Task Force on
Climate-related
Financial
Disclosures
2024
Information for New Zealand readers:
Please note that a separate climate report for Nikko Asset Management New Zealand Limited (Nikko AM NZ) will be
published at the end of July 2024. Nikko AM NZ is not currently included in the group targets set out in this report.

Contents
01 Governance
Overview of Nikko AM group governance 6
Nikko AM group sustainability governance 7
Regional sustainability governance example 902 Strategy
Our approach 11
Identifying climate risks and opportunities 13
In-house analytical capabilities: overview 17
Top-down analysis: temperature alignment 25
Bottom-up analysis: proprietary ESG-integrated approach 27
Bottom-up analysis: external data providers 30
Industry collaboration 33

03 Risk Management
Overview 37
Risk identification, assessment, and management 37
Climate change as a driver of group risk 39
Managing climate-related risks within our investments 40

04 Metrics & Targets
Overview 42
Methodology 43
Reported metrics 44
Our commitments 45

Foreword
In 2023, we faced a year of extremes. It was the hottest year on record bysome margin and the most active year for sustainability-related reporting
requirements. It was also punctuated by extreme weather-related events
all around the globe, from the devastating fire season in Canada to Asia’srecord-high temperatures to Libya’s destructive floods.
The first UN Global Stock Take and the outcomes of COP28 emphasised thatthe world is not on track to achieve the objectives of the Paris Agreement. At
Nikko Asset Management, we are on track for our own climate commitments;
however, we know this is not enough. Sustainable investment continues to bea strategic focus for us, and we continue to invest more into this area.
The journey to advance our sustainability practices begins with knowledge
and expertise. In 2022, we appointed our first global head of sustainable
investment and expanded and streamlined our ESG resources. As I said then,among my top priorities were further growing our newly established Global
Sustainable Investment team, advancing our ESG integration, stewardship andclimate-change activities, and increasing the number of women in senior roles.
We have made advances in all of these areas. For example, we are proud to be
increasingly supporting climate shareholder resolutions at major companies
in Japan, a practice that is not yet widely adopted in the Japanese market. We
believe this is an important step forward and are confident that the industry
will follow.
On the wider stage, we continue to take an active part in several industry
groups promoting sustainability and better corporate practices. I was, forinstance, very pleased to be involved in the establishment of the Japan Chapterof the Glasgow Financial Alliance for Net Zero and to participate in a discussion
about how Japan is to reach net zero by 2050.
Navigating a complex and fast-changing regulatory landscape for sustainability
reporting is a responsibility we take seriously — to support our clients toachieve their climate goals and support real-world decarbonisation. To achievethis, we need access to credible, high-quality climate data and scenarioanalysis tools. For this to happen, stability of methodologies of third-party data
providers is crucial, underscoring the need for regulatory intervention.
We believe it is important for our clients and the industry to be aware of thesemethodological changes. We will continue to advocate for better-quality
climate data and climate tools in the pursuit of real-world decarbonisation.
Meantime, we do not shy away from difficult discussions around thepracticalities of achieving impact on the ground. Our focus goes beyond
headline figures to ensuring that we contribute to the decarbonisation of thereal economy.
Stefanie Drews, Group President

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Introduction – who we are
Nikko Asset Management group(Nikko AM) is a global high-conviction
manager with a diverse range ofindividual investment teams who
operate independently but share acommon commitment to sustainable
investment. Given the diversity of ourinvestment teams and investment
processes, each investment teamis responsible for addressing,developing, and implementing
its own approach to sustainable
investing.

Our global investment capabilities
include active equity, fixed-income,and multi-asset strategies. We also
have a complementary range of
passive strategies, including someof Asia’s largest exchange-tradedfunds (ETFs). We have a long history
in sustainable investing, beginning in1999 when we launched Japan’s firstsocially responsible investment fund.
We were also early signatories to the
Principles of Responsible Investment(PRI) in 2007.

Global Citizen with Asian DNA
USD

11

30

countries*

nationalities**

211.0bn*
total AUM

We have a diverse workforce that
includes 30 nationalities working inseven cities across four continents.
While most of our assets undermanagement (AUM) and clientsare based in Asia, our long-termbusiness goal is to offer best-in-classinvestment solutions for clientsworldwide.

Our People

949

Employees** acrossall asset classes,
located globallylargestyears in Asia

		
		

		

Japan
New Zealand
China
Luxembourg

		

		
		

Singapore		 Australia
United Kingdom 		 Americas
Hong Kong		 Malaysia
Germany

109

Portfolio Managers**
with extensive,and locally-driven
research coverage

One of the60+

Extensive global resources

224

Investment
Professionals**

distributor networks in the Asian region
1st SRI Fund established in Japan*1
1st investment in-kind ETF established in Japan*1
1st Robotics Equity fund established in Japan*1
1st Asia ex-Japan REIT ETF established in Singapore*1*1 Based on Nikko Asset Management’s research

Our Global Capabilities
Qualitative insight through a broad range of global investment capabilities

Total Assets Under Management (USD 211.0bn*)
Total equity 66.2%
Total Fixed Income 8.3%
Cash Equivalent 13.3%
Balanced 5.8%

Our Specialisations
Equities
Global, Asia Pacific ex Japan, Japan, Australia, China, New ZealandFixed Income
Global Bonds, Green Bonds, Asian Local Currency, Asian Credit,
Australia, New Zealand

Alternative/Others 6.4%
Multi-Asset
Global, Emerging Markets

ETFs
Equities, Bonds, REITs

Nikko AM works with the UK-based international organisation Carbon Footprint Ltd. to offset carbon emissions forour business operations through offset programmes, and has been certified as carbon neutral since 2018.

*Consolidated assets under management and sub-advisory of Nikko Asset Management and its subsidiaries as of 31 December 2023.
**Including employees of Nikko Asset Management and its subsidiaries as of 31 December 2023.

01

Governance6

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Governance
Overview of Nikko AM
group governance
We implement cross-borderdelegation arrangements whereby
the locally contracted Nikko AM
group office manages businessdevelopment, supported by local
client-servicing teams. Portfolio
management is delegated to therespective regional Nikko AM entity
where the relevant investment
expertise is based.
The Nikko AM Group Board delegates
responsibility for day-to-day decisionmaking to our Global Executive
Committee (GEC), comprising
members of the senior management
team, whose details can be found in
the leadership section of our website.
The charts below show a simplified
representation of our group
governance structure.

Nikko AM governance
NAM Board of Directors
Independent Directors

Risk OversightCommittee

Global Executive
Committee

Board of Statutory
Auditors

Compliance
Oversight
Committee

Audit andSupervisory
Committee

Employees
Product
Committee
Control functions

Nikko AM Group’s supervisory and governance structure includes an audit and supervisorycommittee. The role of the committee is to strengthen oversight and enhance ourcorporate governance framework.

Stewardship governance structureGroup Board of Directors
Independent Directors

Global Executive Committee

Global Stewardship functions
ESG Global Steering
Committee
Stewardship and Voting
Rights Policy OversightCommittee

Subsidiary-specific
Stewardship functions
Local Boardof Directors
Independent Directors

Independent Directors

Local Proxy Voting
Oversight

Global Sustainable
Investment Department

Local Stewardship
Oversight

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Nikko AM groupsustainability
governance
Governance of environmental,social, and governance (ESG)
activities operates at both theglobal and local subsidiarylevel. The overall oversightof our ESG activities is the
responsibility of the ESG Global
Steering Committee. It oversees
the integration of ESG within
investment teams, sets policy,
and develops strategy, makes
external disclosures, andrecommends ESG-related
initiatives and participation inexternal bodies. On average, theCommittee meets on a quarterly
basis.
The ESG Global Steering
Committee is governed by the
GEC and, in addition, reports
directly to the Group Board. It ischaired by the chief investment
officer, and its voting members
are the heads of our investment
teams worldwide, who are in
charge of ESG integration andoversight in their individual
investment processes (including
company engagement and proxyvoting, where applicable).

This department is still expanding and is split into five functions:12

Regional ESG specialists:these are our ESG “allrounders” who work closelywith the investment teams
supporting their ESG
integration and stewardshipefforts. They also work closelywith our other functions, suchas client services and productdevelopment, to ensure that
we deliver the best outcomesfor our clients across the entire
value chain.

Research & integration: thisfunction, which is still being
developed, is responsible forsupporting our investment
teams and ESG specialists withsubject-matter expertise andensuring we continuously
improve our integration
efforts. The function will
include, for example, anenvironmental specialist to
help us enhance our activities
in this area.

3
Stewardship: this function will support and coordinate our firmwide stewardship efforts. It will aim to continuously improve ourstewardship activities, including engagement, proxy voting, and ESG
research, along with the respective disclosures.

Through these channels, theGroup Board is kept informed ofmaterial climate-related risks andopportunities while day-to-day
management is delegated to
relevant committees and senior
members of staff.
The Nikko AM group also has adedicated Global Sustainable
Investment Team that provides
expertise and support on ESG
matters.

4

5

Data & reporting: thisfunction is dedicated tosourcing, storing, validating,and disseminating ESG data
globally, as well as providing
support with ESG data
analytics and reporting.

ESG regulations: this function
is responsible for identifying,assessing, determining, andsupporting our approach to
ESG regulations and standards
globally.

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Global sustainable investment department governance structureGroup PresidentGroup Chief Investment Officer

Global Head of Sustainable Investment

Regional ESG
specialists

Research andintegration

Stewardship

Data &
reporting

ESG regulation

As part of this structure, the global head of sustainable investment reports directly to the group president and group chief
investment officer. This ensures that senior executives in the company have oversight of ESG matters. Both the grouppresident and group chairman have key performance indicators (KPIs) to strengthen the firm’s ESG capabilities, which
include climate-related risks and opportunities.
As part of oversight of our progress in 2024, the global head of sustainable investment presents frequently to the Group
Board. For example, in early 2024 a presentation was made to discuss the progress and achievements of key ESG initiatives
across 2023. Likewise, our TCFD report is approved at the highest level, which includes approvals from the ESG Global
Steering Committee and the board, among other key stakeholders.

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Regional sustainability
governance example

Oversight of proxy voting at our Japanese entity

Although we have global
sustainability governance to oversee
group ESG matters, including climaterelated risks and opportunities, we
retain regional flexibility that allows
each of our entities to further tailor
the approach regionally as required.

Board of Directors

ReportStewardship and Voting Rights Policy Oversight Committee(Majority of external committee members)

For instance, as our Japanese
operations represent the majority ofthe business, a great deal of resources
are devoted to their governance andstewardship.
The Stewardship and Voting Rights
Policy Oversight Committee monitorsand supervises our engagementwith Japanese investee companies
and proxy voting, ensuring that both
remain in line with our fiduciary and
ESG principles and meet the interestsof our clients.
The committee was launched in2016 as a way of enhancing thetransparency of our stewardship
activities and strengthening ourgovernance. Four of the committee’sseven members are from outside
the Nikko AM group, making theOversight

ReportOversight/Advice

Stewardship and Voting Committee

committee highly independent. Its
decisions carry weight, as it reports
directly to the Group Board on
matters such as the governanceof our stewardship activities andconflicts of interest, ensuring, forexample, that proxy votes are usedin line with our Conflict of Interest
Control Policy. Directly answeringto the Oversight Committee isthe Stewardship and Proxy Voting
Committee, which is responsible
for formulating stewardship policy,

providing guidance on stewardship
activities, and updating our groupproxy-voting policy, addendums
to which can be applied at thesubsidiary level, in line with local
customs and the requirements of
the respective investment teams.
The chart below shows a simplified
representation of our group
governance structure.

Our Japan Sustainable Investment Department makes judgements on how to exercise voting rights and undertakes
engagements with Japanese companies. It has integrated engagements into voting rights. Our European entities haveextended their sustainability governance to enhance local board and senior-management oversight of ESG activities,risks, and opportunities. For both Nikko AM Europe and Nikko AM Luxembourg, a dedicated board committee (the ESG
Stewardship and Oversight Committee) has been established for two main purposes:

1

To oversee andapprove all ESG
and stewardship
activities undertakenby the entities

2

To review andapprove theentities’ responses
to developing ESG
requirements, aswell as enhancing
standards ofstewardship

On a quarterly basis, this committee analyses, reviews, and approves ESG and stewardship activities that include, but are
not limited to, governance, policy revision, engagement and voting activity, and responses to ESG-related regulations
and standards.

02

Strategy

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Strategy
Our approach
We recognise that climate change presents a broad spectrum of risk and opportunities that may have an impact on theassets in which we invest. It is our fiduciary duty to identify and manage these, with the goal of enhancing long-termrisk adjusted returns. We are aware that climate change is a systemic problem that requires appropriate climate policy
and actions from governments. With this in mind, we will follow through on our commitment with the expectation thatgovernments will implement stronger policies to accelerate progress.
We assess and address these impacts through two main channels:

Our investments: As a
global manager, we serve a
diverse client base, and it is
not feasible for us to adopt
a “one size fits all” approach
to climate change. We base
our approach on extensive
bottom-up analysis that isundertaken by investment
teams working closely with theglobal sustainable investment
team. Each investment teamis responsible for assessing
climate-related risks andopportunities within its
portfolios, using proprietary
tools and data to determine
the extent to which climate
impacts investment decisions.

