2019
Sustainability
ReportA team committed toour community,
our employees, andour planet.

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Nikko AM Sustainability Report 2019

Changing Times
A message from the Co-CEOsT

he world is undeniably going through a time of major social,economic, and environmental change. However, there is a greaterawareness today of the problems we are facing and, most importantly,
a growing desire in both the public and private sectors to act.

At Nikko Asset Management, we havea positive outlook on the future of
our world. We believe that our actions
have an impact, so we are invested indoing everything we can to ensure our
employees, our clients, the communities
where we work, and the environment all
benefit and prosper over the long term.
We are pleased to be bringing you
Nikko AM’s first Sustainability Report. In
it, you will read about our commitment
to being a responsible investor; the environmental, social, and corporate governance (ESG) considerations we are integrating into our investment strategies;
and our current activities aimed at helping the people and the world around us.
This report is also an opportunity
to announce the three core areasof focus of our sustainability activities going forward: diversity andinclusion (D&I), reducing inequalities, and environment and climate.
D&I is an area where we are alreadydeeply involved. Among our many D&I
initiatives, we are dedicated to promoting women’s empowerment andadvancement, and we have createdthe LGBT Working Group to better
engage with our LGBT clients andestablish a more supportive workplace for all our employees. We are truly
excited to see how a greater emphasis on D&I will shape and develop
our business in the years to come.
Reducing inequalities can beapproached in numerous ways, but one
way we are currently taking action inthis area is through events we hold toimprove the financial literacy of children. By making financial education
fun, we are encouraging the next generation, from a young age, to strive
for economic independence, which“...we can be more effective at making ameaningful difference in our workplaces andour world”
will lead to a more sustainable society. We are looking forward to expanding our activities in this area and, ultimately, contributing to a fairer future.
Environment and climate are now fundamental considerations of our business, both within our company andwithin our community. We are very
proud to have been recognised as acarbon-neutral organisation last year,
and we are continuing our efforts to
reduce our carbon footprint. We arealso improving our climate impact inother ways, such as by removing plastic bottles from our offices and promoting the use of reusable bags among ourstaff. An area of particular importanceto us is our commitment to seeing that

more communities around the world
have access to clean water. Through aground-up initiative from staff, the firm
has sent teams of volunteers to installwater filters in rural villages in Cambodia.
By placing our focus on these threeareas, we are confident we can be
more effective at making a meaningful difference in our workplaces andour world. And as we put our values
into practice, we believe we are helping to make the future brighter.
We look forward to continuing on
this journey in the years to come.
Junichi Sayato, Chairman and Co-CEO
Hideo Abe, President and Co-CEO3

Nikko AM Sustainability Report 2019

Nikko AM
2019 Sustainability Report
2

Changing Times
A message from the Co-CEOs

Introduction
56
8
9

Our Commitment
Our Company at a Glance
Our Responsibility as a Company
Pursuing Fiduciary Duties and ESG Principles
A message from the Chairman of the Board of Directors

ESG at Nikko AM
11

Our Commitment to ESG Principles

12
13
15
17
19
21
23
25
27
29
30
31
33

Our History
Our Approach
Japan Equity Team
Global Equity Team
Asian Equity (Ex. Japan) TeamJapan Fixed Income Team
Global Fixed Income Team
Asian Fixed Income (Ex. Japan) Team
Portfolio Solutions Group
Good Governance: Proxy Voting
Our Engagement
Our Engagement: Case Studies
Climate-Related Financial Disclosure Update

A message from the Chief Investment Officer

Our Sustainability Activities
35

A Passion for Sustainability
A message from the Head of Corporate Sustainability

36
37
39
41

Our Approach
Diversity & Inclusion
Environment and Climate
Reducing Inequalities

Looking Ahead
44
45

External Commitments
Contact Information

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Nikko
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2019

Introduction

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Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Our Commitment
A
t Nikko Asset Management, we havealways taken a long-term view. We
are committed to running the firm
responsibly for the benefit of all our stakeholders, and we believe that environmental, social, and governance (ESG) considerations are key to creating future value forour clients.
Through the framework of the
Sustainable Development Goals (SDGs)
adopted by the United Nations, countries,
industries, and markets around the world
are increasingly striving to resolve socialand environmental issues in order to realisea sustainable society.
As an asset management company, we
believe we are in a position to effect realchange — not only by engaging with ourclients and the companies we invest in, butalso by fostering a corporate culture thatembraces the tenets of the SDGs.
Together with our stakeholders, we willcontinue to work towards a sustainable
future, by promoting ESG through ourinvestment activities and sustainability in
our corporate activities.

Our responsibility as a company
As a company, we are committed
to upholding a world-class level ofcorporate governance. We believe
this is fundamental to maintaining
the trust of clients, prospective clients,
the public, regulators, and other key
stakeholders. Seven of our ten-member
board of directors are outside directors,
ensuring that top-level decisions are
made by an independent board.

“...we believe
we are in a position
to effect real change”

Our responsibility as an investment
manager
As an investment manager, we arecommitted to putting our clients’interests first. Fiduciary and ESG
principles guide all our corporate
activities. We see ESG integration as
inherent to long-term value creation andinseparable from good investing. Guided
by our ESG policy, our investment
teams implement ESG in a manner best
suited to their investment strategy andecosystem. We also engage in active
dialogue with the companies we invest
in, and have a transparent, standardised
approach to proxy voting.

Our responsibility as a corporate
citizen
As a corporate citizen, we are committed
to working towards a more inclusive
society and reducing our impact on
the environment. Led by the Corporate
Sustainability Department, oursustainability activities have three focus
areas: diversity & inclusion, reducing
inequalities, and environment andclimate. Also, at each Nikko AM office,local working groups lead ground-up
activities that are pertinent to thecommunities they work in.

6

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Our Company at a Glance
Global Citizen with Asian DNA
Extensive global resources11

countries#

USD

246

bn^

total AUM

• Japan• Australia• Hong Kong
• United Kingdom• Luxembourg• Germany30+

nationalities*• Americas• Singapore• New Zealand• China• Malaysia

Our Specialisations

Our Global Capabilities
Qualitative insight through a broad rangeof global investment capabilities

Equities
Global, Asia–Pacific (ex. Japan),Japan, Australia, China,
New Zealand

Total Assets Under Management (AUM): USD 246bn^

Fixed Income
Total Equity

56.7%

Total Fixed Income

15.0%

Cash Equivalent

13.6%

Balanced

7.9%

Alternative/Others

6.8%

Global Bonds, Green Bonds,
Asian Local Currency, Asian Credit,
Australia, New ZealandMulti-Asset
Global, Emerging Markets

ETFs
Equities, Bonds, REITs#
As of Dec 2019. Including overseas subsidiaries, affiliates, and minority joint ventures.
* As of Dec 2019.
^
Consolidated assets under management and advice of Nikko AM as of Dec 2019, including subsidiaries but excluding minority affiliates and minority joint ventures.

7

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Our People

A History of our Sustainability
Activities
1999•

Launched Japan’s first socially responsible
investment fund

2007

•
•

880

Became a signatory of the UN PRI
Became the first Japanese asset manager to disclose
its proxy voting results on our corporate website

2008

•

Employees*

across the globe

Established the Nikko AM Fund Academy training
centre to educate clients on our products

2010

•

Launched the world’s first fund developed with theWorld Bank. Also, developed our own Corporate
Environment Policy

2011

•
•

206

Signed onto Japan’s Ministry of Environment-led
Principles for Financial Action for the 21st Century
Served as chair of PRI-Japan Network (April 2011 – 		March 2014)

2013

•

Investment
Professionals*

with an average of
21 years industry experience

Developed Creating Shared Value (CSV) equity
investment strategy (Japan)

2016

•

Established the Stewardship and Voting Rights Policy
Oversight Committee and the Global ESG Steering
Committee

2017•

Enhanced governance with full disclosure of its
voting rights (Japan)

2018

107

*

Portfolio Managers
with extensive, andlocally-driven researchcoverage* As of Dec 2019.

•
•
•
•
•
•

Became the first Asian-headquartered asset manager
to support all four areas under The Investor Agenda
Served as vice-chair of the Asian Investor Group on
Climate Change
Adopted the UN Women’s Empowerment Principles
Established the Corporate Sustainability Department

2019
Published our inaugural TCFD Report
Certified as carbon neutral

8

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Our Responsibility
as a CompanyAs a global asset manager, Nikko
Asset Management is deeply
engaged in environmental,social, and governance (ESG)
initiatives and how they are implemented
at investee companies.
To enhance our commitment to sustainability in our own business operations, as well as our investment approach,
we took the decision to establish the
Corporate Sustainability Department in
September 2018. Our focus on sustainability is long-term and we are continuously working to serve the interests of all
our stakeholders — clients, employees,
shareholders, and the society in which
we operate.
Governance
As we seek improvements in the governance of the firms we invest in, we wantto ensure that we have a rigorous androbust governing structure in place. To
this end, we have built three pillars ofgovernance, namely management governance, voting rights governance, andfund governance.
Governance is our top priority. All of
our efforts — with regard to management governance, voting rights governance, and fund governance — aredirectly reported to our board of directors in Tokyo. With our conviction that thebest governance can only be achieved
with scrutiny from outside, we strive tomaintain independent oversight. We do
this by ensuring that our Japan board of
directors is chaired by an independent

director, and by appointing even more
external directors to our board of directors than the number required of listed
firms. We also ensure strict independence
in the governance of our voting rights
activities and funds by entrusting it tocommittees that are chaired by independent members and have a majority of
independent members.
Management governanceAs befits a firm entrusted with managing
the assets of clients, our business operations are presided over by a senior management team that is well versed in asset
management. Our approach to securing
management talent is predicated on ourstrong belief that having such a team inplace gives Nikko AM the strongest possible foundations.
The appointment of Yoichiro Iwama
as an outside director and Chairmanof the Tokyo Board of Directors in May
2018 was to strengthen our governancewith his independent perspective andextensive knowledge. His participation
has further invigorated our Japan boardof directors, enhanced the transparencyof its decision-making process forimportant business management
matters, and generated lively discussions
on issues including how to enhance
our asset management capabilities. By
having debates and discussions basedon the respective areas of experienceand knowledge of our directors andoutside directors, we constantly examine
ways of refining our vision for the

future of Nikko AM and differentiating
it from our competitors’ with a forwardlooking perspective on the asset
management industry as a whole.
As of December 2019, Nikko AM’s Japanboard of directors has seven independent
directors (including the chairman), six ofwhom have no capital relationships withthe company. This ensures a high level of
independence and transparency in ourgovernance relative to our industry peers.
Voting rights governanceWe established the Stewardship andVoting Rights Policy OversightCommittee in Japan in June 2016 to
improve transparency in our stewardship
activities, such as engaging with firms
and exercising voting rights, as well as tostrengthen our governance. Drawing the
majority of its members from outside thecompany, the committee is the first suchthird-party body to be established at aJapanese asset management company. It
holds meetings once a quarter inprinciple and provides a venue foroutside committee members to havelively discussions on how Nikko AM
exercises its voting rights. The committee
has held a total of 18 meetings so far.
Fund governanceWe established the Fund Advisory Board,whose members are also mostly external,
in September 2017. The Fund Advisory
Board met a total of three times in 2019and its outside members participate indebates at its meetings.

