ENGAGEMENT
We engage in constructive dialogue
with companies to promote theircontinued value creation andsustainable growth

Basic stance on engagement

57

Engagement

Engage in dialogue with acordial and constructive
attitudeOur Idea of Constructive
Dialogue with Portfolio
Companies
We have established a basic policy forengagement as part of our responsible
investment policy formulated by the
Responsible Investment Committee,
the highest decision-making body for
responsible investment.
We believe that engagement, or
constructive dialogue with portfolio
companies, starts with a thoroughunderstanding of the target company
and its business environment as wellas its future. We also view engagement
as one of the most powerful means tofulfill our stewardship responsibility.

Work to understand nonfinancial information, including
companies’ efforts to address
ESG issues, and the strategies
and philosophies behind them

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

When a serious scandal or
accident has occurred,promote sound management
by hearing the causes andmeasures to prevent recurrence

Responsible Investment Report 2022

58

Policy/priority topics
Individual engagement

The Responsible Investment Committee decides the Basic
Policy on Responsible Investment in Management P.19-22
as well as the priority topics for engagement, and theInvestment and Research Division carries out engagement
activities in accordance with the committee’s decisions.
Analysts in the Corporate Research Department and ESG
specialists in the Responsible Investment Department are
directly in charge of engagement, but the Engagement
Department established in November 2021 supervises
overall engagement activities. Investment managers, who
also belong to the Engagement Department, communicate
engagement expectations to portfolio companies, ascertain
each company’s situation, and incorporate their findings
into investment decisions. In engagement with individualcompanies, we establish clear goals and utilize milestone
management, aiming to achieve goals over the course of
three years. Our process involves managing PDCA overtwo stages – the basic policy and priority topics, as well as
individual engagement.

p l anP

Engagement Process

The Responsible Investment
Committee decides thefollowing:Basic Policy for Responsible
Investment P.19-22
Priority engagement topics(next page)

Portfolio companies:
2,400

Target companies:
Top 300 companies interms of amount heldand shareholding ratio(+additional companies) op companies in terms of amountT
held: Mainly large companies
Top companies in terms ofshareholding ratio: Mainly small- andmedium-sized companies
Additional companies:(Decided by the Engagement Department)
Companies requested by Investment Dept.
Companies researched by analysts
Companies with ESG issues
Companies desiring dialogue with shareholders

Engagement policy and priority topics
We organize Japanese companies’ issues as noted to theright. In accordance with this, the Responsible Investment
Committee determines the priority engagement topics eachyear in July. On Pages 61-65, we introduce some examples(see box below) of engagement aligned with the priority
topics set in July 2021.
Please refer to Page 66 for a discussion about the mostrecent priority topics.

 rom quantitative growth/diversification ofFbusiness lines to enhancement of capital efficiency
Enhancement of diversity
Strengthening of management’s oversight function
Consideration of stakeholders
Internal transformation
Timely response to changes in external
environment

Moving away from inward orientation

Priority topics (decided in July 2021)
1

Rational explanation of financial strategy

6

Climate Change

2Integrate Business Strategy andSustainability

7

Natural Capital

3

8

Diversity

Redefine the Board of Directors

9

Human Rights Risks

4 trengthen commitment to capitalS
efficiency

559

Reduction of cross-shareholdings

Engagement

10 Disclosure of Materiality and Risk

Information

Review by the

Review Basic Policy for
Responsible Investment(principles of desirable
management) and priority topics

Milestone
ManagementR eview engagement
methodology and topics
Escalation (as necessary)

Responsible
Investment
Committee

Decide topics
and milestone
management goals
for each target
companyactA

ch eckC

do

D

Engagement byanalysts and ESG
specialists

Review by the
Engagement
Department

Engagement with outside directors

Review by the
Engagement
Department

Reflect in investment decisions
Reflect in proxy voting

Decide engagement topics for each company
Narrow down by companies (vertical axis) x
priority topics (horizontal axis)

Top 300 companies in terms of amount held andshareholding ratio +additional companies
Company ompanies: Mainly handled by analysts
CPriority topics: Primarily handled by ESG
specialists

A

B

C

Climate Change
Priority Topics

Review and decision by the Engagement Department
Example of narrowing down in line with priority
topic (climate change)
1 E xclude companies that have attained or committed toobtaining SBT certification
2 S creening by Scope 1 and 2, Scope 3, carbon intensity(comparison with industry peers)
3 D ecide target companies for engagement, considering
each company’s situation

Human Rights
Risks
Diversity
Redefine
the Board of
Directors etc

Topics particular toeach company

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

2,424 topics(1,010 meetings)

2022)
Ratio Number of
topicsBusiness strategy

16%

Financial strategy

15%

361

69%
ESG-related meetings
Environmental
19%
Social14%
Governance28%
Proxy voting-related 7%

1,666

Total

Milestone
Status(as of December 31,

2022

Ratio by
topic

Status ofMilestone
Management

397

470
343
679
174

2,424

In 2022, we carriedout engagement
across 2,424 topics.
Currently, we aremanaging milestones
for a total of 934
topics. Of these, 204
topics are already at“Step 5: Conclusion.”(number of topics)

Communicate issues to portfolio company

266

Company shares a recognition of the issues 314
Company formulates countermeasures
Company implements countermeasures
Completion

126
24
204

Responsible Investment Report 2022

60

Engagement on Priority Topics

We carried out engagement in line with the ten key themes established by
the Responsible Investment Committee (in July 2022) Here, we introduce
some examples of engagement in 2022 in line with NAM’s uniquemilestone management.

