involving conflicts of interest,
to make sure that decisions are made that do not adversely

Nomura Asset Management’s System toManage Conflicts of Interest

affect the interests of clients as a result of conflicts of interest.
As required, the Responsible Investment Council recommends
improvements to the Executive Management Committee and/or
the Responsible Investment Committee, and reports on this to
the Board of Directors and the Audit and Supervisory
Committee. Furthermore, members of the Responsible
Investment Council attend Responsible Investment Committee
meetings, and are able to immediately state their opinion if there
is a problem from the standpoint of conflicts of interest. This
allows the Responsible Investment Council to appropriately
monitor conflicts of interest related to stewardship activities, andprevent problems in advance.
Responsible Investment Committee

Responsible Investment Council
Chair

CCO*

*Chief Conflict Officer

41

Independent outside directors and others

AttendMembers

Secretariat
Responsible Investment
Department

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Responsible Investment Report 2019

Proxy Voting for Japanese Companies from January to December 2019
The results of our proxy voting with respect to Japanese companies from January to December 2019 are as follows. Unlessotherwise noted, the ratio of votes against company proposals and the underlying reasons are shown (for shareholders’proposals, the ratio of votes in favor and the reasons are shown).
Election and dismissal of directors

Election and dismissal of auditors

The independence of candidates for outside
director could not be confirmed, poor businessperformance, misconduct, etc.

The independence of candidates
for outside auditor could not
be confirmed, etc.

5%18,438

Number of proposals

Election and dismissal of
accounting auditor

2,963

2%

58

Outside directors and auditors were included among
the people who would receive stock compensation,and the lock-up period was less than three years
Number of proposals

856

Payment of retirement benefits toretiring executives

Appropriation of surplus

Outside directors and auditors were includedin the scope of persons who would receive
payment, etc.

The company is cash rich, and its ROE and theshareholder returns is low.

191

Number of proposals

84%

Number of proposals

Introduction, update and abolition of
takeover defense measures

There were problems in terms of protecting
the interests of minority shareholders, etc.

All proposals related to introduction or updateof takeover defense measures (voted for one
proposal for abolition)

5%

44

Number of proposals

78

Proposals on other capital policies

Proposals on articles of incorporation

Capital increase or contribution of treasury
shares when the impact on shareholder value
is unclear

The roles of chairman of the board
and the chief executive officer (CEO)are not split, etc.

Total

Number of proposals

Company proposals

See above
Number of proposals

3%65

Number of proposals

24,878*Total

8%Ratio of votes
against

29%
5%

1,593

Organizational restructuring-related

Number of proposals

16%

Executive compensation

The candidate was an auditing firm that had
recently been subject to disciplinary action by
the authorities
Number of proposals

Number of proposals

99%
3%

590

Shareholders’ proposals

We thought it would contributeto an improvement in corporate
governance, etc.
Number of proposals

157

17%

Ratio of votes
for*Includes two “other proposals” not included above.

Reference

Results of Proxy Voting for Global
Companies (January – December 2019)

Votes forVotes against

Total

Ratio of votes
againstCompany
proposals

18,814

3,330

22,144

15%

Shareholders’proposals

677

225

902

25%

Total

19,491

3,555

23,04615%42

About Nomura Asset Management P01-22

Engagement P23-36

Examples of Qualitative Judgments on Proposals
In recent years, corporate governance of listed subsidiaries has
been attracting attention. This is because the parent company
has the right to control the business by controlling the majorityof the voting rights (controlling rights), which causes concerns
about possible conflicts of interest with other shareholders(minority shareholders). In our Proxy Voting Standards, wedemand that listed subsidiaries should have a board structure
whereby one-third of members are outside directors. This is arelatively stringent provision.

So, how are listed subsidiaries created? There are two typicalways: (1) listing a subsidiary on the stock market, or acquiring
more than half of the shares of a listed company and turning it
into a subsidiary; and (2) through a third-party allotment ofshares or a share exchange. In (1), a shareholders’ meeting is notheld, but in (2) it is normal for a shareholders’ meeting to beheld and for a proposal to be put on the agenda. Here, we
explain what kind of judgments we made in Case (2).

Overview of Proposals
Here, we introduce one proposal we voted in favor of (Case 1)
and one proposal we opposed (Case 2). The company formats
were different, but in both cases Company S is a listed
subsidiary of Company P, and the proposals were on theagenda of Company S’s shareholders’ meeting. The details areshown in the figure on the page to the right.

Outcome of Judgements on the Proposal
In such cases, the appropriateness of the premium*2 forcontrol is an important issue.
In both cases, the premium was effectively zero, and an
independent committee did not take actions such as verifying
the appropriateness of the premium utilizing the opinions andinformation from outside experts, so careful consideration
was required.
The deciding factor was whether or not there was a conflictof interest between Company S's management and non-major
shareholders. In Case 1, management and the non-major
shareholders had the same interests, and we respected andagreed with the company's opinion. In Case 2, there wasconcern that management may have a conflict of interest, andwe opposed the proposal as we could not respect thecompany’s opinion given the fact that there was noverification by an independent specialist or committee.

Proposal Judgment Process
We first referred to the proxy voting guidelines. The standard*1
below was applied to both proposals, but the proposals werediscussed at the Responsible Investment Committee because
qualitative judgments were required. Because neither casecreated a conflict of interest for Nomura Asset Management, theResponsible Investment Council did not hold a meeting.
Company reorganization and capital policy(merger, acquisition, business transfer, acquisition of business, company split,
capital increase, etc.)
We vote for a proposal on a company reorganization or a capital policy if it isdeemed appropriate, and we otherwise vote against it after comprehensively
taking into consideration its content, the economic terms (including apremium), the impact on shareholder value, the grounds for management
judgments and rationality and the disclosure status, etc. If general shareholders
receive consideration such as shares and money for the company reorganizationor the capital policy, we emphasize the appropriateness of the consideration
when deciding whether to agree with or oppose the proposal.
*1 The standard was revised in November 2019 in light of both of these cases(refer to Page X)
The above is the standard prior to revision.

43*2 If Company P acquires a majority of Company S’s shares through a tender
offer, it is normal for the company to pay a price that is higher than theshare price immediately preceding the tender offer. This is considered
compensation for attaining the controlling rights, and the excess amountis called the “premium.” In the case of a share exchange or third-party
allotment, there are differences from the case of a tender offer of newshares, but the appropriateness of the premium remains an important issue.

Proxy Voting P37-46

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Responsible Investment Report 2019

Qualitative Judgment Cases (Company S’s shareholders’ meeting)
Case 1: SupportedCase 2: Opposed

Nomura AssetManagement isincluded here
Non-major
shareholders

Nomura AssetManagement isincluded here
InterestsalignedCompany S’s large
shareholders=Company S’s senior
management

Nointerests

CompanyP

Non-major
shareholders

Company P: Largeshareholder ofCompany S
Third-party
allotment

Company
S

Allotment of Company S’s sharesCompany
X

Turned into wholly-owned
subsidiary via share exchange

FormatCompany S
Conflict ofinterest

Company S’s
management teamCompany X was a wholly-owned subsidiary of Company
P.
Shares were issued to Company P through a third-party
By exchanging Company X’s shares held by Company P
allotment. Company P acquired more than one-half ofwith Company S’s shares, Company P acquired more thanCompany S’s shares, thereby becoming its parent company.
one-half of Company S’s shares, thereby becoming its
parent company.

Business
judgment

We judged it to be rational,
as business synergy was recognized.

We judged it to be rational, as business synergy wasrecognized.

Issue price /Exchange ratio

The exchange ratio is within Company X’s share pricecalculation range (premium is effectively zero).

The issue price is roughly the same level as the share priceprior to the announcement

Verification by
Outside expert calculated Company X’s share price.
independent
However, an independent committee was not established.
committee

Conflict ofInterest

Created an independent committee. However, there wasno calculation of share price by an independent outside
expert. It went no further than a regulatory check.

Because Company S’s management team members are
Because Company P is a major shareholder of Company S,
also shareholders, there was little concern about a conflict
there was significant concern about a conflict of interest.
of interest.

44

About Nomura Asset Management P01-22

Engagement P23-36

Proxy Voting FAQ
Q Can engagement have an impact on proxy voting?
A Through engagement, we ascertain the status of the company and its opinions regarding proxy voting, and these impact theformulation of the proxy voting guidelines (“guidelines”) and the decisions on individual proposals. Please refer to the figure
below for details.

Relationship between engagement and proxy voting
1

Formulation ofproxy voting
guidelines

Engagement

2

Judgments on
individual
proposals

Information and opinions attained through engagement are valuable for making judgments.
Example:Because we confirmed that there was a positive benefit for a company that had established a Compensation
Committee, in the guidelines on executive compensation and executive retirement benefits we added a
new clause to refer to whether a company has a Compensation Committee (November 2018).