9

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Pursuing Fiduciary
Duties and ESG
Principles
A message from the Chairman of the Board of
Directors, an outside directorIn recent years, there has been growing discussion on how the investment industry can contribute tocreating a sustainable society. Assetmanagers play an important role in
the proper functioning and continuous growth of capital markets, and they
can do their part by managing excessive short-termism and helping to build
a sustainable society. For example, if
an asset manager has a mandate froma client focused on environmental,social, and governance (ESG) considerations, the manager’s duty is to enhancethe value of the investee company byengaging with its management and promoting corporate reform. Put simply,
asset managers can act as agents forinvestors who entrust them to address
societal issues on their behalf.
As Japan’s capital market recovers
from the doldrums of the so-called “lostdecades”, the fiduciary duty of asset
managers has come under the spotlight.
That is why Japan’s Stewardship Code,released in 2014 and which I helped todevelop, is vitally important. The Codeaims to get institutional investors to fulfil
their fiduciary responsibilities. It alsoemphasises engagement with stakeholders, which we believe is essential
to the strengthening of the investment
chain in the years ahead. Engagementin capital markets is moving in the right
direction, although it still has room to
grow. Now, asset managers are awarethat putting ESG principles into practicethrough far-sighted engagement is synonymous with value creation. As a result,more asset managers are pursuing thistype of engagement in their relationships with investee companies, and also
as a basic element of their stock selection process.
Improving governance to strengthen
global capital markets
An extremely important way of creating value in line with our fiduciary
duty is through proper governance inmanaging our funds, proxy voting, andbusiness. We need to continue enhancing the way we manage our own business if we are to demand better governance from investee firms.
Nikko Asset Management’s global
presence distinguishes it from otherJapanese asset managers, and it hasdeveloped into its present form withthe acquisition of asset management
firms in different regions. With its
extensive global network, Nikko AM has
successfully created an organisation
with a highly diverse workforce while
retaining its Japanese roots. Given its
track record of creating innovative
products and services, the firm’s
influence is likely to grow ever stronger
in tomorrow’s global capital markets.
As an independent director and as thechairman of the Japan board of directors,
I feel keenly responsible for Nikko
AM’s future development. The board
supports the firm with oversight of how
its business is executed while making
sure its fiduciary duty is clearly being
fulfilled. Our remit includes ensuring thatthe company’s executives are evaluatedproperly and that there is a succession
plan in place. As we continue to steer
the firm, I will continue to deepen myknowledge in this industry by working
closely with our executives and also bylearning from them.
Yoichiro Iwama
Outside Director and Chairman of theBoard of Directors

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ESG atNikko AM

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Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Our Commitment
to ESG Principles
A message
from theChief Investment
OfficerAt Nikko Asset Management,
environment, social, and governance (ESG) principles are apillar of our corporate identity,
and these principles have been integrated
into our investment process. In 1999 welaunched Japan’s first socially responsible
investment (SRI) fund, and for the past two
decades we have made a concerted effort
to link ESG factors with excess returns.
In our view, the approach that corporations are taking towards ESG has enteredan entirely new stage that would havepreviously been unthinkable; we are at thestart of an era when the creation of social
value leads to the generation of economic
value. Sustainable development goals and
ESG principles now feature prominently
as crucial business components for many
firms. Companies use these factors as ameans to generate revenue and increase
competitiveness, and it is becoming clearthat including such considerations ininvestments creates outperformance.
We have consistently stayed a stepahead of our peers: in 2013 our analysts
began a comprehensive assessment ofcorporate value through our Creating
Shared Value (CSV) evaluations, which
include ESG factors, and we have been
incorporating this process in our Japaneseequity investments. A key feature of our
ESG approach is our evaluation method.
Rather than just superficially taking aquantitative approach where we analyse firms’ corporate social responsibility
reports, we instead engage with them toassess to what extent ESG factors are generating financial value. We have built up
six years’ worth of this unique analysis, andwe have developed many ESG-specific“...we are at the startof an era when thecreation of social
value leads to
the generation of
economic value”
strategies that employ our CSV evaluations. These factors have all contributed
to generating excess returns.
Our investment teams are basedin locations throughout the world,
including the UK, the US, Singapore,
China, Australia, and New Zealand. As
a result, there is no single approach toincorporating ESG factors into portfolio construction. Each investment teampossesses its own unique understanding of ESG, and each team conducts
ESG-related investments from a variety ofperspectives.
While global interest towards
sustainability is increasing at a rapid pace,
there are myriad challenges in achieving
and maintaining it. Asset management
firms have a responsibility to help
overcome these challenges. Therefore, byalways acting in a spirit of fiduciary duty
and fidelity to ESG principles — and byconstantly improving through innovation— we will continue to do our utmost to
provide high-quality financial services thatmeet our clients’ needs.
Hiroki Tsujimura
Executive Vice President,
Global Head of Investment, andChief Investment Officer

12

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Our History

S

ince the establishment of Japan’s first socially responsible investment(SRI) fund in 1999, we have put a priority on being environmentallyfriendly in our asset management operations. One of our environmental
policies is to increase green investments, and we implement environmentallyfriendly initiatives by providing SRI funds in Japan.
In October 2007, we signed the United
Nations-supported Principles for
Responsible Investment (PRI) to express
our commitment to the conservationof the global environment and thedevelopment of a sustainable society
through asset management. We
served as a co-chair of the UN PRIJapan Network from 2011 to 2014.
In addition, we have participated asa drafting committee member since2011 and, since 2014, served as asteering committee member of Japan’s
Ministry of the Environment’s Principles
of Financial Action for the Formationof a Sustainable Society (part of its
Principles of Financial Action for the
21st Century).
In August 2018, we became thefirst Asian-headquartered asset
manager to support all four areasof The Investor Agenda, a platform
aggregating investor initiatives
relating to climate change. This

includes being a signatory/supporterof the Global Investor Statement toGovernments on Climate Change,
Climate Action 100+, as well as to the
Task Force on Climate-related Financial
Disclosures (TCFD). We also serve as
the vice-chair of the Asian Investor
Group on Climate Change (AIGCC).
Going forward, we will continue
to further strengthen our ESG
implementation through improved
training, analysis and engagement.

13

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Our ApproachF

iduciary and ESG principles are among Nikko Asset Management’s key
guiding themes as an asset management company. To clarify our groupwide commitment, we set out the Code of Conduct for Fiduciary & ESG
Principles and established our ESG Global Steering Committee in 2016.

Nikko AM Tokyo Board of Directors

ReportOversight/
Resolution

Stewardship and Voting
Rights Policy Oversight Committee

ReportOversight/
Resolution

Stewardship and Proxy Voting
Committee

The ESG Global Steering Committee
oversees the fulfilment of ESG commitments and is chaired by the Global
Head of Investment, who is also amember of the Global Executive
Committee (GEC). The steering committee is mandated by the GEC andreports to the board of directors atleast once every quarter.
The ESG Global Steering Committee
comprises leaders from our investment
teams worldwide, who are in charge of
ESG implementation in their individual investment processes. The steeringcommittee is responsible for evaluating

ReportOversight/
Resolution

ESG Global Steering
Committee

ReportOversight/
Resolution

Investment Departments(Global)the effectiveness of this implementationand improving our approach to ESG. It
also drives the implementation of thesix principles of the United Nationssupported Principles for Responsible
Investment.
ESG specialists support the investment teams, primarily through internal capacity building, with theaim of having all investment professionals integrate ESG into theirinvestment processes to the fullest extent. Furthermore, eachregional office is required to present its ESG implementation activities

regularly to its respective board.
At Nikko AM Japan, the ESG framework is supplemented by our company’s stewardship and voting rights
governance structure, consisting of
the Stewardship and Proxy Voting
Committee (Voting Committee) andthe Stewardship and Voting Rights
Policy Oversight Committee (OversightCommittee). The Voting Committee
is responsible for guidance related to
Nikko AM Japan’s stewardship activities,
including formulating its stewardshippolicy, as well as amendments to theproxy voting policy.

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Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead“...we believe that thorough research, vigorous debate, and direct
engagement with companies give us a first-hand appreciation of the issues.
These are still the best ways to size up ESG factors and judge their impact
on an investment outcome”
Comprised mainly of independent
directors of Nikko AM in Tokyo, theOversight Committee is an independent body with oversight authority. It
monitors our Japanese operations toensure that our company engagement
and how we exercise our voting rights
are in line with our policies and truly
meet investor interests. The OversightCommittee is also fully integrated into
Nikko AM’s governance structure as it isrequired to report on its activities anddecisions to the board of directors.
Our firm-wide ESG policy sets out
how we manage and govern ourselves
sustainably, and our code of ethics
describes our core values, corporatesocial responsibility, and global citizenship. Where appropriate to the asset
class, investment strategy, and client
requirements, certain investment teams

may maintain specific ESG policies andprocedures pertaining to their investment philosophy and process.
In 2019, we developed our Position
Statement on Climate Change to reinforce our commitment and outline
our approach to combatting climatechange. This statement addresses allareas of impact under The Investor
Agenda.
We have a strong emphasis on internal training, and mandate that each
investment professional undertakes
ESG training.
Through our proxy voting process
and engagement with the companies
we have invested in, we are an active
owner. And, as a long-term investor,
we believe that an active dialogue
and engagement with the management team, where appropriate, canboth improve ESG performance and sustainability, as well as help an investor tomore fully understand these efforts.
We use external ESG research reports
to augment our research. Ratings canhighlight companies deemed to behigh-risk. These companies would
then undergo more in-depth analysis and debate within the team, as wellas through our ESG Global Steering
Committee.
That said, we do not believe an organisation’s commitment to do the rightthing can be so easily captured by arating alone. Ultimately, we believe thatthorough research, vigorous debate,and direct engagement with companies give us a first-hand appreciation of
the issues. These are still the best ways
to size up ESG factors and judge theirimpact on an investment outcome.

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Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Japan Equity TeamOur approach to ESG
Our Philosophy
To generate new growth, companies today must have a strong
approach to ESG. By investing in thestocks of such companies, we believethat excess returns can be achieved
over the medium to long term.
The Japan Equity team aims to generate alpha by picking companies withsuperior ESG practices through a stock
selection process that combines both
negative and positive screening, andan optimisation process that incorporates thorough management of risks.

ESG
Implementation
When we conduct a historical comparison between leading ESG indices and the TOPIX, it is apparent that
ESG indices do not always outperformthe market. This implies that investingin companies with superior ESG ratings on its own is insufficient for outperformance. Instead, a well-conceived
approach is necessary when implementing ESG considerations. As with any
investment, appropriate stock selection and portfolio management are
crucial to improve performance andcontrol risk within an ESG strategy.

The Japan Equity team believes
that a superior ESG investment process should:• pursue alpha through a combination of financial and non-financial information, including ESG• focus on ESG factors thatlead to future earnings andstrengthen competitiveness• involve consistent engagement withcorporate management teams
CSV evaluations of individual stocks:
Positive screening
All active Japan equity investment strategies incorporate Creating Shared Value(CSV) evaluations, which take ESG factors into consideration. It is a comprehensive score that was developed byapplying the CSV theory proposed byProfessor Michael Porter of Harvard

University. The score assesses how companies balance their engagement of
ESG issues with the pursuit of profitability and competitiveness, in order tocreate value for both society and shareholders. Our analyst research has incorporated CSV evaluations since 2013.
Approach to firms with governancerisk: Negative screening
Firms that have been involved in criminal conduct, fraud, and/or accounting fraud, or that have caused environmental or social problems, are classified
as having governance risk. The Japan
Equity team excludes firms with perceptible corporate governance risk from its
investment universe, while also seeking to promote better governance byengaging with the firms it invests in.

SPOTLIGHT
The CSV Score

Hiroki Wakita, Equity Analyst
Incorporating the Creating Shared Value (CSV) evaluation score allows us toassess and capture momentum change of corporate value, not only of thecompany’s ESG but also of its financial and market competitiveness. This isbecause the score is updated by our in-house analysts regularly throughengagement with companies. Analysts apply positive scores for those that areproactive on synergistic ESG initiatives, which can likely become a catalyst of
corporate value enhancement. The degree to which ESG information, such as CSV
scores, is incorporated varies based on each portfolio strategy.

