Responsible Investment
Report 2018

Nomura Asset Management Co., Ltd.

01 Contents

In Pursuit of Both Economic andSocial ValueThat’s Nomura Asset Management’s Mission

Responsible Investment Report 2018 Nomura Asset Management 02

Responsible Investment
Report 201803 Message from the CEO
05 Nomura Asset Management’s Goals
07 Message from the Responsible Investment

Committee Chairman
09 Global Structure for Responsible Investment
1 1 The Work of ESG Specialists and Equity Analysts
13 Responsible Investment Approach
15 Engagement
21 Proxy Voting
27 ESG Integration
37 ESG Initiatives for Fixed Income
39 Messages from Outside Directors
43 Looking Back and Looking Ahead03 Message from the CEO

Publication of the
Responsible Investment
ReportI am pleased to issue the Responsible
Investment Report 2018. Responsible
investment has grown in importancein recent years. Companies are
increasingly addressing theenvironmental and social aspects of
their business activities, as evidenced
by their efforts to advance the United
Nations’ Sustainable Development
Goals (SDGs). Asset management firms
are also being urged to encourage thecompanies they invest in to growsustainably.
In this context, Nomura AssetManagement (hereinafter “we”)
established the Responsible
Investment Department in April 2016,
becoming the first company in Japan’s
asset management industry to createa unit dedicated to responsible

As a responsible institutional
investor, we are committed tocreating a sustainable society
through wealth creation.
Junko Nakagawa
President & CEO
Nomura Asset Management Co., Ltd.

Responsible Investment Report 2018 Nomura Asset Management 04

investment, and we have focused onincreasing attention around themilestone is possible thanks to our

responsible investment ever since. We

world, it is essential that we offer

clients and all other stakeholders,have prepared this report to informproducts and services that help

and I am extremely grateful forour stakeholders, including individual

people build wealth.

everyone’s support. I credit ourclients, asset holders and the

Meanwhile, the world has seen

success in continuing to grow forcompanies we invest in, about ourtremendous advances in technologies

60 years to our ability to do

responsible investment-related

such as artificial intelligence (AI) in

business while remaining conscious

initiatives and philosophy.

recent years, and the environmentof our social mission.

surrounding the asset management

Our corporate principles areindustry is changing rapidly. We“Maximizing value,” “Advanced

Fulfilling our social
responsibility

established the Innovation Lab

expertise” and “Confidence and

The essence of the asset management

Department in October 2017 to

responsibility.” Based on thesebusiness lies in fulfilling social

incorporate cutting-edge investment

corporate principles, we will

responsibilities through the provisionexpertise, as going forward we must

contribute to creating a moreof high-quality products along withadapt to these and other changes insustainable society by helping our

excellent performance and services

order to continue to deliver the types

clients build wealth.

that meet clients’ expectations. Fromof services that meet our

In closing, I ask for your continued

this perspective, in addition to

stakeholders’ expectations.

support as we strive to exceed our

responsible investment, we are also
working to widen the range ofinvestments by enhancing our lineup

Celebrating our 60th
anniversaryof ESG investment products andNomura Asset Management willthrough investment education. As

celebrate its 60th anniversary insustainable growth receives

December 2019. Reaching thisCorporate Principles

Corporate Slogan

clients’ expectations as a
responsible institutional investor
with which they have entrusted
their assets.

Maximizing Value
Advanced Expertise
Confidence and Responsibility

05 Nomura Asset Management’s Goals

Investment
Chain
Realizing a Virtuous Cycleof Investment

Nomura AssetManagement
Investment
and Return

Investment
and Return

Investment
Chain
Stakeholders
Individual
investors

Pensionfunds, etc.

Shareholders

Clients

Employees

Business
partners

Portfolio
Companies

Economic Value/Social ValueResponsible Investment Report 2018 Nomura Asset Management 06

Our Goals

Realizing Sustainable
Economic Growth and a
Prosperous Society

As a responsible institutional investor, Nomura AssetManagement aims to realize 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 are being asked tooperate sustainable businesses by efficiently utilizing thefunds they have raised. The business activities of theseportfolio companies generate economic value for a large
number of stakeholders, including employees, business
partners and shareholders. These companies will also gain
acceptance in society by addressing social issues throughtheir own business practices, thereby achieving sustainablegrowth. This will eventually be reflected in the investment
returns earned 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, investment activity will enable us to realize
sustainable economic growth and a prosperous society,ultimately leading to wealth creation for our clients.

07 Message from the Responsible Investment Committee Chairman

Supporting Social
Advancement Through theAsset Management Business
responsible investment. The basic

Basic Principle of the
Responsible Investment
Committee

policy we agreed upon clearly statesthat we will support social
advancement through the asset

The Responsible Investment

management business. This is backed

Committee is our highest decision-by the belief that activities as amaking body for responsible

responsible investor, such as

investment, including proxy voting

understanding and engaging in ESG

and constructive dialogue withissues in portfolio companies, as well

portfolio companies. The Committee

as proxy voting, will promote a healthy,

formulates the basic policy forsustainable society as well as efficient

responsible investment, makes

and stable capital markets. This is thedecisions on shareholders’ meeting

Committee’s fundamental belief.

proposals requiring qualitative
judgment, and oversees engagement
activities in the investment and

Masanao Tsuda
Chairman, Responsible Investment Committee
Head of Investment and Research Division
Executive Vice President

Our responsible investment– What makes it uniqueresearch process (see chart below).

Our responsible investment has theI have served as a member of thefollowing four strengths.

Committee since its inception, andThe first strength is our long history of

became chairman in April 2018. The

engaging in responsible investment

Responsible Investment Committee has(see page on right). The Responsible

its origins in two committees: theInvestment Committee was

Stewardship Committee and the ESG

established in October 2014 through aCommittee. At the time the Responsible

reorganization of the ESG Committee.

Investment Committee was created,

It then integrated the Stewardshipwe held vigorous debate before

Committee in October 2015, but its

establishing our basic policy forroots lie in the Proxy Voting

Organizational Structure for Responsible Investment
Supervision/verification/

Responsible recommendations,etc.
Investment
Council

Responsible
Investment Committee
Secretariat: Responsible
Investment Department

Formulation ofpolicies, supervision
initiatives, etc.

Investment
and research
departments
Reports on activities,
proposals of issues,
etc.

Main activities
Dialogue with portfolio
companies(engagement)

Proxy voting

Integration into
investment decisions(ESG integration)

Collaborative/public
activities

Responsible Investment Report 2018 Nomura Asset Management 08

Committee established in 2001. Basedon many discussions over the years,
and always remaining conscious of ourmandate from clients, we have been

Our greatest strength isour emphasis on discussion
and debate

able to foster a culture that is

The fourth strength is the focus we

supportive of responsible investment,

place on carrying out exhaustive

respects diverse opinions from a large

discussions. In 2018, the most heated

number of professionals, and values

debates in the Responsible Investment

lively discussion.

Committee were those concerning

The second strength is our robust

M&A as well as dividend increase

responsible investment structure

proposals made by shareholders. On

developed by continuously

many occasions, there were splits in

implementing organizational reforms

opinion, or the Secretariat’s plans

History of Responsible Investment

2001
Proxy Voting Committee established

2004
Management of SRI Index Fundcommenced
Management of governance fundcommenced

2010
UK Stewardship Code adopted

in advance of society’s changing needs

were overturned. The members of theand the changing times. One example

Responsible Investment Council wereis the Responsible Investment Council,

present for Committee meetings andwhich was established in 2016 as anactively participated in discussions

oversight body of the Responsible

without limiting themselves to

ESG Committee (now the Responsible
Investment Committee) established

Investment Committee. Highly-

monitoring conflicts of interest, as we

independent outside directors makebelieve that holding thorough

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

up the majority of the Council

discussions is the most effective way

members, thus enhancing theto manage conflicts of interest. In fact,management of conflicts of interest.

the discussions often ran longer than

Having the Council monitor Committee

scheduled. We feel that taking thediscussions in real time is antime to hold such vigorous discussions

unprecedented initiative in the industry.

and debates is one of our greatest

The third strength is our global andstrengths.

highly-diverse personnel and their

As we move forward, we will leverage

research capabilities. A large number

these strengths to pursue responsibleof portfolio managers, analysts andinvestment, aiming to enhance the

ESG specialists working in one of thecorporate value of portfolio companies

largest active management operations

as well as ensuring their sustainable

in Japan are committed to applying

growth, in addition to securing a healthy

their analytical abilities and insight toand sustainable society along withresponsible investment.

efficient and stable capital markets.

Responsible Investment Committee Meetings
January – December 2018

Responsible Investment Committee

17

Responsible Investment Council

7

times

Regular

4 times

Ad hoc13 times

2011

2014
Japanese version of the Stewardship
Code adopted
ESG Committee reorganized into
Responsible Investment Committee
Proxy Voting Committee reorganized
into Stewardship Committee

2015
Responsible Investment Group and ESG
specialists established
Stewardship Committee integrated into
Responsible Investment Committee

2016
Responsible Investment Department
established
Conflict of Interest Management Policy
formulated and Responsible Investment
Council established
Stewardship Codes in Singapore,
Hong Kong and Taiwan adopted
UK Office acquired Tier1 evaluationfrom UK FRC*

times

Regular

4 times

Ad hoc3 times

2017
Proxy voting results disclosed individually
Malaysian Stewardship Code adopted

2018
Self-evaluation disclosed*UK FRC
Abbreviation for the Financial Reporting
Council in the United Kingdom

09 Global Structure for Responsible Investment

LondonFrankfurt

Nomura Asset Management is the core company within the Nomura
Group’s Asset Management Division. In close cooperation with ouroverseas offices, we are integrating our responsible investment activities
into our global investment operations.
This structure gives us a global perspective, supported by the in-depth
local market expertise of our regional offices and affiliates.
By harnessing our accumulated expertise and experience, we will takeon the challenge of maximizing added value in a spirit of constructive
engagement in a rapidly changing investment environment.

Our Global TeamNew York

TaiwanResponsible Investment Report 2018 Nomura Asset Management 10

Hong Kong

ShanghaiTokyo

Singapore

Malaysia11 The Work of ESG Specialists and Equity Analysts

Dialogue Gives Us a Broad
Perspective on Each Company
Head of Responsible Investment Department Toshiyuki Imamuraand Head of Equity Research Department Yasukazu Nakaguma
discuss their approach to portfolio companies

We take a comprehensive
analytical approach to assesseach company as a whole.

and operations behind its financial data
gained through direct meetings withthe company. ESG factors provide animportant perspective in this non-Imamura: The Responsible

financial analysis.

Investment Department was

Imamura: Analysts and ESG

established in April 2016 as a

specialists are in different positions, but

department specializing in ESG research

their ultimate goal is the same: a higher

and analysis. Behind its establishment

return on investment based on thewas the growing importance of ESG asenhancement of the corporate value ofan element for determining corporate

portfolio companies. For a portfolio

value and the need to strengthen ourcompany to sustainably enhance its

expertise in ESG, given that ESG

corporate value, its management mustencompasses many global trends andexecute business and financial

investment concepts.

strategies that give appropriate

ESG specialists in the Responsible

consideration to the environment andInvestment Department regard

society from a medium- to long-term

constructive dialogue with portfolio

perspective. The company’s board ofcompanies (engagement), proxy

directors must also establish an

voting, and the integration of ESG

effective corporate governance systemelements into the overall investment

and disclose information appropriately.

and research process (ESG integration)

Meanwhile, institutional investors likeas the three main pillars of their work.

us must use dialogue to encourage

The Equity Research Department has acompanies to adopt best practice inlonger history than the Responsible

their operations, and sometimes apply

Research Department, so how dopressure for them to makeanalysts view ESG?

improvements, either through proxy

Nakaguma: The Equity Researchvoting or engagement as needed.

