TCFD REPORT 2023 /2024
June 2024

CONTENTS
The corporate philosophy of Sumitomo Mitsui Trust Asset Management is to share various ideas with our diverse

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Forewords

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Our approach against climate change issues

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TCFD

Our Vision includes our sincere desire in regard to all potentialities in harmony with our founder s ideals and to

1. Climate-related governance

It also includes our desire to warmly cultivate a truly aﬄuent society together with our various stakeholders

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to create a society that is not just economically wealthy, but truly aﬄuent.
Based on such concepts, we have established our ideal Vision, our Mission for achieving our ideals, and behavior
policies for Values to pursue asset management that aligns with current trends together with our stakeholders.

open up new possibilities for a better future.
that is not just economically wealthy, but a truly aﬄuent society envisioned by all.

（１）
Policies related to climate change

We feel it is our Mission to help everyone to reach future goals and ideals through asset management. For this（２）
Governance related to climate change

purpose, our Mission includes working closely with our clients, pursuing the best outcome through dialogue with

（３）
Remuneration for executives

stakeholders, continuously addressing challenges, and pursuing asset management in harmony with current trends.

2. Climate change-related strategies（１）
Common climate change risks and opportunities

Realizing opportunities today to ensure sustainable prosperity for tomorrow.

（２）
Approach to climate change risks andopportunities for SMTAM
A．
Climate change risks
B．
Climate change opportunities

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stakeholders from a global perspective, continue searching for possibilities leading to a better future, and work

Corporate
Philosophy
Structure

Vision（３）Strategy

We strive to create the new standard of asset management that acknowledges the aspirations

3. Risk managementof all our investors and stakeholders（１）
Our climate change risk management process

and work with each of you every step of the way.

（２）
Climate change risk assessment of our portfolio
A．
Fixed point analysis (Greenhouse gas emissions, etc.)
B．
Transition pathway analysis
C．
Portfolio resilience analysis related to climate change

Mission

4. Metrics and targets

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Plans for the Future

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The ﬁrst step in achieving our Vision and Mission is to have our employees adhere to the following six Values as their individual behavior policy.

Stand in the shoes of others and engage in dialogue with empathy

D．
Analysis of GHG emissions (Financed Emissions) of
our sovereign bond portfolio

27Your goals are our goals. Your success is our success.

At all times, we will never forget to be considerate of others.
By always putting ourselves in the shoes of others,
we will build relationships of mutual trust through ongoing dialogue based on empathy and consideration.

Have self-awareness and seek constant self-improvement
Growth is possible at any age.
To achieve personal growth, we must consider what we can do for the society in which we live,

Reference
1. Our carbon emissions data list
（１）
Data related to asset classValue

ﬁrst looking carefully at ourselves and continuing to pursue self-improvement to achieve even greater heights.

Expand curiosity and transform awareness into action
Going beyond our own specialized ﬁelds, we will keep our sense of curiosity alive,
connecting the insights and ideas we gain from this curiosity to the actions we take.

（２）
Data related to investment strategy

Create synergies by bringing unique personalities together

2. Deﬁnition of main terms

Each individual among us brings diﬀerent strengths to the table.
By respecting talents and personalities that diﬀer from our own,
and by proactively multiplying each other's strengths, we will create innovative synergies.

Pursue quality and value that goes one step ahead
We will continue pursuing quality and value one step ahead of the rest: this is our DNA.
How can we exceed client expectations?

How can we become their best partner?

With these questions in mind, every small step taken by each of us will lead to a major step forward for the company.

Look ahead to the future, continuously challenging ourselves
We will not only respond to the voices of our clients and the changing times,
but also recognize current trends and create new value that is not merely an extension of what we have provided in the past.
Moreover, we will continue to take on the never-ending challengeof creating products and services that engender both inspiration and excitement.