16

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead“To generate new growth, companies today must have astrong approach to ESG”

Operational flow for handling firms with governance risk
• Analysts estimate impact on
corporate results, summarise
related news, and convey this toportfolio managers• Governance specialists analysefrom govemance perspective

Emergence ofgovernance risk

Follow-up
research byanalysts

Meetings by
portfolio
managers,
analysts andgovernancespecialists• Initial ABC assessment* of firmwith governance risk
• Client-facing departments
informed where necessary

Initialassessment• If situation is serious from anenterprise value perspective,
investment team to discuss
necessity of selling out of stock*ABC assessment (scoring of firms on governance risk)
A: Not deemed a governance risk firm (don’t oppose director appointment proposals)
B: Deemed a governance risk firm (oppose director appointment proposals)
C: Deemed a governance risk firm and holding of stock not recommended from corporate ethics perspective• Firm to be continuously
evaluated based on how
engagement develops
Monitoring of firms
with corporate
governance risk

Engagementwith firms,
actionstaken withindividual
firms• Engagement with firm, mainly
undertaken by govemance
specialists; analysts also
attend if necessary

Upwardrevision ofevaluation• Monitoring to continue
until measures are
implemented toprevent reoccurrence,
and a decision is madethat govemance riskhas diminished17

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Global Equity TeamOur approach to ESG
Our Philosophy
Our investment philosophy focuseson purpose-led Future Quality businesses, which can attain and sustain thebest returns on capital in the market. It
is our view that businesses with solutions to environmental and social problems, which provide value across all theirstakeholder groups, will position themselves to be among the high-return
companies of the future.
Society cannot solve the problems
that it faces without the private sector
making a significant contribution. As aresult, we believe the market will increasingly allocate capital to companies thatsolve these problems while also behaving in a way that provides suitablevalue to all their stakeholder groups.

ESG
Implementation
Profits to companies are as red blood
cells are to humans. We need red blood
cells to survive and thrive but our purpose in life is far more than just theirproduction. The same is true in business. Profits are essential for companies, but the purpose of a business isabout far more than simply the generation of profit. The best businesses
understand this as they consistently
provide value to all their stakeholders.
Investors need to integrate a consistent methodology to monitor corporate behaviour and governance while
engaging with firms to effect change.
However, to be a long-term investor, one needs to focus on companies
that can not only act responsibly but
are also actively working to address
the social and economic problems weface — problems that have never been
greater. For this to be done sustainably,

we believe it also needs to be done
profitably. We believe companies thatcan do this will be the winning businesses of the future. Companies thatare purpose-led, creating value for allof their stakeholders, are more likely
to attain and sustain high returns andbecome Future Quality investments.
Our search for Future Quality focuses
on researching and investing in some of
the most profitable companies. Given
the scale of the challenges faced acrossthe world today, we are finding an everincreasing number of companies thatcan form part of the solution rather thanbe part of the problem, which is critical for both future financial returns andthe wellbeing of future generations.
ESG data provides a limited and often
imperfect snapshot of how companies
are dealing with and thinking about
ESG issues. A focused portfolio of purpose-led Future Quality companies,
with solutions to the critical environmental and social difficulties we face
today, should be the defining characteristic of a truly sustainable approach.

Purpose-led Future Quality
Purpose-led
Future Quality

Multi-stakeholder
model

Consumers

Customer

Employees

PlanetSociety

Shareholders

Strong financial
performance

GrowthCashflow

Return on
capitalLONG TERM
VALUE

18

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead“Undoubtedly, the older demographic will add to the existing strains onsociety, but it will also offer increasing opportunities forsolution providers“

SPOTLIGHT
Opportunity in an Ageing World
Johnny Russell, Portfolio Manager

The world is getting older, and fast. Populations, both indeveloped and emerging countries, are ageing, driven
by both increased life expectancy and reduced fertility
rates. The rising share of older people globally requires thedevelopment of a range of policies, products, and services
aimed to minimise the economic impact and maintainliving standards.
Delayed retirement, multiple career paths, good healthand wellbeing, and cheaper healthcare costs may all be
required.

Undoubtedly, the older demographic will add to theexisting strains on society, but it will also offer increasing
opportunities for solution providers.
Our portfolio of Future Quality companies has asignificant exposure to companies helping to solve thisissue. In doing so, they are also addressing a number of theUnited Nations’ Sustainable Development Goals.

19

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Asian Equity (Ex. Japan)Team
Our approach to ESG
Our Philosophy
We believe that Asian markets are inefficient and individual stocks are prone toperiodic mispricing. Our investment process is driven by the belief that active
management, based on thorough fundamental research of companies, cantake advantage of this inefficiency todeliver strong returns over the longer
term — if this process is consistently executed in a team-based environment. All
stocks in each portfolio reflect our conviction in the need to find sustainabilityof returns and/or positive fundamental
change, and we consider environmental, social, and governance (ESG) factors
to be an important part of this evaluation process.

ESG
Implementation
Acceptable ESG is a prerequisite forinvestment in a company but it is not
the sole determinant. Other considerations include the sustainability of
a company’s returns/profitability, fundamental positive changes, financial

indicators, quality of management, andvaluation. However, where negative ESG
issues are identified in the investment
process, with little or no evidence that
corrective measures are being taken, thecompany is excluded from investment
consideration regardless of its strengthin other areas.
The Asian Equity (ex. Japan) teamincorporates ESG across various
stages of the investment process
Idea generation: Screening flags,
third-party data support
We assess ESG risks of companies during
the stock selection process. All known
companies with negative ESG issues are
flagged in the research database andare considered ineligible for investment
unless the company has shown tangible efforts to improve. Analysts continually evaluate companies, and thesefirms’ behaviour towards ESG issues are
updated in the database as appropriate.
We also use third party data providers’scoring and analytics tools.
Fundamental analysis: Integrated
research process and relative scoringon ESG factors
A key part of our fundamental analysis

toolkit is the integration of ESG
materiality assessments. This helps us tobuild the case for the sustainability ofearnings and risk mitigation, and it allows
us to identify industries or companies
undergoing positive fundamental
change. ESG is not the only determining
factor of our investments but it canbe an important consideration. ESG
assessment — corporate governancefactors, in particular — has been an
integral part of our investment processsince its inception over 10 years ago.
We actively research and score companies based on ESG factors relative
to their peer group. We believe thata company’s corporate governanceframework must promote timely, accurate, and transparent disclosure ofimportant information, giving a complete picture of the company’s performance and prospects. An assessmentof the beneficial ownership track record
here is key across all investments.
Portfolio construction and risk management: Sell discipline
The rating of a company can be downgraded to SELL1 or SELL2 for negative
ESG developments, depending on theseverity of the issue. Our independentrisk team also performs checks on low
ESG ranked and downgraded stocks.

Robust, tried-and-tested investment process

1. Opportunity
set definition

Screening universeby liquidity andmarket capitalisation

2. Idea
generation

Mispriced
stock screening
Analysts’
generation ofideas

3. Detailed fundamental research

4. Portfolio
construction

5. Ongoingrisk monitoringand management

Sustainabilityof returns

Ranking-based
weight guidelines

Independentrisk monitoring

Positive fundamental
changePortfolio manager
discretion

Testing of statedprocess

Internal stockranking

Sell discipline

20

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead“...the best way to carry out thorough ESG analysis is with astrong on-the-ground analyst team, fundamental research, andactive engagement“

SPOTLIGHT
Incorporating A-SharesPeter Monson, Portfolio Manager
One of the biggest developments in our markets overthe last two years has been the opening of the A-sharemarket to foreign investors. Adapting an ESG assessment
framework for this market has been an interesting
experience given ownership characteristics, the lack of
relevant data and disclosures, and cultural nuances (forinstance, the paying of dividends is perceived negatively

in China). We have consistently found that the best way tocarry out thorough ESG analysis is with a strong on-theground analyst team, fundamental research, and active
engagement. This could not be more relevant to the
A-share market and is something we look to achieve with
our dedicated China team and local joint venture partner
Rongtong Fund Management.

21

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Japan Fixed
Income TeamOur approach to ESG
Our Philosophy
In order to pursue excellent performancein domestic bond management, it iscritical to evaluate creditworthinessby analysing both quantitative risks,such as debt repayment ability, andqualitative risks that cannot be captured
by financial analysis. The environmental,social, and governance (ESG) viewpoint
is positioned as an important factor in
qualitative risk analysis.
In our team, credit analysts who analyse creditworthiness perform both fundamental analysis and ESG factor analysis
of individual issuers. ESG is incorporated
into the investment process by comprehensively evaluating both the fundamentals and ESG of the industry/issuer
and reflecting it in investment decisions.

ESG
Implementation
We have set out eight items (twoitems related to the environment,

and three items each related tosociety and governance) in analysing
ESG factors. Credit analysts are
required to evaluate these ESG
factors alongside fundamentals in
the issuer report. In addition, we
share ESG views within our team atmonthly meetings attended by fundmanagers and credit analysts. We
believe that frequent conversations
on ESG support a process that allows
us to promptly reflect a change incircumstances that negatively affects
creditworthiness, including ESG events.
For green bonds, our team considers
performance contributions to be
the primary investment criteria andwill conduct the same robust levelof research on creditworthiness of
the issuer as we would for a regularbond. Regarding security selection,
we prefer investing in securities
that have been certified by thirdparty organisations and that are
expected to yield higher returns.
For example, we invested in a green
bond issued in 2018 by Japan’s firstreal estate investment corporation(REIT ). We arranged a meeting with

the issuer before investing anddetermined that the green bondissuance could have a positivesynergistic effect on the issuer’s
fundamentals, such as proactive
efforts for green-eligible assets andthe introduction of green leases.
We will continue to contributeto the expansion of the green
bond market by suggesting
green bonds to potential issuers
based on their business structureor asset characteristics.
A recent observation we havemade in the Japan credit market isthe increase of SDG bonds that canaddress not only environmental
but also social issues. While thenumber of issuances, especiallythose by corporates, is currently low,
we decided to purchase one thatwas issued by a Japanese shipping
company. Through our regularcommunication with the company,
we strongly believe that we have
deepened our understanding of its
social and environmental initiatives
and that these will have positivesynergy with its fundamentals.

A framework that catches momentum change
Catch signs of fundamental changes in early stages
Contact with issuers
Continued company visits

Access to unlisted issuers

Fixed point observation of
fundamentals

Fixed point observation of
ESG factors

Share findings
with the teamEvaluate creditworthinessNews flow

Fund managers

Proactive investment decisions*This chart is for illustrative purposes only

22

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead“The announcement last year that one of the credit rating agencies decided
to disclose ESG factor analysis illustrated huge progress amid thesteady steps taken”

SPOTLIGHT
Dialogue with Japanese Credit Rating Agencies
Akihiko Yoshino, Group Manager of Credit Research
Japanese credit rating agencies signing the UN PRI’s
Statement on ESG in Credit Risk and Ratings in 2017 was asignificant catalyst that accelerated momentum to reflect
ESG factors in creditworthiness evaluation in the Japan
market.
As soon as we signed on to the statement at its launch in2016, our team started to initiate dialogue on ESG factors
with both Japanese and global credit rating agencies.
We are an active participant in industry conversations.
For example, we hosted and served as a panellist in theseminar “ESG Issues in Credit Risk and Rating” organised

by UN PRI. At the seminar, we candidly discussed thecurrent situation and challenges that lie in the industry
with Japanese credit rating agencies to encourage them
towards better ESG integration. We are pleased that ourcredit risk case study was selected for inclusion as one of
UN PRI’s case studies.
The announcement last year that one of the credit rating
agencies decided to disclose ESG factor analysis illustrated
huge progress amid the steady steps taken. We believe our
dialogue with them contributed to this breakthrough andhighlights our role as an investor.

23

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Global Fixed
Income TeamOur approach to ESG
Our Philosophy
We believe in employing a consistentinvestment process that incorporates
quantitative and qualitative inputs togenerate ideas and construct highconviction portfolios, where we getsuitably rewarded for the risk weundertake. Bond investors have aunique opportunity to identify risks,engage issuers, and build relationshipsthat can influence change. At Nikko
Asset Management, we see ourselves
as capital allocators and we intend tocontinue our efforts to provide thecapital needed to meet the United
Nations Sustainable Development
Goals. We believe it is our responsibility
to create innovative products andstrategic partnerships across the capital
market structure that will establish
pathways for meaningful flows into
sustainable investments.