Department sees ESG as an important

Finally, we need to ensure that theseelement of a company’s sustainability.

measures raise the quality of our own

and approximately 40% of these are

Because an analyst evaluates a company

investment products.

meetings with members of senior

as a going concern, it is natural to

It is important that we approach

management, mainly to discuss theconsider ESG issues that could pose aengagement, proxy voting, andbusiness environment andthreat to its long-term viability.

integration of investment and research

management strategies.

The basic role of an analyst is toin an all-encompassing manner. Using

Dialogue with members of seniorevaluate a company’s corporate value

a comprehensive approach to work

management provides prime

by forecasting its medium- to long-with portfolio companies is the way toopportunities for analysts to think withterm profits, cash flows, dividends, andaccomplish this.

the company about how to enhanceother metrics. As such, in addition tofinancial analysis, research analysts

The importance of dialogue

Toshiyuki Imamura
Head of Responsible Investment
Department

corporate value as well as how to better
understand one another.

must have a strong understanding of a

Nakaguma: The Equity Research

Recently, ESG specialists have been

company’s management philosophy, its

Department holds around 2,000

holding more meetings. Whatbusiness model, and the technologies

meetings with companies each year,

significance does dialogue with

Responsible Investment Report 2018 Nomura Asset Managementcompanies have for ESG specialists?

sustainability, companies must have

Imamura: Looking at corporate

processes in place, including its

governance alone, there are no correct

management oversight mechanisms,

answers, and companies need toa transparent decision-making

construct a system that best suits

process, and its remuneration systemthem. In that sense, dialogue withfor senior management.

companies is extremely important.

Dialogue from an ESG perspective is

In addition, while analysts study

also useful for analysts, and I would

companies vertically by industry, ESG

like to continue to work together withspecialists analyze and evaluate

ESG specialists going forward.

companies horizontally in terms ofcorporate governance, theenvironment, social issues, and othermatters. I think that looking atcompanies using a vertical andhorizontal matrix allows us to see

Yasukazu Nakaguma
Head of Equity Research Department

12

Our goal is for companies
to achieve sustainablegrowth while we raise thequality of our investment
products

the broader picture and also helps us

Imamura: What we are aiming for is

to gain a detailed understanding ofsustainable growth of companies andthe company.

an improvement in the quality of our

For ESG issues, topics of highown investment products. Dialogue

importance differ from industry toalone is not enough, constructive

industry, and I think that cooperation

engagement is necessary.

between ESG specialists and analysts

Nakaguma: That’s right. To get as

is necessary when it comes to dialogue

close to that goal as possible, wewith companies.

need to ensure that dialogue isNakaguma: I agree. If a company

meaningful by always striving toignores capital efficiency, it would

increase our level of expertise.

not only diminish its corporate value,

Imamura: Dialogue with companies

but it would also eventuallyis essential when it comes to proxy

undermine the sustainability of thevoting decisions as well. Dialogue iscompany due to a decline inalso an important source ofcompetitiveness. If a company fails to

information used to make investment

consider the environment and society,decisions. We want to continue tothen risks can build up to a point

improve our capabilities and meet thewhere they threaten a firm’s viability.

expectations of those who have

In order to remain conscious of

entrusted us to manage their assets.

Portfolio Companies

Proxy voting

Desirable management practices

1
Businessstrategies

2

3

the
Financial Initiatives forandstrategies environmentsociety (ES)Improved
operatingperformance

Improvedsustainability

Enhanced corporate value

4
Management

Corporate
governance(G)

5
Board ofDirectors
Board ofAuditors

Disclosure/
dialogue

Higher return on investment

Institutional
investors

13 Responsible Investment Approach

P15

Three Approaches
to Responsible
Investment
The central principle of our
responsible investment activities is totake a cordial and constructive
approach to companies in order tounderstand how they are handling
ESG issues as well as the underlying
strategies and philosophies behind
their efforts.
Based on this understanding, we aim

Engagement

We define our engagement activities as aneffort to “exert an influence on companies
based on a deep understanding of them sothat they will be able to enhance theircorporate value and achieve sustainablegrowth by applying best practice in their
management operations.” By selecting target
companies from the stocks in our portfolio
through regular screening, we conductengagement from an ESG perspective basedon a range of important topics.

to help increase the corporate valueof companies through engagement,
proxy voting and ESG integration.

Engagement Activity Track Record
In 2018, the total number of engagement cases was
345 (250 companies), and we held dialogue withcompanies on 656 topics on mainly ESG related
issues. We also managed our progress efficiently,
based on our milestone management system using
three-year periods we introduced in 2017. We areusing this to establish our engagement schedule
for the next period. The milestone system has fourstages: (1) Communication of issues; (2) Sharedrecognition; (3) Formulation of countermeasures;and (4) Implementation of countermeasures. Whenmeasuring outcomes, we make judgments basedon whether there is an ongoing improvement
process for each issue.

Responsible Investment Report 2018 Nomura Asset Management 14

P21

P27

Proxy Voting

ESG
Integration

We have established proxy voting guidelines
to ensure that portfolio companies will beable to enhance their corporate value andachieve sustainable growth through best
management practice. We carry out proxyvoting for portfolio companies in accordancewith the proxy voting guidelines and with anappropriate sense of our stewardship
responsibilities. We focus our attention on
corporate governance, including theappointment of directors, remuneration for
executives, and the appointment of auditors.

We conduct ESG evaluations of portfolio
companies on a global basis. By extracting
specific material ESG issues for individual
industries and companies, in addition to
globally common themes such as climatechange and human rights, we assign our own
ESG ratings to companies while referencing
assessment information from multiple
outside sources. We then use the ratings wehave assigned in our investment decisionsmaking process.

Proxy Voting Results

Integration Trends

The Responsible Investment Committee Secretariat(the Responsible Investment Department) makes
decisions on proposals that can be decided basedon our proxy voting guidelines. For other proposals
that require qualitative judgment, the Responsible
Investment Committee meets and makes decisions
following discussions. In proxy voting for Japanesecompanies in 2018, we made decisions on
approximately 22,700 proposals and voted in favorof 92% of proposals and against 8% of them. For
non-Japanese companies, we made decisions on
approximately 10,200 proposals and voted in favorof 86% of proposals and against 14% of proposals.

We incorporate ESG integration in our investment
process using differentiated methods for eachstrategy, but based on our common ESG evaluation.
In our ESG evaluation, we focus not only on areas ofpotential risk, but also on opportunities to generate
future earnings. Our evaluations are useful for
selecting stocks because we can create rankingsand compare different companies in the same
industry for each issue we evaluate. To generate
medium- to long-term investment returns, weevaluate the ESG efforts of companies on a timescale of roughly five years, and incorporate this into
our investment process to improve our investment
capabilities over time.

15 Engagement

Our View on Engagement

Engagement
We believe that engagement, or constructive dialogue

operations.” Merely seeking improvements from companies

with portfolio companies, starts with a thoroughwith ESG issues is not engagement. We believe that anunderstanding of the target company and its current

important role of engagement is also to directly communicate

and future business environment. We also view

our support and approval as an investor to companies thatengagement as one of the most powerful means tooperate in on the basis of best practice. At NAM, we value

fulfill our stewardship responsibility.

four basic stances on engagement (see chart below).

The definition of our engagement is to “exert an

We are convinced that supporting the enhancement ofinfluence on companies based on a deep

corporate value and the sustainable growth of companies

understanding of them so that they will be able tothrough ongoing engagement activities will contribute to theenhance their corporate value and achieve sustainablemedium- to long-term growth of assets which have been

growth by adopting best practice in their management

entrusted to us by our clients.

1

2

Engage in dialogue with acordial and constructive attitude

Work to understand non-financial
information, including companies’
efforts to address ESG issues, and thestrategies and philosophies behind them

Listen to the views of portfolio
companies on the efficient use ofcapital, and communicate our thoughts

3

4

Four Basic
Stances

When a serious scandal or accident
has occurred, promote soundmanagement by hearing the causes
and measures to prevent recurrence

4

Engagement Process

Responsible Investment Report 2018 Nomura Asset Management 16

Examples of Engagement Issues

With respect to Japanese equities, the approximately
2,400 Japanese companies whose shares we hold (asEnvironmentof the end of December 2018) are targets forengagement. We have selected key target companies

Climate change

through screening based on our ownership ratio andWater resources

other factors. There are more than 300 key target

Forest preservation/biodiversity

companies, and they account for more than 70% of theGreen technologies

market capitalization of all companies listed on the First
Section of the Tokyo Stock Exchange, and make up
more than 80% of our total investments in JapaneseSocialequities. We conduct dialogue by establishing an orderof priority in light of the ESG issues and key topics.

Safety of products and services

Portfolio companies are also increasingly reaching out

Supply chain management
Cyber security

to us to initiate dialogue.

Cultivation and diversity of humanresources

We currently carry out milestone management, whichsets the period for one engagement topic at three
years. We can efficiently formulate a dialogue schedule

Governancefor subsequent phases and evaluate the performancethrough the management of the PDCA progress with a

Independence and diversity of theboard of directors

timeline. To measure performance, we check whether

Nomination, compensation and audit

a company has advanced to the next stage, in otherSuccessor planwords whether or not the improvement process for an

Information disclosure/dialogue withinvestors

issue is being continued.
Our engagement is based on one-on-one direct
dialogue with companies, and about half of themeetings are with members of senior management(directors and executive officers). Depending on theissue, we then engage in deeper dialogue with people

ACTworking in specific departments. We decide the main

PLAN

topic based on the opinion of the analyst in charge, butduring dialogue we usually discuss multiple topics.
After the dialogue, an ESG specialist records what was

Discovery ofsubsequent
topics andissuesdiscussed and then evaluates the progress. This is used
as a reference for integration into investment, and it isalso used for the next dialogue session.

PLAN

Management of PDCA Progress
Spiral Up by Engagement
Performance review
Policy review

DO
CHECK

Recognition of topics and issues
Selection of target companies

ACT
DO

Milestone management(recording/progress evaluation)

1

Convey issues to a portfolio company

3

2

Engagement
ESG evaluation

CHECK

The company shares a recognition of the issues

The company formulates a plan to address issues

4

The company implements the plan

17 Engagement

Track Record ofEngagement for JapaneseCompanies

18%
8%
15%
15%
22%
23%

Business strategies
Financial strategies

Period: January to December 2018345 cases (250 companies)

Environment

Engagement
ThemesSocialGovernance
Proxy voting-related

Number of
topics

116
51
101
96
143
149

656

Total number of topics

Examples of Milestone Management
Details of progressCompany

A

Electricalmachinery

CompanyB

1

Conveyance of issues

Businessstrategies

Issue

Financialstrategies

Person interviewed

Enhance disclosure of
ESG information

4 Implementation of countermeasures

Representative Director, Chairman &President, and others

Businessstrategies

Issue

Financialstrategies

Person interviewed

Board of directors
composition

5 End

Insufficient disclosure of ESG information

Disclosure/
dialogue

G

Publication of an integrated report

Goal

Latest interview date: October 2018
Period (three years as a goal)

11 months Five interviews

Progress1

2

Response3

4

5

Positive

The make-up of outside directors was disproportionately “defensive”
due to the impact of past scandals, and changes to the compositionreflecting the changes of the business stage were needed

Representative Director &President, and others

Appointment of outside directors(particularly persons with management
experience) appropriate forGoal“offensive” governanceES

G

Disclosure/
dialogueC

3 Formulation of countermeasures

ESG efforts were confirmed through dialogue, but
disclosure was insufficient, and we pointed out that thecompany’s true capabilities were not being appropriately
conveyed to the public. Since the company demonstrated
a willingness to make improvements, we subsequently
engaged in continuous dialogue, and based on this
dialogue the company published an integrated report with
content of interest to investors, and the company’s ratingfrom an ESG evaluation company improved.