Rational Explanation of
Financial Strategy

Company implements
countermeasures

PeriodCompany formulates
countermeasures
Company shares arecognition of the issues

monthsCommunicate issues tocompany

21

Glass and Ceramics Products0Completion

Progress

12

24

Completion: May 2022 4 interviews
Interviewee: Representative Director and President, IR

36

NAM’s concerns

Goal

The company is working to transform its business structure in response
to automobile electrification to tackle climate change issues . They arecontinuing to invest in new businesses, but they keep posting losses. Their
explanation to investors about cash flow allocation is inadequate.

A clear explanation about their approach to new businesses (especiallyconcerning investment discipline, progress management)

Initially

Overview

Most recently

NAM
Investors are concerned about the fact that 30% of cash
flow is allocated to loss-making new businesses. It is necessary toprovide a little more detailed explanation.
Company
We understand the concerns of investors, but this is thetime when we need to transform the company. It will be difficult toprovide a detailed explanation right away.

Integrate Business Strategy
and Sustainability

We conveyed the concerns about investments in new businesses, andencouraged the company to reconsider its cash allocation. In 2022,
the company announced a share buyback.
The company held a business briefing to dispel the concerns about
new businesses.

Completion
Company implements
countermeasures
Company formulates
countermeasures
Company shares arecognition of the issues

Progress

Period14

Real EstateCommunicate issues tocompany

months

0

12

24

36

NAM’s concerns

Goal

Their information disclosure about climate change lags behind their industry
peers, but there is nothing about their environmental efforts that are inferior
to industry peers. They should reconsider their business model and appeal
to investors as a distinctive real estate company.

Promote businesses that outwardly show
contributions to the environment

Initially
NAM
How about reconsidering your business model and appeal
to investors as a distinctive real estate company that outwardly showsits environmental contributions?

Overview

Company
We discuss our environmental efforts almost every day.
Though technological innovations in decarbonization seem to beoccuring in the construction industry, our discussion has not reachedto the point where we can narrow down our business.

*The period is the number of months from start of interviews until December 2022

61

Completion: Nov. 2022 3 interviews
Interviewee: Head of Corporate Communications
Department

Engagement

Most recently

The company has implemented ZEH (Net Zero Energy House) into
condominiums and promoted consideration of the environment,
health and comfort. The company is well aware of the brand power ofcondominiums, and has narrowed its deliberations to rental properties
without brand power.

Redefine the Boardof Directors
RetailCompletion
Company implements
countermeasures

Progress

PeriodCompany formulates
countermeasures
Company shares arecognition of the issues

monthsCommunicate issues tocompany

3

0

12

24

Completion: April 2022 3 interviews
Interviewee: Senior Executive Officer, others

36

NAM’s concerns

Goal

The company president is the chair of the Nomination/Compensation
Committee, and these committees have only been convened a few times.
Some of the outside directors are not committee members, and only give
advice. There is a lack of awareness with respect to separating oversightand execution of decision-making.

Outside directors chair the Nomination /Committee, or all outside
directors serve on the Nomination/Compensation Committee.

Initially

Most recently

NAM
What is the reason for some outside directors not serving as
members of the Nomination/Compensation Committee?

Overview

Company
They are members of committees responsible fordecision-making, and we receive beneficial advice from them.
NAM
Oversight and execution are not separated. If an outside
director has the knowledge to provide advice, we want him/her tocontribute that expertise to nomination and compensation matters.

Strengthen commitment tocapital efficiency

The outside directors were mainly just providing advice, and thesenior management team’s awareness regarding separating oversightfrom execution was weak. We thought that improvements would taketime due to the fact that a change in thinking was necessary, but thecompany took action to address this faster than expected, and placed
all outside directors on the Nomination/Compensation Committee.
Outside directors were also appointed as committee chair.

Completion
Company implements
countermeasures
Company formulates
countermeasures
Company shares arecognition of the issues

Progress

Period29

MachineryCommunicate issues tocompany

months

0

12

24

36

Completion: June 2022 5 interviews
Interviewee: D irector and Senior Managing
Executive Officer

NAM’s concerns

Goal

ROE was struggling to grow as profit growth was not keeping up with sales
growth and the balance sheet was ballooning. Executive compensation
was not linked to capital efficiency, and we were concerned about thecommitment to improving ROE.

Executive compensation with capital efficiency metrics as KPI

Initially

Overview

NAM
The company has started working to improve capitalefficiency, including a share buyback, but the stock market isquestioning whether this will continue. The company can express its
commitment through executive compensation.
Company
We used to emphasize P/L, but we changed ourmanagement metrics to be focused on our balance sheet. Reflecting
this in executive compensation is something we will work on going
forward.

Most recently

The company initially took a cautious approach to revising executive
compensation, but made improvements in steps, such as introducing
stock-based compensation. In the end, the company adopted
earnings performance-linked compensation with ROIC as the KPI.