ESG
Implementation
ESG is considered across all of our products. In the investment process, ESG isapplied at the screening and research
stage, and the portfolio construction stage. The scale and manner that
ESG is integrated depends on productexpectations.
For example, our flagship green
bond strategy strictly invests in green
bonds issued by global AAA-rated
sovereigns, supranationals, and agencies(SSAs) with the strongest sustainability
credentials, such as the World Bank,
European Investment Bank, and AsianDevelopment Bank.
Another example is how our Global
Credit team implements ESG within theirinvestment process. While most experienced analysts work with a best-practice list for corporate governance, built
on the back of many years of experiencein credit investing, it is often more difficult to form an opinion on the environmental and social aspects of a business.
Corporate governance assesses mostly
general management quality, which has
a direct impact on a company’s performance, while environmental and social
assessments tend to capture risk andopportunities linked to a specific industry or region. The impact on performancemight be marginal, indirect, and longterm for environmental and social factors.
However, the investment team ensuresthat the investments correspond with the
ethical and social values of an increasing
number of institutional clients. European
asset owners, in particular, require thatthese values are reflected in their portfolios, alongside companies’ performancegoals. We believe a team of skilled andexperienced credit analysts is still the key
to success for ESG to be integrated in theanalysis. Our analysis is also supported bythird-party ESG research, which we use
to develop a screen to identify possible
issues that may warrant further research.

Four steps of our ESG implementation framework
ESG considerations
Top down

1.
Market assessment

Alpha opportunities

2.
Investment themes

3.
Screening and research

Bottom up
Risk management

4.
Portfolio construction

24

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead“Building on our history of creating products that can directly and credibly
channel capital to projects supporting the environment, we continue tomaintain a close relationship with the World Bank”

SPOTLIGHT
Long-standing Relationship with the World Bank
Andre Severino, Global Head of Fixed Income

We are proud of our strong and long-standing relationshipwith the World Bank, which has partnered with Nikko AM’s
Global Fixed Income team in 2007. The partnership enabled
Nikko AM to launch its first fund comprised principallyof World Bank bonds in a variety of emerging market
currencies, thus offering the opportunity to participate ina diversified emerging market investment portfolio that
supports the mission of the World Bank.
In 2010, we launched the world’s first dedicated green

bond fund in partnership with the World Bank. The strategy— the first of its kind — strives to invest 100% in green
bonds from some of the most transparent green issuers
within the market. All bonds purchased in the strategy fall
into Cicero’s “dark green” scale of the market.
Building on our history of creating products that candirectly and credibly channel capital to projects supporting
the environment, we continue to maintain a close
relationship with the World Bank.

25

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Asian Fixed Income(Ex. Japan) TeamOur approach to ESG
Our Philosophy
Our investment philosophy is premisedon capital preservation, investing forthe long-term, and value discipline.
Our Asian Fixed Income team believes
that markets are dynamic, often
prone to economic “noise” and notalways perfectly efficient. Therefore,
outperformance can be achieved byapplying a systematic approach to topdown macro and bottom-up credit
research. We are convinced that all
three ESG factors — environmental,social, and governance — are inherent
to long-term value creation, essential
to sustainable investment, and should
be considered in investment decisions.
We apply this investment philosophy
consistently across client portfolios.

ESG
Implementation
Our proprietary Fundamental, Valuation,
and Technical (FVT) Framework, which
is applied to our top-down and bottomup research, is the foundation on which
we construct high-conviction portfoliosthat seek to deliver returns through multiple sources of alpha. With regard to ourrobust credit research, the most important output from our team of dedicatedcredit analysts is the Internal Credit
Rating (ICR) model.
The ICR process is the first pillar of ourbottom-up credit research and enables
the credit research team to assess quantitative and qualitative aspects of eachissuer, independently of external credit
rating agencies. ESG risks and opportunities are assessed and scored aspart of the ICR qualitative assessment.
Taking into consideration the impactof ESG factors is important as it canidentify downside risks to a borrower’s

ability to fulfil its debt obligations.
At Nikko AM, we view ESG factors asimportant aspects of our credit analysis and an integrated part of our investment process. The investment teamresearches and scores companies, taking
into account both qualitative and quantitative factors. These ESG factors include
environmental issues, such as climatechange and carbon emissions, deforestation, and air and water pollution,
amongst others; and social issues, which
include human rights, consumer protection, potential changes to the market
via government regulation, as well aschanging consumer and public opinion.
Corporate governance also matters andit involves looking at the quality of thecompany’s management and shareholders particularly on key-man risk, integrity,
and reputation history. ESG violations
will result in a penalty score that will
lower the overall credit score of the company, and hence a lower credit rating.
This means we would demand a higher
risk premium to justify the investment.

Proprietary FVT Framework

Top-down macro research

Fundamental, valuation, technical• Yield curve positioning• Duration positioning• Government vs corporate bonds• Country and sector allocation
Risk identification
Macro reviews

Risk evaluation and mitigation

Portfolio construction
Credit reviews

Risk monitoring
Escalation procedure

Fundamental, valuation, technical

Bottom-up credit research• ESG constitutes part of theinternal credit rating process• Qualitative factors in theInternal Credit Rating• Credit outlook• Credit recommendation

26

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead“Environmental risks often affect the long-term profitability of a company,so the team has to factor in the sustainability of its business model”

SPOTLIGHT
Assessing ESG Factors in Our Credit Research
Liang Choon Koh, Head of Asian Fixed Income

ESG factors are important aspects of the team’s credit
analysis and are an integrated part of our investment
process. The sustainability of a company’s business isanalysed and any ESG issues are scored within the ICR
model. Environmental risks often affect the long-term
profitability of a company, so the team has to factor in thesustainability of its business model. For example, the palm

oil industry has an impact on the environment throughdeforestation and forest-burning practices, which haveoccasionally led to hazardous air quality in the region. We
have negatively scored a company in the industry due
to inadequate environmental protection and difficulty
in meeting industry standards, all of which have led tobusiness losses and the deterioration of its financial profile.

27

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Portfolio Solutions
Group
Our approach to ESG
Our Philosophy
The Portfolio Solutions Group (PSG) evaluates, selects, and monitors externalmanagers at Nikko Asset Management.
We believe that considering ESG factors
when investing is tied to long-term corporate value creation and sustainableeconomic growth. We embrace ESG asa means to managing investment risk
more effectively, delivering better quality long-term investment returns, doing
good for our communities, and being
good stewards of our environment. We
uphold a high standard in integrating
ESG considerations into our investment
process.
The PSG uses an internal ESG
evaluation policy when we evaluate
managers’ ESG approaches to achieve
consistency and rigour across asset
classes and strategies. We are constantly
updating our ESG framework as industry
best practices continue to mature.

ESG
Implementation
In the PSG’s investment manager due
diligence framework, we evaluate
investment managers across four different categories:• Investment considerations• Operational considerations• Level of transparency• ESG factors

Each assessment category is individuallyimportant but not sufficient in helping
us to understand the manager’s idiosyncrasies, strengths, and weaknesses. By
skilfully amalgamating all four of thesecategories, we use a holistic approach tobetter assess the investment manager in
a complete manner and better manage
the associated risk partnering with the
manager, therefore delivering desirable
investment outcomes to our clients.
At the initial due diligence stage, wesend the manager our dedicated ESG
questionnaire. We review their answers
along with relevant policies, documentation, and past practices to assess
their ESG integration across both theirinvestment and operational processes.
We supplement this questionnairebased information-gathering processwith face-to-face discussions with theinvestment managers. We also conduct
additional checks whenever necessary.
We evaluate and score investment
managers according to four ESG
pillars:• Company: overall ESG philosophy and policy, as well as level ofcommitment to ESG integration• People: the ability and stability of theinvestment professionals in charge of
ESG within the investment manager• Research: the ESG research ability, quality, and unique value-addof the investment manager• Investment process: the consistency and repeatability of theinvestment manager’s investment

process integrating ESG factors, aswell as the degree of integration
An ESG score, aggregated across thefour ESG evaluation pillars, is given to
the investment manager or strategy
with additional assessment insights
written whenever appropriate.
Alignment with industry standards
and best practices
Our ESG assessment framework
was developed by our global team,in consultation with Nikko AM’s inhouse ESG specialists. We also incorporate best practices from toptier industry peers, such as:• fully incorporating ESG data-gathering and analysis into our investment and operational due diligence• making use of dedicated ESG specialist resources within the firm
• proprietary ESG scoring across key
categories• using ESG assessment as a tool
for risk control/risk mitigation• allowing ESG assessment results
to fall within a spectrum, nota binary pass/fail outcome• giving standardised ESG ratings to managers that provide
more nuanced information thanthose that just check boxes• ensuring our ESG approach and ratings system is constantly evolving as
the industry continues to mature

How PSG evaluates and scores managers on ESG
Company

People• Company-wide ESG philosophy
and process• Dedicated ESG team/specialist resources• Level of commitment of
the manager to ESG• Skill set of ESG professionals

Research• Robustness of ESG data sources• Value-add of ESG-related research

Investment process• Level and consistency ofintegration into investment
processes• ESG risk management and controls

28

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead“This marks the culmination of our year-long initiative to articulate,structure, and formalise our collective ESG awareness across the global teamand bring it to the forefront of our investment process“

SPOTLIGHT
Integrating ESG Best Practices across Four Global Offices
Naoyuki Murota, Portfolio Manager
Although ESG considerations have been inherent in ourinvestment DNA for a long time, in 2019, we announced
the formation of the PSG’s ESG Working Group, comprising
members across four global offices (Tokyo, Singapore, New
York, and Sydney).
This marks the culmination of our year-long initiative
to articulate, structure, and formalise our collective ESG
awareness across the global team and bring it to theforefront of our investment process. ESG has also been thefocus of many dialogues with our existing and prospective
investment managers globally.
The ESG Working Group will continue to drive our
ESG capability development through industry researchand benchmarking, continuous refinement of ESG
implementation in our investment process, and proactive
communication with internal and external stakeholders.

29

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Good Governance:
Proxy VotingT

he Nikko Asset Management
Group Proxy Voting Policy
establishes our company-wide
approach to proxy voting decisions. One objective of this policy is tounderscore the group’s focus on ESG inproxy voting decisions that are undertaken by Nikko AM and all of its overseas

investment management subsidiaries.
It is also intended to make it clear thatproxy voting by each of the investment
management teams in the group isbased on the same common approach.
The policy expresses our basic
approach to proxy voting decisions, aswell as matters such as engagement

and conflicts of interest. Additionally,
investment management locations in
the group may also disclose their own
respective proxy voting guidelines that
stipulate detailed proxy voting criteria
along with proxy voting results.

Global voting results 2019
Number of meetings: 7,099
Number of resolutions: 73,984
Percentage of votes with management: 88%
Percentage of votes against management/abstentions: 12%
From Jan 2019 to Dec 2019

Number ofmeetings

RegionVotes withmanagement(%)

Number of
resolutions

Votes against
management(%)

APAC (ex. Japan)

2,303

19,872

90%

10%

EMEA

1,117

16,219

90%

10%

Japan

2,338

24,46984%

16%

Latin America

257

2,211

88%

12%

North America

1,084

11,213

91%

9%

TOTAL

7,099

73,984

88%

12%

Reasons for voting against management, 2019
Management proposal / vote against management

Routine/Business

581

Reorg. and mergers

618

Non-salary comp.