Judgments may differ from the guidelines if engagement reveals actions targeting improvements
or a situation that was not expected at the time the guideline was formulated.
Example:For a company conflicting with the guideline related to the disposition of surplus, it was found that this had
been affected by special accounting treatment, so we voted in favor of the company’s proposal when theguideline called for opposing the proposal.

Q It seems that you vote against company proposals a small percentage of the time.
Can you comment on that?
A As discussed on Page 38, we have positioned proxy voting as a part of our engagement program.In proxy voting, we execute what
we consider to be the "minimum line” that is considered necessary at the given time. This may limit the increase in the ratio ofvoting against. Another factor affecting this is the fact that, because we take the continuity of the board of directors into
consideration, for director election proposals that we oppose, we limit our opposition to candidates possessing responsibility inindividual matters (see figure below). While our opposition ratio to director election proposals was 5% (2019), of these proposals,
we opposed the appointment of one or more candidates for 30% of companies. We do not feel this percentage is particularly low.
*1 Under the Companies Act, a minimum of three directors is necessary in order to hold a Board of Directors meeting.

Guideline for Director Election Proposals
Persons subject to opposition
All candidates
Applicable toreason*2 for
opposition
Candidates with responsibilities(top executives, etc.)*2 Shortage of outside directors, low ROE, etc.

If proposal we opposed is rejected
Board of Directors meetings cannot be held
due to absence of directors■Opposition ratio will rise
■Undermines the ability of the Board of Directors tocontinue functioning
Board of Directors meetings can be held with other directors■Opposition ratio will decline■Ensures the ability of the Board of Directors to continuefunctioningWe
chose thisQ What about proxy voting with respect to group affiliates?
A As with other portfolio companies, we make decisions about whether to support or oppose proposals for group affiliates based on ourguidelines. As a proposal with a conflict of interest, the Responsible Investment Committee will discuss the proposal referencing theopinions of multiple proxy voting advisory firms. Members of the Responsible Investment Council attend the Responsible Investment
Committee meeting and participate in the deliberations. Also, following the conclusion of the Responsible Investment Committee meeting,
the Responsible Investment Council holds a meeting where it closely examines the issue from the perspective of conflict of interest. Pleaserefer to Page 39 for details on the proxy voting process and Page 41 for details on our system for managing conflicts of interest.

Q Do you have a message for portfolio companies?
A In carrying out proxy voting, we refer to documents related to shareholders’ meetings, including the notice of convocation, independent
officer registrations, and corporate governance reports. Recently, documents related to shareholders’ meetings have become more
informative, and this has allowed us to judge these proposals more easily. We want portfolio companies to continue providing clear and easy
to understand information disclosures. We still believe that engagement with portfolio companies, including explanations of proposals, isvaluable, and we are active with engagement throughout the year, with the exception of late-May through mid-June when proxy voting
reaches its peak. We would like for portfolio companies to check the proxy voting representative’s schedule (see Page 46) and contact them.

45

Proxy Voting P37-46

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Responsible Investment Report 2019
Column1

Current Situation with Corporate Governance Reform -shifting the focus from matters of formality to effectiveness-

Following corporate governance reforms, boards of directors of

1 Appropriate members

Japanese companies have been changing. A few years ago, themain topic of discussion related to matters of formality, such aswhether or not to appoint outside directors, but these days theissue is shifting more towards effectiveness. So, how should weview the effectiveness of corporate governance? As the basic
structure on Page 38 shows, oversight of senior management is arequirement of good corporate governance, so the critical factors
are the effectiveness of nomination, compensation and auditing.
Focusing our attention on nominations and compensation, points

Board of Directors, Nomination Committee, and Compensation
Committee should be comprised of appropriate members. In
order to fulfill 3 , this will center on outside directors satisfying
requirements such as independence from senior management,
corporate management experience, and diversity.

2 Management strategies and plans
Conduct thorough deliberations on the management strategies
and plans presented by senior management. These management
strategies and plans are the yardsticks for evaluating senior
management.

1 – 3 on the right summarize the matters in question.
What is the current situation for Japanese companies? It appears
that some companies are doing 1 – 3 all at a high level, whileothers are still struggling with making changes “on paper.”Overall, it seems that many management teams are increasingly
recognizing the importance of 1 – 3 , and are getting started

3 Nomination/Compensation
Evaluate senior management and decide on the need for
replacement (nomination) and determine compensation. This isbased on the formulation of a successor plan consistent with 2
and the design of the compensation system.
It is important to feed the evaluation results back into 2 .

from where they can. Through proxy voting and engagement, we
will continue calling on companies to put 1 – 3 into practice.

Column2

Annual Schedule of a Proxy Voting Representative

June, followed by March and May, are the months in which thelargest numbers of Japanese companies hold their generalshareholders’ meetings. We exercise our voting rights for more than
1,900 portfolio companies in these three months. Below, I discuss
the approximate annual schedule for proxy voting, focusing on thisperiod with a high concentration of shareholders’ meetings.

1

Revisions to Proxy Voting Guidelines

Proxy Voting Annual schedule
Jun. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jul. Jun.

1

2

3
4

5
6

2

6

6

6

Engagement to inform companies about therevisions to our Proxy Voting Guidelines

July – OctoberNovember – January

As soon as the busy season for shareholders’ meetings ends, we start
reviewing our Proxy Voting Guidelines. Taking into consideration theactual conditions of Japanese companies, which we have learned throughengagement and proxy voting, we make revisions to reflect changes in laws
and regulations, such as revisions to the Corporate Governance Code.

We conduct engagement mainly with the portfolio companies that we
think will be significantly impacted by the revisions to our Proxy Voting
Guidelines. We communicate our views and encourage them to strengthen
their corporate governance. In addition to individual meetings with portfolio
companies, we also explain our views at seminars.

3

Engagement in anticipation of the generalshareholders’ meeting.

4

Period when most general shareholders’meetings are held

February – May

March – June,

As the busy season approaches, we ramp up engagement with an eye
towards shareholders’ meetings. This is the time when companies are
finalizing the proposals they will make at shareholders’ meetings (theproposals have already been finalized in some cases), so portfolio companies
tend to be most interested in the prospects for individual proposals.
However, we try to keep these discussions focused on strengthening
corporate governance over the medium to long term.

This is a period when we need to accurately judge a large number of proposals.
We exercise voting rights for roughly 100 companies per day during thepeak period in June, so it also happens to be the period when we most wantcompanies to provide information disclosures that are clear and easy tounderstand.

5

Engagement to strengthen corporate
governanceAll year, particularly November – March

We explain our proxy voting philosophy and let portfolio companies explain to us
how they are working to strengthen their corporate governance, and we then talkwith them about their efforts. Typically, the discussions will be about what efforts
they should make to enhance corporate value over the medium to long term, andwhat kind of corporate governance they should have as a mechanism for supervisingthose efforts given their particular business and financial situation.

6

Disclosure of proxy voting results
January/April/July/October

After the end of each quarter, we disclose the results of our proxy voting,and the reasons behind our voting activities, on our corporate website.

46

About Nomura Asset Management P01-22

Engagement P23-36

3

ESG
Integration
We aim to enhance investment added value
by incorporating ESG elements into the investment process
Nomura Asset Management conducts its own ESG evaluation of portfolio owned companies listed inJapan, developed countries including Europe and the US, as well as Asia and emerging countries, anduses these assessments to make investment decisions.
We aim to improve the total added value of our investments by conducting effective ESG evaluations
for both equity investment and fixed income investment, and by integrating those evaluations into ourinvestment activity.

47

Proxy Voting P37-46

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Responsible Investment Report 2019

Basic Philosophy on ESG Integration
Integrating ESG elements into the investment process iscritical for both equity investing and fixed income investing.
Effectively incorporating evaluations of ESG and othernon-financial information into the investment process to
supplement the analysis of a company’s fundamentals(financial information used to evaluate a company) is
essential for enhancing the quality of our investments, as it
not only reduces downside risk but also improves returns.
We incorporate our own ESG evaluations into theinvestment process for both equity investing and fixedincome investing. Evaluation is not limited to Japanesecompanies, as we have expanded the scope to companies indeveloped countries in Europe and the US, as well as tocompanies in Asia and emerging countries. In addition to
global themes such as climate change and human rights, we
extract and assess specific material ESG considerations forindividual industries and companies and utilize informationfrom multiple external sources to create our proprietary
ESG ratings. These ratings are made available to all portfolio
managers for incorporation into the investment decisionmaking process.
Our integration efforts center on equity investing and fixedincome investing, but each has distinct characteristics.
When determining equity ESG scores, we focus ourevaluations not only on potential risks but also on
opportunities to generate future earnings. Although each
equity strategy employs a unique investment philosophy
and process, this common ESG evaluation platform isshared by all strategies.
Meanwhile, in our fixed income ESG model, we select andmodel ESG factors important for credit investment based ona variety of research. Qualitative evaluations by credit
analysts are added to the model-based integration, in orderto improve the portfolio’s risk-adjusted return, as well assustainable performance.