*The period is the number of months from start of interviews until December 2022

Responsible Investment Report 2022

62

Reduction of crossshareholdings
Transport equipment
0Completion
Company implements
countermeasures

Progress

PeriodCompany formulates
countermeasures
Company shares arecognition of the issues

monthsCommunicate issues tocompany

15

12

24

Completion: June 2022 2 interviews
Interviewee: CFO

36

NAM’s concerns

Goal

The company is reducing cross-shareholdings, but there are factors
undermining this, such as group companies and business relationships.
Amid the significant changes in the industry, including electrification andautonomous driving, it is necessary to review cross-shareholdings, including
shares of group companies, in order to improve asset efficiency.

Sale of cross-shareholdings

Initially

Most recently

NAM
You are certainly sorting out cross-shareholdings. The stock
market is paying attention to the shares of group companies. Are you
discussing this within the group?

Overview

Company
We understand. We will review this without preference
for any particular stock. We are also selling the shares of groupcompanies, though it is small-scale. We have not discussed this within
the group, so we will take the action as an individual company, not asa group, if any.

According to the company’s securities report, the company has soldall its shares of three finished vehicle manufacturers excluding groupcompanies. Elsewhere, the company has sold all its shares of atelecommunications company as well as a portion of other company’s
shares, so we have confirmed that the company is making steadyprogress on enhancing asset efficiency.

Climate Change

Completion
Company implements
countermeasures
Company formulates
countermeasures
Company shares arecognition of the issues

Progress
PeriodPetroleum and coal products
012Communicate issues tocompany

months

1224

36

NAM’s concerns

Goal

The company has its own coal mines, and petroleum products occupy alarge part of the business portfolio. Industry peers had announced carbon
neutral plans, but the company was lagging in this respect, so quickconsideration was required.

Release a “Carbon Neutral Plan”

Initially
NAM
Industry peers have already released carbon neutral plans.
We want to hear about your efforts to decarbonize.

Overview

Company
We are currently formulating our plan, considering
matters such as biomass, hydrogen, ammonia, and solar power. We
are doing CCS on a test basis, and we want to find the best location
for it, mainly overseas.

*The period is the number of months from start of interviews until December 2022

63

Completion: April 2022 3 interviews
Interviewee: V ice President

Engagement

Most recently

The company released a carbon neutral plan. There will still be
GHG emissions remaining in 2050, but the plan is to absorb theseemissions with CCS, etc. The company is also considering obtaining
SBT certification, which demonstrates their forward-looking approach
towards climate change issues.

Engagement on Priority Topics

Human Rights Risks

Completion
Company implements
countermeasures

Progress
PeriodCompany formulates
countermeasures
Company shares arecognition of the issues

monthsCommunicate issues tocompany

12

Retail01224Completion: Dec. 2022 2 interviews
Interviewee: Director in charge of Sustainability, and others

36

NAM’s concerns

Goal

We have completed engagement asking the company to strengthen its
initiatives related to overall ESG risks as well as to enhance its disclosure. In
terms of the next step, there will be a focus on individual ESG risks, but thecompany’s efforts on human rights risk are lagging, though this is important
given the specific nature of its business.

Implement human rights due diligence and disclose the results

Initially

Most recently

NAM
We are focusing on your human rights risk, due to the natureof your business, but your information disclosure is inadequate.

Overview

Company
We recognize this as a problem. We have incorporated
this into our policy for suppliers.

The company has started working on traceability of lumber
procurement, and has otherwise carried out some forwardlooking initiatives.

NAM
We want you to perform human rights due diligence anddisclose the outcomes.

Natural CapitalCompletion
Company implements
countermeasures
Company formulates
countermeasures
Company shares arecognition of the issues

Progress
Period5

Food

Communicate issues tocompany

months

0

12

24

36

Completion: July 2022 First interview
Interviewee: Representative Director and President, IR

NAM’s concerns

Goal

The company is actively implementing ESG efforts, but as the TNFD entered
the stage of establishment preparation, it was necessary to encourage thecompany, which uses large amounts of agricultural and seafood products,
to take speedy action.

Disclosure of risks and countermeasures regarding biodiversity

Initially

Overview

NAM
As the framework for disclosures based on TNFD enter the
preparatory stage, and you use a lot of agricultural and seafood
products, we want you to address biodiversity in a forward-looking
manner and speed up your efforts to strengthen your initiatives.
Company
We have made a net-zero declaration on climate, but inother areas of sustainability we are lagging behind major overseas
companies, and we plan to tackle this proactively.

Most recently
Regarding biodiversity, the company has designated palm oil,paper, sugar crops, coffee beans, beef, soybeans, and otheritems as priority raw ingredients, and has disclosed a policy toadvance sustainable procurement. In 2022, there were more
specifics noted than in the previous year, and there was progressin terms of disclosure.

*TNFD: Taskforce on Nature-related Financial Disclosures*The period is the number of months from start of interviews until December 2022

Responsible Investment Report 2022

64

Engagement on Priority Topics

Diversity

Completion
Company implements
countermeasures

Progress
PeriodCompany formulates
countermeasures
Company shares arecognition of the issues

monthsCommunicate issues tocompany

27

Electrical Equipment
0

12

24

Completion: Feb. 2022 4 interviews
Interviewee: Representative Director and President, others

36

NAM’s concerns

Goal

The company’s efforts on ESG issues are focused on the environmentand governance, while its efforts on social issues are lagging. In
particular, the company has not even established a target regarding
promoting the active participation of women.