1080

Director related

5306

Capitalisation

793

Anti-takeover related
0

100
1000

2000

3000

4000

5000

6000

30

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Our EngagementOur fundmanagers
and analysts
endeavour to enhance
corporate value
through interaction
with management
and investor relations
representatives ofinvestee companies
with respect topublic information.
Their engagement involves exchanging opinions with investee companies
and taking a long-term perspective,
in a manner that matches the growthphase of each company. These discussions do not merely cover the firms’ corporate earnings and financial strategies
but also other matters mentioned in the
non-financial information they disclose,

including their management policies,
business strategies, shareholder returns,
and ESG issues.
Our fund managers and analysts
engage with a diverse group of people
ranging from the top managementof firms to employees responsible forfinance, corporate planning, and otherbusiness managers. They also work toenhance the impact of their engagement by proposing meetings with the
top management of firms that are particularly slow in providing information.
The results of these activities are shared
where appropriate between fund managers and analysts, and can be useful inassessing corporate value when making
investment decisions.
In March 2017, we also establisheda business unit within the Equity
Fund Management Department of
our Tokyo office called the Active
Ownership Group, which currently
includes three analysts and facilitates
engagement in passive fund management. We believe that this helps us tomeet the requirements in principle 4 ofJapan’s Stewardship Code. The establishment of this group enabled us toexpand the number of companies weengage with from about 950 (those in
the active management investment
universe) to approximately 2,200 companies (by adding investee companies
that are managed passively). The Active
Ownership Group in the Tokyo officeengages with companies in an orderof preference based on considerations
including their earnings, capital efficiency, and shareholder returns.
Based on the policy, we have worked
to achieve closer engagement withinvestee companies in order to sharean accurate understanding of theircircumstances and help them togenerate medium- and long-term
corporate value. In FY2019, Nikko AM
engaged with 1,443 companies on 3,990
matters.
We continuously implement
education and training to prevent theacquisition of undisclosed material
facts. In the unlikely event that
undisclosed material facts are acquired,countermeasures are immediately
implemented to prevent insider tradingfrom occurring in accordance with Nikko
AM’s internal rules for the managementof insider trading.

SPOTLIGHT
Engagement Starts with Us as Investors
Kozue Saito, Equity Analyst

We believe that engagement starts with us, the investors, bydeveloping a deeper understanding of how the goals eachcompany sets impact stakeholders and how the company
sets out to achieve them. Therefore, we value constructive
discussions — discussions that start by identifying a vision
for the future then continue by considering current businessconditions and what needs to be done by the companies.

The need for businesses to consider the interestsof various stakeholders — not only investors but
also customers, employees, business partners, local
communities, and other stakeholders — has become
greater than ever. We believe that strengthening suchinitiatives for a company will not only prevent reputationalrisk but also improve its value and competitiveness.

31

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Our Engagement:
Case Studies
CASE 1

CASE 2

CASE 3

Food producer
listed in Japan

Kitchen equipment
manufacturer
listed in Japan

Electronics manufacturer listed in Japan

ESG issue
Climate change

Our Analysis

The food industry is recognised as asector that is highly exposed to climatechange, and the meat industry is also
a significant contributor. As this company is involved with meat, marine,and dairy products, we believe it is susceptible to both physical and transition risks. Through our engagement, we
exchanged opinions on the recognitionof climate change risks and the efforts toconvert these risks into business opportunities. Lastly, we emphasised our expectations of proactive disclosure.

OutcomeOur view is that the company is working
towards including deeper discussion on
climate change at the board of directors
and management levels. The firm iscurrently developing a long-term vision
to be unveiled at its 100th anniversary.
The company is also in the process of
replacing an outside director with one
who has a deeper understanding ofbusiness management, consumer insight,
and investors. We were informed that
there will be greater disclosure in the next
integrated report.

ESG issue
Corporate behaviour: Response to
scandals

Our Analysis

The company’s stock price fell sharply
after it was revealed that inappropriate
transactions had been made at several
subsidiaries. The general narrative wasthat the scandal was due to the group’s
governance systems. At the same time,
we were aware of the complexity of thecompany’s situation since its growth was
generated through acquisitions. We further requested an explanation on thecompany’s action plans regarding organisational structures, such as personnel
increase in management and supervisorydepartments, as well as audit systems atoverseas subsidiaries.

Outcome

The company’s response to our requests
was positive and promptly delivered. We
confirmed that all of the points that we
mentioned were taken into account by
the top management and that some hadalready been implemented. It was unfortunate that a series of scandals occurred,
yet we expect this event will be a turning
point to change the company’s governance structure. We will continue to track
its improvements.

ESG issue
Corporate behaviour: Capital efficiency, independence of the boardof directors, and diversity

Our Analysis

The company’s ROE has continued
to be lower than the industry average against the backdrop of abundantfinancial assets (including policy-holding shares), and accumulated capital.
In addition, there are issues concerning the independence and diversity ofthe directors, and the executive remuneration system has room for improvement in terms of linking to mediumto long-term shareholder value.

OutcomeThrough our consistent engagement, we finally saw positive changes
in attitude that reflect managementchange: the firm announced sharebuybacks, raising the dividend payout
target and ROE target in public. It
has also improved transparency ofits board of directors by stopping
the acceptance of outside directors
from other companies, and it has also
appointed female outside directors.

32

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

CASE 4

CASE 5

CASE 6

Airline listed
in the UK

Agribusiness listed
in Singapore

ESG issue
Labour rights

ESG issues
Climate change
Biodiversity
Human and labour rights

Household goods
retailer listedin Australia

Our Analysis

Europe’s leading budget airline offers
cheap travel to the masses. It is known
for a relentless focus on cost management and it offers the cheapest flights in
the industry. However, its outspoken
treatment of pilots and cabin crew went
too far, leading to strikes, defections tothe competition, and a deterioration intrade.

OutcomeWe engaged with the management
and asked for a more sustainable andlong-term approach to wealth creation.
However, a dominant CEO backed bypoor governance meant change was notforthcoming. Without change, returns
would eventually suffer and hence webooked profits and sold our shares.

ESG issue
Capital management

Our Analysis

Our Analysis

Outcome

Outcome

We have engaged on ESG issues regularly in our meetings with the executive management, on an individual
basis. This year, we participated in the
PRI Palm Oil Investor Working Group(IWG) to explore where we can support and collaborate with other investors concerned about the issues, especially with our presence in the region.

While the company is recognised toadopt best-in-class approaches, we will
monitor developments as controversies may continue to arise, especiallygiven the magnitude of its operations.
We seek to elevate the collaborative engagement undertaken by the
PRI Palm Oil IWG through our closeand frequent engagements with thecompany’s senior management.

The company is controlled by thefounder and majority shareholder.
He chooses to reinvest cash flow into
low returning property investments
rather than paying higher dividends.
Consequently, the company trades
below its fair value as the returns arelow. We engaged with the chairman andfounder to encourage the sale of properties to unlock the unrecognised value.

The founder did not agree with our view
and made it clear that he would notchange the capital management of thecompany. As a result, we reduced ourvaluation and sold most of our holding
when the price recovered. We would
consider increasing our valuation if thecompany sold its properties and distributed proceeds to shareholders.

33

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Climate-Related
Financial Disclosure
UpdateIn August 2019, we published our first Task Force on Climate-related Financial
Disclosures (TCFD) report for the January to December 2018 period, and ourcurrent views are largely the same. Ahead of our upcoming TCFD report for
2020, this is a brief update on the climate-related initiatives undertaken fromJanuary to December 2019.

Progress in 2019
Collaborative engagement
We continued our Climate Action 100+
engagements. We also joined the PRIPalm Oil Investor Working Group (IWG).
We recognise deforestation to be asevere threat with regard to climatechange, a fact that was emphasisedin the Intergovernmental Panelon Climate Change’s 2019 special
report highlighting the protection
and restoration of forests as a criticalmitigation measure. We participate incollaborative engagement as part of
the PRI Palm Oil IWG, seeking to learn
and share on ESG issues linked withsustainable palm oil.
We learnt that our strong Asian presence enables us to enhance our engagement. We have opportunities to dialogue directly with senior management
teams to gauge management responsivity, while other collaborative investors
typically speak only to a company’s chiefsustainability officer or investor relations
officer. We will continue to develop highquality engagements.
Active dialogue with regulators andthe investment community
Besides engaging with investee companies, we also actively engage with otherstakeholders to advance the climatechange conversation across the financial
eco-system. These stakeholders include
regulators and the investment community, which we engage with bilaterally
and also at multi-stakeholder platforms.
Such platforms include the Japan

TCFD Consortium and the global TCFD
Summit. In May 2019, the inaugural
meeting of the Japan TCFD Consortium
was held, representing a platform
for industry, financiers, regulators,
and academia to collectively work
towards effective and efficient climaterelated disclosures. We are proud tohave become a member of the TCFD
Consortium when it was created in
2018. The first-ever TCFD Summit washeld in Tokyo in October 2019, andwas attended by Japan’s then-Ministerof Economy, Trade and Industry Isshu
Sugawara, Chief Investment Officer ofJapan’s Government Pension Investment
Fund Hiromichi Mizuno, and Governorof the Bank of England Mark Carneyamong others. The event took stock of
TCFD implementation and participants
discussed emerging best practices inclimate-related financial disclosure. Two
representatives from Nikko AM attended
the TCFD Summit.
In 2019, we were also invited to participate in the Advisory Group of the
Asia Sustainable Finance Initiative (ASFI),
through the Investment Management
Association of Singapore. ASFI brings thefinancial sector together with academia
and civil society to seek multi-stakeholder and science-based solutions forsustainable finance.
We continue to actively participate in
the other initiatives we reported on in
our 2018 report, such as the Asia Investor
Group on Climate Change (AIGCC) andResponsible Investment Association
Australasia. In 2019, we supported AIGCC
in organising the AIGCC Asset Owner
CEO/CIO Investor Roundtable, alongside

the Milken Institute Asia Summit.
Climate change e-training
We emphasise training for investment
professionals in our implementation of
ESG, including on climate change. Apartfrom implementing the UN PRI’s responsible investment e-learning, we havedeveloped the first module on climatechange to be rolled out across our firm
globally.
Climate scenario analysis tools
We subscribe to third-party carbon portfolio analytics tools that help to assesscompanies on metrics such as carbon
intensity, carbon risk management, andstranded asset exposure. In addition,
we continue to explore scenario analysis tools that can add value to our analysis at both company and portfolio levels.
In 2019, examples from different scenario analysis providers were presented
and discussed at the ESG Steering
Committee meetings. We continue toinvestigate the applicability of existingand emerging climate scenario analysis
tools to our various portfolios.

ASIAN INVESTOR GROUP ON CLIMATE CHANGE (AIGCC)ASSET OWNER CEO/CIO ROUNDTABLE, HELD ALONGSIDE
THE MILKEN INSTITUTE ASIA SUMMIT IN SINGAPORE

3434

Nikko
NikkoAM
AMSustainability
SustainabilityReport
Report2019
2019

Our
Sustainability
Activities

35

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

A Passion for
Sustainability
A message
from the Headof Corporate
SustainabilityT

he year 2019 has been an incredibly busy one for sustainability at
Nikko AM. The UN’s Sustainable
Development Goals have been adriving force behind some of our activities and, throughout the year, we havecontributed to many of them, including
Gender Equality, Quality Education, andReduced Inequalities.
We continue to passionately support
diversity and inclusion (D&I) at our firm.
In addition to our initiatives to support
female empowerment, this year we also
started the Disabilities Working Groupto help create a more inclusive workplace for employees with special needs.
Our promotion of D&I extends to society
at large: this is our fourth year as proud
sponsors of the Japan Wheelchair Rugby
Federation.
Each of our offices has been engaged
in a variety of community-led activities that are helping to benefit both theenvironment and those in need. For
example, members of the Tokyo officevolunteered at a local NPO devoted torefurbishing wheelchairs and sending
them overseas to those in need. A teamin Singapore looked after the childrenof low-income mothers after work togive these women the chance to attend
training classes. The Nikko AM Americas
office helped to provide school supplies
to children in homeless and domestic violence shelters. The London and
Edinburgh offices spent time volunteering at urban farms that promote environmental sustainability and educational support to disadvantaged youth.
The Sydney office organised an event
to highlight the importance of mental
health. The New Zealand office participated in Plastic Free July and started“...we have made thedecision to concentrate
our energy on
three core areas ofsustainability, namely
D&I, reducing inequality,
and the environmentand climate”

collecting food waste for composting.
Looking to the future, we have madethe decision to concentrate our energy
on three core areas of sustainability,
namely D&I, reducing inequality, andthe environment and climate. As we
immerse ourselves in these areas, myhope is that in 2020 we will be evenbusier.
Stefanie Drews
Senior Corporate Managing Director,
Global Executive Committee Member, andHead of Corporate Sustainability