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2The NZAMI, mentioned previously, is a part of the Glasgow Financial Alliance for Net Zero (hereinafter, GFANZ),

Forewords

which is a coalition of financial institutions that are working to achieve a net zero society. GFANZ has established aCountry Chapter in Japan to spearhead the net zero transition in the Asia-Pacific region, and began operating in June

We believe that important issues concerning the Environment, Society, and Governance (hereinafter, ESG) will affect2023. Since we participated in its establishment as a core working group member, we have continued to discuss thethe long-term return of assets under management entrusted from our clients. In particular, the effects of climate

approach for transitioning in the Asia-Pacific region with other financial institutions. In this way, awareness of thechange have certainly begun to materialize and are beginning to have an impact on the corporate value of ourimportance of transitioning to a net zero society is increasing globally, and the role of investors to promote company

investee companies. Therefore, while it is important to reduce our own greenhousetransitions over the long term is drawing attention.

gas emissions, we believe it is also important to evaluate the potential profit
opportunities and risks related to climate change in these investee companies. As

We believe that climate change has the potential to cause the global environment to deteriorate in an irrecoverable

such, we are reflecting the evaluation in investment decision processes and leveraging

manner in the medium to long term, and have a significant impact on the corporate value of our investee companies

it in business management.

over time. Based on this, we understand the importance of working on climate change issues over the long term
while also being able to respond flexibly to changes. From this broad perspective, we are bolstering various activities

Based on the thought mentioned above, SMTAM endorsed the recommendations ofand information disclosure on climate change issues as one of the biggest challenges facing the international

the Task Force on Climate-related Financial Disclosures (TCFD) in February 2019. The

community, while fulfilling our fiduciary duty of maximizing the return on medium- to long-term investments andfollowing is an explanation of the measures taken by our company on climate change

reducing downside risks of the assets entrusted by our clients.

issues in accordance with the recommendations.

David Semaya

Representative Director and Chairperson / Chairperson of the Board of Directors

TCFD
According to the TCFD Recommendations, companies and other organizations are suggested to consider four key
elements: (1) governance, (2) strategy, (3) risk management, and (4) metrics and targets when disclosing climatechange-related information. The following is an explanation of the measures taken by SMTAM on climate change
issues in accordance with the recommended information disclosure framework.

Our approach against climate change issues
Figure 1: Recommended core elements for climate-related financial information disclosure

Climate change issues are a variety of phenomena caused by the progression of global warming, mainly attributableto human economic activities. Changes in weather patterns due to global warming cause ecosystem changes anddamage to food, water, health, and the economy, which can adversely affect sustainable social/economic activities.
Under the Paris Agreement that came into force in November 2016, signatory nations globally agreed to hold the1

increase in the global average temperature to well below 2ºC above pre-industrial levels and to pursue efforts to limit
the temperature increase to 1.5ºC above pre-industrial levels, in order to ensure global sustainability. We agreed

Climate-Related
GovernanceMonitoring by the board of directors
Role of managementwith the purpose of the Paris Agreement, and as a global initiative for helping to achieve its goals, in July 2021, we
joined "The Net Zero Asset Managers initiative (hereinafter, NZAMI) by asset management companies who havecommitted to achieve net zero greenhouse gas emissions from investee companies by 2050. In May 2022, we also2established and announced our interim targets that should be achieved by 2030.

Climatechange-related
strategies

At the same time, the impact of climate change issues is becoming more obvious. According to the Synthesis Reportfor the Sixth Assessment Report announced in March 2023 by the Intergovernmental Panel on Climate Change (IPCC),

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greenhouse gas emissions over the next 10 years in order to prevent temperature from rising more than 1.5ºC by

Risk management

society, and there were active discussions on the importance of utilizing private funds and engaging with investee
companies (constructive dialogue). We again recognize the high level of expectations placed on asset managementcompanies for achieving a net zero society along with its importance. Based on this, as a responsible investor, we are

Potential effects of climate scenarios,
including the 2°
C or less scenario

Process for managing climate-related risks*Integration of processes for identifying, evaluating,and managing climate-related risks

2100 was restated. In May 2023, we participated as a panelist in the Net Zero Delivery Summit hosted by the City
net zero society. At this meeting, the main theme was accelerating transition by companies for achieving a net zero