ES

Food

Company

2 Sharing of recognition

We told the company that it needed to switch to amore “offensive” governance, and said that there wereno outside directors with management experience. We
received a reply from the company stating that it
would consider raising the ratio of outside directors to
one-third and take the experience of the candidates
into account.

Businessstrategies

Issue

Financialstrategies

Person interviewed

ES

TextilesG

Disclosure/
dialogueTarget values matching
capital cost

Latest interview date: September 2018
Period (three years as a goal)

12 months Two interviews

Progress
Response

1

2

3

4

5

NeutralThe target ROE was lower than the capital cost
The company needed higher performance ambitions

Representative Director &President, and others

We told the company that its large holdings offinancial assets and real estate were causing its low
ROE. We also said that the ROE target was too low
given the company’s true capabilities and its capitalcosts. We received a reply from the company statingthat it understood our concerns, and that it would
consider raising the target once it was able to achieve
the current target.

Setting and disclosing a target
consistent with capital costs

Goal

Latest interview date: October 2018
Period (three years as a goal)

Initial dialogue

Progress
Response

1

2

3

4

5

PositiveResponsible Investment Report 2018 Nomura Asset Management

18

Perceived Changes in Companies
Based on Engagement Activities
Discussing a normative way of thinking with companies andcoming to a common understanding is important

Takashi Miyao
Senior ESG Specialist

During my 23 years as an asset

We have a strong global network for

manager, I had one-on-one meetings

investment and research, and has awith companies at the rate of 150

significant opportunity to recognize andmeetings a year, and used what I

consider trends in important global

learned from meetings to makeissues on the environment, society andinvestment decisions. Since I began

governance before other Japaneseworking on engagement, the number

companies. Conveying these issues toof meetings I have has increased to aportfolio companies, we encouragepace of 250 a year.

management to discuss these issues and

The change goes beyond just theeventually disclose information on their

number of meetings. The content ofviews and measures to address them.

dialogue with companies has also

Specific examples of engagement include

changed. When I was an asset manager,

the case of a company with a coal

the main topics discussed were thebusiness that emits a large amount ofbusiness, financial and capital strategies

greenhouse gases, and the case of aof companies. The ultimate goal was tocompany for which there are concerns

obtain information to use to judge theabout the sustainable procurement ofreturn on investment by forecasting

raw materials (see the chart below).

future cash flows.

Based on actual dialogue, we have been

Now, the main topics are governance,

able to confirm that they have madeefforts to address the environment andprogress in addressing these issues.

society, and disclosure of information on

However, in the case of a company

these activities. An engagement

aiming for sustainable growth, it isprofessional also takes on the important

normal for the resolution of one issue torole of discussing a normative way of

be followed by another issue that needs

thinking with companies and sharing an

to be resolved. Engagement activities

understanding, in addition to simply

therefore need to be carried out on an

obtaining information.

ongoing basis over the long term.

Specific Engagement Initiatives

Company
with acoal
business

Company
with animportedmaterials
business

Problem awarenessNomura Asset Management

Company’s response

Growing global movement toavoid investment in companies
that emit greenhouse gases

Held dialogue with thecompany and discussed theimportance of expressing aview on this topic

Disclosed its view on thedownsizing of coal-related
businesses, its business shift, andbusiness continuity in its long-termplan and integrated report

Problem awarenessNomura Asset Management

Company’s response

Held dialogue with thecompany about the findingsof the NGO, etc. andconfirmed that the company
recognized the issues

Is paying close attention to thedevelopments of the NGOs andothers working on the problems
in the area where the company islocated. Also keeping an eye on
global environmental regulations

Human rights issues werediscovered at a local company
that manufactures imported
materials

19 Engagement

Joint Engagement System with GES*
Nomura Asset Management is working to strengthen its

customers. GES has a research office in Poland and puts a

engagement activities with respect to both our domestic

great deal of effort into and employs experts in fields such

Japanese market and global equities. Currently, afteras law and taxes. Another deciding factor for selecting GES

signing the Stewardship Code in six countries and territories

was that GES has many things in common with us, including(Japan, the UK, Singapore, Hong Kong, Malaysia andits emphasis on researching fundamentals. We have built a

Taiwan), the investment teams in offices in these countries

good relationship with GES by conducting activities

and territories are advancing activities globally in a

together, such as participating in engagement whenevercooperative manner. Because many ESG issues faced byappropriate. Currently, GES is further bolstering its work ascompanies are common to companies around the world,

the engagement division of Sustainalytics. We will leveragebuilding a cooperative framework with our investment

our partnership with GES to continue to promoteteams worldwide is essential for our domestic and global

engagement activities overseas.

equity engagement activities.
On the other hand, the response of companies to ESG issues
at the working level varies depending on the laws, customs
and situations in each country and industry. Unlike Japaneseequities, for overseas equities there are significant obstacles
associated with the considerable number of target countries
and companies, as well as geographical factors. We must
establish a more efficient system in a manner that utilizes
external resources while taking advantage of the expertiseof the individual investment offices.
In April 2017, we selected GES International (“GES”) as apartner for engagement with overseas companies. We
conducted a field survey and recognized the high quality of
GES’s staff and their flexible attitude in dealing withAt GES’s research office in Poland*In January 2019, GES became part of Sustainalytics, an ESG research and ratings company, througha management integration.

Examples of Joint Engagement with GES
Company in Russia’s energy sector
ESG issue

With the coal business coming under heavy scrutiny
worldwide, there is growing demand for energy with lower
greenhouse gas (GHG) emissions.

Company initiatives

Visited in September 2018
Company’s
understanding

Regards the global shift from coal to natural gas as a great
opportunity. Understands that improving safety in its
business is a future challenge.

Proposals September 2018

Reduction of GHGs was set as an internal goal as a key performance indicator(KPI).
As of the end of 2018, five of the six environmental goals to be achieved by2019 have been achieved.
Achieving a zero fatality rate for employees has been set as a goal.

Proposed setting a goal of raising the assessment of the Carbon Disclosure
Project (CDP) to Level A and disclosing key environmental goals (KPIs).
Proposed disclosing information on work accidents and expanding the scope
to include subcontractors and partner companies.
Proposed disclosing numerical data on the whistleblower system.

Visited in November 2017 andNovember 2018.

Taiwanese manufacturing company that operates in China
ESG issue

Management and supervision of workers and managementof GHG emissions and resources at the company’s plants.
Management of parts suppliers, etc.

Company initiatives
Participated in the CDP and worked
to reduce GHG emissions. Plans toprovide Level 2 disclosure in 2018.
Strives to improve the work
environment together with the labor
union at more than 30 plants.

Proposals November 2017
Proposed more proactive disclosureon the work environment, andproposed efforts to improve thework environment and retain workers
by setting certain labor indicators as
KPIs for management-level
employees.

Company’s
understanding

There is a need to formulate labor management rules
and comply with them at more than 30 plants in China.

Company initiatives
Introduced 52 ethical indicators thatmanagement-level employees should
comply with. Evaluates the risk level(high/medium/low) by conducting an
on-site audit of each production line
once a year. Provided improvement
guidance to production lines withmedium or high risk.
Conducts an annual audit of suppliers.

Proposals November 2018
Evaluated improvements since theprevious meeting.
Proposed continuing to proactively
disclose information on important
ESG issues and the work
environment.

Responsible Investment Report 2018 Nomura Asset Management 20

Message from GES
Established in Sweden in 1992, GES is
engaged in responsible investment.

Hanna Roberts

Based in Europe, we haveapproximately 20 engagement
specialists with advanced expertise in

Head of Engagement Services

the United Kingdom, Sweden,
Denmark, Poland and Switzerland.

portfolios and exert influence on

long-term commitment to our clients.

Each day, we target companies aroundcompanies. The identification of key

We have succeeded in building a

the world. In January 2019, GES was

items that could have financial impacts

strong relationship of trust with ourmerged with Sustainalytics andis important, and when we look at theclients, employees and otherrelaunched as its engagement division.

non-financial aspects of a company,

stakeholders by consistently

We will be able to provide more

we focus on whether the company

implementing this commitment into

advanced services by utilizing ESG

maintains good relationships with its

everything we do in our daily business.

research and information provided bystakeholders and has earned a highUsing the engagement program we

Sustainalytics.

level of trust from them by resolving

have developed over many years, we

Currently, we handle engagement for

issues, and whether this will ultimately

want to continue to provide support as

more than 1.8 trillion euro ofenhance shareholder value.

a good partner so that ESG will

investments worldwide (as of the end

Over the 25 years since our founding,become more integrated into Nomura

of December 2018). We identify and

GES has developed a strong client-

Asset Management’s stewardshipevaluate serious ESG risks in customers’oriented corporate culture through ouractivities and investment strategies.

Company in China’s mining sector and listed on Hong Kong’s stock exchange
ESG issue

With overseas operations expanding, the company needs to
conduct business in line with global environmental standards.
The company also needs to disclose related information.

Company initiatives
As it is now, the company continues
to operate in accordance with thelocal standards in the countries inwhich it operates and in its mothercountry.

Proposals November 2017
Proposed making a shift to operatingin accordance with global
environmental standards.
Proposed disclosing information on
work safety indicators, etc.
Requested continued dialogue withlocal communities.

Company’s
understanding

Recognizes that there are no problems with theenvironmental standards in the countries where thecompany operates and in China.

Company initiatives

ESG issueCompany initiatives
Introduced a supply chain code of
conduct (conforms with the OECD
standard).
Audits suppliers and releases audit
results. Works with NGOs to address
cobalt-related child labor issues.

Proposals November 2017
Told the company that we wanted it
to continue to investigate supply
chain-related problems.
Proposed improving the operationof the whistleblower system andenhancing disclosure.

Proposals November 2018

Departments related to society,communities, the environment andsafety report to the board of
directors every month.
Considering publicly announcing
work safety indicators, etc.

Told the company that improvements
were needed because the board of
directors was not comprised of
directors with the skills to deal with
the issues.
Proposed disclosing information on
work safety indicators, etc.

Visited in December 2017 andDecember 2018

Company in South Korea’s chemicals industry
Supply chain management is becoming increasingly
important from the perspective of the child labor problem,
etc., given that the amount of cobalt used is increasing due
to the growth in demand for lithium-ion batteries formobile phones and automobiles.

Visited in November 2017 andNovember 2018

Company’s
understanding

Recognizes that managing and clarifying cobalt
suppliers is necessary because the growing demand forbatteries means increasing cobalt procurement.

Company initiatives
Continues to supervise the supply chain.
Conducted a local audit in the Republicof Congo. There was no child labor, butabuses of human rights and violations ofsafety standards were discovered.
Asked suppliers to address these
problems. Conducts an annual audit ofsuppliers and receives an evaluationfrom an audit organization.

Proposals December 2018
Told the company that we wanted it
to continue to investigate problems
in the supply chain and work to
improve transparency.

21 Proxy Voting

Concept of Proxy Voting

Proxy Voting
In proxy voting, we focus on the corporate governancevoting will not become a demand for “governance for the sakeof portfolio companies. The basic structure of corporateof governance,” we have decided to limit proxy voting to show

governance is that directors and auditors are elected atwhat we see as the absolute minimum, and in more involved

a shareholders’ meeting and directors (the board ofcases we exert an influence through engagement based on

directors) and auditors supervise senior management

the portfolio company’s situation.

through nominations, compensation matters, andOn the other hand, we make rigorous judgments on a

audits. Accordingly, the following three aspects arecompany’s responsibility for consequences through proxyparticularly important in proxy voting: the election of

voting, and we may object to a company’s proposals if thedirectors (nomination), executive compensation

management performance is poor or if there is misconduct.