Our operations: With the help of a UK-based third-party consultant,
Carbon Footprint Limited, we measure greenhouse gas (GHG) emissions
from the Nikko AM Group’s corporate operations, based on firm-wide
energy consumption and transportation data.
The assessment covers our direct and indirect emissions fromour operations in Scope 1 (i.e. fuel combustion) and Scope 2 (i.e.
consumption of purchased electricity), as well as certain indirectemissions in Scope 3 (e.g. business travel, as well as activities notincluded in scopes 1 or 2 that require fuel and energy use).
We have set a goal to reduce our GHG emissions from corporate
operations by 40% per employee by the year 2030, compared with 2019
levels.
For 2023, our total market-based carbon footprint — which recognises
a reduced emission factor for green energy contracts — was 1,905.17t
CO2e (2.13t CO2e per employee) compared with 1,658.11t CO2e in
2022 (1.21t CO2e per employee). Compared with our baseline year of
2019, when we generated 5,469.5t CO2e (5.9t CO2e per employee), thisrepresents a 61.6% reduction in emissions per employee.
Business flights accounted for 67% of the total carbon footprint, whileelectricity usage from our offices and remote-working employees’
homes accounted for 7% and 19%, respectively.
Compared with 2022, there was a marked increase in emissions frombusiness flights in 2023. Business travel is crucial for our operations to
support the investment research needs and commercial priorities of theorganisation. We have implemented steps to raise awareness among
employees about its impact on the environment.
Since 2022, everyone making overseas travel requests is required
to include the carbon footprint of their international flights on theirapplication forms. This policy helps the employees taking the flights andtheir managers to understand how much each flight adds to our firm’s
total carbon footprint. The aim of this initiative is to encourage themto consider reducing the number of people travelling, bundling moremeetings into a single trip, or planning routes more efficiently.
Every quarter, we take the overseas travel data for each region andpost it on our intranet platform for all employees to see. We plan to add
domestic flights to this visualisation in 2024.

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Nikko AM’s position on climate change
We recognise that climate change is one of the greatest challenges the global community faces and is a market-wide
and systemic risk with implications for the financial system. Since the adaptation of the landmark Paris Agreement in2015,1 the world has been increasingly working towards a common goal of limiting temperature increase to well below
2°C above pre-industrial levels and pursuing efforts to limit the increase to 1.5°C above pre-industrial levels. We outline
our approach to addressing climate change in our Position Statement on Climate Change.
We strongly believe that ESG considerations are inherent to long-term corporate value creation and contribute to therealisation of sustainable economic growth. In the light of this, we view ESG issues as an integral part of our fiduciary
duty to clients and endeavour to incorporate ESG principles in all our investment processes. This includes climatechange risks and opportunities.
As members of the Net Zero Asset Manager initiative (NZAMi), we are committed to contributing to real-world
decarbonisation through the six pillars of action shown in the table below.
Nikko AM climate plan of action1

2

3

Investment integration
We aim to build on the data andtools we are currently using, tosupport investment decisionmaking when considering
climate-change risks andopportunities.

Client solutions
We seek to understandour clients’ climate change
ambitions and develop
investment solutions that will
enable them to achieve theirgoals.

Active Stewardship
We actively seek to understandthe impact of climate-related
issues on investee companies
and seek to reflect our views
in voting decisions andengagement with management.

45Disclosure
We believe in the merits of climate transparency andwill continue to report and disclose our activities
through this report and other regulatory and client
reporting we produce. We are also committed
to evolving our reporting, scrutinising ESG data(including through engagements with data
providers), and focusing on reporting that adds value
beyond box-ticking.

Industry Collaborations
Through our participation in relevant industry
associations and initiatives, we hope to drive thechange required in emissions reductions andmobilising capital. These include engagementswith regulators, industry bodies, our peers, and thebroader industry.

6
Sustainable Investing Opportunities
Helping our clients to achieve their climate goals and to contribute to real-world decarbonisation is an opportunity
for sustainable investing. This is a strategic focus for us as we continue to explore and expand our offerings ofclimate-related investment solutions.
As a pioneer in the green-bond investment space, we launched one of the first green-bond funds in 2010. Buildingon that, in 2023 we expanded our Article 9 green-bond offering, Nikko AM Global Green Bond UCITS fund. The
fund is an actively managed, well-diversified portfolio of corporate and sovereign issuers of green, social, andsustainability bonds.
We developed our Climate Change Solutions — Japan Equity Strategy in December 2022. The fund aims to achieve a
50% reduction in GHG emissions against the TOPIX index while minimising tracking-error risk. Engagement with investee
companies on their decarbonisation efforts is an important lever for the portfolio to achieve its GHG emission target.
In 2023, we developed two strategic partnerships, with Osmosis Limited and Tikehau Capital. Both firms are
signatories to the PRI and share similar ambition to develop lower-carbon investment products to support clients’climate objectives. We aim to build on the thought leadership of both firms, where possible using the information
to support clients’ education.

1

Paris Agreement: https://unfccc.int/process-and-meetings/the-paris-agreement

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Our progress and key milestones
Since we became the first Asian-headquartered asset manager in 2018 to support The Investor Agenda’s four core areas,
our climate change journey has continued. The timeline below highlights our progress and key milestones.

2007

Launched the world’s
first World Bank Green
Bond fund

Joined Asia Investor
Group on Climate
ChangeDeveloped Corporate
Environment Policy

Joined Climate
Action 100+2010

An early signatory of
the PRI

2011

2018

Signed Japan Ministry ofEnvironment’s Principles
for Financial Action for the
21st Century

Identifying climate risks
and opportunities
As regulations, markets, and clients
continue to evolve towards a lowercarbon world, Nikko AM intends
to be in a position to support all of
its clients to achieve their climate
goals and support real-world
decarbonisation. We aim to achieve
this through research and data,
investment solutions, and active
stewardship.
We broadly consider climate risks andopportunities over the following time
horizons:
 Short term: three to five years inline with investment horizons
 Medium term: Up to 2030 in linewith interim net-zero targets
 Long term: Up to 2050 in line with
net-zero targets

2019

Joined Net Zero AssetManagers initiative

Published first
TCFD report withscenario analysis

Revised groupwide
environmental
policy and set a GHG
reduction target

2021

2022

Three firmwide focus
areas: Diversity &Inclusion, Reducing
Inequalities, andEnvironment & Climate

We are mindful that the considerationof climate-related risks andopportunities takes place over alonger period than investment time
horizons.
Identifying and understanding thetypes and impact of the risks, andthe time horizon over which theserisks can manifest, are important
to us as investors. This is because
these risks could result in reduced
security valuations of our underlying
holdings, thus potentially impacting
our portfolios and revenue, as wellas entailing reputational risks to thefirm. The following table outlines theclimate-related risks our companies
face, the potential impact on them,and ultimately, the potential impact
of such risks on us as an asset
manager should we not take preemptive steps to mitigate such risks.

2023

Set 2030 interim
target for 2050 net
zero goal

Alongside the risks that arise froma changing climate, the transition
towards a lower-carbon economy
presents climate opportunities
that our companies can tap into.
As asset managers, we encourage
our companies to seek climate
opportunities throughout their value
chain in their products and services.
In the table below, we outline howvarious opportunities impact ourcompanies, which could in turnimpact us as asset managers.
Our mitigation activities are describedthroughout this report and include,
but are not limited to, the following
activities:
 In-depth bottom-up research Active stewardship Top-down scenario analysis
 Portfolio risk monitoring

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Risk

Description

Potential impact on
our companies

Timeframe

Potential impact on
us as asset managers

Transition Risk
Regulatory& legalRisk from new
and/or advancing
climate-related
regulations andpotential climate
litigation thatmight impact
a company’s
operations and/or
products/services

Industry- andregion-dependent:
e.g. carbonintensive sectors(short term), lesscarbon-intensive
sectors (medium
to long term)

Increased costs from:■ Increase in carbon price■ Compliance cost or fines due
to regulatory breach■ Increased costs fromaccelerated decarbonisation
measures■ Potential climate litigation

Technology

Risk from theneed to invest
in technologicalinnovations tokeep up withtransition towards
a lower-carbon
economyIndustrydependent: onavailability oftechnologies
e.g., automotives(short term),
cement (longterm)

Increased cost from:■ Writing-off less efficient assets■ Capex investments in loweremitting technology■ Lower profitability due toinefficient operations■ Lower demand compared withcompetitors

MarketRisk from shifting
consumer
behaviour, henceswitch of demand

Industrydependent:e.g., automotives(short term), steel(long term)

Decreased revenues from:■ Reduced demand for
products/services■ Inability to capture changing
market demand

Reputation

Risk from public
perception of
a company’s
response to
climate risk or its
contribution toclimate change

Short, medium,and long term

Decreased revenues from:■ Reduced demand due tonegative perception (e.g.
greenwashing)■ Increased cost of debt

■ Lower AUM■ Lower revenue

Physical Risk
Acute

Risk to physicalLong term
operations fromincreased severityof extreme weather
eventsChronic

Risk to physicaloperations fromshifts in climate
patterns that
may impact
productivity and/or consumer
behaviour

Long term

Decreased revenues due to:■ Lower AUM■ Reduced production■ Supply-chain
capabilities, and hence output,
reverberations
due to damaged facilities andthat result in
supply-chain and transport
implications
disruptions
throughout ourinvestments from
■ Changing consumer patterns
operational losses
as a result of changing climate
and slowdowns
conditions
linked to weather■ Increased cost from rising
eventsinsurance premiums or,
ultimately, inability to insure■ Asset write-offs due to asset
damage■ Changing physical landscapeand availability of natural
resources (e.g. water scarcity)

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Opportunity

Description

Timeframe

Potential impact on
our companies

Potential impact on
us as asset managers

Transition Risk
Resource
efficiency

Opportunity from
more efficientuse of energy andresources

Short term

Energy source

Opportunity fromthe transition
to lower-carbon
sources of energy

Region-dependent Increased revenue frome.g. policy-driven
transitioning towards moresustainable energy sources.
This can lead to improved
financial planning andlower-cost volatility in lightof emerging carbon-tax
regulations.

Products &services

Opportunityfrom the ability
to develop
products andservices to capture
opportunities inthe shift towards
a lower-carbon
economyShort-to-medium
term

Increased revenue fromdeveloping of products
or providing services that
can aid other companies
in transitioning towards alower-carbon economy.

Markets

Opportunity arising Short-to-medium
from ability to adapt term
to and capturechanging consumer
behaviour

Increased revenue from
capturing changing clientdemands.

Resilience

Opportunity arisingfrom the ability to
manage the impactsof climate risk

Increased revenue due tomore efficient resource use
and allocation.

■ Increased AUM

Region-dependent Reduced cost from asset
e.g. country
damage or operational loss
adaptation
as a result of climate risk.
measures

Increasing reporting regulations
Navigating a complex and fast-changing regulatory landscape for sustainability reporting is a key focus area for us. An
example of this is the ISSB framework, which is being considered by various jurisdictions for inclusion in their regulatory
reporting requirements. We are currently working on understanding the evolving reporting requirements and theirimplications for existing investment processes. Analysing climate-related data across all our asset classes is a complex
and resource-intensive exercise. Inadvertently failing to meet regulatory requirements and the expectations of ourclients could result in potential financial costs and reputational impacts. We believe we have a strong foundation inplace to identify and respond to regulatory and voluntary changes, and we continue to invest in this area.

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Sustainable Investing
Opportunities
Helping our clients to achieve theirclimate goals and to contribute toreal-world decarbonisation provides
an opportunity for sustainable
investing. This is a strategic focus forus as we continue to explore andexpand our offerings of climaterelated investment solutions.
In 2023, we developed two strategic
partnerships with Osmosis Limited
and Tikehau Capital. Both firms are
signatories to the PRI and sharesimilar ambition to develop lowercarbon investment products to
support clients’ climate objectives.
We aim to build on the thought
leadership of both firms, where
possible using the information to
support clients’ education.
Osmosis, founded in 2009 andheadquartered in London, is a
research-based, quantitative
investment manager focused ondelivering better risk-adjusted
investment returns with better
environmental outcomes. Its
investment philosophy is based on
the view that companies that are
more resource efficient are more
likely to outperform their peers
over the long term. The Osmosis
portfolios overweight resource
efficient companies and underweight,
or short, inefficient companies as
identified by the Osmosis Model ofResource Efficiency. The approachtargets excess returns through theidentification of resource efficiency
in listed companies. Osmosis defines
resource efficiency as the carbon
emitted, waste generated, and water
consumed, relative to value creation.
Resource-efficient companies are,therefore, those that most efficiently
use limited resources to create
economic value.