48

About Nomura Asset Management P01-22

Engagement P23-36

Equity Integration
Philosophy on ESG Integration
Incorporating ESG elements into the investment process,known as integration, is critical.
We believe effectively incorporating ESG considerations andother non-financial information into the investment process
to supplement the analysis of a company’s fundamentals(financial information used to evaluate a company) allows us
to enhance our total added value.
We take this view based on our belief that financial
performance and ESG efforts (non-financial information) areclosely related and influence one another.
Corporate value is essentially the discounted present valueof future free cash flows. The business assets that generate
corporate value include not only fixed assets such as
production facilities, but also various types of capital (nonfinancial information) such as human capital, natural capital,and social capital that do not appear in financial statements.
We recognize the need to analyze and make investment
decisions based on how these various types of capital, or
non-financial information, will affect future business
operations and the sustainability of a company’s growth inorder to increase the added value of our investments.
In order to continue to improve the precision of our process, weregularly upgrade our proprietary ESG scoring (refer to Page 51).
In addition, by utilizing the ESG score as the common
language between sector analysts, ESG specialists, andinvestment managers to use when discussing companies
allows us to integrate ESG evaluations into the investment
process more effectively.

49

Investors’ Basic Philosophy on Corporate Value

Corporate
value
A

cc

u
um

lat

ion

fu
of

tur

e

rn
ea

ing

s /c

ash

flo

ws

Tim

Present
Past
Non-financial
capitalPassageof timePresent
Financialinformation
Non-financial
capitalFuturePassageof time

Discounted
present value

Financialinformation

Corporate value“Continuity between financial and non-financial” andthe “Impact on long-term profits/cash flow generation”
are of the upmost importance.

eProxy Voting P37-46

ESG Integration P47-64

Responsible Investment Report 2019

ESG Integration Process
ESG evaluations are incorporated into many of ourinvestment strategies. Each investment process constructs
its portfolio by selecting securities based on bothquantitative and qualitative evaluations.
In addition to metrics on whether a stock is underpriced or
overpriced, quantitative analysis includes predictions of
future profit growth rates, return on equity, cash flows,
financial soundness and more based on fundamental
analysis performed by analysts.
Qualitative evaluation includes analysis directly linked toforecasts of future financial condition, such as industry
growth, technological developments, competitiveenvironment, and supply chain structure, as well as analysis
related to non-financial information including the impact of
the business on the environment and society, the risk
management system for natural disasters, efforts to improve
the work environment, the composition of the board of
directors, capital policy, and other factors to assess thesustainability of a given company’s growth prospects.
This is what we refer to as ESG evaluation. We believe that
ESG indicators are extremely effective as metrics forevaluating this sustainability.
Each investment process will refer to the proprietary ESG
score produced by our analysts and ESG specialists to assesssustainability and assign a final investment rating (investment
decision). Our ESG score combines environment, social,governance criteria with SDGs, and it makes it possible toevaluate risk factors and investment opportunities in our
strategy platform (refer to figure below).
In addition, if we determine that furhter ESG research on thetarget company is necessary based on the discussions ineach part of the investment process, we may ask an ESG
specialist in the Responsible Investment Department to
conduct additional research, which is then added to theevaluation when a final investment rating is assigned.
The portfolio for each investment strategy is built byselecting names from the investment universe assigned a
final rating of “Buy.”
Moreover, we have established a standard ESG evaluation
process globally. In addition to global themes such as
climate change and human rights, we extract and assess
specific material ESG considerations for individual industries
and companies and utilize information from multiple
external sources to create our proprietary ESG ratings. These
ratings are made available to all portfolio managers forincorporation into the investment decision-making process.
For example, at our Singapore Office, country specialists(CS) are assigned to cover each country in this diverse
region, and the main source of added value is the bottomup research conducted by meeting with companies andmanagement (approximately 2,550 meetings in 2019).
Investing ratings are assigned to individual stocks based on
the fundamentals research carried out by CSs as well as the
ESG evaluation. The actual portfolio is constructed based onthese ratings.
When we engage with individual companies that areincluded in a portfolio, we do so in partnership with theanalysts and ESG specialists.

Equity Investment Process

Top-down
approach

Investment Environment Assessment Meeting
Macro environment

Portfolio

Portfolio strategy
Strategy platform

Final Rating
Bottom-up
approach

Company fundamentals evaluation
Quants support

ESG score

Analyst

ESG specialist

Carry out
engagement if
critical ESG issues
are identified50

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ESG Scores
At Nomura Asset Management, our analysts and ESG
specialists collaborate to independently compute ESG scores,
which assess each company’s ESG abilities. Corporate value
is usually expressed as the discounted present value of
future cash flows generated. We believe that ESG and othernon-financial information are important factors that
influence future cash flows. ESG research and analysis, aswell as scoring, are extremely important elements inmeasuring corporate value, and we believe these will
generate added value for our investments.
Our ESG score is broadly divided into four categories:
environment (E), social (S), governance (G), and SDGs
(Sustainable Development Goals). There are currently morethan 80 items in the evaluation, with a good balance
between risk and opportunity.
In terms “environment,” we view the evaluation of acompany’s efforts related to climate change to be the mostimportant issue. We assess whether companies aremanaging transition risks and physical risks related toclimate change, and incorporating appropriate responses tothese risks in their business strategies. Initiatives inaccordance with the Task Force on Climate-related Financial
Disclosures (TCFD) is an example of something we evaluate.
Based on integrated reports and other publicly-available
materials, we analyze and evaluate the level of disclosure

Weight30%

Main category

E

WeightSub-category

15%

Addressing climate change

10%Addressing natural capital5%

Addressing otherenvironmental issues

10%

Addressing human rights
and labor

10%Addressing human capitalS

10%

Addressing other social issues

Example of items evaluatedDisclosure of information on greenhouse gas emissions
Participation in initiatives related to climate change
Risks related to climate change

Environment30%

pertaining to governance, strategy, indicators and goals,
and risk management related to the TCFD, as well ascompanies’ efforts with respect to scenario analyses. Rather
than actions that are mere formalities, we are looking for
substantive efforts including a strong commitment frommanagement.Other environmental assessment items include
biodiversity, such as water resources and the prevention ofmarine pollution.
“Social” is broadly divided into internal and external risks,and measures to address each. The former includes humanrights and human capital development, while the latterincludes issues related to the quality of products andservices, as well as supply chain management. For Japanesecompanies in particular, we feel there is still a large gap
between companies when it comes to the level of supply
chain management at overseas business sites.
In “Governance,” there are multiple items evaluated to makesure that companies have put appropriate systems in place,such as board constituents, outside director independence,
and whether nomination and compensation committees
have been established.However, qualitative research by our
analyst team is what we expect to drive positive results. Thisis because assessing top management, successor planningand having open dialogue with investors are areas ofstrengths our analysts have cultivated over many years of

Initiatives on TCFD (Task Force on Climate-related Financial Disclosures)
Disclosure of information on water consumption and waste
Risks related to biodiversity and water resources
Certification of occupational health and safety
Disclosure of information related to labor
Risks related to human rights and labor issues
Efforts to effectively use human capitalSocial30%

G

Governance

10%

51

SDGs
Sustainable
Development
Goals

10% Evaluation of senior management
10%

Evaluation of board of directors

10%

Other governance evaluations

10%

Potential to contributeto the 17 goals

Information disclosure, efforts, and risks regarding a wide range ofsocial issues other than human rights, labor, and human capital

Long-term industry vision, existence of effective action plan
Effectiveness of nomination and compensation process
Consideration of minority shareholders

Business opportunities related to the 17 goals of the SDGs

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Utilizing ESG scores in Investment Committees
The materials used by the committee for Japanese equity
investment to evaluate investment value for individualcompanies include financial data such as earnings growthpotential and return on equity, as well as stock pricevaluations, along with ESG scores and ESG comments by the
analysts in charge. ESG scores are proactively used, both in
the growth equities investment committee and the value
equities investment committee.

researching companies.
One feature of our ESG scoring is that we make it a point toevaluate SDGs separately from ESG. We evaluate whether acompany considers solutions to SDG issues as business
opportunities and whether they incorporate SDG solutions
appropriately into its management strategy.
In doing so, rather than simply looking at whether or not acompany has businesses that allow it to contribute to theachievement of each goal, we forecast future sales mixes
and conduct extensive research into whether or not acompany has the human and technological resources
necessary to differentiate itself from its peers.
Acquiring ESG Score Information
ESG scores are posted on an internal research-sharing system.
Investment managers can check the ESG scores of individualcompanies to help make final investment decisions.
Utilizing ESG score information in engagement
ESG scores are determined not only based on disclosed data
but also using information on future risks and opportunities
and other such information obtained through dialogue.
By using this ESG score, we can compare the strengths andweaknesses of portfolio companies' ESG efforts, and use thescores for engagement such as discussing future
directionality.