Effects of climate-related risks and opportunities*

Process for identifying and evaluating climate-related risks*

the cause of global warming was again connected to human activities, and the importance of efforts to reduceof London with other financial institutions and policymakers throughout the world to discuss policies for achieving a

Climate-related risks and opportunities

into comprehensive risk management

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Metrics and targets

Targets for evaluating climate-related risks and opportunities*
GHG emissions under Scopes 1, 2, and 3*
Targets used to manage climate-related risks/opportunities* Items are particularly required for asset managing companies

promoting effective engagement with company groups that have a significant global impact on the reduction ofgreenhouse gas emissions in order to help resolve climate change issues while also implementing standards related
to these issues in the Principles for Exercising Voting Rights.
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Climate-related governance（１）Policies related to climate change

Climate change-related strategies（１）Common climate change risks and opportunities

As a member of the Sumitomo Mitsui Trust Group, we have established a basic policy for promoting measures on sustainability,

As average temperatures and sea levels rise, weather-related disasters including large-scale wildfires, floods, droughts, extreme

including on climate change issues, and are continuously working to improve systems for Realizing opportunities today toheat, and heavy rains are occurring more often around the world. The increase in temperature affects climate patterns over theensure sustainable prosperity for tomorrow as our philosophy in harmony with the Sustainability Basic Philosophy and the

medium to long term, and there is concern that this will impact farming production and marine and fishery resources. Since resolving

Sustainability Policy of the Group. In the investment management business rules and related rules, we regulate concepts andthese changes will require a large amount of money, there is an ongoing global debate on how such economic costs will be borne.

processes for engagement, the exercise of voting rights, and ESG investment while taking climate change issues into

Thus, climate change issues are increasingly recognized as a serious risk to social and economic activities all over the world.

consideration.

Based on recommendations by the TCFD, transition risks are defined as changes in climate change policies, changes in financial
markets and social norms, and rapid transition to a low-carbon society through technical innovations, etc., while physical risks
are defined as damage to social infrastructure and nature, etc., as a result of medium- to long-term climate change and（２）Governance related to climate change

abnormal weather. Transition risks include stricter environmental standards, obsolete existing technologies, stranded fossil fuelWe recognize climate change as risk and opportunity factors that greatly impact SMTAM and investee companies, and ourassets, and risk of boycotts by consumers, while physical risks include flooding risk and drought risk.

Board of Directors performs its supervisory functions on these issues as well as other important management issues. Since 2020,
issues related to climate change have been clarified as matters to report to the Board of Directors in the board of directors

Figure 3: Common climate change risks and opportunities

regulations so that more direct oversight can be carried out.

Transition risks

The matters to be reported to the Board of Directors consist of progress on responding to climate change-related issues, risk
management, and monitoring of metrics and targets. These matters are considered and discussed at management meetings

Regulatory risk

chaired by the President together with executive officers responsible for each business field.
Under this structure, administrative work on risk management and strategies related to climate change is conducted by the
Sustainability Committee as a cross-company organization acting as a secretariat, while related departments are responsible forTechnological risk

Stricter environmental standards
Example: Stricter emission regulations and higher carbon tax

More efficient resources

Obsolescence of existing technology
Example: Prohibiting sales of gasoline vehicles

promotion and implementation.

Energy-saving technologies/products
Example: Heat pump technology and inverter technology

Renewable energy
Energy shift

Example: Solar power, wind power, hydrogen power,
and biomass power generation

Market risk

Figure 2: SMTAM s climate-related governance structure
Board of Directors

Supervision

Opportunity

Shift of fossil fuel assets into stranded assets
Example: Oil, coal, and natural gas

Expansion of environmentally-friendly products and services
Products/services

Reputational risk

Example: Electric and fuel cell vehicles,
zero-emission buildings/houses

Risk of boycotts by consumers
Example: Exclusion from ultimate consumers and supply chain

Carbon credit, etc.