Case Study – Green Bond Pioneers
The green-bond market has witnessed significant evolution anddiversification. It continues to evolve to address broader social,environmental, and sustainability issues. In 2010, we formed apartnership with the World Bank to launch our first Green Bond Fund,which focused exclusively on investing in World Bank green bonds. Fast
forward to 2023, and our world is facing a global environmental crisis.
We believe that green bonds continue to have a vital role to play inmitigating the severity of the global environmental crisis by supporting
positive climate change solutions. During 2023, we relaunched the Green
Bond Fund, expanding its capabilities beyond sovereign, supranational,
and agency bonds while maintaining its SFDR Article 9 label. The fundaims to address the challenges of climate change, promote nature andthe protection of ecosystems, and prevent further biodiversity loss. Bybalancing fundamental and quantitative analysis, we provide a morecomprehensive and sophisticated approach to investing in green bonds,
ensuring that portfolios are both sustainable and profitable.
Further reading available on the Green Bond fund and our white paperon building a greener future available here: Global Green Bonds | Nikko AM Asia
 Towards a greener future: building credibility and demand forsustainability-linked bonds | Nikko AM Insights“As pioneers in the green bondspace, we believe green bonds willcontinue to play a significant rolein investors’ portfolios as part oftheir climate investment strategy, tofacilitate the transition to net zero.”– Steven Williams, Head of EMEA
Global Fixed Income

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Sustainability categorisation framework
In 2023 we developed our own ESG classification framework for our range of products. The framework provides amethodology to define the range of ESG approaches used in our investment processes. The new categories will help ourclients to navigate our investment strategies, accroding to their ESG or sustainability-related goals.
The framework has four categories. ESG Inside has the broadest criteria that covers all our strategies that integratematerial ESG factors into the investment process. Within that, there are three narrower categories, according to the type ofapproach adopted: ESG Managed, ESG Themed Investing, and ESG Impact. The graphic below explains this in more detail.
ESG Inside: “Broad” definition which includes all our strategies with ESG integration and negative screens

ESG Managed

ESG Themed Investing

ESG Impact

Strategies managed toa range of binding ESG
investment criteria toachieve or promote certain
environmental or social
characteristics.

Strategies investingin themes or assets
specifically contributing tosustainable solutions (e.g.
decarbonisation, net zero,clean energy)

Strategies that handpick
companies that provide
environmental or social
impacts through theirbusinesses while pursuinginvestment returnobjectives.

The framework is not intended to match a specific current or future taxonomy or regulatory system. It is a dynamic
framework; we will regularly review and amend it as required to comply with the applicable regulatory requirements.

In-house analytical capabilities: overview
A significant low-carbon energy transition is underway. Managing our portfolios effectively is critical in our assessmentof physical and transition risk, underpinned by our top-down and bottom-up analysis.

Top-down analysis

In accordance with the recommendations by the Task
Force on Climate-Related Financial Disclosures (TCFD),
as well as in response to increasing regulatory pressure
to conduct climate-scenario analysis, we have assessed
our portfolios for both transition and physical risk
under multiple climate scenarios. In more recent years,
there has been a growing interest in utilising forwardlooking metrics, such as temperature-alignment tools,
to understand company- and portfolio-level climaterelated risks and opportunities. To keep up with industry
practice and in response to growing regulatory pressure
to incorporate portfolio temperature alignment toassess climate-related risks and opportunities, we haveassessed our portfolios’ temperature alignment. For bothclimate-scenario analysis and temperature alignment, we
utilised industry-recognised third-party models to ensuretransparency and interpretability.
As in 2023, we have drawn on MSCI Inc’s suite of products,
utilising their Climate-Value-at-Risk (CVaR) and Implied
Temperature Rise (ITR) models to conduct our scenario
analysis and temperature-alignment assessments,
respectively. We have also adopted the terminology
associated with these models.

Top-down analysis
GHG emissions monitoring

Our top-down analysis looks at climate-scenario analysis
and temperature alignment to better understand ourportfolios’ climate risks and opportunities.

Scenario analysis

Temperature alignment

Bottom-up analysis

Proprietary ESG-integrated
approach

External data providers

Updates in the methodology
We note that there were methodological updates toboth CVaR and ITR models over the course of 2023. The
implications of these methodological updates differ foreach metric. Therefore, we will expand on how each metrichas been impacted in the relevant sections of this report.

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Scope
Our analysis is conducted on our
exposure to public listed equity andcorporate bonds. Analyses of ourin-scope portfolios cover 69.9% of
the total assets under management(AUM) for our Japan Equity, Japan
Fixed Income, Japan Investment
Technology, Asia ex-Japan Equity,
Asia Fixed Income, Global Equity,
Global Fixed Income, New Zealand
Equity, and New Zealand Fixed Income
investment teams as of 31 December
2023. Our in-scope Japanesedomiciled holdings are aggregatedand reported as “NAM JP”, and ourin-scope companies domiciled outsideof Japan are aggregated and reported
as “NAM ex-JP”. For our fixed-income
portfolios, we include corporate bondsand exclude sovereign, supranational,
and agency issues. Although there aremethodologies to model sovereign
climate-scenario analysis, thesetools are in their infancy, which
may impact the accuracy of their
output. We continue to monitor new
developments in the models. The
analysis takes into consideration bothactive and passive portfolios managed
by Nikko AM, of which 65.3% of ourin-scope AUM is passive.

2
3

Top-down analysis: scenario
analysis
We believe climate-scenario analysis
is an important tool that enables
investors to gain a thoroughunderstanding of climate-related risks
and opportunities and their impact
on portfolios. These scenarios are
not predictors of the future; rather,
they provide a range of possible
future states under conditions of
uncertainty.

Methodology
The following assessments wereconducted utilising MSCI Inc’s CVaR
methodology. We acknowledge thatthe understanding of and, hence, theprocess of assessing climate-related
risk and its impact are constantly
evolving, and we will update ourapproach accordingly. Over the
past year, our understanding of themodel’s methodology and limitations
remains unchanged.
To further assess the underlying
risk, we utilise both top-down
and bottom-up processes. This
provides a more holistic analysis
than relying solely on a thirdparty data source. Our bottom-up
approach is presented later, andour commentary here is related tothe top-down methodology. As
we are conducting analysis on abroad range of securities, there will
be cases where data is missing. To
ensure our risk measurements are
not skewed by the missing data, wehave taken reweighted all metrics
based on a data-coverage factor,
which means the percentage covered
within each metric is always 100%.
We have chosen not to use any filling
approaches given the idiosyncratic
nature of the data.

Transition risk
In the global effort to address
climate change and support theParis Agreement, countries aroundthe world have ratified the Paris
Agreement, committing to put forthclimate action plans, also known asnationally determined contributions(NDCs), on how they would work
towards reducing their carbon
emissions. However, this would not
be without economic and societal
impact. As countries enact climate
action plans to reduce their carbon
emissions, their decisions cascade
down to the population — corporates
and individuals. This can result inpolicy and legal risks stemming from
regulatory changes, technology
advancements, and changes inmarket demand.2 Therefore, transition
risk is defined as the risks stemmingfrom the global transition towards
a lower-carbon economy. This does
not happen consistently with thesame nature, speed, and focus,
however, and is subject to sectoraland geographical nuances. MSCI’stransition-risk methodology assesses
companies’ CVaR under various
Network for Greening the Financial
System (NGFS) climate scenarios.3
This assessment focuses on policy
risk, modelling a company’s CVaR
as a function of its annual carbon
emissions and annual carbonprice estimates over 15 years. The
carbon-price estimates used are
dependent on the climate scenario.
As a result, the CVaR associated withthe company is the aggregated cost
it is expected to pay to reduce its
carbon emissions to reach emissionreduction targets over 15 years. The
process utilised by MSCI provides asound grounding for us to analysetransition risk while acknowledging
that there are limitations to themethodology. Over the past year,
our understanding of the model,
its methodology, assumptions, andlimitations remain unchanged.

Transition Risk Definition: https://www.tcfdhub.org/Downloads/pdfs/E06%20-%20Climate%20related%20risks%20and%20opportunities.pdf
NGFS Climate Scenarios: https://www.ngfs.net/ngfs-scenarios-portal/

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We note that MSCI had updated its
CVaR methodology last April, which
as a whole resulted in less negative
CVaR across the disorderly scenariosand more negative CVaR across theorderly scenarios and NDCs scenario.
We observe a similar trend across our
NAM JP and NAM ex-JP portfolios. We
have assessed our portfolios under
the following scenarios:
 1.5°C and 2°C■ Orderly — climate policies
introduced early with gradualintensification. Transition risk isrelatively subdued■ Disorderly — delayed ordivergent climate policies.
Higher transition risk from
more stringent and stricter
measures that are delayed
and/or divergent acrosscountries and sectors, leading
to higher carbon pricing
 NDCs — climate policies are
implemented only in somejurisdictions but are globally
insufficient to halt global
warming. Implies temperature riseof 3°C by 21004, which leads tohigher physical risk.

Transition risk represents the largest
risk to our holdings, with the 1.5°C
Disorderly scenario posing the most
severe risk to our portfolios, giventhat it is the most disruptive scenario.
Under the 1.5°C Disorderly scenario,
the model indicates a potential CVaRof over 40% for our NAM JP assets, asseen in Figure 1, and over 20% for ourNAM ex-JP assets, as seen in Figure 2.
Under a more orderly scenario (1.5°C
Orderly), the potential risk diminishes
substantially, to 10% for NAM JP and
5% for NAM ex-JP.
Diving deeper into the numbers,
we are unsurprised to find that thebulk of our risk is attributable tocarbon-intensive sectors, such asenergy, materials, and utilities. Whenjurisdictions start to increase carbon
prices in a bid to bring down carbon
emissions, the cost to companies inthese sectors will increase should theiremissions profile not come down.
As a global asset manager with bothactive and passive strategies, we arelikely to maintain some exposure tothese sectors, but we will continue tomonitor the risk and apply mitigation
techniques as described later in thereport.

0.0

0.0

-5.0

-5.0

-10.0

-10.0

-15.0

-15.0

-20.0
-25.0
-30.0

-20.0
-25.0
-30.0

-35.0

-35.0

-40.0

-40.0

-45.0

-45.0
1.5°
ORDERLY
4

If we take our Global Equity UCITS
fund as an example in Figure 3, thefund has a lower transition risk thanits benchmark (the MSCI All Country
World Index) as the fund has acommitment to keep its portfolio’s
relative carbon intensity more than
20% below the benchmark. So, giventhat the transition-risk scenarios here
are driven by a company’s carbon
emissions, the portfolio carries
significantly lower risk under all
scenarios.

Figure 2. Transition risk — NAM ex-JP

Climate Value-at-Risk (%)

Climate Value-at-Risk (%)

Figure 1. Transition risk — NAM JP

Of our NAM JP and NAM ex-JP assets,
72.59% and 10.4% are passively
held (respectively). We have limited
discretion over our passively held
funds, and their transition risk largely
mirrors that of the indices the funds
track. To mitigate the transition risk
faced by our passive assets, we takean active stewardship approach byengaging with our companies andactively voting on all of our equity
holdings.

2°
ORDERLY

1.5°
2°
DISORDERLY DISORDERLY

3°
NDC

1.5°
ORDERLY

2°
ORDERLY

1.5°
2°
DISORDERLY DISORDERLY

3°NDC

UNFCCC: https://sdg.iisd.org/news/unfccc-reports-warn-about-2-5c-warming-amid-glimmers-of-hope/#:~:text=The%20UNFCCC’s%20
second%20synthesis%20of,2.5%C2%B0C%20of%20warming

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Figure 3. Transition risk — Global Equity
0.0

Climate Value-at-Risk (%)

-5.0
-10.0
-15.0
-20.0
-25.0
-30.0
-35.0
1.5° ORDERLY
Global Equity

2° ORDERLY

2° DISORDERLY

3° NDCBenchmarkPhysical risk
In recent years, we have seen
increasing occurrence and severityof natural disasters such as wildfires
and hurricanes, but also of weather
patterns such as prolonged andheavier rainfalls that lead to floods.
With climate change leading tohigher global temperatures, thefrequency and severity of such
events is only set to increase. These
events have financial implications fororganisations, not only through direct
asset damage but also indirectly
through operational disruptions
that can stem from changes to
productivity. Therefore, physical risk
is defined as risks stemming from thephysical impacts of climate change.
These risks can be event-driven(acute) or arise from longer-term
shifts in climate patterns (chronic),
which lead to changes in habitablelandscapes.5 Whether it faces acute or
chronic weather events, the economic
system will have to adapt.