Utilization of ESG scores in portfolio construction
and monitoring
When building and reviewing portfolios from a bottom-up
approach, managers can constantly keep track of ESG scoresfor individual companies. These are mainly used to makecomparisons with industry peers and to see how a company’sscore has hanged. Meanwhile, from a top-down perspective,
the overall portfolio’s ESG score is periodically compared tothe benchmark to avoid unintentional ESG risk bias.
Also, investment managers can use the evaluation items
comprising the ESG scores of individual companies as standalone data. For example, they can adjust the weights ofparticular items, or select to use the scores of specific items,
to reflect the specific characteristics of the fund they manage.

Research division
Reflect in corporate value
assessment
Discover stocks to recommend

Investment divisionInternal information platform(research information)

Reflect in investments
and decision-making
ESG monitoring of funds managed

More advanced ESG
integration

Responsible investment
Identify ESG issues
Use in engagement52

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Engagement P23-36

Impact Investing
What is impact investing?
At Nomura Asset Management, we believe that impact
investing is not limited to simply having an impact on theenvironment or society, and we feel it is important for the
impact to generate earnings and cash flows for portfolio
companies, which will ultimately be returned to asset
owners and other stakeholders.
In carrying out impact investing, we exhaustively analyze theimpact that a portfolio company has on the environmentand society, as well as the portfolio company’s earnings/

Environment/Society = Stakeholders

Pension Individual
funds, etc. investors

SDGs
Sustainable
Development Goals

Clients/business
partners

Employees

Impacts
Returns

Investment

Outcomes

Economic
returns

Outputs
Business
activities

Socialreturns

Inputs(investment)

Impact investment
Engagement

NomuraAsset Management

53

Returns

Portfolio company

cash flows generated. At the same time, we engage with theportfolio company to help it set KPIs and targets thatgenerate impact, as well as proactively support businessactivities aimed at achieving them.
A 2014 report issued by the G8 Social Impact Investment
Task Force, established under the UK’s presidency of the G8,
notes, “This requires a paradigm shift in capital market
thinking, from two-dimensions to three. By bringing a third
dimension, impact, to the 20th century capital market
dimensions of risk and return, impact investing has the potential
to transform our ability to build a better society for all.”
Impact investment is generally defined as investment thataims to create environmental and/or social impact and an
economic return on investment at the same time. As
opposed to the conventional two-dimensional evaluation ofrisk and return, impact investment requires the advanced
skill of three-dimensional evaluation covering risk, returnand impact.
Impact investing is defined as one category of ESG
investment and sustainable investment given the fact that it
is expected to bring about improvements for theenvironment and society.
The United Nations SDGs are often used as a framework for
impact investing. Adopted by the United Nations in 2015, theSDGs set forth 17 goals and 169 targets. The SDGs indicate theenormous needs of the global market and effective risk
management methods that lead to returns on investments in
portfolio companies, and are viewed as useful indicators formeasuring the impacts on the environment and society.
Proactive impact investment and accompanying engagement
activities create outputs and outcomes from the businessactivities of portfolio companies, as well as impact on theenvironment and society related to SDGs, etc., and returnboth economic value and social value to asset owners andother stakeholders.

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Our Impact Investment Process
Society

Setting Definable
Impact Goals in line withNAM´s ESG statement

Climate change

Naturalcapital

Impact goal
defined

Mitigate Climate Change:
Keep global warming
to below 2°C

Mitigate
Natural Capital
Depletion

Mitigate
the Obesity
Epidemic

Global Renewable
Energy Output

Material
Consumption per
CapitaObesity related
Death Rate

Monitorable
indicators

Atmospheric CO 2 Levels
Global Carbon Emissions
per Capita

Global Annual
Tree Cover Loss

Renewable plantdevelopers

Identifying theinvestment areas

Technology manufacturers
Electric vehicle OEMs
Construction andmanagement of efficientbuilding

Healthcare
problems

CV, cancer,
diabetes orchronic respiratory

Global Access to
Basic Financial
Services

Global Access to
Clean Drinking
Water

Percentage of Low
Deaths due to HIV, Income Population
TB and Malaria
with Access to
Banking

Percentage of
Global Population
with Access to Safe
Drinking Water

EliminateCommunicable
DiseasePharmaceutical business
Achieve thesustainable
management andefficient use of
raw materials

Healthcare value chain including
MedTech Companies

Individual companies’ KPI

Nomura Asset Management's ESG Statement aims tocommunicate the future direction of ESG-related activities
and our recognition of environmental and social issues tostakeholders, and also aims to realize a sustainable
environment and society.
Our ESG Statement is the starting point for our approach to
impact investing. The statement identifies issues such as
climate change, natural capital, and social responsibility as
key topics.
For these issues, we set impact goals that are discussed
internally. Urgent issues facing the world including climatechange, natural capital depletion, access to healthcare, andsocial responsibility (for example, financial services andaccess to clean drinking water) are some examples of thespecific issues discussed.
Next, we establish indicators to measure the degree of
improvement for each impact goal that has been set. These
indicators are either at the national or global level. For
example, for the impact goal “Improvement of medical
problems in developing countries, ”we can evaluate theglobal progress by monitoring indicators such as mortality
rates for HIV, tuberculosis, malaria, and other illnesses
published by World Health Organization (WHO).
Furthermore, to improve these indicators, we specify further
segmented areas of investment linked to these indicators.
We then invest in companies in this investment area.

Portfolio companies

FinTech paymentbusinesses

Lenders to lower
socio economic

Providing waterandsewage businesses

Portfolio construction/
Investment process

Link with SDGs topics

Engagement withportfolio companies

The basic rights that should
be guaranteed to people

Nomura Asset Management’s approach to Impact Investing

Environment

Our impact investment fund is constructed based on theso-called “outside-in” concept, in which social issues areapplied to portfolio companies, and is shared within ourdomestic and overseas impact investment strategies.
Companies included in the portfolio are linked with thesegmented investment areas and the 17 goals of the SDGs,
and more detailed impact investment topics and individual
KPI are established. By measuring these KPI, we are able tocarry out fine-tuned monitoring of corporate activities that
contribute to achieving the impact goals.
For example, with respect to climate change, using
greenhouse gas emissions reductions and investment in R&D
to tackle climate change as KPI enables more detailed
monitoring of individual companies’ actions aimed at solving
the problem.
Conducting detailed and continuous monitoring of theestablished KPI allows us to not only appraise eachcompany’s impact, but also measure the impact of theportfolio overall and the extent of improvement against theoriginal impact goal.
Moreover, we are encouraging companies’ efforts to solve
issues by engaging with portfolio companies based on what
is learned from the monitoring.
By repeating this process for all of our investment strategies,
we aim to generate impacts that solve social issues while also
pursuing economic returns.

54About Nomura Asset Management P01-22

Engagement P23-36

Nomura Global Sustainable Equity Fund (Global Sustainable Equity : GSE)
Nomura Asset Management’s UK Office manages the
Nomura Global Sustainable Equity Fund based on theconcept of impact investment. This fund not only
encourages companies to tackle the key challenges facing
the world today, but also impacts a variety of stakeholders
by encouraging them to address the sustainability of theirbusiness. The key is establishing impact goals and being able
to measure their impact.
In the basic process, identifying the investment areas linked
to KPIs is key for finding companies to actually invest in.
Specifically, by identifying areas of investment related to theimpact goal of “Improving healthcare problems indeveloping countries,” we select companies engaged inbusinesses related to pharmaceuticals or businesses related
to the value chain in healthcare as investment targets.
By establishing monitorable indicators related to this impact
goal, we can measure the degree of improvement in eachcountry or region (developed or emerging, etc.), and at the
global level. Please refer to Page 54 for details.