Physical risks

Management meeting

Execution

Financial market

and Renewable Energy Certificates

Flood risk, etc.
Acute risk

Example: Stoppage of equipment and social infrastructure,and increased restoration costs

Sustainability Committee(formerly, Stewardship Committee)
Considering whether it is necessary
Planning
Research
Analysis

Chronic risk

to review ESG Materiality and creating a review plan

Example: J Credits, Non-Fossil Fuel Certificates,

Recycled products, etc.
Resilience

Example: Carbon dioxide capture and utilization (CCU)
and battery reuse/recycling

Drought risk, etc.
Example: Damage to crops and wildfires

Engagement policy and activity reporting
Policy approval and results reportingfor the exercise of voting rights

These recommendations define things such as the increased demand for energy-saving technology and renewable energy as

Strategic
decision

ESG monitoringbusiness opportunities related to climate change, and organize them into five categories ranging from resource efficiency to- Formulating the fiscal year plan

Monitoring

Materiality, engagement activities, initiative activities,

resilience. In particular, energy-saving technologies and products, renewable energy, environmentally-friendly products andand exercise of voting rights- Monitoring
Engagement activities, initiative activities, exercise of voting rights,
ESG products, and ESG scoreservices, carbon credits, recycled products, and the like are expected to increase. Figure 3 shows an overview of this. Moreover,these recommendations request business entities and financial institutions to identify climate change risks and opportunities thatwill impact their business activities, and to disclose and explain the impact on business and resilience. We understand suchclimate change risks and opportunities, and utilize these in investment decisions and business management.

（３）
Remuneration for executives（２）Approach to climate change risks and opportunities for SMTAMAt SMTAM, evaluation methods for remuneration of the CEO and Named Executive Officers have been determined by theThis section will explain climate change risks and opportunities that we have identified as well as their impact on Company

Compensation Committee comprised mainly of external directors. One KPI in the evaluation method includes the reduction ofmanagement.

greenhouse gas emissions in our portfolio. For example, the level of achievement for climate-related KPIs is reflected at a certain
rate in the long-term incentive remunerations of CEOs. The methods to evaluate the remunerations of other Named Executive

A．Climate change risks

Officers are similar to CEOs.

First, we believe that it is necessary to properly control climate change risks in order to fulfill our fiduciary duty. Risks for financial
institutions are generally categorized into areas such as market risk, credit risk, liquidity risk, and operational risk. Rather thanadding it as a new risk category, we have positioned climate change risks as a risk driver that can raise or lower the risks inexisting risk categories as a result of climate change.

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Next, we recognize how climate change risks impact our business management through three routes, which are damage to theinvestment opportunities related to climate change for meeting the investment needs in the climate change field for existing andvalue of assets under management, loss of entrusted assets and of newly entrusted opportunities, and loss of businesspotential clients. We expect that we will be able to maintain/increase the balance under management while minimizing loss ofcontinuity, all of which can ultimately worsen our finances and lower our viability as a company.

opportunities. We also believe that strengthening information dissemination can help raise awareness of climate change issues for

Figure 4 shows a list of the climate change risks that we have identified, their assumed impact on management, and when they

existing and potential clients, and that improving SMTAM s evaluations will help expand our client base.

are expected to appear according to risk category. Main market risks are expected to be a failure of investee companies to

There are two items we view as opportunities from a broad perspective that are essential for acquiring such growthhandle transition risks and physical risks, which can greatly damage corporate value and significantly reduce our assets underopportunities. One is enhancement of our climate-related organizational structure, and another is strengthening engagement withmanagement. Main reputational risks include existing clients no longer choosing us due to our failure to properly handle climate

the value chain. As specific actions to strengthen our climate-related organizational structure, we have been making efforts tochange risks, and difficulty in acquiring personnel and increasing turnover due to insufficient responses to climate-related risks.

establish a system that can appropriately respond to standards and regulations on climate-related information disclosure such as

Operational risks include an increase in compliance risks due to a delay with system response such as disclosure ofthose of the TCFD and SFDR, and to advance our human capital management by recruiting and developing the necessary

climate-related information, damage to servers and lines due to increased wind/water damage, and decreased employee safety.

personnel, while improving our ability to execute business. As specific actions to strengthen engagement with the value chain, weFinally, credit risk is assumed to be a drawdown of overall financial markets resulting in a sudden loss of assets under

have begun engaging in dialogue with data vendors and index vendors that handle ESG data in order to maintain and improve themanagement when credit risks for companies and markets increase when transition risks and physical risks become manifest.

quality of climate-related data. Figure 5 gives an overview of these opportunities.