(compensation) and the election of auditors (audit). In
addition, the appropriation of surplus is importantwhen it comes to Japanese companies because
Japanese companies are often criticized for retaining alarge amount of cash and deposits and being unwilling
to return profits to shareholders through dividends andshare buybacks. Moreover, proposals submitted by

Basic Corporate
Governance Structure

Structure of the Proxy
Voting Guidelines

Shareholders’ Meeting

Basic Policy for
Global Proxy Voting

shareholders have also been increasing in recent years.
Due to differences in legal systems, it is easier to makeshareholder proposals in Japan than in Europe and theUS, and these proposals can often have a direct impact
on company management. Accordingly, these
proposals must be carefully considered.
We regard proxy voting as part of our engagementwith portfolio companies, and we make judgments on
proposals by all portfolio companies in accordance with
our own Proxy Voting Guidelines. To ensure that proxy

Election

Directors (Board of
Directors) / Auditors

Proxy VotingStandards forJapanese Companies

Supervision (nomination,compensation, audit)

Management

Applied to JapaneseCompanies

Proxy Voting Process

Responsible Investment Report 2018 Nomura Asset Management 22

The proxy voting process is as shown in the figure

reviewing decisions after they are made, monitoring andbelow. In addition to the Responsible Investment

review of conflicts of interest are incorporated into theCommittee, which is the highest decision-making

decision-making process.

body, the Responsible Investment Council, which

Next, the process of making a judgment on proposals iscomprises only the Chief Conflict Officer andbroadly divided into three patterns. The secretariat decides

independent outside directors, has been establishedon proposals that can be judged according to the proxy

to prevent conflicts of interest.

voting guidelines (do not require qualitative judgment), but

For starters, there is a process for formulating theother proposals (that do require qualitative judgment) are

Proxy Voting Guidelines. The Responsible Investment

discussed and decided at a Responsible Investment

Committee engages in deliberations based on a draft

Committee meeting. In addition, for proposals that involve

prepared by the secretariat, revises the draft as

conflicts of interest, the conflicts of interest are monitored

needed, and then makes a final decision. The

and reviewed at a Responsible Investment Council meeting

Responsible Investment Council then meets after thewhile referencing the opinions of multiple proxy voting

Responsible Investment Committee to examine

advisory firms.

possible conflicts of interest. The members of the

The Responsible Investment Committee and the Responsible

Responsible Investment Council attend Responsible

Investment Council hold regular meetings four times a year

Investment Committee meetings and monitor any

and extraordinary meetings as required. In 2018, theconflicts of interest from the deliberation and decision

Committee and the Council held a total of 17 meetings andstages. One of our unique features is that rather thanseven meetings, respectively.

Characteristicsof the Proxy
Voting Process

Discipline

Judgments on proposals are made in accordance with the proxy voting guidelines

Robustness

A robust decision-making process centered on the Responsible Investment
Committee

Comprehensive discussions

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

Conflict of interest management

Real-time monitoring by the Responsible Investment Council*Refer to Pages 7 and 8 for more information about the Responsible Investment Committee

Members

Roles

Secretariat

Responsible Investment
Committee

Responsible Investment
Department

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

Preparation of proposals

Holds deliberations and makedecisions based on thesecretariat’s proposals
Makes revisions to thesecretariat’s proposals as
required

Responsible Investment Council

Conflict of interest management
One (1) Chief Conflict Officer
Two independent outside directors

Review from the perspective of
conflicts of interest
Advises the Executive Management
Committee or the Responsible
Investment Committee to make
improvements as required andreports to the Board of Directors

Process of
formulating Proxy
Voting Guidelines

Formulation of
the guidelines

Qualitative
judgment notnecessary

Decide whether
to agree oropposeQualitative

Proxy judgment isvoting necessary
conflicts
process No
of interest

Decide whether
to agree oropposeQualitative
judgment isnecessary

Decide whether
to agree oropposeThere is a
conflict ofinterest

Reference
Opinions from multiple proxy voting advisory companies*The number of people is accurate as of December 31, 2018.

23 Proxy Voting

Overview of Proxy Voting Standards for Japanese Companies
Our Proxy Voting Standards for Japanese Companies (theautumn. This allows us to carry out engagement based on“Proxy Voting Standards”) (refer to our website* for details)

the latest Proxy Voting Standards for approximately six

are revised on a regular basis to reflect progress in themonths from when they are revised to when shareholders’corporate governance of portfolio companies. In 2017, themeetings are concentrated. Most recently, the Proxy Voting

timing for making revisions was changed from spring toStandards were revised in November 2018.

Proxy Voting Standards and their summaries

Emphasis on responsibility forconsequences
The management team’s responsibility forconsequences is reflected.

In the following cases, we may oppose acompany’s proposal

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

Structure of directors (Board of Directors)
A certain number of outside directors is necessary tosupervise the management team. Particularly in acompany where there is a controlling shareholder(such as a listed subsidiary), there are concerns about
a conflict of interest with the controlling shareholder,
and a higher level of supervision is required.

The company does not have two or more outside directors.
The ratio of outside directors is less than one-third in alisted subsidiary, etc. (excluding cases where ROE is above
a certain level).

Independence of outside directors
A certain level of independence is required foroutside directors to supervise the management team.
In order to prioritize effectiveness, the Company
ensures that the standards for independence are not
too stringent.

Effectiveness of outside directors
Outside directors must effectively supervise themanagement team.

Appropriate compensation governanceNotification as an independent executive is not confirmed.
An outside director has worked for or has otherwise beenpart of a company that is a major shareholder.

The attendance rate for board of directors’ meetings is lessthan 75%.
It is obvious that the outside director did not fulfill the
expected tasks such as the appointment and dismissal ofsenior management and the supervision of conflicts ofinterest between the company and the management teamor controlling shareholders.

Because the process for determining executive
compensation must be transparent, it is essentialthat there is 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 themanagement team to be short-term oriented.

Although stock compensation is important as amanagement incentive, it may produce a contraryeffect unless it is designed appropriately.

The persons to whom the stock compensation is given are
not appropriate.

Effective utilization of financial assets
It is essential for financial assets to be utilized
effectively to enhance corporate value.

The stock compensation could lead to excessive dilution.

Financial assets are not utilized effectively, and shareholder
returns (dividends and share buybacks) are not appropriate.

*http://www.nomura-am.co.jp/corporate/service/responsibility_investment/pdf/vote_policy.pdf

Responsible Investment Report 2018 Nomura Asset Management 24

Examples of Qualitative Judgment on Proposals
Overview of proposal
Company P agreed with Company S to make Company S awholly-owned subsidiary and wanted to acquire all the

The boards of directors of bothcompanies agreed to make Company
S a wholly-owned subsidiaryshares of Company S through a takeover bid (TOB). If

1

Company P acquired 90% or more of the shares, it would be
able to acquire all the shares by demand for cash-out.

2

However, Company P acquired less than 90% of the shares.
Accordingly, Company S held a shareholders’ meeting and

TOB executed

submitted a proposal that would enable Company P toacquire the shares that Company P was unable to acquire(squeeze out). Given that Company P held more than twothirds of the shares through the TOB, it would be difficult for
us to vote down the proposal, even if we objected to it.

AcquirerCompany P

3Company subject toproxy voting

Acquired company

Company S

Held shareholders’ meeting to enable Company P toobtain the shares it was previously unable to acquire

However, we held careful discussions to fulfill our
responsibility as an investment manager.

Process of judgment on proposal
We first referred to the Proxy Voting Guidelines. The standard
on the right applies to this proposal, but the proposal was
discussed at the Responsible Investment Committee because
qualitative judgment was required. In addition, if there was a
possibility of a conflict of interest, the Responsible Investment
Council would hold a meeting to review it.

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
reorganization or the capital policy, we emphasize the appropriateness of theconsideration when deciding whether to agree with or oppose the proposal.

Outcome of proposal judgment
In 2018, there were a number of proposals like the one

split in opinion on two issues: the economic terms (including

above, but here we will introduce a case where we voted forpremium) and the impact on shareholder value. The summary

the proposal (Company A) and a case where we voted

is shown below. In the case of Company A, the proposal wasagainst the proposal (Company B). In accordance with thereviewed by the Responsible Investment Council because

above standard, we deliberated the proposals at athere was a possibility of a conflict of interest, but they

Responsible Investment Committee meeting, but there was areached the conclusion that there were no problems.

Company A: Voted for the proposal

Company B: Voted against the proposal

Economicterms• We undertook engagement because the premium (thedifference between the TOB tender offer price and theshare price immediately before the TOB) was low, andwe communicated this to the company.
• The tender offer price was increased during the TOB
period.
• We found that one reason for the low premium was that
Company A’s business was susceptible to businesscycles and that the share price immediately before the
TOB was high.

• Because the premium was slightly lower than other similarcases, we undertook engagement and communicated thisfact to the company, but the tender offer price was notchanged.

Impact on
shareholder
value• To examine the impact on shareholder value from thestandpoint of a minority shareholder, Company A
established an independent third-party committee
which included outside directors.
• We confirmed through disclosure materials andengagement that the outside directors themselves wereactively involved, including attending negotiations withthe acquiring company.

• To examine the impact on shareholder value from thestandpoint of a minority shareholder, Company B establisheda third-party committee including an outside auditor.
• Given that this outside auditor came from a financial institutionthat provides advice to the acquiring company, there weresome concerns regarding independence. Even in the processof the negotiations, the outside auditor displayed behavior
that caused us to worry about independence.
• We conveyed our concern regarding independence throughengagement, but no improvements were made.

25 Proxy Voting

Proxy Voting for Japanese Companies from January to December 2018
The results of our proxy voting with respect to Japanese companies from January to December 2018 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
The independence of candidates for outside
director could not be confirmed, poor businessperformance, misconduct, etc.

Number of proposals

17,313

Election and dismissal of
accounting auditor

0%45

Payment of retirement benefits toretiring executives
Outside directors and auditors were
included in the scope of persons who
would receive payment, etc.

Number of proposals

199

Organizational restructuring-related
There were problems in terms of protecting
the interests of minority shareholders, etc.

Number of proposals

47

Proposals on other capital policies
Capital increase or contribution oftreasury shares without a clear impact onshareholder value

Number of proposals

111

Number of proposals

Number of proposals

22,508

1,835

51%
6%
5%

29%

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

793

Appropriation of surplus

9%

The company is cash rich, and its ROE andthe ratio of shareholder returns is low.

Number of proposals

1,553

Introduction, update and abolitionof takeover defense measures
There was a problem in the design interms of enhancing and protecting
shareholder value

Number of proposals

62

100%

Proposals on articles ofincorporation

5%

The chairman of the board and thechief executive officer (CEO) are notseparated, etc.

Number of proposals

Total Company proposals
See above

22%

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

Executive compensation

None

Number of proposals

5%Election and dismissal of auditors

550

Total Shareholders’ proposals

8%(Ratio of votes against)

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

145

14%

(Ratio of votes for)

Reference

Results of proxy voting forforeign companies
January to December 2018

Votes forVotes against

Total

Ratio of votes
againstCompany
proposals

8,339

1,302

9,641

14%

Shareholders’proposals

364

167

531

31%

Total

8,703

1,469

10,17214%

Responsible Investment Report 2018 Nomura Asset Management 26

My Year in Charge ofProxy Voting
Hiroharu Fukasawa
Senior ESG Specialist

June, followed by March and May, are the months in which the largest number of Japanese companies hold theirgeneral shareholders’ meetings. We exercise our voting rights for more than 1,500 portfolio companies in June alone,and for more than 1,900 portfolio companies if you include March and May. Below, I discuss the approximate annual
schedule for proxy voting, focusing on this period with a high concentration of shareholders’ meetings.

Annual schedule

Proxy voting
Jan.

Feb.

Mar.

Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct.

2

1

Nov.

Dec.

Jan.

Feb.

Mar.

Apr.