In addition to monitoring KPI for individual companies, we
support the actions of portfolio companies to achieve our
impact goals through engagement.
For example, our impact goal of “Eliminate Communicable
Disease” is related to Goal 3 of the SDGs, “Health and wellbeing for all.” Specifically, it relates to Target 3.3 which states,“By 2030, end the epidemics of AIDS, tuberculosis, malaria
and neglected tropical diseases and combat hepatitis, waterborne diseases and other communicable diseases.”
Our UK-based fund management team participates in an
initiative sponsored by the Access to Medicine Foundation
aimed at improving access to health care for billions ofpeople who would not benefit from modern healthcare
advances in low and middle income countries, and works tosolve the problem through collaborative engagement withmajor global pharmaceutical manufacturers (Refer to“Collaboration with Initiatives” on Page 34).
In addition to KPI monitoring, the investment team engages
with companies in a variety of ways, which allows the teamRole of Portfolio Companies in Achieving Impact Goals and Examples of Monitoring
Portfolio
Impact goalcompany

GileadJohnsonControls

EliminateCommunicable
DiseaseMitigate
ClimateChangeMain impact(s)SDGs target(s)Individual company’s KPI
Number of patients receiving HIV
treatment in middle and low
income countries

Decline in overall global HIV mortality rate

R&D investment (versus sales)
HVAC technology and building
management systems, which are theworld's top-class emission reduction
technologies

Contribution to CO2 emission
reductions by HVAC technology(metric tons)

Curb emissions from buildings, which
account for 30% of the world's end
energy consumption

Engagement goals
Evaluation using Access to
Medicine Index
Improvement in access to medicine
using ATM

Expansion of data disclosure inorder to support contributions to
CO2 emissions reductions by HVAC
technology

Impact Investment Process of GSE
Society

Mitigate
NaturalProgression towards
our Goal and KPIs Climate Change capital

Healthcare
problems

The basic rights that should
be guaranteed to people

Establishing impact goals
Monitorable indicators
Identifying the investment areas
SDG7.2
SDG7.3

SDG12.2

Individualcompanies’ KPI

Tons carbon saved
Equipment/research
investment scale

Engagementwith portfolio
companies

55

SDG3.4

SDG1.4

Access metrics

The number of customers

Tonnes of material
recycled

R&D spend

Customers, USD of payments

Single use plastics
removed fromoperations

Evaluation of
Healthcare value chain

Customers, USD of loans

MWh generated
MW sold

SDG3.3

Portfolio companies

SDG1.4SDG6.2
Litres of safe waterproduced using filtration
technology
People reached throughclean water accessprogramme

Portfolio construction/
Investment process

The identificationof SDGs topics

Nomura Asset Management’s
Impact Investing

Environment

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Responsible Investment Report 2019to encourage companies to take actions that will contributeto progress on the impact goals it has established.
A variety of impacts can be measured from the KPI linked tothe actual portfolio.
For example, in terms of mitigating climate change, the fundinvests in a broad range of companies that are supporting
the reduction of global CO 2 emissions to a much greater
extent than a typical global equity fund. Meanwhile, in“Eliminate Communicable Disease,” 18 million low andmiddle income HIV sufferers receive HIV treatment as aresult of the Access strategies of our portfolio companies.
Across the companies held within the portfolio more than
two million vaccines are also supplied daily.
We believe that by helping companies towards theachievement of impact goals in this way, it will be possible
to solve many of the challenges facing society together withmultiple other stakeholders. In other words, we will be able
to contribute to achieving the impact goals.

Monitoring KPI related to Impact Goals
Examples from Portfolio Companies

Global Sustainable Equity Fund(GSE)
Lead portfolio manager

Alex Rowe

Global Sustainable Equity Fund –Impact Goal Measurement

Global Deaths from Communicable Disease
200 (millions)
160
120
80
40
0
2000

Deaths from HIV,

Deaths from TB

Deaths from Malaria

Mitigate Climate Change

Environment

CO2

2005

2010

2012

2014

2015

2016

The number of deaths from

Progression tuberculosis has been declining but
towards our is still high, and there is a pressing
Goal and need for innovative preventive
KPIs
measures using vaccines.

Examplesof ourinvestments

2017

2018

CO2
(year)

The world's leading HIV
treatment pharmaceuticalcompany
Largest vaccine manufacturer
globally with leading Accessstrategies

Reduced carbon emissions

1.5m tones

from buildings bythrough energy saving technology
CO2

49TWh

US Obesity Related Death Rates (CDC Data,Deaths per 100,000)
CV Disease Death Rate (RHS)
Diabetes Death Rate (LHS) (person)
300
30 (person)
240
24
280
28
120
12
60
6
0
0
1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 (year)
The number of deaths from

Progression cardiovascular disease had been
towards our moving downward and plateaued,
Goal and but it is trending higher once again
KPIs
due to increased obesity rates. The

Examplesof ourinvestments

diabetic mortality rate is also nolonger in decline , despite significant
medical treatment progress, due
to increasedobesity rates.

Generated CO2 freeenergy in 2019

Access to Healthcare

Society

Leading diabetes treatment
manufacturer
Medical equipment
applications across diabetes
and cardiovascular disease
MedTech company with large
cardiovascular and diabetes
businesses

Provided access to HIV treatment for

18m impoverished sufferers in 20192m

Delivered almost
vaccines worldwide

Were used as the treatment of choice by more

Global Renewable Energy Generation Annual Output (World Bank)
7,000 (TWh)
5,600
4,200
2,800
1,400
0

than

1990

1995

2000

2005

2010

2015

Examplesof ourinvestments

2017(year)

Network investments facilitate
the renewables transition
World's largest onshore windenergy generator
Efficient HVAC and control
systems reduce building emissions

30m diabetes patients in 2019

Financial Inclusion

Society

With the expected expansion of
Progression renewable energy investment in
towards our the 2020s, the amount of power
Goal and generated is expected to increase
KPIs
significantly. Investment into thearea continues to grow even now.

4x

portfolio generated
Less CO2 than atypical Global Equities Strategy

Provided access to digital money to morethan

22m people in Kenya in 2019
113k

Made
housing loans to the‘economicallyweak sector’ within India in 201956

About Nomura Asset Management P01-22

Engagement P23-36

Social Value Creation Fund (Social Value Creation : SVC)
In Japan, we manage the Nomura Social Value Creation
Fund based on the concept of ESG investment. Centered on
the philosophy of “investing in companies that can growsustainably over the long term by contributing to solvingsocial issues through their core businesses,” this fund wasmanaged as a pilot fund beginning in 2015, and wecurrently provide it to our clients as a regular fund. However,when management of the fund began, the movement to
explicitly tackle ESG issues was still somewhat weak inJapan. Looking globally, the Sustainable Development Goals(SDGs) were adopted at the UN Summit held in September
2015, and launched with 17 goals.
When we were considering the investment concept for thefund, we began to anticipate that the competitiveenvironment could change significantly as social demands
on companies, such as solutions to ESG issues, gained
traction. This is because after the 2008 financial crisis,various stakeholders began to recognize the need for“sustainability” in the environment and society. Because ESG
issues involve many topics to be addressed over the medium
to long term, it means that a company capable of offeringsolutions to these issues is a “company that can growsustainably by contributing to solutions for social issues
through its core business.” We came to the conclusion thatinvesting in companies on the premise of long-termownership would allow us to make investments that bothseek excess returns and solve ESG issues.
If this fund’s investment concept is shown in a table with
two axes, with social value on the horizontal axis and profit

growth (= investment return) on the vertical axis, the aim is
to invest in companies in the upper-right quadrant, which
are companies that are strong in both of the dimensions (seefigure on right). This is the basis for investment in “social
value creation companies.” In fact, such social value-creatingcompanies are highly compatible with the UN SDGs. The
social issues for this fund include medical issues associatedwith the aging of society, environmental issues associatedwith climate change, improvement of living environments inemerging countries, and efforts to solve social issues using
technology. If this is mapped with the 17 goals in the SDGs,
it covers all of the social issues. In addition to evaluatingcompanies’ fundamentals, utilizing our own ESG scores
allows us to stringently select social value-creatingcompanies capable of achieving the goals of the SDGs.
As discussed on Page 54, impact investing involves adding athree-dimensional evaluation of impact creation by solvingsocial issues to a two-dimensional evaluation of risk andreturn, as considered in conventional funds. After going
through the process of evaluating social value creationcompanies and adding them to the fund, we are able tomeasure the fund’s impact. In fact, processes including theapproach and evaluation method for impact goals, theidentification of SDGs topics related to impact goals, andthe setting and monitoring of KPIs for portfolio companies,
are handled in coordination with Alex Rowe, who manages
an impact fund in the UK office.