We have positioned these risks according to their impact on our business management. Those that impact finance such as
periodic profit and loss are classified as medium, and those that may have a major impact on our viability as a company areclassified as major. As for the time axis of their manifestation, although there are differences with each risk factor, risk factors
related to transition risks are expected to last approximately 10 years from now (short/medium term), whereas risk factors

Opportunity

Strategy (Action)

Example (Action)

related to physical risks are expected to last around 10 to 30 years (medium/long term).

Engagement

Engagement with investee companies- Focus on companies with high greenhouse gas emissions- Horizontal development of best practices- Increasing the frequency of adoption as an agenda

Figure 4: Climate change risks for SMTAM

Engagement

Engagement with government agencies,
industry groups, NGOs, academia, etc.

- (Investee company) Indirectly promoting changes to Company behavior- Improving SMTAM value by acquiring and using the latest information

Exercise of voting rights

Strengthening guidelines related to climate change issues in our Principles
for Exercising Voting Rights- Reflecting global trends and knowledge

Enhancementof investment decisions
and investment strategies- Reflecting climate change factors according to the individual fund style- Taking climate change factors into account in investment decisions
on individual securities- ESG monitoring (fund governance)- Expansion of target assets

Risk categoryMarket risk

Reputational risk
(Strategic risk)

Operational risk

Credit risk

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Figure 5: Climate change opportunities for SMTAM

Impact*2

Specific risk factor

Time axis*3

Damage to value of investee companies due to insufficient response to transition risks

Transition

Major

Short/medium term

Damage to value of investee companies due to insufficient responseto physical risks resulting in loss of business assets

Physical

Major

Medium/long term

Lower profitability due to complex and diverse climate-related data and indices,
and increased costs

Transition

MediumShort/medium term

Product lineup enhancement

Supporting actions to address climate change issues
by providing investment opportunities- Developing indices that contribute to climate change issues- Developing management products that contribute to climate change issues

Loss of existing clients due to the Company s improper response to climate-related risk*1

Transition

Major

Short/medium term

Strengthening information
dissemination

Enhancing awareness of climate change issues by clients,
and approaching potential investors- Public dissemination and discovering investors

Missed opportunities to acquire new clients due to the Company s improper response
to climate-related risk

Transition

MediumShort/medium term

Difficulty in acquiring personnel and increased turnover due
to the Company s insufficient response to climate-related risk

Transition

Major

Short/medium term

Compliance risk (wash) due to the Company s failure to comply with regulations

Transition

Major

Short/medium term

Lack of personnel and resources due to advancement of climate-related response

Transition

MediumShort/medium term

Decreased business continuity of business partners and vendors

Transition / PhysicalMediumMedium/long term

Damage to servers and lines, and decreased employee safety

Physical

Major

Medium/long term

Drawdown of financial markets due to increased credit risk with companies
and markets as a result of climate change issues

Transition / Physical

Major

Medium/long term

Decreased viability due to lowering of Company credit as a result of climate change issues(Loss of existing clients and missed opportunities to acquire new clients)

Transition

Major

Short/medium term

The following are considered to be essential items for acquiring a growth base and opportunities as a broad definition, opportunities.
Enhancementof SMTAM's organizational structure
for responding to climate change- Proper actions to address climate-related regulations- Enhancement of human resource development
and resources for responding to climate change(strengthening retention, maintaining creditworthiness)- Responding to disclosure regulations such as SFDR
- Investment in employees (Human capital)

Engagement

Engagement with the value chain- Engaging in dialogue for maintaining and improving data vendor
and index vendor viability and quality,and for improving response to climate change issues（３）Strategy
We have demonstrated our specific strategies as shown above according toApproach to climate change risks andopportunities for SMTAM. These are sorted into six items, which are Engagement,
considerations,

Providing clients with investment opportunities,*1 Gaps in SMTAM s product lineup, obsolete investment decisions and strategies, improper response to regulations on information disclosure, etc.
*2 Major: Impact assumed on SMTAM s viability, Medium: Impact assumed on SMTAM s finances.
*3 Short to medium term: Assumed to be 10 years from now, Medium to long term: Assumed to be 10 to 30 years from now.

response to climate change.