51.5° DISORDERLY

MSCI’s physical-risk methodology
models companies’ CVaR based ona variety of potential physical-risk
events over 15 years. The impact
from these physical-risk events canbe measured in two distinct ways:
disruption to operations and direct
damage caused by the events. As thetype and impact of physical risk islocation-specific, the methodology
models the likelihood of thesechanging weather patterns and,
subsequently, the potential impact tocompanies’ individual assets at a local
level. So the CVaR associated with thecompany is the aggregated cost it isexpected to pay as a result of revenue
loss and disruption to operations over
15 years.
We acknowledge that there arechallenges in modelling the impact ofphysical risk, as the expected change
to weather patterns may deviate
from the trends that have alreadybeen observed and used to create
forecasts. This deviation can occur ineither direction, which means thatthe actual outcome may be more orless severe than currently forecast andmay occur more or less frequently.
This limits the ability of any modelto accurately predict how physicalrisk types will develop and, evenmore so, the extent of its potential
financial impact. Over the past year,

our understanding of the model,
assumptions, and limitations remains
unchanged. Any changes to the CVaR
figures are a result of underlying
updates made by MSCI.
We note that MSCI made several
updates to its CVaR methodology
in April last year. For physical risk,
several updates were made but did
not result in significant changes to
CVaR on the in-scope portfolios.
Rather, the impact of methodology
change was specific to individualcompanies.
We assessed our portfolios under thefollowing scenarios: Average scenario: most likely
impact of climate change over themodelled 15-year period — i.e.
the expected value of the cost
distribution.
 Aggressive scenario: the 95th
percentile of the cost distribution
and explores the severe downsiderisk within the distribution tail —i.e. the worst-case scenario.

TCFD Physical Risk: https://www.tcfdhub.org/Downloads/pdfs/E06%20-%20Climate%20related%20risks%20and%20opportunities.pdf

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The potential CVaR from physical risk
in our funds is significantly lower than
the transition risk in both the average
and aggressive scenarios. Unlike
transition risk, where CVaR is largely afunction of the sector our companies
are in, the geographic location of
our companies’ assets is key forphysical risk.
Under the aggressive scenario, our
NAM JP assets see a potential CVaRof about 14.5% (Figure 4) and about
7% for our NAM ex-JP assets (Figure5). Under the average scenario, thepotential CVaR is significantly lower,
at about 9.5% for NAM JP (Figure 4)
and about 1.5% for NAM ex-JP (Figure5). Given that NAM JP is fully invested
in Japanese assets, its physical risk isconcentrated in Japan, which has highphysical risk because of its location,
whereas the physical risk of NAM ex-JP
assets is more diversified globally.

Further analysis of the data reflectsthat CVaR is more pronounced in
geographical locations with high acuterisk (i.e. event-driven). These events
tend to occur suddenly, disallowing
ample time for risk-adaptation or
mitigation efforts. Additionally, theseverity of these events cannot be
predicted, which can result in theinsufficiency of implemented riskmitigation or adaptation efforts.
Therefore, the geographical locations
with the highest acute risks would
result in the greatest asset damage
and operational disruption.
As noted above, we hold 72.59% of our
NAM JP assets passively, along with
10.4% of our NAM ex-JP assets (Asia
ex-Japan Equity and Asia Fixed Income
portfolios). We have limited discretionover our passively held funds, and thephysical risk largely mirrors that of theindices the funds track. To mitigate

For our actively managed funds, where
we have more flexibility in managing
our portfolios, we can actively factor
in physical-risk considerations whenassessing our portfolio holdings.
Physical risk still exists but is lessthan that of these funds’ relative
benchmarks.
Although we can physically feel andsee the devastating impacts of various
physical-risk events worldwide, it isunclear what impact these events
will have on our companies’ future
value. Unlike transition risk, wherecompanies can largely mitigate
their risks from decarbonisation,
physical risk largely relies on
adaptation measures — not justfrom the company, but also the from
authorities, the broader private sector,
and society at large.

Figure 5. Physical risk — NAM ex-JP

0.0

0.0

-2.0

-2.0

-4.0

-4.0

-6.0

-6.0
Climate Value-at-Risk (%)

Climate Value-at-Risk (%)

Figure 4. Physical risk — NAM JP

the physical risk faced by our passive
assets, we take an active stewardshipapproach by engaging our companies
and actively voting on all our Japaneseequity holdings.

-8.0
-10.0
-12.0

-8.0
-10.0
-12.0

-14.0

-14.0

-16.0

-16.0

-18.0

-18.0
-20.0

-20.0
Average

Aggressive

Average

Aggressive

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If we take our Asia ex-Japan Equity
UCITS fund as an example in Figure
6, the fund has a lower CVaR fromphysical risk than its benchmark(MSCI Asia ex-Japan Index). This
would mean that the fund faces
lower potential financial impact
from physical risk events than thebenchmark does — in both average
and aggressive scenarios. Even so,with the increasing climate-related
events in the recent years, we
continue to engage with our holdingson their preparedness for physical-risk
adaptation and to raise awareness ofthe physical risk faced by their assets.
When assessing physical risk, we arealso able to determine the potential
physical-risk events that might havethe greatest impact on our portfolio

holdings. This is largely driven by
where our portfolio holdings’ assets
are located.
If we take NAM ex-JP as a case study,
as showcased in Figure 7, the locationof our portfolio holdings spans
regions such as Asia ex-Japan, Europe,and New Zealand. Under bothaverage and aggressive scenarios,
coastal flooding presents the greatest
CVaR, followed by heat under the
average scenario and precipitation
under the aggressive scenario. For
each physical risk type, there will bea potentially significant exacerbationof physical-risk events under theaggressive scenario if climatechange is not kept under control.
With increasing and more severe
coastal flooding events, which we are

currently reading about in the news,
the CVaR from coastal flooding would
increase more than five-fold, fromslightly more than 1% to 5.5% overthe same 15-year modelling period.
Interestingly, however, several
companies in our portfolios might
stand to benefit from a warmer
climate. For companies that operate
in regions with snowfall, we see aslight positive attribution under the
average scenario. But this reverses
under the aggressive scenario, where
we still see risk for snowfall events asa result of the connections between
different weather events that can
exacerbate their impacts.

Figure 6. Physical risk — Asia ex-Japan Equity

Climate Value-at-Risk (%)

0.0

-4.0

-8.0

-12.0

-16.0

-20.0
Average
Asia ex Japan Equity

Aggressive

BenchmarkFigure 7. Physical risk (by type) — NAM ex-JP
2.0

Climate Value-at-Risk (%)

0.0
-2.0
-4.0
-6.0
-8.0
-10.0
-12.0
Heat

SnowfallAverage

Aggressive

Coastalflooding

Precipitation

Low Riverflow

Tropical
cyclones

Wild
fires

Fluvialflooding

Wind

Cold

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Technological opportunities
Given the shifts that are occurring
because of our changing climate,opportunities are likely to be createdalongside the risks that have beenhighlighted. These opportunities canoccur through direct actions, such as
investing in more efficient processes,or through indirect actions across
supply chains, such as the shift tocleaner energy sources. A myriad ofclimate-related opportunities canresult from such actions. However, weunderstand that there is complexity
in how these opportunities canbe assessed, particularly with thedata-based limitations on holisticallyencapsulating or assessing them.
Therefore, we rely on our bottom-up
analysis across many of our holdings.
This allows us to assess the context ofthe company’s operations, the regions
and sectors in which it operates, andits overall strategy, which may not be
fully evident in existing data.
To supplement our bottom-up
analysis, we can further measureopportunities by drawing on thirdparty data providers. This not only
enables us to broadly assess theclimate-related opportunities for our
passive holdings but also provides us
with additional insights into our more
active holdings.

We understand the limitations ofusing broad datapoints to assess
technological opportunities andof confining the consideration ofclimate-related opportunities to justR&D/green patents, as factors suchas operational improvements canhave a material impact. However, we
also understand that this allows us togain a high-level, top-down overview
of potential opportunities that our
portfolios can potentially capture.
We continue to rely primarily on ourbottom-up analysis and in-depth
considerations of climate-related
opportunities to best define theseopportunities. This provides a more
idiosyncratic assessment, in keepingwith our approach for more active
funds.
MSCI’s methodology on climaterelated opportunities focuseson current green revenue andopportunities arising from newtechnologies. Over the past year,
our understanding of the model,
its assumptions, and its limitations
remains unchanged. We note thatMSCI updated its CVaR methodology
in April 2023, which resulted in overall
less positive values across all climate
scenarios. The disorderly scenarios
saw the greatest reduction of CVaR
while the reduction of CVaR was
smaller in the orderly scenarios.

For our active funds, we identify
climate-related opportunities incompanies individually, as partof our bottom-up ESG-integrated
investment process, with portfolio
managers and analysts providing
the necessary insight. For our
passive holdings, which form alarge proportion of our AUM, we
believe it is necessary to identify
climate-related opportunities in amore structured and systematic way.
For instance, for NAM JP, where themajority of our assets are passive,
we find that the technologicalopportunities data reflects thepotential of our Japanese holdings tomaterially offset the transition risks
highlighted earlier.
To illustrate these technologicalopportunities, we use our NAM JP
assets as a case study. As shownin Figure 8, the technologicalopportunities are greatest under the
1.5°C Disorderly scenario, at slightly
above 35%. Under this scenario,
the urgency to decarbonise is thegreatest and steepest because of thedelay in taking action. Therefore, theneed for technological advancement
is greatest. Under a more orderly
scenario (i.e., 1.5°C Orderly), NAM
JP’s technological opportunities areslightly above 15%.

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Figure 8. Technological opportunities — NAM JP
40.0
35.0

CLimate Value-at-Risk (%)

30.0
25.0
20.0
15.0
10.0
5.0
0.0
1.5°
ORDERLY

2°
ORDERLY

1.5°
DISORDERLY

2°DISORDERLY

3°
NDC

Transition risk and technology opportunities represent opposing outcomes from the same factor, namely the impactthat changing policy actions will have on our companies. By aggregating these across the portfolio, we can assess theoverall impact from these changing policy actions. Looking at the aggregated risk faced by NAM JP in Figure 9, we seethat transition risk is reduced in all scenarios.

Figure 9. Aggregated risk — NAM JP
8.0

Climate Value-at-Risk (%)

6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
-8.0
1.5°
ORDERLY

2°
ORDERLY

1.5°
DISORDERLY

2°DISORDERLY

3°
NDC

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Top-down analysis:
temperature alignment
The magnitude of the global
temperature rise is one of the key
factors that will determine the stateof the world we live in. Accordingly,
governments and organisations suchas the Intergovernmental Panel on
Climate Change (IPCC) have called
for the global temperature rise to belimited to well below 2°C above preindustrial levels and have pursued
efforts to limit the temperature
increase to 1.5°C above preindustrial levels. The measurementof temperature alignment helps
translate a company’s carbon
intensity into an intuitive temperaturescale (°C) to communicate how
companies are aligned with theParis Agreement level of 1.5°C. This
allows us to understand not only the
exposure of our holdings to climaterelated risk but also how our holdings
are decarbonising (i.e. risk mitigation).

We draw on MSCI’s Implied
Temperature Rise (ITR) methodology,
which seeks to evaluate if companies
or portfolios are aligned to the Paris
Agreement. This is a forward-looking
temperature alignment metricthat considers a company’s current
emissions and its disclosed targets
to project the company’s future
emissions. This is then comparedwith the company’s allocated carbon
budget (calculated based on thecompany’s revenue as a proportion of
global carbon budget) to determine
if the company is overshooting or
undershooting its allocated carbon
budget. The overshoot or undershootis then converted, based on a formula,to the company’s ITR (represented
in °C). Based on the company’s ITR,
the company is then categorised into
one of the following groups: Strongly
Misaligned, Misaligned, 2°C Aligned,and 1.5°C Aligned.
We understand that the relationshipbetween emissions and temperature
is not straightforward and that theability of companies to reduce theiremissions is highly dependent on
the context of their operations. Some
examples include the regulatory
landscape in which they operate,
the availability of resources, andtheir supply-chain dependencies.
We understand that methodologicallimitations and assumptions are
inherent in all models; with ITR, webelieve that the model can currently
gauge only the extent to which thecompanies and their targets are inline or misaligned with the Paris
Agreement.
The translation of companies’commitments and targets into
temperature alignment allows us togauge the ambitiousness of thesetargets, which can drive further due
diligence and engagements withour companies, in addition to ourbottom-up research.
In 2023, MSCI started updating its
ITR methodology, and the process
was completed only in February 2024.
A notable change is the move fromthe company’s own in-house MSCI
pathways to NGFS’s Net Zero 2050
pathways.
The following ITR calculations use
MSCI’s updated ITR methodology. We
have calculated our NAM JP and NAM
ex-JP assets under the MSCI updated
methodology. The ITR is about 2.4°C
for our NAM JP assets and about 2.5°C
for our NAM ex-JP assets (Figure 10).