SVC’s Impact Investment Process

Progression towards
our Goal and KPIs

Climate change

Society

NaturalcapitalHealthcare
problems

The basic rights that should
be guaranteed to people

Establishing impact goals
Monitorable indicators
Identifying the investment areas
SDG7.2 SDG7.3
SDG13.2 SDG13.3

SDG12.2
SDG12.6

Individualcompanies’ KPI

MWh generated
MW sold, R&D investment
Tons carbon saved
Equipment/research
investment scale

Number of projects
to make forestry
efficiency morewidespread

Engagement withportfolio companies

57

SDG3.4SDG3.5SDG3.3SDG3.8

Number of access
R&D investment
Healthcare value chain

Portfolio companies

SDG1.4 SDG9.1
SDG9.3SDG6.1 SDG6.3
SDG6.4

The number ofcustomers, USD of
payments Loanamountdenominated in USD

Number of drink
sterilization/
disinfectant provided

Portfolio construction/
Investment process

The identification of
SDGs topics

Nomura Asset Management’s
Impact Investing

Environment

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Concept of“social value creation company” investment
Profit growth = Investment return (vertical axis)

Large

Active funds

Large

Small

ESG
investment/
impactinvestment

Impact investment (social value creation) =Solving social issues (horizontal axis)

social value
creationcompany

Small

Social Value Creation Fund
Senior Portfolio manager

Jun Takahashi

Relationship Between Social Issues and SDGs
Promotion of health
Improve
healthcare quality
Improve
employment rate
Address declining
birthrate/education

IoT
Improve productivity
Increase efficiency of urban
infrastructure

Address environment/
transportation
Increase energy efficiency

Provide inexpensive services
Increase standard of living
Improve sanitation environment

Safe and secure society
Regional revitalization

Portfolio weight in each SDGs goal
50 (%)

250*Categorized based on SDGs scoring by NAM.Some weight overlapping exists (as of December 31, 2019)
ColumnPortfolio Company Introduction

Daikin Industries is one portfolio company that we believe

In other words, the company can measure GHG not actuallycontributes to impact. The company is a manufacturer of air

emitted as a result of the spread of its products. This type of goal

conditioners that has a large global market share, and we haveis in line with the fund’s impact goals, and can be continuously

been investing in the company as a key stock ever since the fundmonitored as a KPI for an individual company. In fact, as an

was established. Air conditioners are an indispensable product forachievement for fiscal 2018, the company achieved 67 million“health and well-being,” which is the theme of Goal 3 of thetons-CO2 of avoided GHG emissions, while simultaneously

SDGs. However, on the other hand, not only do air conditioners

continuing to significantly grow its earnings, thereby contributing

use massive amounts of electricity, but depending on theto the fund’s investment performance.

refrigerant used, the greenhouse effect is larger than that of otherIn this way, we can measure impact by calculating the individual

GHGs. Utilizing its superior inverter technology and refrigerant

KPIs of portfolio companies. In turn, we can measure total impact

technology, Daikin Industries provides air conditioners withof the entire portfolio by adding up the impacts of portfolio

excellent energy-saving performance and low global warming

companies. Going forward, we will continue to manage the fundeffects. The company aims to achieve its business goals and toby adding the perspective of creating impact through the solving

contribute to solving the social issue of increasing avoided GHG

of social issues to the two dimensions of risk and return.

emissions by widening the use of its products.

58About Nomura Asset Management P01-22

Engagement P23-36

Innovation Lab
Nomura Asset Management established the Innovation Lab
Department in October 2017 with the aim of enhancing ourasset management operations. In April 2019, the Quantitative
Research group was integrated into the Innovation Lab
Department, followed by the Data Engineering group, which
was integrated in October 2019. Currently, the Innovation Lab
Department has two main missions: (1) Enhance our asset
management through R&D using quantitative analysis andadvanced technology; and (2) Promote digitalization in each
asset management process.
The Innovation Lab Department manages several projects
focused on a variety of R&D topics. These projects are wide inscope, ranging from basic research to direct applications forfund management, and are carried out in multiple formats,including partnering with universities and venture companies,
internal collaboration with Nomura Asset Management’s
Investment Department, as well as individually. For example, we

our daily asset management operations, and boost ourinvestment capabilities by promoting knowledge sharing
between investment and research personnel.
We are working to expand our knowledge and expertise in thefield of ESG through multiple efforts, including working with
ESG specialists in the Responsible Investment Department todevelop screening methods for companies that are targets forengagement, building an ESG analysis database, andpresenting our analyses and papers at the Japanese Association

are implementing a wide range of applications for AI, including
improving investment performance, marketing and operational
processes. In addition, we are upgrading our information andanalysis platforms using cutting-edge technologies so as to beable to efficiently utilize the vast amount of data generated inof Value- Creating ERM. Our contribution to furthering ESG
investment includes the launch of an investment vehicle
focused on the “S” of ESG, based on the paper entitled“Employee Satisfaction and Firm Performance” which won the
FY2017 Securities Analysts Journal Prize.

Messagecurrently a research
fellow in the Innovation
Lab Department

Toru Yamadacurrently a portfolio
manager in theInvestment Department(Quant Solutions Team)

Taketo Usuiassociate professor of
Finance at the University
of Rhode Island.

Shingo Goto

59

The Securities Analysts Journal Prize in FY2017 was awarded to “Employee Satisfaction and Firm
Performance” (November 2017 issue) authored by Nomura Asset Management’s Toru Yamada(currently a research fellow in the Innovation Lab Department), Taketo Usui (currently a portfolio
manager in the Investment Department (Quant Solutions Team)), and Shingo Goto (associate
professor of Finance at the University of Rhode Island.)The Securities Analysts Journal Prize was awarded to the paper or note (from among a total of 51)
published between the April 2017 issue and March 2018 issue that the Editorial Committee judgedfor (1) originality, (2) logic development, and (3) business applicability. The winning paper or note
was selected following three rounds of judging. The following was given as the reason for this paper
being selected: “This paper is receiving attention for finding the benefits of ESG investment and work
style reform, which have become social issues.” (excerpt from the reasons for selection of FY2017
Securities Analysts Journal Prize)
Upon receiving the award, the authors provided the following comment, and expressed theirdetermination to continue their research with the aim of contributing to investment going forward.
“This research paper examines the relationship between a company’s employee-friendliness andtheir financial and stock performance using employee satisfaction rankings and employee motivation
rankings published by Nikkei Inc. We believe our discovery of a positive correlation through our
focused study on company attitude toward employees was well-received by the committee.
So why does employee-friendliness bring about strong corporate performance? There are various
hypotheses for this, one of which is that the source of a company’s competitiveness is shiftingfrom physical assets such as factories and production facilities to intellectual assets such as
R&D capabilities, brand strength, and IT systems. The competitiveness generated by intellectual
assets, including human resources investment, is difficult to see from outside of a company and isundervalued by the market, and can thus be expected to lead to high future returns. At the sametime, it may not be a coincidence that the movement to transform working environments andproductivity in Japan based on the keyword “work style reform” is occurring at a rapid pace. In thisway, employee-friendliness is an interesting topic that connects the changes in the capital markets
and the changes in the labor market.
ESG is a relatively new topic in the long history of finance research. Motivated by this award, we
will continue to advance our research, and study better investment principles that allow investors,
companies, and employees to co-exist in the truest sense.”

Proxy Voting P37-46

ESG Integration P47-64

Responsible Investment Report 2019

Nomura Japan Employee Satisfaction Fund
Below are concepts for funds based on the research paper “Employee Satisfaction and Firm Performance.”
In order to bring our ESG (environment, social, and governance)
investment philosophy into practice, it is important that incentives
exist for both companies and investors that support the formationof a sustainable society. In other words, investing in companies
that excel in the social issues, as symbolized by employeefriendliness, still requires underlying economic benefits.
In conjunction with long-term economic structural changes, thesource of corporate competitiveness and added value is shiftingfrom tangible assets such as traditional factories and production
equipment to intangible assets such as brand strategies, productideas, and the utilization of IT systems. Companies that offer
excellent working environments that allow employees to behighly-productive are likely to create high added value over thelong term. That being said, while allocation of management
resources to employees is an important investment that leads tofuture returns, investors tend to undervalue such allocation of
resources, seeing this as a negative for short-term profits.
As a result, investing in employee-friendly companies equates toinvesting in companies with the potential to create high added
value at reasonable prices, which can be expected to lead tohigh future returns.
This investment concept, which simultaneously seeks to provide
investors with high expected returns, address the changing
sources of corporate competitiveness, and create a sustainable
society in Japan by investing in employee-friendly companies is
an excellent form of ESG investment.

Management structure of Nomura Japan
Employee Satisfaction Fund
Investment Department
Quant Solutions Team

Innovation Lab
Quants analysts

Creating Management
guidelines
Portfolio building
Risk management
Management report

Operating model
development/
improvement/
maintenance support

Performance Track Record
Nomura Japan Employee Satisfaction Fund

(%)
120

TOPIX(Including dividend)

60
0
-60
2006/01

2007/01

2008/01

2009/01

2010/01

2011/01

2012/01

2013/01

2014/01

2015/01

2016/012017/012018/01

2019/01

2020/01

Product returns through March 2019 are simulated figures for this model (including dividends, after deducting estimated trading costs, before deducting management fees) Data from April 2019
onward are actual results of a domestic private placement investment trust (before deducting management fees).
The above graph indicates past performance, including simulations, and does not predict or imply future performance.
Index: Prepared by Nomura Asset Management, based on Bloomberg data

Investment Process
Our portfolio of employee-friendly companies is built based on the investment process below. We build a highly-transparent andhighly-reproducible investment portfolio through a quantitative investment process based on the results of empirical research.

1

Screening

screening by employee-friendliness

Taking the liquidity of the portfolio into consideration,
the screen is applied to approximately 1,000 Japanesecompanies with the highest market capitalization.