May

4

3
5

6

1

6

Period when most generalshareholders’ meetings are held

6

2

6

Revisions to Proxy Voting
Guidelines

6

3

6

Engagement to informcompanies about the revisions
to our Proxy Voting Guidelines

March – June

July – OctoberNovember – JanuaryThis is a period when we need to accurately judgea large number of proposals. We exercise voting
rights for roughly 100 companies per day during
the peak period in June, so it also happens to be
the period when we most want companies’
information disclosure to be easy to understand.

As soon as the busy season for shareholders’meetings ends, we start reviewing our Proxy Voting
Guidelines. Taking into consideration the actual
conditions of Japanese companies, which welearned through engagement and proxy voting, we
make revisions to reflect changes in laws andregulations, 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 thoughts andencourage them to strengthen their corporate
governance. In addition to individual meetings withportfolio companies, we also sometimes explain
our views at seminars.

4

Engagement with an eye
towards generalshareholders’ meetings

5

Engagement to strengthen
corporate governance

6

Disclosure of proxy voting
results

February – May

All year, particularly November – MarchJanuary, April, July and October

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 atshareholders’ meetings (the proposals have alreadybeen finalized in some cases), so portfolio companies
tend to be most interested in the prospects forindividual proposals. However, we try to keep thefocus of discussions on strengthening corporate
governance over the medium to long term.

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 talk with them about their efforts.
Typically, the discussions will be about what efforts
they should make to enhance corporate value overthe medium to long term, and what kind of
corporate governance they should have as amechanism for supervising those efforts given their
particular business and financial situation.

After the end of each quarter, we disclose theresults of our proxy voting on our website. We also
sometimes prepare a report at the request of publicand corporate pension funds, or other clients.

27 ESG Integration

Nomura Asset Management’s active equity investment
is based on the analysis of companies’ fundamentals.
To be competitive in this area and make a stable
contribution to the long-term growth of clients’ assets,
we must effectively incorporate the evaluation of
non-financial information including ESG into ourinvestment process, on top of the existing analysis offinancial information.

ESG Integration Process

Concept of ESG Integration

ESG Integration
ESG integration is employed across many of ourinvestment strategies. Our investment process ischaracterized by the systematic organization ofstrategies for each investment team in each office. All
investment teams now include ESG considerations aspart of their ongoing investment process. While theintegration method varies from strategy to strategy,
ESG evaluation, which is the basis of ESG integration ,Corporate value is basically the discounted present value

has been developed on a global basis. By identifying

of future free cash flows. We think that business assets

ESG issues in each individual industry and company

that generate corporate value include not only fixed

and by utilizing multiple external evaluation methods

assets such as production facilities, but also assets thatand information sources, we can now provide ourdo not appear in financial statements, such as humanown ESG ratings that can be utilized as part of ourcapital, natural capital and social capital. Our greatest

investment activities.

challenge is to analyze how these various types ofIn recent years, there have been astonishing advances

capital, or non-financial information, will affect thein technology including AI, and the environment in

future business operations and growth sustainability ofwhich the asset management industry operates is also

companies and make investment decisions based on thechanging rapidly. We established the Innovation Lab

evaluation of non-financial information.

Department in October 2017 to assimilate the mostThe so-called integration approach of incorporating

advanced investment know-how into our investment

ESG elements into the investment process directly

process. We are also diversifying our integration

leads to an improvement in our investing competence,

efforts by launching new initiatives in 2018, such as

and we believe that it will be increasingly important

beginning to utilize AI to further integrate ESG criteria

going forward.

into our investment process.

Responsible Investment Report 2018 Nomura Asset Management 28

ESG Evaluation in
Stock Selection
Japanese Equities

Yuichi Murao
Senior Investment Officer
Japanese Equities

Financial information andnon-financial information
are closely related andinfluence one anotherIn the investment process for typicalactively- managed Japanese equity
funds, we make an investment
decision by adding our assessment of

Characteristics of ESG
Evaluation
Comprehensive evaluation bycorporate analysts and ESG specialists

undervalued and overvalued stocks
using share valuation indicators to ourshort- and long-term earnings
forecasts, which are based on acompany’s competitiveness andgrowth potential.

Establishing highly effective evaluation
items focusing on adequate disclosure
as well as risks and opportunities
A relative comparison within theindustry is possible for each of the five
major evaluation items

ESG Evaluation Items(Five Major Items)

Governance Evaluation of management
and the board of directors, etc.
Environment Information disclosure related
to climate change, etc.
Social Information disclosure on the active
participation of women and on human rights, etc.
Risk Consideration of the financial
impact of ESG risks
Opportunity 17 SDGs

We have now incorporated nonfinancial information, or so-called ESG
evaluation, into this process.
Specifically, we have incorporated the
ESG metrics and engagement

Creating our own ESG
evaluation techniques forJapanese equities

consideration based on theperspectives of the company analysts
and ESG specialists, in addition to
information disclosed by the

information based on the perspectives

When we evaluate the non-financial

company. The company’s trueof analysts and ESG specialists, along

aspects of a portfolio company, we

condition is better reflected bywith the ESG evaluations made byfocus not only on the company’s

adding the qualitative judgment tooutside rating agencies. Together, thisefforts regarding ESG but also on

the evaluation based on theanalysis becomes part of our decision-

whether the efforts are of material

information disclosed by themaking process. This is because we

importance and have a financial

company. Using the content of thisbelieve there is a close relationship

impact on the company. We study

evaluation, we can also assign abetween financial performance andthese efforts to see if they provide an

ranking for each evaluation item and

ESG measures, which is non-financial

opportunity to generate future cash

make comparisons within an industry.

information, and that they influence

flows, in addition to determining

Accordingly, the ESG evaluation can

one another.

whether they are risks for thebe used in many different ways

To enhance this process, we work tocompany. Currently, our ESG

within our investment process. As an

improve our own ESG evaluation

evaluation has five major items: (1)investment manager, I hope thattechniques. This creates a common

Governance, (2) Environment, (3)company analysts and ESG specialists

language that is used when company

Social, (4) Risk, and (5) Opportunity,

will continue to provide high-quality,

analysts, ESG specialists and asset

while more detailed lists of points tounique analysis and evaluation. At the

managers hold discussions, and withbe evaluated have been establishedsame time, portfolio managers, will

this we can expect more effective

for each major item.

continue to strive to get better at

ESG integration into our investment

The ESG evaluation is determined byusing ESG evaluations to more

process.

taking qualitative judgment into

effectively discern corporate value.

29 ESG Integration

Perspectives of Equity Analysts
Expressing a stance and disclosing information
on climate change are becoming increasingly
important
My focus is on the resources and energy sectors. These sectors are at all
times aware of their relationship with climate change risk.

Japanese Equities

Akio Ohata
Senior Equity Analyst
Resources and energy

Addressing climate change risk is certainly an important issue, but natural
resources and energy are also essential components of all economic
activity. Accordingly, these companies have a responsibility to ensure asecure supply of resources and energy. Environmental and supply issues
should ultimately be satisfied at the same time, but in the past many
companies have given priority to their supply responsibility. Recently,
however, an increasing number of companies have sought to reflect
climate change risk in their long-term strategies. Good examples of thisinclude petroleum refinery companies and public utility companies,
which are working to expand the use of renewable energy and hydrogen
while eliminating and consolidating existing facilities.
Information disclosure is also critical. It is sometimes difficult to address
climate change risk quickly due to the burden on users and the supply
responsibility, but even in such cases, it is important to indicate an effort
to make steady progress by presenting a long-term plan. I believe that
actively disclosing information and holding constructive dialogue will
help to enhance corporate value in the long term.

Xiang Li
Equity Analyst
Food and daily goods

There are numerous issues to be addressed inorder to achieve sustainable growth
Many companies in the food and daily goods sector are actively
addressing social issues such as the environment and the active
participation of women based on a keen awareness of theseissues.
However, there are numerous issues to be addressed in order toachieve sustainable growth, such as environmental protection in
the procurement of raw materials (including palm oil) and theissue of waste plastics. The issue of discarded plastics has recently
become one of the main topics during dialogue with companies,
as many plastics are used in packaging for food and daily
commodities.
In the food and daily goods sector, women are very active in arange of areas, including product development and sales. In
particular, some cosmetics companies are supporting female
entrepreneurs, and I think this is a very interesting approach that
could give rise to benefits such as an increase in demand for
products and higher motivation among female employees.

Responsible Investment Report 2018 Nomura Asset Management 30

From an investment perspective, I focus on how
resolving social issues aligns with theenhancement of corporate value
In the healthcare sector, social contribution and the enhancement ofcorporate value easily align with one another because business itself

Aya Torii
Equity Analyst
Healthcare

leads to the resolution of social issues such as the fulfillment of unmet
medical needs and an improvement in quality of life (QOL).
On the other hand, however, there are issues specific to this sector. For
example, providing medical access to people in low-income countries is asocial responsibility unique to the healthcare industry, and one that is
directly linked to life and well-being. As medical expenses account for an
increasingly large share of government and household budgets aroundthe world, gaining social recognition is also important from theperspective of sustainable growth. For example, tropical infectious
diseases such as malaria were easily overlooked in the past because theirimpact was limited to developing countries, but some companies are
now turning their attention to these diseases. This is an effort to fulfill asocial responsibility by meeting unmet medical needs from a global
perspective, but it also allows us to prepare for the spread of tropicalinfectious diseases over the long term in conjunction with global
warming. For this reason, I see this as a notable initiative from an
investment perspective.

Mitsuhiro Iso
Senior Equity Analyst
Electronics

Presenting future business opportunities basedon outstanding technologies is also criticalIn the electronics sector, many companies possess outstanding
technologies that can help to mitigate environmental problems,
including the reduction of greenhouse gas emissions. In this sense,social issues such as the environment are often regarded as business
opportunities rather than risks in this sector.
In fact, Japanese companies have a history of capturing markets using
their energy-saving technologies, and this strength still exists for
air- conditioners and many other products. There are also many parts
manufacturers with key technologies that support energy
conservation, such as inverters and brushless motors. I believe thatelectric vehicles, which are expected to make a significant contribution
to the reduction of greenhouse gas emissions in the medium to longterm, are a promising growth opportunity for these companies.
In the manufacturing industry, the electronics sector has a relatively
high level of awareness of issues such as conflict minerals and working
environments. Because companies in this sector emphasize efforts
throughout the supply chain, companies that have business
relationships with such entities recognize that appropriately addressing
social issues is an increasingly important risk management objective.

31 ESG Integration

Perspectives of Equity Portfolio Managers

Japanese Equities

ESG integration is helping
to diversify our evaluationof companies

Our value investing
incorporates ESG principles

With regard to governance inparticular, we look not only at thecurrent execution and supervisory

The Japan Strategic Value (JSV) Fundfunctions, but we also assess andemploys an investment strategy whichanalyze factors including a company’sseeks to discover companies with thesustainability in terms of its future

potential to create value over thegeneration of leaders and other areas

medium to long term from among thefor which improvements are expected

universe of undervalued companies.

over time. I believe that this approach

The fund has performed well over theis a good method for determining

years since its launch in 2000. I believe

corporate value in order to discover

the source of this strong performancecompanies that can sustainably

is JSV’s proprietary method ofenhance their corporate value over theassessing companies to discover theirlonger term.

intrinsic value over a timeline ofThis approach includes having ESG

approximately five years, looking at

specialists come with us when we visit

various aspects such as asset value,

portfolio companies, as they bring

improvements in earnings power andtheir unique perspectives andcompetitiveness, and enhancement ofknowledge. This enhances discussions

shareholder returns. This is based on

we have with the companies’

the understanding that fulfilling

executives through direct dialogue tocorporate responsibilities regarding

increase their corporate value.

the environment, social andDisclosure about companies’ ESG

governance (ESG) areas is absolutely

efforts is also very important foressential, and the principles of ESG

assessing corporate value from aare included in the JSV team’s

medium- to long-term perspective.

evaluation method.