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Figure 10. Implied Temperature Rise (ITR)

2.5°C

2.4°C

NAM JP

Most of our passive assets are held in
our NAM JP portfolios, with a minor
portion held in our NAM Asia (Asia exJapan Equity and Asia Fixed Income)portfolios. We have limited discretionover our passively held funds, so
the ITR closely mirrors those of theindices the funds track (for context,
the TOPIX has an ITR of 2.4°C).
Regardless, we seek to mitigate ourportfolio holdings’ impact on climate

NAM ex-JPchange through active ownership —via engagement and proxy voting, as
described previously.
For our actively managed funds,
where we have flexibility in managing
our portfolios, we can be more
selective and tilt towards companies
that have credible transition plans
and are making real-world impact
through decarbonisation.

To further enhance our risk
assessment and inform our analysis,
we assess the temperature-alignment
bands of our portfolio and underlying
holdings. Temperature-alignment
bands are categorised as 1.5°C
Aligned, 2°C Aligned, Misaligned, orStrongly Misaligned. Based on our
analysis in Figure 11, we find thatabout 63% of our (Nikko AM group)
investments in scope for this reportare 1.5°C and 2°C aligned. This insightwill help us to focus our stewardship
activities on those that have greatest
negative impact on climate change.

Figure 11. NAM Group ITR Bands
35.0
30.0

% weight

25.0
20.0
15.0
10.0
5.0
0.0
1.5°C Aligned

2°C Aligned

Misaligned

Strongly Misaligned

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Bottom-up analysis:
proprietary ESGintegrated approach
In our actively managed strategies,
our investment teams identify
attractive companies through indepth bottom-up research, based on
their own philosophy and approach.
We integrate ESG factors and therisks and opportunities they present
for the company into this process,providing additional considerations
for investment decisions. As a large
proportion of the companies held in
our active funds are simultaneously
held in passive funds, many of theconstituents of our passively held
portfolios have also been actively
researched, including on ESG.
We do not adopt a one-size-fits-all
approach to ESG integration. The
main responsibility for implementing
our fiduciary duties falls on ourinvestment teams. They are given a
remit to act in the best interests ofour clients within the global and local
governance frameworks provided
by the group. This means that our
ESG integration and engagement
processes are bespoke to each
investment team, ensuring thateach chooses the methods mostappropriate and effective for them.
Where appropriate to the asset
class, investment strategy, and client
requirements, certain investment
teams may maintain specific ESG
policies and procedures pertaining
to their investment philosophy andprocess.

Although ESG issues are rarely
the only consideration when
making investment decisions, anunderstanding of these issues informs
the investment process and gives ourinvestment teams a more roundedview of companies. So ESG factors
such as climate change, nature, andbiodiversity under the environmental
pillar are considered as part of ourinvestment policies and processes,
and not treated as part of a separate
exercise. We strongly believe that
attention to ESG factors is essential
to good investment discipline —core to any business and inherent
to its long-term value creation while
contributing to the realisation ofwider sustainable economic growth.
Given this view, we endeavour toincorporate ESG considerations acrossall asset classes and geographies.
That said, different asset classes
have different dynamics, with varied
geographies and industry sectors
adding to the complexity. Each of ourinvestment teams is therefore allowed
to view ESG implementation throughits own lens, leading to diverse
approaches across the organisation.
Whatever the approach, we strive
to apply all ESG policies to thehighest standard, continually seeking
improvement and innovation.
Our ESG risk analysis is integrated
into the investment research function
rather than outsourced to a separate
team. Each investment team is
responsible for the assessment ofrisks that may affect the success andlong-term sustainability of holdingsin the portfolio. Our detailed process— including stress-testing investment
candidates, stock selection, andportfolio construction — also helps
to ensure that the whole investment
team is engaged in managing ESG
risks.

The investment teams across thevarious regions are supported by the
Global Sustainable Investment Team,
which is made up of five functions— regional ESG specialists, research& integration, stewardship, data &reporting, and ESG regulations — asoutlined under Nikko AM Group
Sustainability Governance from page
7 onwards. This team takes the lead inareas such as firmwide ESG policies,
frameworks, initiatives, regulatory
matters, organising ESG resources forinvestment and risk personnel, andenhancing our firm’s understandingof important emerging global ESG
developments.
For instance, the ESG specialists
support the investment teams
as part of our aim of having all
investment professionals integrate
ESG into their investment processes
to the fullest extent. They alsobuild relationships with various
ESG-focused organisations andregularly share information with the
ESG Global Steering Committee ondevelopments such as ESG-related
legal changes in countries aroundthe world. The establishment of acentralised ESG data team allows
for consistency, accuracy, andimprovements in the coverage of our
ESG data, as well as the expansionof our analytics capabilities. This
strengthening of the team goes handin hand with plans to evaluate andexpand our external ESG data sources.
The table below gives a brief
overview of the approach taken to
ESG integration for our in-scope
portfolios. More details on how Nikko
AM’s investment teams integrate ESG
and conduct stewardship activities
can be found in our annual responseto the UK Stewardship Code andour 2024 Sustainability Report,
covering activities in CY2023.

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Asset Class

How we integrate ESG and stewardship responsibilities into the investment process

Japanese Equities

ESG is integrated into investment decisions through the use of a selection process based on “creating
shared value” (CSV) evaluations. The concept of CSV evaluations comes from the work of Harvard University
professor Michael Porter, who found that the creation of social value leads to economic value.
We have used our own CSV evaluation as part of our investment process since 2013 and introduced CSV
stock-price analysis in 2021. This latest addition to the process allows us to calculate a fair price for the stock
based on CSV evaluation, further enhancing the investment process. The CSV evaluation currently comprises
12 factors grouped into three categories — ESG, competitiveness, and financial strength.

ESG
Human Resources
Carbon Neutrality
Environmental & Social
Management Implementation
Resilience

MarketCompetitiveness
Financial
Shareholder Returns
Financial Discipline

Entry Barriers
Brand Equity
R&D/CAPEX
Cost Advantage
Market Growth Potential

In terms of ESG engagement with company managements, we have six key themes:
Environment: Biodiversity and Action for a Decarbonised Society,Social: Diversity, Human Capital and Productivity and Human Rights,
Governance: Effective Governance.
A key part of our engagement with companies is the exercise of voting rights. We can and do use theserights to reinforce our views on any of the issues outlined above. That could mean, for instance, voting
against board appointments where a company faces serious risks related to climate change or sustainability
and/or where management initiatives to address them are deemed insufficient and the situation is not
improving.
In terms of our wider stewardship responsibilities, we may also vote against management where we think
a company is lagging in other areas, such as governance or financial performance. Respective examples ofthis can be found below in the following case studies: “Engagement leads to dividends and diversity at aJapanese media group” and “Shining a light on returns at a big Japanese ceramics-to-solar group”, disclosed
in Global Stewardship report 2024.
Global Equities

Each portfolio manager undertakes ESG analysis, which is fully integrated into the stock-picking process
to ensure we can robustly evaluate the materiality of each factor and its potential impact in the future. Our
four-pillar “Future Quality” analysis includes in-depth evaluations of ESG factors to determine their effect on
the company’s risks and returns. Research includes an analysis of a company’s corporate governance, social
practices, the environmental sustainability of its products or services, and its capacity to fund its growth and
ESG commitments.
Our investment team engages with investee companies to help promote better ESG practices if we believe
there is room for standards to improve. This includes ESG controversies identified by the Global Equity team.
Proxy voting is executed in the interests of our clients in line with our proxy-voting guidelines.

Asia ex-Japan
Equities andChina Equities

We incorporate ESG analysis into company research, security selection, and portfolio construction. Our ESG“materiality map” focuses on the material ESG issues and opportunities for each of the companies we cover.
The materiality matrix is based on ESG factors defined by the International Sustainability Standards Board(ISSB), formerly known as the Sustainability Accounting Standards Board (SASB), and MSCI.
As part of our in-house proprietary ESG-scoring methodology, individual companies are rated against anumber of ESG pillars, and the results are aggregated with fundamental analysis to provide a company-level
score. We also use ESG-focused research to identify areas for company engagement and improvement.

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Asset Class

How we integrate ESG and stewardship responsibilities into the investment process

Japan Fixed
IncomeIn the Japan Fixed Income team, we believe ESG considerations are key factors when analysing qualitative
risks that cannot be covered exhaustively by financial analysis. Our credit analysts consider ESG factors in
addition to the fundamentals of each issuer. ESG factors are integrated into investment decisions for theindustries and issuers we cover. Our Japan Sustainable Investment department also provides support on
items such as ESG engagements.

Global Fixed
IncomeThe majority of fixed income assets managed by the investment team are in investment grade bonds fromissuers ranging from international bodies like the World Bank, to governments and large companies. The
scale of these organisations and the limited rights of bondholders restricts our influence over their ESG
policies. However, particularly in the case of corporate credit, ESG factors are considered to the extent thatthey are deemed material to the investment case and in line with our clients’ risk appetite and perspectives
on ESG investing. In relation to our holdings in sovereign entities and major banks, when presented withthe opportunity, we maintain dialogues with issuers on ESG themes as a means of building our insight andmarket intelligence.
We use a proprietary ESG platform to aggregate ESG data in order to enhance our ESG evaluation ofsovereign, supranational, agency and corporate issuers. This tool allows us to compute ESG rankings basedon the variables we think are the most relevant for each fixed income field or sector and gives us full control
over the data sources we use, allowing for multiple data feeds.

Asia fixed income

We incorporate ESG analysis into all company research as part of our bottom-up fundamental analysis andportfolio construction. This research is based on our ESG Materiality Map, which analyses companies using
ESG factors based on those defined by the ISSB and MSCI but adapted to reflect conditions in Asia. We also
use ESG-focused research to identify areas for issuer engagement and improvement.
We have also developed a proprietary ESG sovereign-rating model that uses public data from sources
such as the World Bank, the United Nations, and the European Commission Emissions Database for Global
Atmospheric Research. In this sovereign-rating model, we use 21 indicators that broadly cover all three areasof ESG. These include GHG emissions (per capita and proportional to GDP), an index of human development,
and a measure of government effectiveness.

New Zealand
Equities

The team seeks to understand how industry and company ESG factors may affect investments and,ultimately, client portfolios. ESG factors are considered as one aspect of the overall analysis to build a pictureof the risks and opportunities faced by a company. Portfolio companies with low ESG scores are targeted
for engagement in an effort to improve their performance in weak areas or where it would be beneficial for
stakeholders. We are proactive in finding and addressing wider issues affecting New Zealand companies,
such as regular and severe weather events (see our case study “Anticipating the ramifications of climatechange in New Zealand” under Principle 4), disclosed in Global Stewardship report 2024.
We launched the Nikko AM Freedom Fund in 2021, which donates all fees and returns to the Tearfund
charity. Tearfund works through partnerships in some of the poorest parts of the world. Together with thesepartners, it helps to combat human trafficking and slavery while tackling poverty and injustice throughsustainable development.
Lastly, we engage with companies as part of our everyday research process on ESG issues. An example isgiven in our case study “Loss of conviction after strong board and company engagement”, disclosed in Global
Stewardship report 2024.

New ZealandFixed Income

The team seeks to understand how industry and company ESG factors may affect investments and,ultimately, client portfolios. ESG factors are incorporated into the due diligence process to provide an
overall picture of the risks and opportunities faced by issuers. Following investment, the team engages
with portfolio companies with low ESG scores in an effort to seek improvements that would be beneficial to
stakeholders.

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Bottom-up analysis:external data providers
Data from external service providers
is used as one input in our investment
decision-making process to
supplement our bottom-up analyses
and the stewardship of the assets
we manage. For our ESG analysis, we
use data from a variety of sources,
including MSCI, Bloomberg, ISS,
and Good Bankers. Data from thesesources is further supplemented
by publicly available data sources(e.g. sustainability reports). We
also have regular meetings withexternal ESG analysts to improve ourunderstanding of how they engage
with companies and to enhance thequality of the research we receive.
We consider the quality and depthof reports and insights, as well as
the effectiveness of the vendor inproviding us with the necessary
insights to fulfil our stewardshipobligations on behalf of our clients.
In 2022, we established an ESG data
team. This team has focused on
improving the availability and qualityof data, as well as access to it. A
primary concern has been to ensurethat our data is accurate, timely, andconsistent across all investments
and regions covered. One important
service provider that we currently use
for the provision of ESG data analysis
is MSCI. As part of an internal project,which is continuing, we have had
several calls, teach-ins, and email
discussions with MSCI to ensure weboth understand and know how to
use the data it supplies. The resultsof these sessions then feed into
discussions between the ESG data
team and the investment teams
to decide how to use the data inpractice.

Active stewardship

For instance, as reflected in thesections above, we utilise MSCI’s
CVaR to conduct and report on our
scenario analysis and climate-related
data such as GHG emissions andintensity calculations. When we see
errors, we liaise with third-party data
providers and try to resolve them ina timely manner. Additionally, a large
portion of our AUM is in Japanese andAsia ex-Japan equities and in fixedincome assets where coverage by
third-party providers is still evolving.
We find that there are data gaps anddelays, and at times we disagree withthe analyses or ratings even when
they are available. So we do not rely
exclusively on these services.