Establish medium- to long-term targets regarding promoting the active
participation of women (the ratio of women managers, etc.)

Initially

Overview

Most recently

NAM
We appreciate your efforts regarding the environment,
including your formulation of a vision, but your initiatives onsocial issues, such as promoting the active participation of
women, are insufficient.
Company
That is tough to hear. Regarding promoting theactive participation of women, we do not want to do anythingother than leveling the playing field.

Disclosure of Materiality and
Risk Information

The company has disclosed a target for the ratio of womenmanagers. This accompanies a specific plan to target anddevelop talented women, and this plan has been found to beeffective.

Completion
Company implements
countermeasures

Progress

Company formulates
countermeasures
Company shares arecognition of the issues
Communicate issues tocompany

Period37

Retailmonths01224Completion: Sep. 2022 4 interviews
Interviewee: Director and Managing Executive Officer

NAM’s concerns

Goal

The company has a wide-ranging business structure, and scandals
are not uncommon. The company is urgently trying to bolster risk
management across the entire group, but disclosure of risk information
is not adequately organized.

Sort out risk factors and disclose information.

Initially

Overview

NAM
You only have listed risk information withoutmateriality, and it is not linked with management’s priority
issues, either.
Company

We are closely examining it.

*The period is the number of months from start of interviews until December 2022

65

36

Engagement

Most recently

NAM
Despite the improvement in risk management
disclosure, your handling of sustainability risk is unclear.
Company
We are organizing it with qualitative expressions.
We will provide disclosure going forward.

We set priority topics for engagement, and establish goals for each company
based on those topics. The priority topics are like a compass used fornavigation, presenting clear plans at the present time, each of which are
independent items. In particular, when reviewing the priority topics this timearound, we focused on how to link them to enhancing corporate value.
For example, the former topic of “Reduction of cross-shareholdings” wasintegrated into both “Strengthen commitment to capital efficiency” and “Rational
explanation of financial strategy” in this review. The content was designed toencourage specific actions by portfolio companies. On the other hand, “Solving
problems to realize well-being within society” aims to support a wide range ofvoluntary efforts by companies, and seeks not only corporate transformation
but also to achieve overall stakeholder sustainability. By enriching these priority
topics, we will continue to enhance our engagement program.

Head of Engagement
Department

Yosuke Uchida

Review of Priority Topics(July 2022)

Business

Integrate Business
Strategy and Sustainability
Demand explanations of business strategies that
integrate sustainability. This includes disclosureof information related to materiality and risk.
This integrates “Disclosure of Materiality and
Risk Information.”

Environmental

Environmental

Climate Change

NaturalCapitalCompanies are expected
to set GHG reduction
targets aiming for net-zero,
obtain SBT certification,
disclose Scope 3
emissions and amount of
GHG absorption, etc.

Human
Rights Risks
Ask companies to formulate
human rights policies and perform
human rights due diligence as
demanded by the public both inJapan and overseas.

Demand efforts toaddress biodiversity andwater risk.

3.7%

1.8%
10.8%
2.7%

Financial

Rational explanationof financial strategy

Social4.1%
32.6%

Ask companies to explain their use of
cash on hand, shareholder return policy,
reduction of cross-shareholdings,
etc. Integrate “Reduction of crossshareholdings.”

13.6%

13.2%

1.6%

SocialUtilize Human
Capital Possessing
Diverse Values
Demand that companies utilize humancapital in line with a growth strategy,
including gender diversity. Expand thescope of “diversity.”

15.9%

SocialGovernance

Strengthencommitment tocapital efficiency
Demand commitment to capitalefficiency (including the reductionof cross-shareholdings) throughexecutive compensation. Integrate“Reduction of cross-shareholdings.”

Milestone
management status(as of Dec. 2022)
GovernanceRedefine the Boardof Directors
Enhance effectiveness. Support the full-fledgedtransition to a monitoring board. (Discuss together
with the revision of proxy voting standards)

New

Solve Problems
Aimed atRealizing WellBeing withinSocietyNew
Encourage efforts to link
problem solutions for realizing
well-being within society withbusiness opportunities.

Responsible Investment Report 2022

66

Engagement by Analysts
Chemicals Industry

Senior Equity Analyst & SeniorEngagement Manager
Chemicals industry

Mitsuhiro Kimura

Example of engagement in thechemicals industry
Chemicals industry issues and engagement
Company A

Company B

Efforts are needed to reformthe business portfolio aiming
for carbon neutrality, and we
asked the company to formulate
measures to address this andexplain them.

The company has been reshufflingits business portfolio, centeredon general-purpose products,
but in order to encourage further
efforts we asked the company
to strengthen its commitment tocapital efficiency.

Response

Response

Aiming to reduce CO2 emissions
50% by 2030 and have zero
emissions in 2050 by promoting
energy-saving and reforming thebusiness portfolio. However, rawmaterials and by-products are interrelated in the product manufacturing
process, so structural reforms willtake some time.

Making progress on talks withrelated parties inside and outside
the organization with the aimof rebuilding the problematic
business. Will work towards
carbon neutrality.

Engagement results

Engagement results

Announced that it will completely
withdraw from the problematic
business with large CO2 emissions,

Announced the sale of an
overseas subsidiary engaged in
the problematic business as wellas the withdrawal from domestic
production of certain products.

and will stop production in the firsthalf of 2025. Significant progressin the effort targeting carbon
neutrality.