2

Model portfolio

weighting by employee-friendlinessWeighting is determined based on market
capitalization, employee-friendliness scores, andquality scores of individual companies.
Position WeightNon-financial
indicators

3

Financial
indicators

Ratio of womenmanagers(+)

R&D expenses /Total assets(+)

Market capitalization

Days of paid leave
taken

(+)

Tangible fixed
asset ratio( -)Ensure liquidity by
Weightinghaving portfolio
increases the higher
the employeeweighting
proportional tofriendliness scoremarket capitalization

Portfolio construction

Employeefriendliness score

Quality score
Adjust theweightings of stocks
that are excessively
overpriced or havepoor financial quality

manage portfolio based on employee-friendliness

Build investment portfolio (using the most appropriate method), taking T.E. versus the reference portfolio and trading
costs into consideration.

60

About Nomura Asset Management P01-22

Engagement P23-36

ESG Integration in Fixed Income Investment

Relationship between conventional
fundamentals assestment and ESG
The traditional fundamentals assestment and ESG assestment
have a complementary relationship. Environmental, social, andgovernance factors are increasingly impacting thecreditworthiness of issuers, and taking ESG factors into accountenables a more comprehensive understanding of risk. In
addition, ESG factors take into account longer-termsustainability and downside risks compared to traditional
fundamentals, which can enchance the creditworthinessassessment from a timeline perspective as well.

Features of Nomura Asset Management’s
ESG Integration in Fixed Income Investment

Senior Managing Director
CIO(Fixed Income)

Takahiro Homma
In fixed income investment, we promote ESG integration incredit strategies that take the credit risk of the issuer as theprimary source of returns. We strive to improve the risk-adjusted
return of our portfolios by reducing downside risk, whilecommitting to the sustainable and stable growth of the overallmarket by improving ESG issues.

ESG Integration in Fixed Income Investment
Credit Investment Attractiveness (RV)
Spread projection

Business/financial projection

Credit risk

Recovery risk

Potential Downside Risk
ESG overall assessment
ESG qualitative
assessment
ESG Quantitative
Evaluation Model61

ESG integration in fixed income investment at NAM has thethree following features. First, we research the impact of ESG
factors on investment results, confirm that they improve thelong-term risk-adjusted portfolio returns, and then incorporate
them into the investment decision process.
Second, we calculate our own ESG scores for effectiveness andtransparency using our own proprietary quantitative method.
Specifically, we focus on the potential downside risks that areimportant for credit investment, and select and aggregate
various ESG-related data.
Finally, portfolio managers and analysts with expertise inmarket trends and issuer analysis directly lead the ESG
integration process for each strategy. It is of upmost
importance for each investment team to understand theimportance of ESG assessment and to promote ESG integration
responsibly in accordance with individual strategies and market
characteristics.

Providing ESG Fixed Income
Investment Solutions
So far we have launched investment funds emphasizing ESG
factors each for European corporate bond, U.S. corporatebond, and emerging market bond strategies. Our strength is
the ability to provide fixed income ESG solutions that meetclient needs through benchmarked active, buy-and-holdconstant-maturity, and income-gain focused investment
strategies, as well as investments focused on themes such as
climate change etc.

Proxy Voting P37-46

ESG Integration P47-64

Responsible Investment Report 2019

Fixed Income ESG Quantitative
Evaluation ModelAt NAM we have built a quantitative ESG evaluation
framework focused on the mitigation of downside risk – aparticurally important element for credit investment
strategies. This quantitative evaluation model is used globallyby portfolio managers and analysts in our corporate bond andsovereign bond credit investment teams for research andanalysis, security selection, portfolio monitoring, andengagement with companies.

Generating quantitative scores for global
corporate bonds
To calculate quantitative scores for global corporate bonds,
we select data from the issuer’s own public disclosures and
ESG-related data from third party providers, with an emphasis
on factors material to credit investment that can be obtained
continuously, along with other considerations. In addition,
based on our belief that the relative importance of E, S, and G
factors differs by industry sector, we determine E, S, and G
weights for each industry based on our own assestment ofmateriality (industry materiality matrix).
Similarly, we calculate quantitative scores for global
sovereign bonds and apply these to investment strategies
that take emerging market sovereign credit risk as theprimary source of returns.

Features of our Quantitative ESG
Evaluation Model
Our Fixed Income Quantitative ESG Evaluation Model has thefollowing three features. First, we select and aggregate only
ESG-related data that we determine to be appropriate based on
our research and understanding. This ensures a systematic andhighly-transparent calculation process, and allows us to perform
detailed analysis of underlying factors that cause scores to change.
Secondly, the model only considers ESG factors that can beuniversally relevant for sovereign and corporate credit risk. As aresult, all portfolio managers and analysts are able to use themodel to promote ESG integration, regardless of target
investment market or strategy they employ.
Finally, we select ESG factors focused on downside risk, as this isa particularly important factor in credit investment. We

Investment Department, Fixed Income Group
Head of Sustainable Investment, Fixed Income

Jason Mortimer

continually monitor and upgrade our models to give portfolio
managers and analysts important insights from a systematic ESG
perspective. We believe that proper ESG quantitative evaluationand integration can improve fixed income risk-adjusted returns
by mitigating downside risk. We are also confident that throughmarket price signals and capital allocation, we can send a clear
message to countries and companies that sustainability issues
are a key aspect for investment valuations.

ESG Qualitative Evaluation Process for Global
Corporate Bonds
Universe of ESG data
factors for each issuer

E

S
ESG

score

G

Select from ESG-relateddata, emphasizing factors
material to fixed income
credit investment
Classify selected data, andgenerate scores for E, S,
and G
Calculate ESG scores byindustry specific E, S, and G
weightings, based on our own
assestment of credit
materiality

62

About Nomura Asset Management P01-22

Engagement P23-36

ESG Integration Practices

Yen Fixed Income

Senior Portfolio Manager

Norio Kishimoto

UK Office Senior Investment Officer
Head of Fixed Income (UK)Yuji Maeda

We invest in issuers that are creditworthy
in every sense of the word

ESG is Indispensable in Corporate
Credit assestment

In order to limit potential downside risk in Yen Fixed Income
investment, we incorporate ESG perspectives in two stages of
the investment process: the evaluation of individual corporate
fundamentals and issuer selection. We do this because evencompanies with high credit ratings (creditworthiness) can see
their bond prices drop significantly due to the emergence of
ESG risks including inadequate governance or environmentallyharmful acts. Credit analysts identify ESG issues that areimportant for an individual company, and evaluate ESG taking
into account that company's efforts to address the issues alongwith our own credit ESG score for the company. We believethat adding this process allows us to invest in issuers that are
truly “creditworthy”.
Specific examples include the case of a company whosebusiness activities center on materials and processing. This
company’s yield was extremely attractive relative to its
creditworthiness (rating), but the team lowered its investment
evaluation of the company based on the view that governanceby senior management required careful monitoring due toongoing problems including poor product quality. In the caseof another company, it became clear that governance by theboard of directors was deficient. Although a new process tomonitor governance was established following the company’s
general shareholders’ meeting, we determined that it wasnecessary to pay close attention to the execution and oversightby the board of directors in the near term. Therefore, it wasdetermined that a cautious approach should be taken towards
investing in the company.
Introducing risk assessment of portfolio companies from an
ESG perspective into the process has enabled more precise
assessment of potential downside risk, and allowed us todeepen discussion of the timing of investments.

Our London office invests in global corporate bonds. Assessing
an issuer's sustainability is an indispensable part of evaluating
creditworthiness in global corporate bond investment. In
particular, environment (E) and social (S) issues have a growing
impact on creditworthiness, and we must take ESG factors into
consideration to gain a more comprehensive understanding of
an issuer's credit risk. We believe that we can reduce downsiderisk to the issuer’s creditworthiness by letting corporate bondissuers know when we are concerned about ESG issues and byencouraging them to consider sustainability when we meet or
speak with them.
In one specific case, we avoided investing in a home appliancemanufacturer. While the investment was appealing in terms ofcreditworthiness based on financial analysis and credit spread,a pattern of frequent recalls led our credit analysts to view
product safety as a problem. Although we contacted thecompany directly regarding product safety and measures being
taken to address these issues, we did not receive a satisfactory
response, and therefore determined the risks from the social
perspective to be high. This ultimately led to our decision toforgo investment in the company, and invest instead in othercorporate bonds with comparable creditworthiness and credit
spreads.
In January 2019, we launched a euro-denominated corporatebond fund that selects bonds based on ESG-integrated
assessment, and a similar U.S. dollar-denominated bond fundin January 2020. For existing funds, we are also working to
improve risk-adjusted returns and contribute to the sustainablegrowth of society by integrating ESG assessments into theinvestment processes.