Monitoring portfolio companies’ CO2

The JSV team determines the intrinsic

emissions, keeping an eye on outside

value of companies in terms of various

vendors’ ESG ratings, and analyzing

aspects, including their medium- to

integrated reports and CSR reports are

long-term management strategies, analso important parts of the process forassessment of the management team,evaluating individual stocks as well as

and its stance on shareholder returns.

the portfolio as a whole.

Kentaro Takayanagi
Value Equity Investment
Chief Portfolio Manager
Joined Nomura AssetManagement in 1991. He has beena Japanese equities investment
professional since 1993, and has
more than 25 years of investment
experience. The JSV Fund, which
he has managed as the chief
decision-maker since its launch in
2000, has grown to become aleading fund overseas as well,with a global customer basespread over more than 20
countries.

Responsible Investment Report 2018 Nomura Asset Management 32

ESG will be further
integrated by having along-term view

Discerning a company’strue competence isnecessary for long-term
investment

financial information for the current
year and the next year. We also want
to see the company’s medium- tolong-term investment plan spanning atleast five years or so, the allocation of

I am in charge of the Japan Active

resources including staff assignments,

Growth and Japan High Conviction

the sustainability of ongoing and newinvestment strategies. In both, webusinesses, and the relative strength

invest in stocks capable ofof social needs behind the business, tomaintaining high ROE over the longname just a few. We research andterm. What I am particularly aware of

discuss topics including how thein this strategy is having a long-term

company’s vision – as presented by its

perspective. I believe that amanagement team – will becompany’s current businessincorporated into its business, how it

performance is the result of decisions

will maintain its advantages, how it

it made in the past, and that thewill grow its corporate value over thecurrent decisions being made by along term, as well as other informationcompany will surface as operatingsuch as the evaluation of management

results three years to five years down

quality to execute and supervise theseGrowth Equity Investment
Chief Portfolio Manager

the road. To make a judgment on

initiatives. We do this with thecorporate value from a medium- to

research teams that equity analysts

Joined Nomura AssetManagement in 1993, and has
consistently been involved inJapanese equities investment for
pension funds for more than 25
years. He launched the Japan
Active Growth strategy in 1996
and started the Japan HighConviction strategy in 2012. With
more than 20 years of experiencein growth investment, in 2009 he
was among the first to switch to
an investment strategy focused on
ROE, and his investment strategy
has the longest investment
horizon in our company.

long-term perspective, we need toand ESG specialists belong to and use

discuss, for example, what athe outcomes when selecting stocks.

company’s core competencies are,Through such fundamental analysis

and whether its competitiveand consideration of ESG issues, we

advantage will change. If we look at

can increase our degree of confidence

the company on a timeline of threewhen holding stocks over the longyears and five years, this judgment

term by understanding companies’

has even more critical implications. I

true competencies free from thefeel that our team’s investment

influence of the external

process is very compatible with theenvironment. We can then make aphilosophy of ESG investment.

judgment about buying and holding

Our team seeks not only short-term

over a roughly five-year time horizon.

Shintaro Harada33 ESG Integration

Global Equity Investment Team

Global Equity Investment Pursuing Both
Shareholders’ Interests and Social Value

Global Equities

The Global Equity Investment Team I lead comprises 15

only its shareholders, but also the patients who need theinvestment professionals based mainly in London. We makedrugs. The shareholders might be happy with highinvestments in a broad investment universe that includes

investment returns due to the price hike, but it will have adeveloped and developing countries as well as frontier

seriously detrimental impact on the patients. In fact, one

markets. Our investment philosophy is to pursue investments

pharmaceutical company did dramatically raise its drug prices

in high-quality and undervalued stocks. This means investingover a short period of time, but it ultimately failed toin the stocks of companies that are trading below theirgenerate sustainable profits.

intrinsic value.

The team’s investment philosophy

Our decision-making process
Our idea of responsible investment is for a company to create

Being a responsible investor is central to our investment

all types of sustainable value, and for this value to be shared

philosophy. Our approach uses the concept of “the greatest

equitably among all stakeholders, including its customers,happiness of the greatest number,” as a guideline, which is

employees, suppliers, society as a whole, and shareholders.

the basic principle of Utilitarian philosophy. We take into

This is because unless the value created by the company isaccount the utility derived by the wide range of stakeholders

shared with society in a sustainable way, there will be someof companies we invest in or may invest in.

kind of detrimental impact on stakeholders. In other words,

For example, let’s apply this to the case in which a company

this is a process of taking the total impact on theuses monopolistic pricing power to dramatically increase thestakeholders into consideration. Our starting point is theprices of its drugs. The company’s stakeholders include nottotal utility or ‘total value’ created by the company.
The total value created is not just financial, but is the benefit
delivered to all the stakeholders, including the ‘happiness’brought to customers, the ‘employment and opportunities’
brought to employees, and the ‘impact on the environment.’
Our investment process includes analysis of a company’s
impact on all these stakeholders and the identification of any
associated issues. We rate every company we review as‘investible’ or not based on ESG factors and that is a key
component of our investment decision-making review.
For example, Cluster Munitions Producers are excluded giventhat their products are widely prohibited. Aside from that we
do not implement simple stock exclusions, except where
requested by a client as we prefer to rely on our own decision
making framework and analysis. In cases where a company
has a serious negative impact on a certain stakeholder group
we might judge that stock to be “uninvestible”. Typically

Tom Wildgoose
UK OfficeGlobal Equity Investment
Head of Investment
Joined Nomura Asset Management’s UK Office in 2007 after working
at a consulting company for seven years. He became Head of Researchin 2011 and has held his current position since 2014.

Responsible Investment Report 2018 Nomura Asset Management 34

The Global Equity Investment Team’s Investment Process
Screening

Research by analysts

Stock Selection
Committee

Portfolio building

Group of highquality stocks

Group of attractive
investment ideas

There are no ESG
issues, and both thefundamentals andvaluation are excellent

Buy/hold

Both thefundamentals andvaluation are
excellent, but there
are minor ESG issues

Buy/hold while continuing engagement

Investment
universe

Engagement

Both the fundamentals
and valuation are
excellent, but there areimportant ESG issues tobe resolvedGroup of lowquality stocks

No attractive
investment ideas

Implementation ofengagement

Both thefundamentals andvaluation compare
unfavorably

Sell/do not hold

Cluster munitions
manufacturers andother companies withserious ESG issues

Excluded frominvestmentcompanies that intentionally adopt a practice that breaches

although we recognize that these sectors do indeed have asome regulation or have a serious negative impact on a

positive impact on society at large, such as supplying low-

stakeholder group will fit this category. The chart above

priced transportation fuel, we feel that, judging fromshows the basic flow for identifying ESG issues and resolving

currently available information, these sectors are likely tothem. Engagement with company management to encourage

have a net negative impact on the world in the future, such

improvement on issues is central to our process. In the past,as their environmental impact. On the other hand, we

for example, through dialogue we succeeded in encouraging

identify internet services, infrastructure development,

a company to adopt a better executive remuneration scheme,

renewable energy and electronic components, among

while we encouraged another company to improve theothers, as sectors with a net positive impact on the UN SDGs,

environmental impact of the supply chain. We also disclose

and a likely source of investment ideas. Incorporating theour engagement activity on a quarterly basis on our website.

SDGs into the investment process also helps us to fortify ourThis is based on our belief that disclosure is important ininvestment philosophy.

order to encourage companies to continue their efforts.

Incorporating SDGs into the investment
process
Our investment process places importance on identifying

Analysis of industries and companies basedon the UN’s SDGs
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35 ESG Integration

Global Equity Investment TeamThe only Japanese-affiliated asset manager to beawarded Tier 1 status by the UK FRC

Alex RoweUK OfficePortfolio Manager / Equity Analyst

In 2016, Nomura Asset Management’s UK Office was theon our behavior as a responsible investor. In this process,only Japanese-affiliated asset manager to be awarded Tier 1

we identified areas for improvement across our engagement

status, the highest category, by the Financial Reporting

activities and established principles for us to truly be

Council in the United Kingdom (UK FRC). The UK FRC

responsible investors. The report presenting our investment

divides institutional investors who are signatories to the UK

philosophy (“The Philosophical Thoughts of a Responsible

Stewardship Code into three categories from Tier 1 to Tier 3

Investment Team”)* 1 laid out how we would, as a team,according to their continuous disclosure of activity reports

strive to achieve our goal of being responsible investors.

and commitment to stewardship activities. The institutional

Since the April-June quarter of 2016, we have publicly

investors who were categorized as Tier 3 were removed

reported the results of all our ESG research andfrom the list of signatories by the UK FRC.

engagement activity in our quarterly “Responsible Investing

The Global Equity Investment Team is proud of its strong

Report”*2 in the UK. This is based on our belief that publicly

track record as a responsible investor. We took ESG into

reporting our activities will help increase our own

account in our investment decisions before the concept ofaccountability and also encourage accountability by

ESG integration became mainstream. Since 2013, ESG

companies.

research and analysis has been incorporated into every

In 2017, we took our principle of total value creation one

single stock review, using both internal proprietary research

step further and launched the Global Sustainable Equity

and external ESG databases. The review of ESG factors has

strategy that August. This strategy seeks to invest in

become a core, mandatory component of the stock

attractive companies that exhibit the greatest total value

selection committee’s investment approval process.

generation and distribution of this value to all stakeholders.

While ESG integration has been a part of the investment
process for a while, in

Going forward, we will continue to strive to deliverindustry-leading

early 2016 we extensively
reviewed the process toensure that these

responsible investment
NOMURA ASSET MANAGEMENT U.K. LTD.

standards and maximize

The Philosophical Thoughts of a
Responsible Investment Teamthe impact of ouractivities would have theactivities.

maximum positive effectAlex Rowe and the Global Equity Team
Published January 2017

3Q 2018*2 Responsible Investing Report in the UK
https://www.nomura.com/nam-europe/about_nam/responsible-investment.shtml*1 The Philosophical Thoughts of a Responsible
Investment Teamhttps://www.nomura.com/nam-europe/
resources/upload/the-philosophical-thoughtsof-a-responsible-investment-team.pdf

NOMURA ASSET MANAGEMENT U.K. LTD.

Responsible
Investing ReportResponsible Investment Report 2018 Nomura Asset Management 36

ESG Research by Country Specialists is
Another Source of Added Value

Asia-Pacific Equities

The investment process and ESG
considerations

The growing importance of ESG in Asia

The Singapore Office actively invests in equities in the

ESG-related matters and engagement activities are

Asia-Pacific region based on fundamental research. In the

becoming increasingly important in the Asia-Pacific market

process of our active investment, country specialists (CSs)in order to achieve good investment performance over theare assigned to each country in this diverse region withlong term. In the Asian market, evaluating corporate

their different demographics, industrial structures,

governance when making investment decisions is

economic development stages and growth factors. The

particularly important, given the large presence ofmain source of our added value is bottom-up research andgovernment-affiliated companies and conglomerates. In

the selection of individual stocks by approaching andaddition, even in Asian countries, which are in the structural

meeting with a large number of companies (about 3,000

high-growth stage driven by population growth, thecases in 2018) by the CSs, who are professionals withexpanding middle-income segment, and industrialization,

considerable experience.

highly-sustainable management that is more conscious of

We attach an investment rating to individual stocks based

ESG (including the environment and social issues) is seen as

on the fundamentals research carried out by CSs. For thean essential factor for long-term economic growth and

ESG evaluation, the CSs evaluate stocks in light of thegrowth in corporate earnings. We will continue to seek

situation and customs peculiar to each country andstrong investment performance over the long term byincorporate their assessments in the evaluation of individual

continuing to further enhance our ESG evaluation process.

Reflecting growing interest in ESG worldwide, research into

stocks. This ESG evaluation is made with reference to theresearch of individual stocks by CSs on their own as well as
our own ESG ratings. The actual portfolio is constructedbased on these investment ratings and the ESG evaluation.