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Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Our Approach
Sustainability at Nikko AM is truly afirm-wide effort. We believe that making
honest disclosures and holding ourselves accountable for our progress
are key to becoming a better corporate citizen. By transparently communicating our direction to our stakeholders and assessing the areas where wecan do more, we hope to spark dialogue
within our industry that helps us all work
together towards a better, fairer future.
The Corporate Sustainability
Department was established as a reflection of our commitment to capturing
and addressing the needs of stakeholders not only in our company, but in thesocieties in which we operate.
Corporate Sustainability Department
Mission- To ensure sustainability is embeddedin the firm’s strategy- To create an environment of engagement and inclusion- To embrace all stakeholders in our
ecosystem- To constantly challenge and enhance
the status quo
Structure
Advisory Council

New ZealandAustralia

Japan

Asia (ex. Japan)

EMEA

AmericasLocal working group

The Advisory Council comprises nonexecutive board members and senior
management, including regional CEOs.
The Council meets quarterly and reviews
the firm’s corporate sustainability actionplans. It also assesses the materialityof initiatives and ensures that the firm
has a cohesive approach to corporate
sustainability.
At each office, local working groups
initiate and execute activities in line withthe sustainability strategy. Run by volunteers, the working groups translate thecompany-wide strategy into local objectives. This structure gives staff the freedom to implement initiatives that makesense to their regions.
Interconnectedness
As a global firm, we bring a spirit of collaboration into all our corporate sustainability activities. Our Japan headquarters and our global offices work closely
together in setting the direction for thefirm’s sustainability initiatives.
In 2019, the LGBT Working Groupin Japan worked with the Human
Resources Department to enable
employees in same-sex relationships toreceive the same benefits as employees
in opposite-sex marriages. This is similar
to what is offered at our offices in regions
such as Australia and New Zealand.

We also standardised our travel policy
for volunteer trips to encourage participation from all our offices for global
charitable initiatives. As a result, participants from our Edinburgh and Sydney
offices were able to join volunteers
from Singapore and Hong Kong on an
initiative to build and install water filters
in Siem Reap, Cambodia.
Contributing to the UN Sustainable
Development Goals (SDGs)
We use the UN SDGs as a common
language and framework that is easily
understood by all of our stakeholders.
In order to highlight the ever-increasing
importance of SDGs and sustainability
to our business, Nikko AM hosted
an SDG training programme at theTokyo Office for leaders who drive oursustainability efforts.
In 2019, employees chose to prioritise Quality Education, Clean Water andSanitation, and Climate Action, while
the Advisory Council chose to complement this with Gender Equality andReduced Inequalities.
In the following pages, we highlightthe corporate sustainability initiatives
undertaken by our global offices
in 2019, along with the SDGs they
contribute to.

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Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Diversity & InclusionBeing inclusive andensuring diversityof thought are not
only the right things to
do but also make business sense. At Nikko
Asset Management, werecognise that diversity & inclusion (D&I)
is a key aspect to thedevelopment of ourpeople and to our sustainability efforts.
D&I in people development
Our people are our most important
asset, and the inclusion of D&I in our corporate values strengthens this conviction. All employees have a key performance indicator (KPI) related to how
they behave within the guidelines of ourvalues.
The emphasis on D&I means that we
recognise that every individual has theirown set of challenges faced both in theworkplace and outside it. Here, we showcase how some of our Nikko AM offices
address these different challenges.
In 2018, our Tokyo office began setting out a strategy to help our firm deal

with the decrease in Japan’s labour
force, which is due to a shrinking andageing population. We set-up the
20-member Work Style Reform ProjectWorking Group with members from various departments. The aim of the project was to review our current remote
working policies so they fit the diverse
work-styles of our employees andenhance work-life integration throughthe improvement of our telecommuting
programme. By realising this, we also aim
to achieve sustainable business operations. We have conducted trial sessions
to implement telecommuting, where 25
employees were pilot testers of the programme for a period of between two
and three months. The policies we havecreated in relation to these efforts areavailable to all employees.
At our Australia office, our employees participated in Australia’s “R U OK?
Day” on 12 September 2019, a national
day of action dedicated to suicide prevention, reminding people to ask family,
friends, and colleagues the question, “R
U OK?”. Employees received training tobetter understand the impact of startingthese important conversations. In building a workplace that is supportive of
diverse individuals and mindsets, theseconversations become easier to start
as staff feel the ability to be more open
amongst colleagues.
Our Singapore office engaged
the Singapore Anglican Community
Services — our corporate partner for the
Employee Assistance Programme (EAP)— to conduct a session on “Insights to

Mental Wellness” for employees. Statistics
have shown that there are increasingly more people, including youths,
who have experienced a mental disorder in recent years. While the topic is
still considered taboo in many workplaces, our Australia, Hong Kong, andSingapore offices have set up the EAP for
employees. Recognising that the overall well-being of a family is critical to ouremployees, we subsequently extended
the programme to immediate dependents (i.e. spouses and children).

“In building aworkplace thatis supportive of
diverse individuals
and mindsets, theseconversations become
easier to start as staff
feel the ability to be
more open amongst
colleagues”
We believe that a diverse and inclusive workplace is a critical component
in being able to best support and serve
clients. As a result, our working practices,
promotions, and recruitment are wholly
based on individual merit with diversity
and capability at its heart.
Corporate sustainability
champions D&I
At Nikko AM, we acknowledge thatbuilding an inclusive culture is not
only the responsibility of our Human
Resources Department. Corporate sustainability has an important role in fostering such a culture. The Corporate
Sustainability Department has identified three priorities to further the firm’s
D&I agenda: women’s empowerment,
LGBT, and special needs in the workforce.
Each of these is championed by a groupof employees with a passion for theirchosen cause.
For the first initiative, women’s
empowerment, the firm signed a statement of support for the Women’s
Empowerment Principles (WEPs) in 2018.
Produced and disseminated by theUnited Nations Entity for Gender Equality
and the Empowerment of Women (UNWomen) and the United Nations Global

38

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

IN SUPPORT OF LGBT RIGHTSWHEELCHAIR RUGBY

Compact, the principles present sevensteps that business and other sectors
can take to advance and empower
women. Nikko AM’s support for the WEPs
aims to deepen employee understanding of and respect for diversity, andthereby nurture innovative approaches
to meet our clients’ needs.
In Tokyo, the Japan Women’s Grouphas been active since 2015 and is thelongest running D&I group at Nikko AM.
The group invites external speakers to
Lunch and Learn seminars and also hosts
training workshops for staff so that they
can learn positive communication, practise using it, and enhance their leadership skills. The group recognises that one
individual will not become everyone’srole model, so they look to find speakers
with various backgrounds.
Another element of the working
group’s efforts is to work with the
Human Resources Department to
set-up a five-year action plan to meetthe expectations of Japan’s Act on
Promotion of Women’s Participation andAdvancement in the Workplace. The
group sets the KPIs that Nikko AM would
aim to meet in the next four to five years.
Nikko AM has also begun introducing
employees that are considered potential
role models, through interview articles
about them.
Our Australia office has partnered with
Future IM/Pact, an industry initiative
aimed at attracting more diverse talent
to the investment teams of Australia’s
leading fund managers and superannuation funds, where the majority of investment teams remain male-dominated.
Representatives from the Australian
office attended Future IM/Pact’s major
student networking event. Featuring
keynote and panel presentations, theevent was attended by over 250 students and investors from partnerorganisations. The networking event
was aimed at helping students understand the impact that investors have on
the economy and the opportunities foryoung women to build a thriving careerin the investment management industry. As part of this effort, staff have held
discussion sessions with the founder of
Future IM/Pact about diversity trends inthe asset management sector as well as
considerations and possible solutions
within the Australian market.
With regard to the second initiativeon LGBT, the firm has been very active.
This effort was originally triggered when
one of our employees proposed an idea
at our Idea Generation Forum to better
engage with our LGBT clients and customers. The LGBT Working Group wasformed in Tokyo to focus primar­ily onLGBT issues, but at the same time, it promotes the recognition of a diverse workforce supportive of all individuals.
In 2019, the group worked with the
Human Resources Department to enable
employees in the Tokyo office who arein same-sex relationships to receive thesame benefits as employees in opposite-sex marriage. This is similar to what isoffered at our offices in regions such as
Australia and New Zealand.
The group has also hosted several
external speakers to speak on various
topics, including potential business product ideas that can help address issues
the LGBT community is facing, as well as
the importance of understanding theneed for LGBT rights and joining LGBT
Finance, a network of financial institutions in Tokyo that share resources to support the larger community. As a resultof these efforts, the firm was presented
with the Work with Pride gold award
from a Japanese non-profit organisation that assesses an employer basedon elements such as empowerment,

engagement, development, and policy.
We have also actively engaged in
our third initiative, the inclusion of special needs individuals into the workforce. Since 2013, Nikko AM has run the
Athlete Employee Programme, which
focuses on hiring wheelchair-boundathletes. In 2015, we became an official
sponsor of the Japan Wheelchair Rugby
Federation. One of our employees, whojoined the firm through the Athlete
Employee Programme, and who won a
bronze medal at the 2016 Rio Summer
Paralympic Games for wheelchairrugby, founded the Disabilities Working“As a result of these
efforts, the firm waspresented with the Work
with Pride gold award”

Group together with the Corporate
Sustainability Department in early 2019.
The group’s mission is to create an allinclusive workplace that makes it easierfor those with special needs to work, andalso create an environment that is more
employee-friendly for all.
Just as we believe in partnering withour clients to build progressive investment solutions on the business front,
our approach to D&I is about partneringwith our stakeholders to build an inclusive environment that supports diversity of thought. There is much academic
evidence that diversity of thought andperspective is a key element to engendering innovation. And in an industry ascompetitive as ours, innovation is essential to success.

39

Nikko AM Sustainability Report 2019

Environment
and ClimateNikko AssetManagement
has a long history of committing to
the environment inboth our business andoffice activities. Our
Environmental Policy,
developed in 2010, is
the guiding principle ofour efforts. On the business side, we createdJapan’s first eco-fund in1999 and then became
the first asset manager
to offer a global green
bond fund. On the corporate front, we havebeen assessing our environmental footprint forseveral years. This year,
we have been certified as a carbon-neutral
firm for the first time.

Achieving carbon neutrality
We have been assessing our CO2 emissions
and energy usage at our Tokyo headquarters for several years now. With the establishment of the Corporate Sustainability
Department in 2018, we have further
enhanced our effort to expand the assessment to our overseas offices.
Our Corporate Sustainability
Department aggregated the travel andfinancial data from our global offices inTokyo, Singapore, Sydney, Melbourne,
Auckland, New York, and London. In linewith the findings and our commitment to
the UN’s SDG #13 (“Take urgent action tocombat climate change and its impacts”),
we reached out to Carbon Footprint Ltd— a UK-based international organisation— to help us offset our emissions. We areproud that we have been certified as acarbon-neutral organisation for the firsttime.
The carbon offsets will be used to fundthe installation of renewable solar PV cells
in the Indian National Grid for diversification of energy sources and sustainablegrowth. This also contributes to sustainable employment, improved healthcare,sanitation, and education to the local
communities.

the use of plastic water bottles fromthe majority of our offices globally andreplaced them with water servers instead.
We recognise that many environmental issues are themes of a global scaleand often too onerous for individuals totackle on their own, so our approach is
to link awareness and understanding toactions taken. This means engaging withboth internal and external stakeholders tobring about change.
Using this approach, our Tokyo office
took a survey of individual employees’
efforts to reduce, reuse, and recycle. The
survey showed that 75% of our employees used reusable bags instead of receiving plastic bags from retailers. In order toincrease the number of users of reusable
bags, we handed out compact foldable
reusable bags for all employees to use.
A month later, another survey was done
and results indicated that the numberof employees using reusable bags had
increased. The firm will continue toengage employees to raise awareness of
how individuals can work to reduce theimpact we have on the environment.