67

Engagement

The chemicals industry is responsible for a large amount of
GHG emissions, and the effort to become carbon neutral isan urgent issue. Meanwhile, there are also many productsthat contribute to GHG emission reductions, making it anindustry that is also indispensable for achieving carbon
neutrality in the world. In addition, chemical products arebasic materials supplied to various related industries. As
a result, the chemicals industry possesses many productgroups, ranging from general-use products to specialty
products, and it is sometimes seen as being subject toconglomerate discounts in the stock market.
We have been talking with companies in the chemicals
industry about the need for business portfolio reforms
that contribute to both GHG emission reductions andprofitability improvements. It should be noted here that thechemicals industry builds both upstream and downstream
supply chains in the manufacturing process, and an energybalance is maintained, so it is not easy to separate and takeout only specific products. Discussions with companies cansometimes be tough, but rather than seeking only shortterm results, it is important to evaluate and understandcompanies’ medium- to long-term initiatives.
The engagement activities that we have been working
on are starting to yield results. Company A has a low-profit
business with high GHG emissions. For several years,
we have been talking with the company’s management
team and discussing the need for reforms to its businessstructure to improve profitability and achieve carbon
neutrality. Meanwhile, the business at issue was closelyintertwined with the raw materials and by-products of otherproducts, making it difficult to withdraw from this business.
However, the company solved the problem by collaboratingwith other companies and decided to withdraw from thebusiness. Business portfolio reforms targeting carbon
neutrality are picking up speed.
While Company B possesses growth businesses, it faces
the challenge of stabilizing and lifting the profitability of its
general-purpose businesses. While praising the capacity
cuts made thus far, for more than five years we have been
explaining to the company the need for more in-depth
restructuring. Currently, the company is making progresson structural reforms, including the sale of an overseas
subsidiary and the announcement of the suspension ofsome domestic production bases. We can expect thecompany to further strengthen its commitment to its returnon capital. While communicating to management our
positive assessment of these kinds of structural reforms in
the chemicals industry, we are talking with the company
about further measures to be taken and we are supporting
its efforts.

Innovation Lab
Right

Senior Quantative Analyst

Daisuke Katayama
Left

Measuring the Effects of Engagement Activities
The details of engagement activities with companies
by institutional investors like us are generally not widelydisclosed, and the effectiveness of these activities is notalways clear. The Innovation Lab is utilizing the accumulated
data from our past engagement activities with portfolio
companies to quantitatively measure and analyze the effects
of engagement activities.
Specifically, we used a fixed effects model* to verify postengagement changes in governance structures and thefinancial performance of companies that we engaged withfrom FY2016 to FY2021. We found that there was statisticalsignificance for the following six items with respect to thecompanies that we engaged with.
Analysis-related issues include the difficulty of extracting
the effects of our engagement activities alone, as well
as data bias, such as the fact that companies with poor
governance systems are more likely to be targets for

Quantatative Analyst

Keisuke Morita

Statistically Significant Items

engagement in
Abolishment of takeover defense
the first place.
1 measures
Going forward,
Increase in ratio of shares held
2 by executives
in addition toaddressing these
Increase in ratio of women
3 directors and outside directors
issues, we wantto continue to4 Decrease in surplus cash ratio
accumulate data
Increase in shareholder returns
5 (DOE)and measureeffectiveness,
Improvement in profitability
6 (ROA)and work with
the Engagement
Department andothers to contribute to improving engagement activities.
Our analysis and verification process was supervised byProfessor Yumiko Miwa of Meiji University, who provided us
with beneficial comments.

* T he fixed effects model is an analysis technique that enables the identification of the effects of engagement by accounting for trends common to all companies, such as
the adoption of the Corporate Governance Code, as well as the heterogeneity of companies.

CEO Engagement
We view CEO engagement as one of the valuable tools in dialogue
with portfolio companies. We have already engaged in dialogue withCEOs of more than 10 companies, and the details of these dialogues
are posted on our website. This is an important means for us tocommunicate to the outside about the many engagement activities
that we are working on.
This CEO engagement focuses on the issues facing portfolio
companies from the perspective of institutional investors as well as
measures to improve corporate value, with the aim of having CEOs
earnestly exchange opinions with one another and hold more indepth discussions. We believe that discussions among company
leaders will allow everyone to share opportunities to rediscover
new value and competitiveness of Japanese companies centeredon ESG. Also, in addition to receiving opinions regarding our
engagement activities during dialogue, we believe that receiving
feedback about the details we disclose will allow us to further
deepen and enhance our engagement activities.
Reference

Conversation

Panasonic Holdings Corporation

Deeply implement autonomous
responsible management in groupcompanies and promote growthaccompanying strategic andoperating capabilities
Right: Yuki Kusumi, Representative Director, President, and Group
Chief Executive Officer of Panasonic Holdings Corporation
Left: H iroyasu Koike, President and CEO of Nomura AssetManagement Co., Ltd.

https://global.nomura-am.co.jp/responsibility-investment/investors/feature/trptalk_panasonic.html