A specific example of investment by theSingapore Office
Here is how we evaluated a bank stock and the investment
action we took. We evaluated the stock positively,

Vipul Mehta
Singapore Office
Asia-Pacific Equity Investment
Head of Investments

appreciating the fact that it was undervalued in addition tohaving strong fundamentals, including an improved profit
margin due to the policy interest rate hike, and the
expected growth in the credit card and securities
businesses. In terms of ESG, we learned through aninterview by the CS and joint engagement with GES
International (now Sustainalytics) that the bank had aconstructive stance on ESG, indicated by the fact that it had
established a CSR Committee independent from senior
management and had set CSR targets to be met by 2020and had been engaging in dialogue with investors towards
achieving those goals, as well as the diversity of director
candidates, the promotion of renewable energy use and the
reduction of GHG emissions. We decided to increase ourinvestment weighting because of the bank’s commitment to
ESG from the medium- to long-term perspective and basedon the progress it has made in its ESG efforts, in addition to
our positive assessment of its financial standing.

Started working as a fundmanager at an asset
management firm in 1994.
Joined the Singapore
Office of Nomura AssetManagement in 2004 as
an Asia-Pacific equities
manager. Appointed to hiscurrent position in 2016.

37 ESG Initiatives for Fixed Income

ESG Integration into Fixed Income Investment
Integration of ESG factors
into the credit research
process

Fixed Income

issuer will be redeemed, as well as

For example, if a bond is screened as

analyzing the recovery value should

having a high risk and high exposure

the bonds not be redeemed. In

to carbon and fossil fuels (implying

fundamentals-based qualitative

low ESG score), instead of

In our active fixed income investment,

research, we have been taking ESG

automatically excluding the bond from

we incorporate ESG into thefactors, such as governance risk andinvestment or making the decision toinvestment process of our credit

the carbon exposure of public utilities

underweight the bond, we conduct

strategy. The credit strategy pursues

and resource companies into

deeper research including looking into

excess returns by taking on issuers’

consideration in our basic evaluation

whether the company has a plan tocredit risk, which is done byprocess. To enable us to make more

shift to cleaner power generation andevaluating the creditworthiness of

optimal investment decisions, we

determining whether there is futureissuers and analyzing the likelihood

conduct a comprehensive credit

opportunity, thereby aiming for athat the bonds issued by a particularevaluation that is well balanced in the

chance to create alpha. In otherlong term by identifying potential

words, we analyze risks andnon-financial risks that could have an

opportunities in terms of both level

impact in the future (i.e. ESG factors)

and momentum in domains where theand utilizing quantified ESG scores.

impact of ESG could become greaterover time.
In addition, spreads on

Creditworthiness evaluation

non-government bonds
over government bonds

Likelihood ofredemption

Recovery value

are closely related tocredit risk, but an

Ability to generate cash flow /ability to raise funds, etc.

approach that

Evaluation of fundamentals mainly based on
financial analysis
Evaluation of ESG (i.e. non-financial factors)
with longer-term impacts

mechanically selects
bonds that are excellent interms of ESG could resultin an investment bias

Identification andquantification of ESG
factors for bonds

toward highly-rated, low-spreadbonds, thereby sacrificing returns. To
avoid an unintended bias due to asimple inclination toward ESG, we

While ESG factors are common toevaluate ESG fully taking into accountboth bond investment and equity

the portfolio’s risk characteristics, andinvestment, our view regarding

analyzing the impact on performance.

concerns about risks such as theimpairment of assets and due to thetransition to a low carbon society as

Masahiro Kawagishi
Investment Department, Fixed Income Group
Co-CIO
Joined Nomura Asset Management in 1990.
After working as a corporate analyst, in 1993
he began working as a bond portfolio
manager, handling investment related tointerest rates in Japan and overseas, foreignexchange and credit. From 2007, he handled
global sovereign and corporate bondmandates for international clients as theleader of NAM UK’s bond investment team.
Since 2014, he has being in charge of Active
Fixed Income investment in Tokyo.

well as governance concerns differs

Spread components
Liquidity and otherrisk premiums

from that of equity investors, and wemust identify ESG factors from the

Evaluation of ESG factors(longer-term impact on finances)perspective of a bond investor.
Accordingly, we sort those indicators

Credit risk
premiumthat could have a material impact on
the credit risk of bonds and issuers,
and ensure that these indicators arereflected in our ESG scores for bonds.
Quantitative scores are also used as atool to support qualitative judgment.

Evaluation of fundamentals
based on financial factors(corecreditworthinessevaluation)

Responsible Investment Report 2018 Nomura Asset Management 38

Quantitative ESG
evaluation in actual
corporate bond investment

downside risk materializing in thecredit market. We then calculate ESG
scores by matching the importance of
the issues with data provided by an

In our fixed income investment, we

ESG provider or other vendors. The

have strengthened our investment

total ESG score is calculated from E, S,

framework by introducing quantitativeand G weightings particular to the

ESG risk assessment in conjunction

sector that we have identified and thewith the launch of a euro-previously calculated ESG scores.

denominated corporate bond fund.

Quantitative ESG scores are evaluated

For bond investors, company

objectively by credit analysts throughassessments mainly focus on whether

a qualitative approach and are

ESG factors will negatively impact the

integrated into the bond selection

company’s creditworthiness.

process and the portfolio-building

Accordingly, our investment teamprocess in a way that compares withcarries out assessments by designingindustry peers.

Total ESG score

Environmentscore

Socialscore

Governance
score

Sustainability
issuesSustainability
issuesSustainability
issues

Evaluation of important factors particular to the industry

Issues with a potential downside risk on creditworthinessrobust, systematic and quantitative
standards for the downside risk oncompanies related to ESG factors. I

Specific examples of theframework

Jason Mortimer
Investment Department, Fixed Income Group
Senior Portfolio Manager
Joined a securities firm in 2006 and was
assigned to derivatives sales and trading inTokyo. In 2010, he was assigned to Asian local
currency bond strategy in Hong Kong andSingapore. In 2014, he began managing local
currency bonds of developing countries anddollar credit-linked notes in London as aportfolio manager. He joined Nomura AssetManagement in 2017 and engages in ESGrelated investment in the Fixed Income Group.

hope that the market understands

Specific examples include the case of

For an oil and gas company with athat introducing ESG risk

an insurance company. While webusiness portfolio in which a highassessments brings about strong

regarded its creditworthiness as

weighting is given to ESG issues

investment performance

positive based on our financial

related to the environment andcharacteristics, and that companies

analysis, we gave the company a low

governance, although its risk-adjusted

realize that proactively addressing

ESG evaluation in social andspread was attractive, because we

ESG issues is important to investors.

governance issues, based on the fact

found vulnerabilities in terms of waste

We have strengthened our investmentthat no changes had been made to

management, environmental

process by using an objective,

the senior management team for asustainability, and operational safety,

consistent and quantitative framework

long time, along with the fact that

we replaced it with a company

to identify and evaluate ESG factors

the insurance company held

meeting the same conditions that hadwith an emphasis on downside credit

investments in many companies witha higher ESG score. As this shows,risk. First, we identify issues related to

weaknesses in terms of responsible

introducing ESG risk assessment has

the sustainability of credit evaluation.

investment. We therefore decided

strengthened our investment

We identify their importance, taking

not to include the insurance company

framework, resulting in a portfolio

into account the likelihood of

in our portfolio.

more resistant to downside risk.

39 Messages from Outside Directors

Rikio Nagahama
Outside Director

Interview with Outside Directors

We will actively engage
to remain a trusted asset

We have been participating in comprehensive
discussions for more than two years since
becoming members of the Responsible
Investment Council.

Nomura Asset Management to bringin outside directors and that the
Stewardship Code and the Corporate
Governance Code had just been
adopted, I get the feeling that not
only myself, but also the company andCan you tell us about the role of the Responsible Investment Council andwhat you have been doing as Council members?

the industry as a whole have been
gradually finding our bearings as we
incorporate these new concepts.

Nagahama: I worked on the asset

Management in 2015 and a member

Nagahama: Ms. Kimura’s participation

management side at Dai-ichi Lifeof the Responsible Investment Council

in discussions as an outside director

Insurance, and later served as thein September 2016, I took responsible

has been very significant. Investmentpresident of DIAM (now Assetinvestment as my personal mission

and the law are completely different

Management One) for five years. I

and gladly accepted this fulfilling andworlds, but making decisions based

have thus been closely watchingsignificant role.

on a legal perspective is important

Japanese companies over the years

Kimura: Over the course of my longwhen it comes to the fairness of proxyfrom the perspective of an institutional

career as an attorney, my focus has

voting and responsible investment,

investor. I then spent about five years

been on international corporate legal

which are recent requirements. Ms.

away from the investment world until

affairs, and I have worked on many

Kimura’s expertise has brought a

I returned to it as the chairman of thefinancing deals, primarily involving

breath of fresh air and knowledge to

Self-Regulatory Committee of theequity and corporate debt. I accepted

the company and has helped enhance

Japan Investment Advisers Association

this position as an outside director(JIAA), but I have always had a first-

based on my knowledge of the capital

hand appreciation of the importancemarkets, having represented bothof the Stewardship Code and theissuing companies as well as securities

Corporate Governance Code throughcompanies. After taking office,my interaction and wide-ranging

however, I learned that the asset

discussions with companies andmanagement business is totallymarket players.

different from the business activities

As such, when I became an outsideof securities companies. That said,

director of Nomura Assetgiven that it was the first time for

Nomura Asset Management’s
System for Managing Conflicts ofInterest
Responsible
Investment Council

CCO**Chief Conflict Officer

Outsidedirectors

Responsible Investment Report 2018 Nomura Asset Management 40

Akiko Kimura
Outside Director

in responsible investment
management company.
our management of conflicts of

having taken part in thorough andmanagement business. I therefore

interest.

frank discussions, I am confident thatlook to express my opinions and

The Responsible Investment Council,

no such conflicts of interest haveparticipate actively in discussions by

the forum for discussions, is an

influenced investment activities.

attending the Responsible Investment

important body for an asset

Kimura: The most important thing we

Council as a member, in addition to

management company. As outside

have done thus far is to eliminate

attending Responsible Investment

directors, we must focus on managing

conflicts of interest based on theCommittee meetings to make sureconflicts of interest as neutral

customer-first principle. Governancethat comprehensive discussions are

Committee members.

by the law is the basic approach fortaking place.

As a Nomura Group company, Nomura

lawyers, so I was a little confused at

Recently, the materials submitted toAsset Management is predestined to

first about a company being governed

the Responsible Investment Committee

always be suspected of having aby something other than the law, such

have become more thorough thanks toconflict of interest. We must therefore

as the Corporate Governance Code.

the Secretariat’s efforts, and themaintain our independence as an asset

Still, given the fact that Japanese

increasingly lively discussions among

manager and have a more resolutecompanies have historically had low

Committee members. I am learning a

attitude than other asset managementlevels of transparency, the enactment

lot by listening attentively to Mr.

companies. Biased proxy votingof the Corporate Governance Code

Nagahama, who has a great deal offavoring the group’s interests must be

has most certainly resulted in a rapid

experience in the asset management

avoided at all costs. I have been keenly

improvement in governance amongindustry, as he freely expresses his

aware of managing conflicts of interest

Japanese companies.

legitimate opinions at Board offrom my very first day in office, andFrom the perspective of responsible

Directors meetings and Responsible

investment, having exhaustive

Investment Committee meetings.

discussions at Responsible Investment

Nagahama: A company becomes

Committee meetings is critical.

stronger when the Stewardship Code,Managing conflicts of interest

the Corporate Governance Code, ESG

appropriately through rigorous

and SDGs become ingrained into its

deliberations at Responsible

culture and operations, and this ends

Investment Committee meetings helps

up benefitting shareholders. I find it

to secure the trust of our clients,

extremely rewarding to play a part inwhich is the most important factor

responsible investment that will help

underlying the growth of Japan’s asset

to enhance corporate value.