Globally, our Engagement and
Stewardship Strategy defines
our approach to corporate
engagement. As a testament to ourstewardship activities, we becamea signatory to the UK Stewardship
Code (UKSC) in 2022 and renewed
our signatory status in 2023. We
responded to the UKSC as a group,
so the stewardship activities of
our investment team worldwide
are represented in our response.
We have recently published ourlatest Global Stewardship Report,
covering the reporting period 1
January to 31 December 2023. We
see stewardship as the core actionthat we can take to address climaterelated risks in our own portfolios
and in the wider economic system.
By tracking and holding companies
to account and engaging withmaterial carbon emitters, we
believe that we can better mitigate
climate-related risks and benefit
from climate-related opportunities.

Additionally, we conduct all
engagement with companies
ourselves, not only to make better
informed investment decisions
but also to push for enhanced
disclosures on climate-related metrics
and encourage target setting tocollectively improve the quality ofdata in the market.

Nikko AM recognises stewardshipas an important part of our
fiduciary duty. Active engagementwith our companies is built into ourinvestment processes and plays an
integral role in fulfilling our duty asa good steward of the capital ourclients have entrusted us with.

Our stewardship activities are
not limited to only our actively
managed holdings. As previously
mentioned, a significant proportionof our AUM, particularly ourJapanese equity AUM, is passively
held. This limits our influence since
we do not have the ability to reduceor divest these holdings. However,
our Japan Sustainable Investment
Department has been actively
working to influence positivechange at target companies on
key ESG themes even where thesecompanies are held only in passive
portfolios. This is an ongoing, multiyear project with a strong focus
on climate change, among otherpertinent ESG topics.

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Engagement activity
As highlighted in the section
Bottom-up analysis: Proprietary
ESG-integrated approach, ESG is
integrated into our investment
process, with investment teams
engaging with our companies on
relevant ESG issues both before andduring the period of investment.
Our regional ESG specialists also
perform more thematic engagements(for example, in relation to our
responsibilities under NZAMi andCA100+), but the analysts andportfolio managers in our investment
teams are ultimately responsible forengaging with the companies they
cover and assessing the ESG risks andopportunities that inform portfolio
buy and sell decisions.
In 2023, across all regions, 34.7%
of our ESG-related engagements
focused on the environmental pillar,
on topics such as climate change.

Our engagement methods vary
according to the needs of thesituation. They include the following: one-to-one company dialogues,
including on-site visits
 management calls and roadshows written communications
 collaborative engagements
Where we engage with companies
to shape corporate behaviour
and influence positive change, we
may escalate the discussions. The
escalation methods vary across asset
classes and regions. We describe themin more detail in our Nikko AssetManagement Group Engagement
and Stewardship Strategy. Escalationcase studies are shared in our latest
response to the UKSC 2020.

As a signatory to NZAMi, we havecommitted to creating investment
products aligned with net-zeroemissions by 2050 and to facilitating
increased investment in climate
solutions. In December 2022, ourJapan Investment Technology
Department launched a JapaneseEquity Climate Change Solution
Strategy. As detailed in our 2023
Sustainability Report under Japan
Investment Technology Team (pages
18–20), the portfolio aims to achieve
a 50% reduction in GHG emissions
versus the TOPIX while minimising
tracking error against the index.
Details on the conceptualisationof the strategy can be found in
our whitepaper Climate changesolutions in Japan, recently
published by Masayuki Teraguchi,
Head of Japan Investment Technology
Department.

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Case study: engagement by asset class (Japan equity)
Engagement leads to dividends and diversity at aJapanese media group (equity)
This large Japanese media group focuses on a wide
range of content businesses.
Issue: We were dissatisfied with the absence of
women on the board and the low level of dividends.
Activity: To register our disapproval of the company’s
policies, we voted against the directors at the AGM
in June 2022. We then engaged with the company in
October of the same year, encouraging it to increase
the payout ratio and to appoint a female director.
We gave warning that we would again oppose thecompany proposals to elect directors at the next AGM
if there was no action.
Outcome: At the shareholders’ meeting in June 2023,
we voted in favour of the proposal for the electionof directors as the total payout ratio now met ourrequirements and a female director had been newly
appointed to the board. The vote passed with 88% in
favour.
Our largest AUM lie in our Japanese equity
investments, with a large proportion held in passive
portfolios. Although this limits our ability to eventuallydivest from the company, we continue to use our
influence to drive change through active ownership
activities.
Our Japanese equity investment teams have a deep
understanding of local markets and the intricacies ofJapanese corporate culture, which helps us develop
relationships with the companies in which we invest.
Sources of information extend beyond written forms,
such as financial statements, sell-side research, andlocal news flow, with managers placing an emphasison direct contact with company management,
including site visits. We are one of the largest asset
managers in Japan, where the market generally tends
to be under-researched by non-domestic peers, andour local presence in Tokyo helps to facilitate dialogue
with companies. Over the years, we have been able toestablish strong local relationships, providing us withunique insights, investment opportunities that might
have otherwise been overlooked, and the ability toundertake unusually far-reaching stewardship.

Since August 2021, a key focus of the Japan
Sustainable Investment Department has been towork with portfolio managers and analysts in theJapan Equity Department to engage with large andmid-sized firms specifically on ESG issues. In deciding
which firms to engage with, we base our priorities on
several stewardship considerations, including ESG,
corporate earnings, asset efficiency, and shareholder
return. After each engagement, a report is created to
track progress and is shared internally. Feedback isalso provided to active investment portfolio managers.
Since August 2023, the department has been fully
incorporated into the Global Sustainable Investment
Department, which increased its scope to cover all theasset classes managed by our Japanese investment
teams.
The shift toward a decarbonised society iscreating growth opportunities for companies withenvironmentally friendly technologies. At the sametime, decarbonisation and other such changes put
companies at risk of potential cost rises, and theirbrand power may be damaged if they fail to takesufficient action. This is making decarbonisation
increasingly important as a driving force for future
corporate value. We use our engagement to urge firms
to address these changes: for example, by allocating
business resources to related fields and preparing
for the associated risks. Our analyses of companies’
actions in this area are pivotal to our assessments of
their corporate value.

Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, norconstitute a recommendation to buy or sell.

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Voting activity
Proxy voting is one of the major
elements of our stewardship activity
in our equity portfolios, and wetake great care to ensure that ourvoting serves the interests of bothcompanies and clients. Where we
invest through passive strategies,
we strive to incorporate stewardshipthrough the voting of proxies andthe engagement process, whereappropriate.
The Nikko AM Group Proxy Voting
Policy establishes our company-wide
approach to proxy-voting decisions.
This policy establishes the principles
we use for determining the exercise
of voting rights at the group level.
Implementation of the group-

wide policy is undertaken by our
local businesses, with the freedom
to interpret the rules to suit local
conditions. This gives our regional
investment teams the ability to
tailor their approach to stewardship
according to the attributes of thelocal market. As a result, there aresome variations in how stewardship
activities, including voting, areimplemented across the group. For
example, our UK entity and Japan
Equities Team have supplemental
proxy-voting policies (Proxy Voting
Policy UK Addendum; Standards
for Exercising Voting Rights on
Japanese Stocks) that addressenvironmental and social principles,such as climate change.

Over 2023, we analysed 7,216
shareholder meetings and voted on
74,471 resolutions. We cast votes on
all shares where there were no legal,client, or technical constraints.
Over the past few years, we havenoticed a rise in shareholder
resolutions filed against companies
that are critical for climate change.
Recently, during the 2023 AGM
season, we supported several climaterelated shareholder resolutions filed
for some of the biggest Japanese
corporations, such as Toyota,
Mitsubishi Corporation, and Tokyo
Electric Power Company (TEPCO).
We will continue to support climaterelated shareholder resolutions whereappropriate.

Industry collaboration
Climate change is not an isolated issue but a systemic risk that affects every region and every sector — be it directly or
indirectly. Collective action is needed, not just from corporations and governments, but also from the financial sector(through both private and public financing vehicles) to direct funding towards sustainable solutions. Accordingly, we
participate in and support various initiatives that aim to drive real-world impact to mitigate climate risks and seek
climate opportunities.
We have made significant progress and dialled up our active participation in various collaborative engagements in 2023.
We continued our collaborative engagements under industry initiatives such as Climate Action 100+ (CA100+) and theAsia Investor Group on Climate Change (AIGCC), but also became an investor participant in Nature Action 100 (NA100)
and publicly supported an initiative led by the Dutch Association of Investors for Sustainable Development (VBDO), all ofwhich are illustrated in our 2024 Global Stewardship Report.
Other initiatives we support, participate in, or are signatories to include (but are not limited to) the following: Global Investor Statement to Governments on the Climate Crisis
 International Corporate Governance Network
 The Net Zero Asset Managers initiative
 PRI
 TCFD The Investor Agenda
 Climate Action 100+
 Nature Action 100+

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Collaborative engagements
In some instances where one-onone company engagements deliver
insufficient progress, we believe thatcollaborative engagements withlike-minded investors can increase
shareholders’ influence on companies’
corporate behaviour and ESG
performance.6
Our regional investment offices
select the most suitable and effective
engagement methods for theirportfolios. Although we are seeing
increasing investor collaboration
efforts across regions, thisengagement method is still relatively
uncharted in some parts of the world.

In some parts of Asia, for example,
one-on-one engagements can beviewed as more constructive andculturally appropriate to build trust.
In Japan specifically, we participate
in collaborative engagement while
taking into consideration thepossibilities associated with joint
shareholdings.
Mindful of these important regional
nuances and our commitment toconstructive, positive, and pragmatic
engagements, we carefully selectour engagement methods whileremaining committed to supporting
collaborative engagements.

In addition, through CA100+, wetook the active lead role in a longterm engagement with a Japanesemachinery manufacturer, withmultiple company engagements
having taken place in 2023. As thisengagement is scheduled to continue
in multiple phases until 2030, we lookforward to reporting on its progressin greater detail in future reports.
Beyond these examples, we have
expanded our collaboration efforts
by participating in climate-related
consultations and roundtable events.
This included submitting feedback
on two consultations led by the
Monetary Authority of Singapore(MAS) — MAS Consultation on Coal
Phaseout and Transition Planning.

Case Study 1:
Helping to lift the veil on corporate emissions (equity and
fixed income)For several years, we have been a member of CDP, an international non-profit organisation that aims to improveclimate-related disclosures, working through two of its initiatives, the Non-Disclosure Campaign (NDC) andthe Science-Based Targets Campaign. We participate because we believe companies need to apply higher
standards of transparency and disclosure if we are to tackle some of the most important areas that society faces,such as climate change, biodiversity, and the wider environment. In 2023, we served as the lead investor in
engaging two companies under the NDC. This included a call with a renewable-power-generation company inJapan in August, when we emphasised the importance of disclosure. We were happy to see that this company
subsequently disclosed its carbon emissions data for the first time.

6

Coordinated Engagements: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3209072

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Case study 2:
Engagement with UltraTech (CA100+)
Issue: UltraTech Cement is one of the 170 companies
targeted by CA100+. The Indian company is one of
the world’s largest cement producers outside China,
with business operations across Asia. It is also one of
the world’s biggest emitters of GHGs and is operating
in a sector — cement — where emissions are hard toabate.
The company has been proactive in addressing
the transition to zero carbon. For instance, it is afounding member of the Global Cement and Concrete
Association (GCCA) and a signatory to the GCCA
Climate Ambition 2050, and is committed to the Net
Zero Concrete Roadmap announced by GCCA. It has
also had its near-term targets verified as in line with
global warming of well below 2°C by 2032 by SBTi. The
company also has commitments to EP100 and RE100,
two lobby groups promoting the move to zero carbon.
Activity: UltraTech Cement has been part of CA100+’s
focus list since 2020, and we started participating in
UltraTech’s engagement group in 2022 as a supporting
investor. Since our last response to the Stewardship
Code in 2022, we had another collaborative
engagement call with UltraTech in November 2023.
The call centred on the company’s decarbonisation
efforts in 2023. Analysts from both our Asia Equity and
our Asia Fixed Income teams have been participatingin the collaborative engagement.
The investor group asked UltraTech why its 2050
net-zero carbon target is not validated by the SBTi.
The company’s response was that its target is basedon a two-degree pathway whereas SBTi only validates
pathways that are aligned with a cut of 1.5 degrees.
UltraTech said it would be looking at aligning with the
SBTi but was conscious that it needed to balance themore demanding emissions target against the cement
requirements of customers. It is looking at three ways
to reduce emissions: investing in renewable energy improving resource efficiency
 substituting traditional fuel with biomass to reduce
emissions

As part of the GCCA, the company has embarked on
multiple pilot projects to determine what technologies
would be suitable to support its decarbonisation
goals.
The investor group wanted to find out what were thenext steps in UltraTech’s plans to scale up its use ofgreener power sources to meet its target of raising
the proportion of renewables from 19% in the 2023
financial year to 100% of electricity requirements
by 2050. To reduce its reliance on thermal coal,
UltraTech is developing a number of solar energy
farms, has signed renewable energy power purchaseagreements, and is looking at waste heat recovery
systems.
The company said that, at the time of our meeting,its power consumption from renewables was closer
to 30%. By 2026, the aim is to raise that to 50-60%,
using both renewables and heat recovery. However,the company noted that wind is not a readily available
source of power generation in India, although it has
tried to acquire some wind power in coastal areas.
UltraTech’s decarbonisation roadmap extends beyond
renewables in part because various regions of India
face implementation problems caused by the limited
availability of renewable power. The company’s
decarbonisation strategy therefore covers four strands:
 improving operational efficiency, notably in clinker
processes
 diversifying the business reducing dependency on thermal fuel, whichamounts to 30% of company emissions
 moving towards zero carbon
Outcome: Our call was well received by the company,
which asked for our feedback on its progress andareas where we think it can improve. As well as our
input, the company has been looking at what global
peers are doing in terms of decarbonisation. We
will continue to engage UltraTech and review thedevelopment of its decarbonisation strategy.