Committed to reducing the use ofplastic
At the G20 Summit hosted in Osaka in
June 2019, Japanese citizens made it clearthat the global problem of plastic waste
needed to be made a priority. At Nikko
AM, we have also made our own commitment to reducing reliance on plastic.
As a result, we have successfully removed
REUSABLE AND ECO-FRIENDLY GIFTS40

Nikko AM Sustainability Report 2019

Shaping sustainable behaviour
Shaping sustainable behaviour andsparking dialogue among staff is one of
our key goals. For Earth Day on 22 April
2019, the Asia (ex. Japan) office distributed reusable bento boxes made frombamboo to all local employees. This wasto encourage staff to reduce their reliance on single-use packaging. The officechose bamboo as it is biodegradable,
while being extremely strong and lightweight. It is also one of the fastest growing plants on the planet, but does notrely on pesticides or much water; and its
roots are able to absorb metals from soil,
which in turn makes land healthier foranimals and other plants.
To further support this effort, the Asia
(ex. Japan) office invited The Sustainability
Project to host a lunch session that
focused on practical tips on how staff canlead more sustainable lives by reducing
waste and becoming more environmentally conscious individuals, both insideand outside the office. Employees had tobring their own lunches in reusable containers for the event.

“For Earth Day on
22 April 2019, the Asia
(ex. Japan) office
distributed reusable
bento boxes madefrom bamboo to all local
employees”
For our EMEA team, shaping sustainable behaviour has begun with the circulation of a monthly email to employees with tips on sustainable living. Thisis done in tandem with activities suchas eliminating the use of plastic bottles,
recycling coffee pods, and implementing a tax efficient scheme for employees
to purchase bicycles for commuting.
In our Sydney office, the team madeheadway towards a more sustainable
environment by changing their paper
source. They have started to use one of
the most environmentally responsible
paper products on the market: Planet
Ark 100% Australian Recycled Paper.
It is 100% recycled, Australian made,carbon neutral and certified throughthe Australian government’s National
Carbon Offset Scheme. This is an effort
that is a combination of quality, cost, andenvironmental responsibility.
Our New Zealand team has introduced reusable cups to the office.
Employees are able to “adopt” or use
these cups through a library-stylecheck-out system, and there is also a

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

designated set for visitors. This has significantly decreased the use of single
use disposable coffee cups in the office,which went hand-in-hand with Plastic
Free July when the use of single-use
plastics was actively discouraged andthe use of alternative options was promoted throughout the month.
In our Americas office, the teamhas promoted sustainable behaviour
through community outreach with
Grow NYC, an organisation that aims
to nurture future environmental stewards by providing 66,000 children eachyear with programmes that allow themto have meaningful interactions with
the natural environment. Some members of the team volunteered to help
improve the Governor’s Island Teaching
Garden, which is used to educate innercity school children on the importance ofgardening fresh produce for better living.
Towards sustainability globally
Beyond shaping behaviour internally,
our firm, through the Global Marketing
team, is also working to implement an
event sustainability checklist for all marketing-related events the firm organises
globally. The checklist includes guidelines to make our events plastic-free(e.g. no bottled water) and paper-free(e.g. with the use of an app/QR codefor clients to download presentationmaterials, electronic invitations, etc.).
Another key global effort towards amore sustainable world is our participation in the Water for Life initiative,aligned with the UN’s SDG #6 (“Ensure
access to water and sanitation. for all”).
Water for Life, which is a partnership
between the Singapore International
Foundation and a Cambodian NGO
called Water for Cambodia, aims to provide access to clean water in rural communities through the installation of

GLOBAL EFFORT TOWARDS A MORE SUSTAINABLE WORLD

bio-sand water filters. In many of theserural communities, water is drawn fromwells or polluted ponds and rivers,or it is collected from rain, and as aresult, waterborne diseases are rife.
The bio-sand filter is a cement structure, about one-metre tall, which is filledwith sand and gravel. Contaminatedwater is poured into the top of thefilter, and gradually a bio-layer will
form on top of the sand. The formation takes about three weeks after the
installation. The bio-layer contains bacteria that eats up most of the microorganisms in the water. As the water
moves through the sand and gravel,
the rest of the micro-organisms will
die making the water safe to drink.
Inexpensive and relatively simple
to construct, the bio-sand filter uses
materials that can all be sourced
locally within Cambodia. It is easy
to maintain and can work for up
to 15 years once installed.
Adoption of this project at Nikko
AM was again a ground-up initiative.
It started with three Nikko AM volunteers from Singapore and Tokyojoining an expedition to Siem Reap,
Cambodia in May 2019. On their return,they shared their experience with thefirm through internal communications platforms such as the intranet
and town hall. The significance ofaccess to clean water was not lost on
the global citizens of Nikko AM whowere keen to sign up for this project.
To enable employees from different regions to volunteer, the firm standardised our travel policy for volunteer
trips. As a result, participants from our
Edinburgh and Sydney offices wereable to join volunteers from Singaporeand Hong Kong on this meaningful initiative to build and install water
filters in Siem Reap, Cambodia.

41

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Reducing Inequalities

S

ince the inception of the world’s first dedicated green bond fund in 2010, Nikko
Asset Management has made monetary contributions to the International
Development Association, which is a part of the International Bank for
Reconstruction and Development, and which helps the world’s poorest countries.
Over the years, as the firm grew andevolved, we have begun to recognisethat we have the capacity to play a partin reducing different forms of inequality and supporting our employees whoare passionate about different causes. In
2018, we conducted a survey of all our
employees to find out which causes resonated most with them. Based on the
results of the survey, we have chosen tofocus our efforts on supporting and educating children and young people.
At a global level, we support charitable giving for the UNHCR Educate aChild programme, which aims to provide quality primary education to refugee children around the world. In selectmarkets, we offer to match employee
donations to this programme.
This global commitment is complemented by local grassroots charitablegiving and volunteering, which is also
focused on education for children andyoung people.
In 2011, at our Tokyo headquarters, weformed the Charity Committee made up
of staff volunteers from a range of functions across the business. The committee collects donations from employees
for various charities, and these donations
are matched by the firm.
The causes we support include:
1. Fair Start, which supports young
people living in government facilities to establish themselves
when they leave the facilities
2. Mirai No Mori, which offers outdoor
programmes for abused, neglected,
and orphaned Japanese children
3. The Volunteers Group to Send
Wheelchairs to Overseas Children,which refurbishes wheelchairs fromJapan and sends them to developing countries where physically challenged children, who
would otherwise have no accessto wheelchairs, can use them
4. UNHCR, which supports education
programmes for refugee children

Staff in Tokyo also volunteeredat The Volunteers Group to Send
Wheelchairs to Overseas Children.
In addition, the firm contributes toearthquake and other disaster relief
efforts by donating a portion of fundmanagement fees and soliciting donations from staff, which are also matched.
In 2019, through our relationship with
UNHCR, we hosted our first internshipfor three Syrian graduate school students studying in Japan. The interns are
members of the Japanese Initiative forthe future of Syrian Refugees, a programme that was implemented by theJapan International Cooperation Agency.
The programme’s objective is to prepare
Syrian refugees to lead Syria’s reconstruction in the future, while increasing theirunderstanding of Japanese people, society, and systems, thereby strengthening
the friendship between Syria and Japan.
Our Asia (ex. Japan) office in Singapore
is committed to reducing inequalities insociety, particularly through initiatives
that support women and children. The
team there began a partnership with
Daughters of Tomorrow, an organisation that works with low-income womenby providing skills training to help themfind employment and become financially independent. Every Wednesday
evening over nine weeks, our employeevolunteers took care of children whose
mothers were attending job training. At
a number of office events, funds werealso raised for Daughters of Tomorrow.
Water for Life, a project supporting
clean water and sanitation — which willlead to the reduction of inequality invarious ways — was another ground-up
initiative from Singapore. Two Singapore
employees and one from Tokyo first participated in this programme throughthe Singapore International Foundationin May 2019. This resulted in the firm
facilitating and supporting a team of
employees from Nikko AM offices indifferent regions to participate in thesame programme later in the year.

‘WATER FOR LIFE’ IN CAMBODIAIn Edinburgh, our team volunteered
with Gorgie City Farm, which supports
the local community through a variety ofactions, notably by providing opportunities for those with special needs to participate in efforts that strengthen socialand physical skills. As Gorgie City Farmprovides its services for free, volunteer
support is critical to the farm providing
community development, environmental sustainability, and social inclusion.
Our London office also volunteered
at a similar organisation, Vauxhall City
Farm. The city farm provides opportunities for children from deprived backgrounds and/or those with special
needs. These opportunities include work
experience and a programme designed
for children and young people who
require a flexible approach to learning within a therapeutic environment.
Vauxhall City Farm is also a registered
Riding for the Disabled Association.
More than 25% of our London employees participated in these activities leading to a re-evaluation of the policy
around volunteer leave in London.
Some of our employees in London
have also started making regular donations to a charitable initiative driven by
their building manager to collect and42

Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

GORGIE CITY FARM IN EDINBURGHVOLUNTEERING TO REFURBISH WHEELCHAIRS FOR CHILDREN“This global
commitment iscomplemented by
local grassroots
charitable giving andvolunteering, whichis also focused on
education for children
and young people”
BLOOMBERG SQUARE MILE RELAY CHARITY RUN

re-use or recycle clothing and otherhousehold goods. Separately, the firm
donated computer monitors that werebeing replaced in the office to schoolsthat were unable to afford replacements
for their own, which were beginning to
fail. This activity increased the life cycleof the electronics while providing reliable electronics for children to assist inbuilding their educational foundation.
The team in our Americas office has
dedicated themselves to assisting thecommunity around them. Recognisingthat a stable life starts with a solid foundation in education, the team participated in Operation Backpack, a community service campaign of Volunteersof America-Greater New York thatprovides new backpacks filled withgrade-specific supplies to children
living in New York City’s homeless ordomestic violence shelters. The teambelieves that supporting these children, often stigmatised for living in a

shelter, would contribute to setting
the stage for a successful school year
and building a foundation for the children to continue to strive and achieve.
While ensuring that children receive
a proper education is vital, the teamalso hopes to assist adults comingfrom underprivileged backgrounds
who are seeking work by partneringwith Career Gear and Dress for Success.
Both charities respectfully empower
men and women by providing a support network and development tools
to help them enter and thrive within
the workforce. One obstacle that manyoften face when entering the workforce is the fact that they do not havesuitable business attire. Recognising
this, our team, over the course of threemonths, donated gently used professional clothing to both charities for themen and woman to use as they move
forward towards their career goals.
In Sydney, our Australia team hosted abake-off to raise funds for a few chosencharities. Competitors were told they
could bake anything they wished, andall entries were put on display in the
kitchen. Each baker had a money box
next to their item. Staff had to pay a goldcoin donation into the money box totaste an item, and use additional coins/
donations to vote for their favourite item.
Another event the Sydney officeparticipated in was the Bloomberg
Square Mile Relay 2019, along with theTokyo, London, and New York offices.
Nikko AM also takes part in other charity races including the FIT Charity Run.
Finally, we place a very substantial
focus on financial education. The Nikko
AM Fund Academy is a training facility
that was built in our Tokyo and Osaka
offices in 2008 and 2011 respectively. It
was created to provide training to financial institutions that sell our investment
trusts and educate them in an effort toboost the understanding of investment
trusts among our various stakeholders. Since 2011, we have used this facility to provide opportunities for parents
and children to enjoy learning about
the relationship between daily life andmoney. Financial literacy events areheld to coincide with children’s summer
holidays. We believe that the improvement of financial literacy contributes
to the realisation of a fair and sustainable society by enabling people tolead better lives through the achievement of economic independence.
Internally, we also organise Lunch
and Learn seminars for all employees.
These seminars explore a wide rangeof topics including diversity & inclusion, and the environment. There isstrong attendance by employees acrossdepartments in Tokyo, and employees in other locations can also attend
via video conference. Similarly, in our
London and Singapore offices, smallerscale Lunch and Learn seminars are held.