Investment Products

Yen Fixed Income

Yen Fixed Income active investment
Yen Credit Strategy

63

Global Fixed
IncomeInvestment Products

Global Fixed Income

Global Fixed Income (Aggregate) Strategy
Euro Investment Grade Corporate ESG Strategy
US Investment Grade Corporate ESG Strategy

Proxy Voting P37-46

ESG Integration P47-64

Responsible Investment Report 2019

Asia Fixed Income

Singapore OfficeSenior Portfolio Manager

Simon Tan
Focusing on governance factors
The Singapore office invests primarily in Asian corporate bonds.
In the Asian bond market, investment strategies that take ESG
into account are not as widely used as in developed markets.
However, we believe that the concept of ESG and Asian bondinvestment are highly compatible. Most bond issuers in Asia
that go bankrupt or see a large decline in creditworthinesshave some sort of governance problem. Based on thisexperience, we incorporate ESG factor analysis into ourinvestment process, focusing on governance-related issues suchas shareholder composition, the quality of the management
team, the status of transactions with related parties, andwhether the company has been beset by scandals.
One specific example is a resource company in Southeast Asia.
The company owns a large coal mine, but had defaulted in thepast. For an extended period of time up until the company
defaulted, we had closely monitored the company’s corporate
governance risk as the company’s funding was stalled due to arift with major shareholders over the issue of possible financial
fraud. Subsequently, after restructuring its debt (converting
debt into equity and extending bond maturities), the company
returned to the U.S. dollar bond market with a new bondissuance. However, we continued to pass on investing in thecompany’s bonds, based on its prior default as well as ourdoubts about the group’s investment strategy.
The Asian bond market is still growing rapidly, with first-time bondissuers and very young companies coming into the market one
after another. While there are plenty of opportunities to discover
new attractive investments, it is important to first examine whether
or not these young companies have adequate governance that will
enable sustainable growth before making investment decisions.
We believe that properly eliminating governance risk leads tostrong investment performance.
Investment Products

Asia Fixed Income

Asia Investment Grade Strategy
Asia High Yield Strategy

Emerging Market
Fixed Income

Senior Portfolio Manager

Norihito Taniuchi

The Importance of ESG Evaluation in
Emerging Market Fixed Income
In emerging market fixed income, we use ESG factors toevaluate emerging market sovereign issuers to makeinvestment decisions. When analyzing the creditworthiness of
emerging market countries, evaluation from a wide
perspective, including political risk, the robustness of the social
structure, and long-term environmental efforts, is critical toenhancing long-term investment performance. Governance (G)factors are particularly important when assessing sovereign
credit risk.
This is because factors that greatly affect both creditworthinessand market valuation, such as fiscal management andwillingness to repay debt, are largely based on the quality of
governmental bodies, and focusing on governance indicator
levels and changes allows us to better identify a country’s
potential risks.
Here is an example of an evaluation of a certain Asiansovereign issuer. The country has been given an investmentgrade rating by a major rating agency based on the fact that it
has relatively good economic fundamentals among emerging
countries. On the other hand, the country has looselyinterpreted the “rule of the law” by taking supra-legal
measures against criminals, and corruption in the country is
among the worst in Asia. We believe that the country’s credit
rating does not adequately reflect these downside risks froman ESG perspective, and we therefore assess investment in thiscountry very cautiously.
In January 2020, we began managing an emerging market
fixed income investment strategy with a focus on ESG factors.
We believe we will be able to enhance investment efficiency
over the long term by combining traditional fundamental
analysis and ESG analysis.

Investment Products

Emerging Market Fixed Income

ESG Emerging Sovereign Strategy

64About Nomura Asset Management P01-22

Engagement P23-36

Results of Self-Evaluation of 2019 Stewardship Activities
We actively engaged in stewardship activities in order to encourage portfolio companies to increase their corporate value andpromote sustainable growth, and to increase medium- to long-term investment returns for clients and beneficiaries. To further
enhance our activities, we performed a self-evaluation of our stewardship activities in 2019 (January to December), the resultsof which are in this section. This self-evaluation corresponds to the self-evaluation required by Guideline 7-4 of the Japan
Stewardship Code revised on May 29, 2017.

Self-Evaluation

1 Methodology

We distributed a questionnaire mainly to members of the Responsible Investment Committee,
the highest decision-making body for our stewardship activities, and held discussions basedon the results of the questionnaire. Members of the Responsible Investment Council, whichmonitors the Responsible Investment Committee ,particularly with regards to matters related
to conflicts of interest, also participated in the questionnaire and in subsequent discussions.
Reference Questionnaire Overview

Target

The following people responded according to thequestions.
Responsible Investment Committee members – 8
Responsible Investment Committee Secretariat
members – 5
Responsible Investment Council members – 3

2 Results ofself-assessment(overall)

Questionnaire
December 2019
timing
PeriodcoveredJanuary-December 2019

Response
formatSigned (not anonymous)
Multiple choice (4 choices)
Write comments freely

More than 90% of respondents indicated that stewardship aactivities in our company wereappropriate. The Responsible Investment Committee held discussions based on the results of thequestionnaire and comments received, and the final assessment was we were generally able tocarry out appropriate stewardship activities, including the our response to the following threepoints identified in the previous year as areas to be strengthened.
The Responsible Investment Committee should continue to strive for efficient andeffective management in order to be able to engage in deeper discussions on matters ofhigher importance.
Increase opportunities to share information and exchange opinions about engagement
activities within the Responsible Investment Committee and the Investment andResearch Division, and further enhance the PDCA cycle.*Continue working to secure and train appropriate personnel in the Investment Research
Division in order to further enhance the sustainability of stewardship activities.
*The PDCA cycle is a method for improving operations by repeating a cycle of Plan, Do, Check, and Act.

On the other hand, the following were identified as points to be improved in order to further
enhance the effectiveness of our stewardship activities.
Continue the efficient and effective management of the Responsible Investment
Committee and strengthen the PDCA cycle for engagement activities as continuous
initiatives.
Make proxy voting more effective, including links to engagement.
Continue working to appropriately allocate and bolster resources to address the
expansion of domains and rising target levels for stewardship activities such as the Task
Force on Climate-related Financial Information Disclosures (TCFD).

3 Future Actions

65

The Responsible Investment Committee will continue to discuss the points that need to beenhanced as identified through this self-evaluation, and work to further bolster our
stewardship activities.

Proxy Voting P37-46

Review of

ESG Integration P47-64

2019

2020 and Beyond

In 2019, we promoted a wide range of initiatives, but themain activities were addressing climate change andcarrying out impact investing. Since establishing the
Responsible Investment Department, we have worked tocreate a framework for steadily implementing responsible
investment, including putting in place a stronger system
for managing conflicts of interest, building a moresophisticated proxy voting process, expanding ESG
research resources, and building a global engagement
system. The necessary framework is now generally inplace. From 2019, we focused on activities leading tomore concrete results.
With respect to addressing climate change, we identified
climate-related risks and opportunities in our investment
portfolios, and applied analysis of these risks andopportunities to engage with portfolio companies and to
manage our portfolios. We also worked to raise the qualityof our investment management so as to be resilient toclimate issues and to lead to more added value. In
implementing impact investment, in addition to theconventional risk/return concept, we incorporated the third
pillar of “social impact” into the process, and we developed
new, more sustainable investment techniques that also
contribute to the advancement of society. As a part of this,we also incorporated the so-called “outside-in” method, inwhich we apply the concepts of global social issues toportfolio companies and their business activities.
In our 2019 PRI assessment, we showed improvement in the
fixed income domain. During 2019 we also participatedmore in various initiatives and worked to strengthen
Company-wide ESG initiatives.

2020 will be a year in which discussions on various ESG
issues will progress for both Japan and the world as awhole. Climate change remains a major global issue, andthe various social problems that are occurring at thepresent time show once again the magnitude of the
impact that ESG issues have on sustainable corporate
growth. Against this backdrop, new activity to address
ESG issues are expected to accelerate in the world ofinvestment. In collaboration with various initiatives, NAM
intends to support global efforts and contribute to theresolution of ESG issues in Japan at the same time.
Meanwhile, climate issues and impact investment willcontinue to be important cornerstones of our efforts. The
issue of climate change is something that requires longterm initiatives, but is also an urgent issue for whichmeasures must be put into motion immediately. We plan
to make our information infrastructure and analysis
methods related to the climate change problem moreadvanced, and improve the sustainability of ourinvestment operations. Now that we are in 2020, there
are 10-years until 2030, the year targeted by the SDGs.
We will take advantage of the opportunities that exist
among social issues and pursue added value ininvestment in the new area of balancing economic andsocial returns.
2020 also marks the fifth year since the Responsible
Investment Department was established. We willcontinue to strive to ensure that our responsible
investment initiatives, including battling climate change,
generate results and have a positive impact on society.
Head of the Responsible Investment Department

Toshiyuki Imamura

PRI assessment results
FY20182019

PRI
Medianevaluation

Strategy and governanceA+

A

Status of integration into responsible
investment for listed stocks

A

B

Active ownership for listed stocks

A+

B

Engagement

A+

Proxy voting

A

Bond investment (government bonds, etc.)

A

B

Bond investment (corporate bonds, etc.)

A

B
66

www.nomura-am.co.jp