Reference to individual stocks is for illustration purpose only and does not guarantee their continued inclusion in any portfolio, norconstitute a recommendation to buy or sell.

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03

Risk Management

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Risk Management
Overview
The Nikko AM Group Board has ultimate responsibility for the
management, direction, and performance of the group.
The Nikko AM Group Board delegates responsibility for day-to-day
decision-making to our Global Executive Committee (GEC). Further
delegation then occurs to relevant departments across the business.
The Group Risk Management Department oversees the risk
management of the group apart from compliance risk (whichis overseen by our Legal & Compliance Department). The Risk
Management Department reports on risk to the GEC via the Risk
Oversight Committee and, periodically, to the Group Board.
Each of our group entities manages risk in line with our Group Risk
Management Policy. As part of this, each entity has its own risk
department and committees, which report into the central Risk
Oversight Committee. Through this governance, we enable regional
flexibility while retaining central oversight and reporting.
Within each region, quarterly risk reports are typically prepared by
the executive owner of each risk. These quarterly assessments detailan overall summary position of the risk, highlighting key issues, key
events, and potential future exposures. These are presented to therelevant regional risk committee and then up through our groupstructure.

Risk identification,assessment,
and management
Risk appetite
For the group, the willingness totake on risk is determined at a local
level by the respective boards, withoversight from the GEC in Tokyo.
Risk appetite defines the nature andlevel of risks considered acceptable
to the group as part of our day-today operations. It forms the basis
against which risks are monitored andreported.
Our risk appetite is developed andagreed by the board. It is inextricably
linked with global and local strategy,
business plans, and shareholder
and client expectations; it is afundamental component of the riskmanagement framework.
Climate-related risk is viewed as a“risk driver” — a potential internalor external event that creates or
influences existing risks. For example,
heightened physical or transition
risk in our portfolios leads to greater
investment risk — the risk that our
portfolios underperform against
objectives, targets, or benchmarks.

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Back to contents“Three lines of defence” model
Nikko AM operates a “three lines of defence” model to assign risk-management responsibilities. This model is based on
the principle that, to be effective, risk-management capability must be embedded in front-line teams with independent
oversight and assurance.
 First line of defence
The first line of defence is thedepartments themselves (andtheir relevant heads/leads). These
functions are directly involved ineach business and operation of
the group and so are responsible
for risk identification (including
climate-related risks), assessment
and control (in line with thegroup-defined risk appetite). An
annual risk and controls selfassessment process is conductedto ensure that functional risks andcontrols are periodically reviewed
and updated.

First lineof defence

 Second line of defence
Oversight departments such as
risk, compliance, and legal form
the second line of defence. These
departments are independent
from the first line and conductongoing monitoring to ensure
the effective application of ourrisk-management framework.
Monitoring of climate-related risk
within our investments is a good
example of this in action. Ourinvestment teams use relevant
tools and analysis to makeinvestment decisions. This includes
climate-related risks, opportunities,
and supporting metrics. Our
second-line investment-riskteam performs independent
monitoring of our portfolios.
Where appropriate, it will
challenge our investment teams
on levels of climate-related risk,
with any conclusions and actions
documented. We are continuing
to refine and support this processwith additional data capabilities.

Second lineof defence Third line of defence
The Internal Audit Department
undertakes internal audits of
Nikko AM group companies
and evaluates the design,
implementation, and effectivenessof internal controls over processes
within the group, including
governance, risk management,
and compliance with laws andregulations. Audit engagements
are performed based on anannual audit plan approved by
the Group Board, and audit results
and the status of follow-up on
the implementation of corrective
action plans are reported directly
to the Group Board.

Third lineof defence

Business Units

Risk Management& ComplianceInternal Audit

Operation andmonitoring

Verification

Oversight andindependent assurance

Identify and manage risks that occur
in their business function that could
threaten the achievement of thebusiness unit objectives.
Responsible for complying with the
Risk Management Methodology
including the completion of risk
assessments.

Provides independent oversight of
the first line of defence.
Assess and oversee risk at thefirm level employing a risk-based
approach focusing on the key risks.
Responsible for the developmentof the risk management policies,
systems and frameworks.

Provide independent challenge
and objective assurance regarding
the design and effectiveness of theinternal controls framework.
Responsible for providing assurance
to Nikko AM Senior Management
and Audit Committee on all aspectsof Risk Management and control
arrangements.

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As an example, the UK subsidiary(Nikko Asset Management Europe Ltd)
Investment Risk Department and theEnterprise Risk Department are partof the second line of defence appliedby the firm. Ongoing monitoringof risks, including climate-relatedones, is conducted to ensure theeffective application of our riskmanagement framework. Our secondline investment-risk team performs
independent monitoring of ourportfolios.
Climate-scenario and carbon-intensity
analysis is performed and comparedover time and with the respective
funds’ benchmarks. Particularattention is also paid to high-impact
sectors, including energy.
The results of this analysis arepresented to the investment teams
on a monthly basis, and quarterly risk
reports are prepared by the executive
owner of investment risk, presented
to the ESOC (ESG & Stewardship
Oversight Committee) and thenpassed up through our groupstructure. These quarterly assessments
detail an overall summary position of
the risk, highlighting key issues, key
events, and potential future exposures.

Risk lifecycle
 The process of identifying, assessing, and managing risk is broadly
applicable to both the investments we manage and our own operations
 In the identification of risk, each business unit adopts an approach toensure that all known risks are clearly identified and the estimated exposure
to this risk is reported and escalated through the company. Risks canbe identified and described in terms of their potential impacts and thelikelihood of those impacts
 From a climate-related-risk perspective, we primarily monitor their impacts
on our investments
Our approach to the management of climate-related risk is described in thesections below.

Climate change as a driver of group risk
We recognise climate change as one of the greatest challenges the global
community faces. It is a prime example of a market-wide, systemic risk and one
which we see as our fiduciary duty to address in managing our clients’ assets.
At a corporate level, with the help of a UK-based consultant, Carbon Footprint
Limited, we measure GHG emissions from the Nikko AM Group’s corporate
operations based on firm-wide energy consumption and transportation data.
We offset GHG emissions from our operations through an equivalent amount ofcarbon credits from projects that are certified to reduce carbon emissions.

Risk type

Description

Comments

Investment

Risk that Nikko AM
portfolios underperformagainst benchmarks,
objectives, orcompetition

We view the potential impact of climate change on our investments as
one of the drivers of group risk.
Exposure of our companies to heightened physical and transition risks
exposes our portfolios to potential loss.
This may have negative impacts on our ability to maintain or grow AUM.

Compliance

Risk that the group
may fail to meet its
regulatory obligations.
This includes thefailure to meet new
requirements as they are
established

Climate change has driven various national commitments and regulatory
frameworks worldwide.
Policy risk impacts the group through an increasing number of climate- or
ESG-related regulatory requirements with which we must comply.
Failure to meet these requirements may result in regulatory sanctions/fines and/or litigation

Operational

Risk of loss or otherbusiness impacts
resulting frominadequate or failed
internal processes,
people, systems, orexternal events

Climate change can lead to some potential negative impacts on ourbusiness operations.
Within our European entity, as described later in this report, climate
and other ESG risks are being integrated across the risk-management
framework.
These risks can lead to business costs resulting from supplier disruption,systems failure, and other related operational events.

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Managing climaterelated risks within ourinvestments
includes surfacing relevant
information through governancestructures across our investment, risk,sustainable investment, and corporate
sustainability functions.
As highlighted earlier in this report,
our investment teams identify
attractive companies through indepth bottom-up research based on
their own philosophy and approach.
This already includes understanding
how ESG risks (and opportunities)

1

may impact value. The section
Bottom-up analysis: Proprietary ESGintegrated approach highlights how
our investment teams integrate ESG
factors, including climate, into theirdecision-making process.

frameworks in place to monitor GHG
emissions, but work is underway
to further advance these processes
across regions and asset classes.
We will continue reporting on the
progress in future TCFD reports.

Additionally, to monitor risks on an
ongoing basis, we conduct frequent
investment-risk monitoring on
portfolios and benchmarks. We
incorporate two levels of assessment:a global baseline, which focuseson GHG emissions; and a regional“top-up” approach, which allows
for additional monitoring of further
climate-related risks. Many of Nikko
AM’s regional offices already have

To conduct our analysis, we utilise
data from a third-party vendor, as
outlined earlier in this report.

As a first stage, funds are monitoredby our Risk Department, taking into
consideration applicable exclusions. Our
process use existing frameworks andprocess to ensure a high-level overview
of risk across all portfolios. All data will be
provided by our primary data provider,but calculations will run “in house” toallow customisation for our needs.

To ensure accuracy of our metrics, wewill utilise a two-stage process:2

As a second, independent stage,
our Global ESG data team works
with front-office departments todevelop independent analysis.
While the data is provided by thesame data provider, all calculations
are run independently, with further
customisation to meet end-user
needs.

Through this two-stage process, we are seeking to ensure accuracy and ensure that the analysis is usable for all parties.
The independent processes help us to achieve two lines of defence and ensure a robust data-quality process withappropriate checks and accountability.

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04

Metrics & Targets

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Metrics and Targets
Overview

Scope of the metrics and targets

In working towards our goal ofaligning our portfolios to net zeroby 2050, we use a range of metrics
to track and monitor our progress
but also to mitigate climate-relatedrisks and capture opportunities.
As a signatory to the NZAMi,
we completed our initial target
disclosures7 in 2022, committing to
43% of our assets (or USD 115.68
billion) to be managed in line with net
zero. Our interim 2030 target is a 50%
reduction of our portfolios, relative
to our 2019 baseline (84.7tCO2e/USD
million invested).

The metrics below capture our carbon emissions for CY2022 and CY2023 (years
ending 31 December 2022 and 31 December 2023, respectively) for the listed
equity and fixed-income corporate holdings in our in-scope portfolios.

7

MetricDefinition

Absolute carbon emissions(tCO2e)Total GHG emissions of a portfolio.

Carbon footprint(tCO2e/USD million invested)

Total GHG emissions of a portfolio,
normalised by the enterprise value
including cash (EVIC) of the portfolio.

Weighted average carbon
intensity (WACI)(tCO2e/USD million revenue)

Portfolio’s exposure to carbon-intensive
companies.

Nikko AM NZAMi Disclosures: https://www.netzeroassetmanagers.org/signatories/nikko-asset-management-co-ltd/

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Methodology
In 2023, we expanded the scope ofour reporting to include New Zealandequity and fixed income, in line with
the in-scope assets described in theStrategy section. We have aligned with
the Partnership for Carbon Accounting

MetricFinancials (PCAF)8 to calculate ourabsolute carbon emissions and carbon
footprint (equivalent to economic
emissions intensity under PCAF) and
TCFD for weighted average carbon
intensity (WACI).9 While PCAF uses
“enterprise value including cash”

Equation(EVIC) as the denominator, TCFD uses
a revenue-based denominator. We
internally monitor and report on all
three metrics to obtain a more holistic
view for decision-making.

Uses

Limitations

Track changes in
GHG emissions ofa portfolio on an
absolute basis.

Data is notnormalised, so
suboptimal tocompare portfolios
or against
benchmark.

Carbonfootprint

To compare
portfolios
regardless of their
AUM.

Sensitive tochanges in issuer’s
EVIC and portfolio
weights.

WACI

To compare
portfolio andbenchmark.

Revenue baseresults in a bias
towards companies
with higher pricing
levels.
Sensitive tochanges in issuer’s
revenue andportfolio weights.

Absolute
carbonemissions
Emissions are allocated based on equity-ownershipapproach where the company’s emissions apportioned tothe portfolio is based on ownership share of the company
based on EVIC.

Emissions are allocated based on portfolio weights (current
value of investment relative to current portfolio value)rather than equity-ownership approach.

Calculations were computed in April 2024, using the most recent data available for GHG emissions (i.e., Scope 1 and 2)
and financial data (i.e., EVIC and revenue). This is in line with the latest Global GHG Accounting and Reporting Standard
for the Financial Industry suggested by PCAF. In future publications, there may be changes to our published figures. Anysuch changes will be due to changes in our in-scope assets covered, as well as improvements in disclosures and data
quality, and changes to methodologies.