Responsible Investment Report 2022

68

Global Equity Engagement
We continue to enhance our engagement activities for global
equities as well. Companies are facing many global ESG
issues, and collaboration with overseas investment teams isessential not only for engagement with overseas companies
but also for engagement with Japanese companies. Because
global equities encompass a large number of target countries
and companies, we are leveraging the expertise of ourinvestment teams around the globe, as well as utilizing
outside resources, to optimize our engagement activities.
In 2022 our overseas offices conducted engagement
on a total of 772 topics (the total number of engagements
was 323). We divide engagement topics into a total of six
topics: Business strategy; Financial strategy; Environmental;social, Corporate governance; and Disclosure/Dialogue. The
investment managers and analysts in each office decide
the engagement topics and carry out engagement withcompanies.
Our engagement partner overseas is Sustainalytics,
and we either conduct collaborative engagementwith Sustainalytics or fully outsource engagement to
Sustainalytics (Refer to Page 72). In addition, we also
make use of collaborative initiatives such as the Access to
Medicine Foundation to carry out engagement alongsideother asset management firms on specific topics (For details,
please refer to Pages 73-74).

Example of Engagement by Overseas Offices
Our Science Based Targets Initiative (SBTi) project was
originally launched at the end of 2021 and targeted specificallyholdings in our Global Sustainable Equity (GSE) portfolio.
Throughout the course of 2022, the team continued
extensively engaging with companies and gradually expanded
the scope of the project to cover all OKTBL holdings (OK tobuy list). We believe this was the next natural step in assisting
our own commitment as a company to the Net Zero AssetManagers (NZAM) initiative. As part of this commitment,
Nomura Asset Management, have set an interim 2030 targetof 55% of total AUM to be managed in line with net zero and tohave set Science Based Targets.
During 4Q22, we continued to push those companies
that have not yet committed to having their GHG emission
reduction targets validated by the SBTi, and are delighted
with the initial progress we are seeing on some of ourengagements. As an example, we want to provide an updateon one of our SBTi milestone engagements with a US electricutility company. After an extensive engagement with themand despite the methodological challenges they were facing,the company announced in November 2022 their near-termtarget commitment, which we are very pleased with. Theirinitial hesitation about the feasibility of such a commitment
was due to lack of control over power supply as a pure play
network operator, as according to the SBTi’s methodology
for validation, if a company’s Scope 3 emissions are morethan 40% of their total emissions, a reduction of Scope
3 should be included in the overall reduction target. Asan energy transmission and distribution business, power
supply falls in the company’s Scope 3 emissions. However,through conversations with the company and putting themin touch with the CDP, they were encouraged to hire external
consultants who successfully assisted them in committing.
We believe this is a great example of engagement for
positive impact and as a next step we plan to work with boththis company and others on our holdings list (through ourintercompany collaboration project) to assist them on theirjourneys as well.

Engagements with Global Equities

Total number of engagement
topics by overseas offices
Engagement
topic mix

772topics

Engagement
region mix(323 meetings)
2022

Ratio

Engagements by
Sustainalytics*(2021)

461
2022

Engagement

Ratio

Numberof topics

Business strategy

9%69

Europe12%95

Financial strategy

4%32North America

18%

141

Environmental

29%

223

Asia and Emerging

69%

Social25%

194

Total number of topics

Governance

15%

119

Disclosure/dialogue

17%

Total number of topics

69

Numberof topics

536
772

135
772

*Target universe: MSCI ACWI ex Japan

Global Equity Milestone Management
In our global equity engagement as well, we share ourawareness of ESG issues with companies, set specificgoals, and carry out milestone management until the goals
are achieved. In addition to the engagement and milestone
management that we conduct on our own, we also perform
milestone management for collaborative engagement with
Sustainalytics. As with milestone management for Japanesecompanies, milestones are divided into five stages with an
engagement period of three years. By establishing clear goals
and having a set timeline, and then evaluating the engagement
process, we are able to effectively implement PDCA (Plan, Do,
Check, Act). The ESG issues focused on during engagement
and the goals established vary greatly depending on thecompany.

Global Equity Milestone Management
Recognition of topics
and issues
Selection of target
companies

Engagement
ESG evaluation

Examples of Milestone Management*(Refer to Page 55)
Nomura Asset Management’s Global Equity Engagement

D

P
Discover y ofsubsequent
topics andissuesCollaborative engagement
by Nomura AssetManagement andSustainalytics

Engagement outsourced
to Sustainalytics

US Electric Utilities
company

Hong Kong insurancecompany

Malaysian food company

Number of interviews

4

3

3

Period14 months

25 months

22 months

1

Do

Plan

Engagement by
Nomura AssetManagement offices

Communicate
issues to portfolio
company2Company shares arecognition of theissuesC

A

3Company
formulates
countermeasure

Check

Act

4
Company
implements
countermeasure

5

Milestone
management

Performance review
Policy review

Conclusion(Keep records/
progress evaluation)

Status ofmilestone
management* 1: Communicate issues; 2: Share recognition; 3: Formulate countermeasures; 4) Implement countermeasures;
5) Conclusion(number of
topics)Communicate issues to portfolio company
Company shares a recognition of the issues
Company formulates countermeasures
Company implements countermeasures
Conclusion

65
52
50
13
18

Status of Global Equity Milestone Management (as of December 31, 2022)
In 2022, we carried out engagement across 722 topics.
Currently, we are managing milestones for a total of 198 topics (148 companies).
Of these, 18 topics are already at “Step 5: Conclusion.”