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Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Looking Ahead

Going into 2020, we are excited to continue working towards a better future for our
stakeholders and the communities we operate in.
As an asset manager, we have a responsibility to help overcome sustainability
challenges and will continue to innovate in the spirit of fiduciary and ESG principles.
We aim to use our position to engage with our clients and the companies we invest
in, and to effect positive change while creating long-term value.
We will continue to hold ourselves accountable for our progress in corporate
sustainability efforts and to challenge the status quo. Through our focus on diversity
and inclusion, reducing inequality, and the environment and climate, we hope tocontribute to a fairer and more sustainable society.

Together we are nikko am

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Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

External
Commitments
Our participation in external initiatives
Where specific to an office, the office is indicated in parentheses.

DISCLOSURE INSIGHT ACTION

ClimateActionGlobal Investors Driving Business Transition

Asia Investor
Group on Climate Change(AIGCC)
Nikko AM acts as vice-chair

Japan Association of
Value Creating ERM(Nikko AM Tokyo)

CDP(Carbon, forests, water)

Principles for Financial
Action for the 21st Century(Nikko AM Tokyo)

Climate Action 100+

30% Club
Investor Work Group(Nikko AM Tokyo)

International Corporate
Governance Network (ICGN)ESG Research Australia(Nikko AM Australia)

ClimateActionGlobal Investors Driving Business Transition

United Nations-supported Principles
for Responsible Investment– Principles for Responsible Investment (PRI)– PRI Statement on ESG in Credit Ratings– PRI Palm Oil Investor Working Group

Task Force on Climate-related
Financial Disclosures (TCFD)

Future IM/Pact(Nikko AM Australia)

Responsible Investment
Association Australasia (RIAA)(Nikko AM Australia)

Stewardship Codes
The Investor Agenda

Global Investor
Statement to Government
on Climate Change– Japan Stewardship Code (NAM Tokyo)– Singapore Stewardship Principles (NAM Asia)– UK Stewardship Code (NAM Europe)

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Nikko AM Sustainability Report 2019

Introduction
ESG at Nikko AM
Our Sustainability Activities
Looking Ahead

Contact
Information
EMEA
Nikko Asset Management Europe Ltd
1 London Wall, London EC2Y 5AD, U.K.
Tel: +44-20-7796-9866
Fax: +44-20-7796-9816
emea.nikkoam.com/
Contact: EMEAenquiries@nikkoam.com

Japan
Nikko Asset Management Co., Ltd.
Midtown Tower, 9-7-1 Akasaka, Minato-ku,
Tokyo, 107-6242, Japan
Tel: +81-(0)3-6447-6000
Fax: +81-(0)3-6447-6001
en.nikkoam.com/
Contact: corp-sustainability@nikkoam.com

Germany
Nikko Asset Management Europe Ltd (German Branch)
Tower 185, Friedrich-Ebert-Anlage 35-37,
60327 Frankfurt am Main, Germany
Tel: +49-(0)-69-505047-301
emea.nikkoam.com/
Contact: EMEAenquiries@nikkoam.com

Nippon Institutional Securities Co., Ltd. (NIS)(Subsidiary of Nikko AM)
Midtown Tower, 9-7-1 Akasaka, Minato-ku,
Tokyo, 107-6242, Japan
Tel: +81-(0)3-6447-6080
www.ni-sec.com/en/
Singapore
Nikko Asset Management Asia Limited
12 Marina View, #18-02 Asia Square Tower 2, Singapore 018961
Tel: +65-6500-5700
1-800-535-8025
Fax: +65-6534-5183
www.nikkoam.com.sg/
Contact: SGContactUs@nikkoam.com
Australia
Nikko AM Limited
Level 26, One International Towers Sydney,
100 Barangaroo Avenue, Barangaroo NSW 2000, Australia
Tel: +61-2-8072-6300
Fax: +61-2-8072-6304
www.nikkoam.com.au/
Contact: DLsales.au@nikkoam.com
New Zealand
Nikko Asset Management New Zealand Limited
Level 17, Vero Centre, 48 Shortland Street
Auckland 1010, New ZealandTel: +64-9-307-6363
Fax: +64-9-307-6399
www.nikkoam.co.nz/
Contact: NZenquiries@nikkoam.com

Luxembourg
Nikko Asset Management Luxembourg S.A.
Private Business Centre, 32 – 36 Boulevard d’Avranches
L-1160, Luxembourg
emea.nikkoam.com/
Contact: EMEAenquiries@nikkoam.com
Americas
Nikko Asset Management Americas, Inc.
605 Third Avenue, 38th Floor, New York, NY 10158, U.S.A.
Tel: +1-212-610-6100
Fax: +1-212-610-6140
americas.nikkoam.com/
Contact: USsalesinquiries@nikkoam.com
Hong Kong
Nikko Asset Management Hong Kong Limited
24/F Man Yee Building, 60-68 Des Voeux Road Central,
Hong Kong
Tel: +852-3940-3900
Fax: +852-3940-3904
www.nikkoam.com.hk/
Contact: HKinstibusinessdev@nikkoam.com

If you would like a copy of this report, please email: corp-sustainability@nikkoam.com

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Nikko AM Sustainability Report 2019

Important Information
This document is prepared by Nikko Asset Management
Co., Ltd. and/or its affiliates (Nikko AM) and is for distribution only under such circumstances as may be permitted by applicable laws. This document does notconstitute investment advice or a personal recommendation and it does not consider in any way the suitability or appropriateness of the subject matter for
the individual circumstances of any recipient.
This document is for information purposes only and is notintended to be an offer, or a solicitation of an offer, to buy
or sell any investments or participate in any trading strategy. Moreover, the information in this material will not affectNikko AM’s investment strategy in any way. The information and opinions in this document have been derived fromor reached from sources believed in good faith to be reliable but have not been independently verified. Nikko AM
makes no guarantee, representation or warranty, express
or implied, and accepts no responsibility or liability for theaccuracy or completeness of this document. No relianceshould be placed on any assumptions, forecasts, projections,estimates or prospects contained within this document.
This document should not be regarded by recipients as a
substitute for the exercise of their own judgment. Opinions
stated in this document may change without notice.
In any investment, past performance is neither an indication nor guarantee of future performance and aloss of capital may occur. Estimates of future performance are based on assumptions that may not berealised. Investors should be able to withstand the lossof any principal investment. The mention of individual stocks, sectors, regions or countries within this document does not imply a recommendation to buy or sell.
Nikko AM accepts no liability whatsoever for any loss
or damage of any kind arising out of the use of allor any part of this document, provided that nothing herein excludes or restricts any liability of Nikko AM
under applicable regulatory rules or requirements.
All information contained in this document is solely forthe attention and use of the intended recipients. Any use
beyond that intended by Nikko AM is strictly prohibited.
Japan: The information contained in this document pertaining specifically to the investment products is notdirected at persons in Japan nor is it intended for distribution to persons in Japan. Registration Number: Directorof the Kanto Local Finance Bureau (Financial Instruments
firms) No. 368 Member Associations: The Investment Trusts
Association, Japan/Japan Investment Advisers Association.

United Kingdom and the rest of Europe: This document constitutes a financial promotion for the purposes of
the Financial Services and Markets Act 2000 (as amended)(FSMA) and the rules of the Financial Conduct Authority(the FCA) in the United Kingdom (the FCA Rules).
This document is communicated by Nikko AssetManagement Europe Ltd, which is authorised and regulated
in the United Kingdom by the FCA (122084). It is directed
only at (a) investment professionals falling within article 19of the Financial Services and Markets Act 2000 (Financial
Promotions) Order 2005, (as amended) (the Order) (b) certain high net worth entities within the meaning of article 49 of the Order and (c) persons to whom this document may otherwise lawfully be communicated (all such
persons being referred to as relevant persons) and is only
available to such persons and any investment activity towhich it relates will only be engaged in with such persons.
United States: This document is for information purposes only and is not intended to be an offer, or a solicitation of an offer, to buy or sell any investments. This document should not be regarded as investment advice. This
document may not be duplicated, quoted, discussed orotherwise shared without prior consent. Any offering or
distribution of a Fund in the United States may only be
conducted via a licensed and registered broker-dealer or aduly qualified entity. Nikko Asset Management Americas,
Inc. is a United States Registered Investment Adviser.
Singapore: Nikko Asset Management Asia Limited. (Co. Reg.
No. 198202562H) is regulated by the Monetary Authority ofSingapore.
Hong Kong: You should seek advice from a financial
adviser before making any investment. In the event thatyou choose not to do so, you should consider whether
the investment selected is suitable for you. The contents of this document have not been reviewed by the
Securities and Futures Commission or any regulatory
authority in Hong Kong. Nikko Asset Management Hong
Kong Limited is a licensed corporation in Hong Kong.
Australia: This document is issued in Australia by Nikko
AM Limited (ABN 99 003 376 252, AFSL 237563). It is forthe use of wholesale clients, researchers, licensed financial advisers and their authorised representatives only.
New Zealand: Nikko Asset Management New Zealand
Limited (Company No. 606057, FSP22562) is the licensed
Investment Manager of Nikko AM NZ Investment Scheme,
the Nikko AM NZ Wholesale Investment Scheme and the

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Nikko AM Sustainability Report 2019

Nikko AM KiwiSaver Scheme. This material is for information
purposes only.
Kingdom of Bahrain: The document has not been approvedby the Central Bank of Bahrain which takes no responsibility for its contents. No offer to the public to purchase theStrategy will be made in the Kingdom of Bahrain and this document is intended to be read by the addressee only and mustnot be passed to, issued to, or shown to the public generally.
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public in Kuwait. The Strategy has not been licensed for offering in Kuwait by the Kuwaiti Capital Markets Authority or
any other relevant Kuwaiti government agency. The offering of the Strategy in Kuwait on the basis a private placement or public offering is, therefore, restricted in accordance with Decree Law No. 7 of 2010 and the bylaws
thereto (as amended). No private or public offering of theStrategy is being made in Kuwait, and no agreement relating to the sale of the Strategy will be concluded in Kuwait.
No marketing or solicitation or inducement activities arebeing used to offer or market the Strategy in Kuwait.
Kingdom of Saudi Arabia: This document is communicated by Nikko Asset Management Europe Ltd (Nikko AME),
which is authorised and regulated by the Financial Services
and Markets Act 2000 (as amended) (FSMA) and the rulesof the Financial Conduct Authority (the FCA) in the United
Kingdom (the FCA Rules). This document should not be reproduced, redistributed, or sent directly or indirectly to any otherparty or published in full or in part for any purpose whatsoever without a prior written permission from Nikko AME.
This document does not constitute investment advice
or a personal recommendation and does not consider
in any way the suitability or appropriateness of the subject matter for the individual circumstances of any recipient. In providing a person with this document, Nikko AME
is not treating that person as a client for the purposes of
the FCA Rules other than those relating to financial promotion and that person will not therefore benefit fromany protections that would be available to such clients.
Nikko AME and its associates and/or its or their officers, directors or employees may have or have had positions or material interests, may at any time make purchases and/or sales
as principal or agent, may provide or have provided corporate finance services to issuers or may provide or haveprovided significant advice or investment services in any
investments referred to in this document or in related investments. Relevant confidential information, if any, known
within any company in the Nikko AM Group or Sumitomo
Mitsui Trust Bank Group and not available to Nikko AME

because of regulations or internal procedure is not reflectedin this document. The investments mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors.
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Oman as contemplated by the Commercial Companies Law
of Oman (Royal decree 4/74) or the Capital Markets Law of
Oman (Royal Decree80/98, nor does it constitute an offer tosell, or the solicitation of any offer to buy non-Omani securities in the Sultanate of Oman as contemplated by Article
139 of the Executive Regulations to the Capital Market
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and able to conduct an independent investigation of therisks involved in an investment in such Strategies. The document does not constitute an offer to the public and should
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