8

9Partnership for Carbon Accounting Financials (PCAF) Methodology (page 63): https://carbonaccountingfinancials.com/files/downloads/PCAFGlobal-GHG-Standard.pdf
Taskforce for Climate-related Financial Disclosures (page 1): https://www.tcfdhub.org/wp-content/uploads/2022/04/Table-3.pdf

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Reported metrics
The following metrics are reported as of 31 December 2023, for our in-scope portfolios.10 In this report, we have increased
the scope of our reporting, to include New Zealand equity and New Zealand fixed income. In the table, we have included
aggregated carbon metrics as of 31 December 2022, restated from our previous report to include New Zealand equity
and fixed income, for a comparable illustration of how we have progressed over the year.
Asset class

AUM(USD billion)

Absolute
emissions(million tCO2e)

Carbon footprint WACI(tCO2e/USD(tCO2e/USD
million invested) million revenue)

Coverage(% AUM)

Equity

119.3

7.7

64.5

77.9

99.9%

Fixed income

1.4

0.3

200.3

316.9

99.6%

Equity

13.6

0.6

44.2

117.1

99.8%

Fixed income

5.2

0.2

31.0

86.1

99.4%

Total (as of 31 Dec 2023)

139.4

8.7

62.7

84.4

99.9%

Total (as of 31 Dec 2022)

118.2

7.1

60.4

95.2

99.6%

NAM JPNAM ex-JP

In 2023, absolute emissions have increased to 8.7MtCO2e, from 7.1MtCO2e in 2022. This can be attributed primarily tothe increase in AUM. The carbon footprint has increased from 60.4tCO2e/USD million invested in 2022 to 62.7tCO2e/
USD million invested, and WACI reduced from 95.2tCO2e/USD million revenue in 2022 to 84.4tCO2e/USD million
revenue. Movements in carbon metrics are not always attributable to a single factor such as company emissions. They
have to do with a wide array of factors, including portfolio positioning, changes in the company’s financials (i.e., revenue
and EVIC — which can also change because of market movements), data coverage, and exchange rates, among others.
Therefore, it is important to evaluate various data metrics to get a full picture of the progress made in the reduction of
GHG emissions over the years.
Over the course of 2023, we have significantly improved the coverage of our companies across all asset classes. Thiscan be attributed to an internal process initiated by the Global ESG data function to map securities comprehensively
and accurately to its respective carbon figures, boosting overall coverage. Previously, we solely relied on the mapping
provided by our third-party data provider but noted that the mapping, particularly for fixed-income securities to therespective carbon metrics, was not sufficiently comprehensive. Additionally, we also recognise that progress has been
made in terms of ESG-related disclosures over the year, with growing regulations mandating disclosure of key ESG
metrics, such as GHG emissions. As investors, we will continue to engage our holdings to enhance disclosures of key ESG
metrics, including GHG emissions.

10

The in-scope portfolios are the same as those defined under the Strategy section; however, there might be differences depending on data
availability.

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Our commitments
For our commitment under the
Net Zero Asset Managers initiative(NZAMi), our net-zero target follows
the methodology set out in the Net
Zero Investment Framework (NZIF),
which draws on the IPCC scenarios.11
We have committed 43% of ourassets (or USD 115.68 billion12) to be
managed in line with net zero. Asa start, our initial target covers ourequity strategies, for the following
reasons: They form the largest portion of
our AUM Analysis methodologies are moreestablished for equities than forother asset classes
 Data coverage tends to be betterfor equities
We note that there have beensignificant improvements made inboth the methodologies and data
coverage of assets, especially fixedincome assets. As part of NZAMi, weare committed to renew our targets
every five years, with the view to be
more ambitious with each iteration;
we look to incrementally add further
AUM and asset classes to be managed
in line with net zero.

Our interim 2030 target is to reducethe carbon footprint of our committed
assets by 50%, as compared with ourbaseline year of 2019.13 Currently,
our commitment covers Scope 1
and 2 emissions. To the extent that it
is possible, we will include material
Scope 3 emissions when data
becomes more readily available.
In addition to our NZAMi
commitment, several strategies havecommitted to portfolio-level GHG
emissions-reduction targets from a
top-down perspective. For instance,
our Global Equity strategy has acommitment to maintain its portfolio’s
GHG emissions at 20% below those ofits benchmark.
From a bottom-up perspective,
climate risks and opportunities are
considered as part of the various
investment teams’ ESG-integrated
process, as detailed in Bottom-up
analysis: Proprietary ESG- integrated
approach (page 27). As we detailed
in the sections above, climate-relatedrisks and opportunities are not thesame for all companies but depend
on industry and geography, acrossdifferent time horizons, with varying
severity and type of impact. These
nuances are taken into considerationas part of the materiality assessments
conducted for individual companies
in the investment teams’ bottomup analyses. So the investment
teams identify climate-relatedrisks where these are material tothe company assessed. We believethat stewardship is key to enable
collective decarbonisation and as atool to further assess and manage
climate-related risks and seek out
opportunities. So, to complement
our bottom-up approach, we takean active ownership approach. This
allows us to engage companies on
their climate-related risks, understandhow they are managing their risks,and push them to decarbonise. We
engage our companies — both
directly and collaboratively — tobetter understand their transition
plans and to push them to set more
ambitious targets to reduce theiremissions.

Net Zero Investment Framework (NZIF): https://www.iigcc.org/resource/net-zero-investment-framework-implementation-guide/
AUM figures as of 31 December 2021
13
As of 31 December 2019
11
12

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Progress towards NZAMi
For our assets in scope of NZAMi,
we have made progress towards ourcommitment since our initial target
disclosures in October 2022. Figure
12 shows that the carbon footprintof our committed portfolios was 65.2
tCO2e/USD million invested as of 31
December 2023. This represents amarginal decrease of 0.3% from 2022
and an overall ~23.0% reduction fromour 2019 baseline carbon footprint of
84.7 tCO2e/USD million invested. As
illustrated in the chart below, we arestill well positioned to meet our 2030
interim targets.

Japan Sustainable Investment
Department has narrowed down,from over 2,000 companies, a climatefocused engagement list consistingof 70 companies. Of these companies,
the 60 chosen account for 72% of theoverall GHG emissions (Scope 1+2)
across Japan equity,14 which makes up
the largest portion of our AUM. The
remaining 10 were chosen because
they are important companies withregard to their Scope 3 footprint.
As part of the engagement plan,
the team evaluates the companies’
corporate initiatives against NZAMi’s
recommended framework.

As part of the focused engagement,
we sent a letter to companies at
whose general shareholders meetings
we voted against shareholder
proposals related to climate change.
The letter explained our reasonsfor opposing the proposals andactions we would like to see fromthe companies in the future. The
letter conveyed our intention to
avoid situations in which votes in
opposition of such shareholder
proposals (votes in favour ofcompanies) are interpreted asallowing companies to slow down
their decarbonisation initiatives.

Figure 12. Progress towards our NZAMi commitment
90.0

Carbon Footprint (tCO2e/US'm invested)

80.0
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.00
2019

2020

2021

2022

2023
Actual reduction

2024

2025

2026

2027

2028

2029

2030

Linear (Target reduction)

The linear “reduction pathway” (dashed line) is meant to illustrate how much we have to decarbonise between our baseline year of 2019, to meet our2030 interim target. It does not constitute a commitment to decarbonise in a linear, year-on-year fashion.

We will continue to enhance our TCFD report and climate analytics with further details and analysis, to be disclosed innext year’s TCFD report.

14

As of 31 December 2019

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Important information This disclosure was developed using information from MSCI ESG Research LLC or its affiliates or information
providers. Although Nikko Asset Management Co., Ltd.’s information providers, including without limitation, MSCI ESG Research
LLC and its affiliates (the “ESG Parties”), obtain information (the “Information”) from sources they consider reliable, none of the ESG
Parties warrants or guarantees the originality, accuracy, and/or completeness, of any data herein and expressly disclaim all express or
implied warranties, including those of merchantability and fitness for a particular purpose. The information may only be used for yourinternal use, may not be reproduced or disseminated in any form and may not be used as a basis for, or a component of, any financial
instruments or products or indices. Further, none of the Information can in and of itself be used to determine which securities to buy
or sell or when to buy or sell them. None of the ESG Parties shall have any liability for any errors or omissions in connection with any
data herein, or any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if
notified of the possibility of such damages.
This document is prepared by Nikko Asset Management Co., Ltd. and/or its affiliates (Nikko AM) and is for distribution only under suchcircumstances as may be permitted by applicable laws. This document does not constitute personal investment advice or a personal
recommendation and it does not consider in any way the objectives, financial situation or needs of any recipients. All recipients arerecommended to consult with their independent tax, financial and legal advisers prior to any investment.
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 or participate in any trading strategy. Moreover, the information in this document will not affect Nikko AM’s investment
strategy in any way.
The information, opinions and data in this document have been derived from or reached from sources believed in good faith to bereliable but have not been independently verified. Nikko AM makes no guarantee, representation or warranty, express or implied, andaccepts no responsibility or liability for the accuracy or completeness of this document.
No reliance should be placed on any assumptions, forecasts, projections, estimates or prospects contained within this document.
There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied byforward-looking statements and forecasts. Nothing in this report should be construed as a forecast, estimate or projection of futurefinancial performance. 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 a loss of capital may occur.
Estimates of future performance are based on assumptions that may not be realised. Investors should be able to withstand the lossof any principal investment. The mention of individual securities, sectors, regions or countries within this document does not imply arecommendation to buy or sell.
Nikko AM accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or 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 for the 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 not directed at persons inJapan nor is it intended for distribution to persons in Japan. Registration Number: Director of the Kanto Local Finance Bureau (Financial
Instruments firms) No. 368 Member Associations: The Investment Trusts Association, Japan/Japan Investment Advisers Association.
United Kingdom: This document is communicated by Nikko Asset Management Europe Ltd, which is authorised and regulated in the
United Kingdom by the Financial Conduct Authority (the FCA) (FRN 122084). 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 FCA in the United Kingdom, and isdirected at professional clients as defined in the FCA Handbook of Rules and Guidance.
Luxembourg and Germany: This document is communicated by Nikko Asset Management Luxembourg S.A., which is authorised andregulated in the Grand Duchy of Luxembourg by the Commission de Surveillance du Secteur Financier (the CSSF) as a managementcompany authorised under Chapter 15 of the Law of 17 December 2010 (No S00000717) and as an alternative investment fundmanager according to the Law of 12 July 2013 (No. A00002630).
United States: This document may not be duplicated, quoted, discussed or otherwise shared without prior consent. An offering of
any investments, securities or investment advisory services with respect to securities may only be made by receipt of relevant andcomplete offering documentation and agreements, as applicable. Any offering or distribution of a Fund in the United States may only
be conducted via a licensed and registered broker-dealer or a duly qualified entity. Nikko Asset Management Americas, Inc. is a UnitedStates Registered Investment Adviser.
Singapore: This document is for information to institutional investors as defined in the Securities and Futures Act (Chapter 289),
and intermediaries only. Nikko Asset Management Asia Limited (Co. Reg. No. 198202562H) is regulated by the Monetary Authority ofSingapore.
Hong Kong: This document is for information to professional investors as defined in the Securities and Futures Ordinance, andintermediaries only. 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.
New Zealand: This document is issued in New Zealand by Nikko Asset Management New Zealand Limited (Company No. 606057,
FSP22562). It is for the use of wholesale clients, researchers, licensed financial advisers and their authorised representatives only.

47

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Republic of Korea: This document is being provided for general information purposes only, and shall not, and under no circumstancesis, to be construed as, an offering of financial investment products or services. Nikko AM is not making any representation with respect
to the eligibility of any person to acquire any financial investment product or service. The offering and sale of any financial investment
product is subject to the applicable regulations of the Republic of Korea. Any interests in a fund or collective investment scheme shallbe sold after such fund is registered under the private placement registration regime in accordance with the applicable regulations of
the Republic of Korea, and the offering of such registered fund shall be conducted only through a locally licensed distributor.
Kingdom of Bahrain: The document has not been approved by the Central Bank of Bahrain which takes no responsibility for its
contents. No offer to the public to purchase the Strategy will be made in the Kingdom of Bahrain and this document is intended to beread by the addressee only and must not be passed to, issued to, or shown to the public generally.
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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 the Strategy is being made in Kuwait, and no agreement relating to the sale of
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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 rules of 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
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Nikko AME and its associates and/or its or their officers, directors or employees may have or have had positions or material interests,
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contemplated by the Commercial companies law of Oman (Royal decree 4/74) or the Capital Markets Law of Oman (Royal Decree80/98,
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No transaction will be concluded in the UAE and any inquiries regarding the Strategy should be made to Nikko Asset Management
Europe Ltd.

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