Responsible Investment Report 2022

70

Examples of Global Equity Engagement (Milestone Management)

Progress

US consumer staple company A

Conclusion
Company implements
countermeasures
Company formulates
countermeasures

PeriodCompany shares arecognition of issues

15Communication ofissues to company

months12

Priority Topics
Protection of natural
capital, elimination of
deforestation in the
supply chain

24

Most recent interview / June 2022 / 2 interviews
Interviewee / S ustainability Director, Senior Vice President,
Investor Relations; etc.

36

NAM’s Concerns

Goal

Monitoring system and traceability in the supply chain,initiatives to prevent deforestation

Respond to instances of deforestation occurring inthe supply chain, and curb future deforestation

Initially
NAM

Most recently

Please explain your procurement policy, relevant

governance system, and supply chain monitoring system.

Overview

Company A

Our suppliers are requested to adopt “No

Deforestation, No Peat, No Exploitation (NDPE)” policies and toestablish grievance handling systems. Our 12 Palm ESG staffers arein charge of monitoring this process. We confirmed that 100% of ourpalm oil was certified by the RSPO, as of July 2021.

Company A

If deforestation discovered via satellite images isconfirmed in parts of our supply chain following an investigation by
a NPO specializing in commodities research, and we will work to
rectify this.
NAM

Do your KPI for commodity procurement include not only

costs, but also matters related to sustainability?
Company A

RSPO certification is included in our procurement

policy, and we are paying an RSPO premium (costs have increased).

Progress

US utility company B

Conclusion
Company implements
countermeasures
Company formulates
countermeasures

PeriodCompany shares arecognition of issues

12Communication ofissues to company

months12

24

Most recent interview / November 2022 / 4 interviews
Interviewee / S enior Vice President-Finance and Regulatory
and Treasurer, Vice President, Investor Relations

36

Priority Topics

NAM’s Concerns

Goal

Commitment to setting/validating SBTs

The company has GHG reduction targets and a goal fornet zero by 2030, but these have not been validated by
the SBTi.

Commitment to attain SBT validation

Initially
NAM

Please explain why the company has not received SBT

validation, given that we have shared that costs for validation are

Overview

limited and validation offers advantages.
Company B

The reason we were not proactive about getting ourtargets for SBT validation is that, as a pure play network operator,
the impact we have on customers’ power supply is limited.

71

Engagement

Most recently
Company B

NAM introduced us to the person in charge of SBTi.

We received a lot of information through a fruitful meeting with that
person. With the aim of setting SBT and acquiring validation, we
hired an external consultant and also expressed our commitment toacquiring SBT validation in November 2022.
NAM

We hope you will continue your efforts towards attaining

SBT validation.

Engagement by Sustainalytics
In global equity engagement, Nomura Asset Management’s
overseas offices also actively engage portfolio companies,
but due to the broad scope of coverage for global equities,
we partner with Sustainalytics to carry out collaborative
engagement with and outsource engagement to
Sustainalytics. Sustainalytics provides Global Standards
Engagement, in which companies are selected forE

engagement based on violations of international norms
such as the United Nations’ Global Compact, Material Risk
Engagement covering companies with critical ESG risks, andThematic Engagement, which focuses on solutions to specifictopics, such as localized water and responsible cleantech
from a global perspective.

S G

E

Global Standards
Engagement

S G

Material Risk
Engagement

Engagement Policy

Target companies

Engagement Policy

Target companies

Encourage companies to resolve severe
incidents as well as build a strategy aimed atpreventing future recurrences and improving
ESG practices

Companies that severely
or systematically violate
the United Nations’Global Compact or otherinternational norms

Encourages companies with financiallymaterial
ESG issues to construct strategies to handle
ESG risks and opportunities with the aim ofincreasing long-term corporate value

Companies withparticularly high ESG riskin their industry

Thematic Engagement
E

E

Engagement related toFeeding the future

Engagement related toLocalized waterEngagement Policy
Efforts to help the food industry transition toa sustainable world food system, including
managing natural capital such as land andwater, reducing food waste, and responding tochanging consumer trends.

E

Target companies
Agriculture,
agrochemicals,
packaging food, foodretail companies

S

S

Engagement Policy

Target companies

To enhance water security for all and reducerisks to businesses, promote a better
understanding of water issues and encourage
the development of regional goals.

Companies with
operations in the Tietê
and Vaal river basins andare highly dependent on
the local water situation

S

Engagement related toModern slavery

Engagement related to
Responsible cleantech
Engagement Policy

Target companies

Encourage an appropriate response toenvironmental and social risks in theiroperations and supply chain, and a product life
cycle approach to promote more sustainableproduction of cleantech solutions.

Solar power generationequipment, wind power
generation equipment,
battery-powered electricvehiclesG

Engagement Policy
Encourage companies to adopt a multidimensional strategy that encompasses
structural root causes, rigorous monitoring,
and a continuous improvement approach toaddress the key risks of modern slavery.

Target companies
Companies in apparel andconstruction industries

G

Engagement related toTomorrow’s Board

Engagement related to
The Governance of SDGs

Engagement Policy

Target companies

Engagement Policy

Target companies

Encourages companies to have directors withthe appropriate abilities to deal with important
ESG issues and to display the necessarycommitment

Companies in extractives,
financial , and healthcare
sectors which haveespecially large ESG
issues and opportunities

Encourages companies to define meaningful
SDGs strategies that align with their businessplans. Aims to influence these companies to
produce positive outcomes in line with the2030 SDG agenda.