Responsible Investment Committee

Chairman

Attendance

Members

Secretariat
Responsible
Investment
Department

41 Messages from Outside Directors

Participating in meetings besides the
Responsible Investment Council

that could be misinterpreted or leaveroom for scandal. As a participant in
the capital markets, it is also criticalthat we earnestly address any issues

In 2018, the Responsible Investment Committee and the Responsible
Investment Council each held four regular meetings where discussions
lasted around three hours in each case. A total of 16 extraordinary
meetings were also held by the Responsible Investment Committee andthe Responsible Investment Council.
In addition, if you also include the hours you spend listening to theSecretariats’ explanations on proposals, the time really adds up. How doyou feel about this?

that arise more broadly in the capital
markets.
We take pride in having moreexhaustive discussions than otherasset management companies. In
addition, as outside directors we also
participate in Board of Directors’

preparing for meetings andmeetings, Audit and Supervisory

another Japanese company, but mydiscussions is only natural for me toCommittee meetings and Fund

workload for Nomura Assetfulfill my stewardship responsibility as

Operation Advisory Council meetings.

Management is heavier and I spend

an outside director and as an Audit

The Fund Operation Advisory Council

more time on it than the otherand Supervisory Committee member

is a body that makes sure that thecompany. I also attend theof an asset management company.

company’s investment trusts are

extraordinary meetings of the

Nagahama: To be honest, before

structured so as to enhance

Responsible Investment Committee

taking office I also did not expect tocustomers’ interests and returns. I

related to M&A and other matters, so

spend as much time on this job as I

feel confident in saying that Nomura

if you include these meetings as welldo. However, as a Nomura Group

Asset Management has all thethe time really adds up.

company, we must discuss all mattersmechanisms in place to fulfill its

However, I think that spending time

thoroughly so as to never do anything

fiduciary duty.

January 1977
June 1978
January 2011
June 2015

Akiko Kimura

April 1973

Certified as an attorney (Dai-Ichi Tokyo Bar Association)
Joined Nishimura, Komatsu & Tomotsune (now Anderson Mori &Tomotsune)

April 1967
June 2004

Partner, Nishimura, Komatsu & Tomotsune
Harvard Law School (LL.M.)
Of Counsel, Anderson Mori & Tomotsune (present post)
Outside Director, Nomura Asset Management Co., Ltd.

June 2009
June 2010(present post)

June 2015

Rikio Nagahama

Kimura: I serve as outside director for

Joined Dai-ichi Mutual Life Insurance
Representative Director and President, DLIBJ AssetManagement Co., Ltd.

(Company name changed to DIAM Co., Ltd. in January 2008)

Adviser, DIAM (now Asset Management One)
Board Meeting Chairperson, NPO Triton Arts Network(present post)

Outside Director, Nomura Asset Management Co., Ltd.

(present post)

Responsible Investment Report 2018 Nomura Asset Management 42

Discussions about revising the Proxy VotingStandards

Council meetings and continue toprovide our candid opinions to makesure companies govern themselves
appropriately.

In order to enhance customers’ interests and returns, an asset
management company must exercise its voting rights responsibly toensure that portfolio companies adopt appropriate management
practices and thus enhance their corporate value and achieve sustainablegrowth. We revised our Proxy Voting Standards in November 2018. How
did you feel about the discussions regarding the revisions?

Our engagement needs to cover a broad

Kimura: Nomura Asset Management

Proxy Voting Standards is by no meanssocial (S) issues that ensure sustainability.

published the details of the Proxy

our idea of the best practice that a

Nagahama: That’s true. However,Voting Standards in 2017, and thecompany can follow – we wantbecause companies are very diverse,Standards are revised every year. As

portfolio companies to understand thatinvestors need to gather moresuch, they are still a work in progress.

we want them to continue to makeknowledge to appropriately engage

For example, shareholders’ proposals

improvements and go above andwith them. We are now in the process

have been increasing recently, so

beyond what our Proxy Votingof raising each other’s standards

revisions reflecting this were made toStandards call for.

through dialogue in order to create a

the Proxy Voting Standards in 2018.

Moreover, our engagement in not

win-win relationship with portfolio

Nagahama: Indeed, the Proxy Voting

conducted with respect to proxy voting

companies. This is very important, andStandards are still being fine-tuned.

alone, but also various other themes.

in my opinion it is a necessary process

Publishing the Proxy Voting Standards

Engagement began based on a desirein order for portfolio companies toalso encourages portfolio companies tofor portfolio companies to growgrow globally.

make efforts on their own, and theappropriately. Regarding ROE, for

Having experienced the bursting of theNovember 2018 revisions to the Proxyexample, institutional investors havebubble economy and the Lehman

Voting Standards were made with the

been paying close attention to ROE

shock, companies have made progress

aim of promoting more active

since before the bubble period, and it

in unwinding cross-shareholdings. As aengagement with portfolio companies.

has finally been systematized recently

result, investment in stocks has become

Introducing such revisions in November

after attracting enough attention.

more popular among the wider

allows the company to undertake

Kimura: When it comes to corporate

population, which is a good thing. As aengagement well before the Marchgovernance, Japanese companies tend

result, Japanese companies havethrough June period when mostto get into a situation of putting systems

become more shareholder-oriented,

shareholders’ meetings are held. Thisin place but actually giving a half-

and they have started to listen to andgives a company time to understandhearted effort, and they often place too

accept outside views. Companies have

our thinking and take appropriate

much emphasis on maintaining

made considerable progress, andmeasures ahead of its shareholders’harmony. We will continue to hold lively

Nomura Asset Management has likely

meeting. However, the content of

discussions at Responsible Investment

contributed to this in some ways.

Playing a part in supporting society by meetingcustomers’ expectations

range of topics, including business andfinancial strategies, governance basedon these issues, and appropriate
responses to environmental (E) andplant seeds and cultivate them.
Overnight success does not happen inthis industry. For this reason, ourWhat are your expectations for Nomura Asset Management going forward?

responsibility is to refine our company
analysis capabilities, and steadily

Kimura: Looking at the investment

and increasing its creditworthiness. I

invest in good companies. Placing top

trust data, it is clear that the asset

want the company to strive to turn itspriority on bolstering our investment

management business has greater

growth potential into a reality bycapabilities, I want us to deepen thepotential for growth in Japan than inmeeting investors’ expectations andmutual understanding with portfolio

many other countries. Mechanisms

demands.

companies so that they can continue

encouraging investment, such as NISA,

Nagahama: There are no cleverto grow sustainably. Ultimately, I

have gradually been put in place. We

gimmicks in asset management. The

would like us to take part in creatingmust meet investors’ expectations byasset management business is similarand supporting a society that ensures

improving its investment performance

to agriculture in the sense that you

shareholders’ interests.

43 Looking Back and Looking Ahead

Review of

2018This year marked the third year since the Responsible
Investment Department was created. At the beginning, we
worked to create an environment supporting responsible
investment, including strengthening the system for properly
managing conflicts of interest, adding multiple proxy voting
advisory companies, expanding ESG research resources, andbuilding a global engagement framework. In the second
stage, we have been focusing on efforts to enhance ourcapabilities and become more effective.
Looking back at our activities in 2018, we were able to focus
more on activities aimed at further enhancing the value of
portfolio companies. In particular, we spent a considerable
amount of time discussing proposals submitted toshareholders’ meetings, based on the need to have moreexhaustive discussions given the progress being made by
Japanese companies on corporate governance reforms. Our
own awareness and understanding of corporate governancecertainly grew based on the multitude of discussions weengaged in.
In addition, partly due to the diversification of dialogue withcompanies about ESG and other issues, we developed themilestone management system for engagement activities
and strengthened the PDCA cycle aimed at enhancing
corporate value. We also developed our own ESG evaluation
methodology, and otherwise advanced initiatives directly
linked to the return on investment of our own investment
products. As such, 2018 was a year of laying the groundworkfor the future.

2019
and Beyond

We want to make further advances in 2019. We will enhance
the Responsible Investment Department’s activities,
including engagement and proxy voting, to promoteresponsible investment, and ensure that these activities leadto enhanced corporate value by bolstering internal
coordination and through exhaustive discussions.
Each December, we hold an Annual Strategy Meeting, which
includes key members involved in investment and research
operations both in Japan and overseas. At the 2018 meeting,
we reconfirmed our thoughts on responsible investment andestablished a forum for sharing them globally. With this, in2019 all investment offices will be able to work together topursue responsible investment more than ever before. We
will focus in particular on further integrating ESG into ourinvestment operations to improve our investment
performance.
Collaborating with external initiatives such as the UN PRI
and ICGN is also critical, as important ESG topics like SDGs
and plastic issues are on the rise, led by overseasorganizations, and new regulations as well as emerging
social norms. In FY2019 and beyond, we will advance our
responsible investment efforts while keeping a firm watch on
global developments.

Toshiyuki Imamura

Head of the Responsible Investment Department

Responsible Investment Report 2018 Nomura Asset Management 44

Nomura Asset Management’s Participation in Various Initiatives
Initiatives supported by the GroupThe United Nations-supported Principles for
Responsible Investment (UN PRI) are principles
formulated in April 2006 in response to the call madeto the world’s largest institutional investors in 2005 bythen UN Secretary-General, Kofi Annan. The UN PRI
aim to incorporate ESG into actual investment analysis
and decision-making processes.
The results of our PRI assessment from 2018 are as
follows.

The United Nations Global Compact (UNGC) comprises
non-binding action principles advocated by then UN
Secretary-General, Kofi Annan, at the Davos Forum in
1999. It encourages businesses and groups worldwide
to take actions in the areas of human rights, labor, theenvironment and anti-corruption.

PRI assessment results
Strategy and governance(overall assessment)

A+

Status of integration into responsible
investment for listed stocks

A

Active ownership for listed stocks

A

Engagement

A+

Proxy voting

A

Bond investment (government bonds, etc.)

B

Bond investment (corporate bonds, etc.)

B

The Carbon Disclosure Project (CDP) is a project thatencourages companies to disclose their strategies tocombat climate change as well as their specificgreenhouse gas emissions. Current areas of focus
include climate change, water and forests.

The Task Force on Climate-related Financial Disclosures(TCFD) is an initiative launched in April 2015 by the
Financial Stability Board (FSB). It was establishedbecause climate change came to be recognized as athreat to the stability of the financial system.

The overall assessment of our responsible investment
initiatives was A+, the highest possible rating. We also
obtained the highest rating of A+ in engagement.

The International Corporate Governance Network(ICGN) was established in 1995 to promote effective
corporate governance standards and foster
responsible investment by investors to advanceefficient markets and sustainable economies
worldwide.

The Asian Corporate Governance Association (ACGA)
was established in 1999 to engage in research andprovide corporate support and education in order toimplement effective corporate governance practices
throughout Asia.

The United Nations Environment Programme –Finance Initiative (UNEP FI) is a partnershipestablished between the United Nations Environment
Program (UNEP) and financial institutions worldwide.
Since its establishment in 1992, UNEP FI has been
cooperating with financial institutions, policy makers
and regulatory authorities to promote a shift to afinancial system that integrates economic
development with ESG considerations.

Stewardship Codes Signed by
Nomura Asset Management

UK

Dec. 2010

JAPANMay 2014

HONG KONG
Sep. 2016

The financial principles toward the formation of asustainable society (Principles for Financial Action forthe 21st Century) are principles formulated in October
2011 as action guidelines for financial institutions whowish to fulfill their responsibilities and roles as
required for the formation of a sustainable society.

MALAYSIA
Apr. 2017

TAIWAN
Dec. 2016

SINGAPORE
Sep. 2016

www.nomura-am.co.jp