Consumer goods,
financial, and Informationand communications
technology companies

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72

Cooperation with Initiatives

Commitment tono-deforestation
together with otherfinancial institutions

In 2022, the satellite-based collaborative
engagement towards zero deforestation
marked its second full year of engaging
with and holding companies acrossvarious industries to account for
deforestation events occurring in theirvast supply chains. Nomura AssetManagement UK is proud to continue toparticipate in this project by being thelead/co-lead investor on dialogues withtwo companies and supporting multiple
others.
During the course of the year, NAM
UK participated in initial dialogues withthree companies across the personal
products, beverages and chemicals
industries. In particular, NAM UK
co-led a constructive engagement

Access to Nutrition
Initiative

73

Engagementwith a British personal products
business. Throughout the process, theteam touched upon the company's
supply chain monitoring systems,
practices, grievance mechanisms
and traceability efforts, as well as
their deforestation-free commitments.
Most importantly, the team touched
upon the flagged deforestation events
within the company’s vast supply chain
by our satellite-monitoring partner,
Satelligence. The team was delighted
to see that the company demonstrated
sufficient monitoring and supply chain
traceability efforts. As in many of theteam’s other dialogues, the need for
an industry-wide collective effort was
flagged given the scale of the issues at
hand.
NAM UK also actively participatedin follow-up dialogues with fourother companies. These included a
US household products business, aFrench personal products company
and a French food & staples retailingbusiness. These interactions were thesecond or third engagements withthese companies, which allowed us
to discuss new areas as well as themonitoring and traceability efforts within
a single commodity (palm oil sourcing
in Malaysia). Our broader discussions
touched on other soft commodities(beef and soy supply chains), otherregions such as Indonesia and Brazil,
further efforts to mitigate biodiversity
loss, the companies’ reforestation
policies and targets, and smallholder
farmers’ inclusion. The investor group isalso pleased to see that quite a few of
the companies that were engaged havesubsequently published detailed reports
around deforestation cases linked totheir supply chains. This reaffirms theinvestor group’s belief that engaging
with company specific evidence,
provided by our satellite-monitoring
partner, can be an effective tool to drivechange. NAM UK looks forward tocontinuing this journey and supporting
both peer investors and businesses on
their path to zero deforestation.

Satellite image example of deforestation:
Red boundaries show the deforested area.
Left shows area prior to deforestation activity. Right shows area following deforestation activity.
Sources: Satelligence report

The expected role of institutional
investors in solving nutritional problems
has been growing. As of December 31,
2022, the number of asset management
firms supporting the Access to Nutrition
Initiative (ATNI) Investor Pledge had
expanded to 80 firms representing
collectively US$19.9 trillion in AUM.
A full year has passed since NAM
pledged its support to ATNI, and during
this time NAM continued to proactively
participate in engagement meetings
asking target companies to improveaccess to nutrition.

NAM is co-chair for engagement
alongside a Japanese food company,
and we hosted the second engagement
meeting in October 2022. We hadconstructive discussions on thedefinition of healthy products, while we
confirmed details regarding progress
toward solving nutritional problems,such as KPI setting for achieving thenutrition-related targets which were
established during the 2021 Tokyo
Nutrition Summit.

Commitment toaccess to medicine

The team have continued to work
closely with Access to Medicine(ATM) and our peer signatories to theinitiative over the year. Nomura AssetManagement continued in its role as
the co-lead investor for a large UK
pharmaceutical that is a leader within
the vaccine space and also engaged
extensively with companies involved insupporting access to COVID treatment.
As the co- lead for the Access to
Medicine (ATM) investor engagement
initiative with the UK pharmaceutical wehosted a group call with the company
across both areas of improvement
identified by ATM and also our own

expectations. This included for example
improving impact reporting and aligning
C-Level management with accessoutcomes. The call was productive andwe felt the company was very engaged
and open to debating where our views
differed taking on board in particular theneed for better impact data to support
the sustainable investment community
in making better decisions.
In the first half of the year we
continued our engagement for
impact with companies involved in
COVID vaccine development andmanufacturing, following up the public
letter to the industry that we signed
alongside a number of our responsible
investment peers, with individual
engagements with the companies.
We participated in collaborative
engagement calls with companies
to seek to put pressure on them totake a more sustainable approachto supporting access and strongly
push our views around company
responsibility to support access,reporting on impact and aligning
management with outcomes. In
the second half of the year theteam ramped up its efforts further,and worked with peers to develop
letters to the companies pushing for
management remuneration to be tied toaccess outcomes and highlighting both
best practices and potential routes forthe companies to introduce appropriate
management remuneration targets.
These letters were sent directly tothe companies and were made public
in order to maximize the pressure on
the companies to push forward andimprove social impact. Meetings werealso held with some of the companies
and included engaging with for example
remuneration committees to discuss
our proposals.

Report published every
two years

In December 2022 in Tokyo in
conjunction with the publication of theAccess to Medicine Index 2022
The Access to Medicine Index Investor
Event was held to discuss key findings
from the Access to Medicine Index
and best practices for access to
medicines.
Representatives from the Accessto Medicine Foundation, investors,
pharmaceutical companies, academic
experts, etc. gathered, and from ourcompany, an ESG specialist in Tokyo
participated.

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74