Exercise of voting rights

Investment

Engagement with clients, and Enhancing SMTAM s

The targets of engagement are A. Investee companies, B. Government agencies and other stakeholders, and C. the Value
chain. Among these, for A. Investee companies, we encourage investee companies to change their behavior by promoting

B．Climate change opportunities

top-down engagement and the horizontal implementation of best practices, especially for companies with high greenhouse gas

We view climate change opportunities as opportunities to fulfill our fiduciary duty, and that taking advantage of these toemissions (hereinafter, high-emission companies), and by proactively using this approach as an agenda for bottom-up

implement strategies can help to expand the Company s assets under management, and improve business continuity and viability.

engagement. As for exercise of voting rights , in order to enhance connectivity, especially if the guidelines in our Principles for

We have identified six items related to improving SMTAM s response to climate change as opportunities to convert climate

Exercising Voting Rights are not being met and there is no legitimate reason, we would principally vote against proposals forchange risks to business growth, which are engagement, exercise of voting rights, enhancement of investment decisions andelecting directors for high-emission companies. Moreover, we will not simply withdraw from investment (divestment) to exclude

investment strategies, enhancement of product lineups, and strengthening of information dissemination. For example, regarding

high-emission companies from the investment universe. Rather, through engagement and the proper exercise of voting rights, ourengagement, in addition to engagement with investee companies, we engage in dialogue with diverse stakeholders, including

aim is to encourage investee companies to promote realistic solutions for addressing climate change including transition, and to

governmental agencies, industry groups, NGOs, and universities, referred to as multi-engagement. As for exercise of voting rights,

achieve sustainable growth and sustainability for companies and society as a whole. As for B. Engagement with stakeholders,

there is a measure to strengthen guidelines related to climate change issues in our Principles for Exercising Voting Rights. In thistargets include government agencies, industry groups, NGOs, and academic institutions, and our aim is to be a bridge withway, we encourage companies to change their behavior toward decarbonization in order to maintain and increase assets underinvestee companies while indirectly encouraging them to change their behavior. Also, regarding C. Engagement with the value

management while reducing climate change risks. Through enhancement of investment decisions and investment strategies, andchain, targets include data vendors and index vendors, and our aim is to enhance the sustainability of collaborative relationships

enhancement of product lineups, we will reflect climate change factors based on the style of individual funds, and provide newwith them and enhance responses to climate change issues through collaboration.

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Regarding investment considerations , climate change factors are reflected in accordance with the individual fund style, andclimate change factors are considered when making investment decisions for individual securities. Recently, we have enhanced

Risk management

fund governance by ESG monitoring including climate change issues, and have promoted expansion of target assets with climate（１）Our climate change risk management processchange factors considered.

Climate change risk management policy
The board of directors of Sumitomo Mitsui Trust Holdings formulates the Action Guidelines for Mitigating Climate Change as a

Figure 6: SMTAM s strategy on climate change issues based on risks and opportunities
Strategy

Engagement with investee companies

Engagementwith various stakeholders
including governments

Targetfundamental policy of the group relating to climate change. we also formulated the sustainability risk management policy,
Actions

Investee company- Promotion of top-down engagement for companies
with high greenhouse gas emissions- Horizontal development of best practices for investee companies- Proactively use it as an agenda for bottom-up engagement

Governments, industry groups, NGOs,
academia, etc.

- Engaging in dialogue with the Ministry of Economy,
Trade and Industry to implement a carbon pricing system- Engaging in dialogue with the Ministry of the Environment
to promote decarbonization(Explaining requests by companies and awareness of issues)- Exchange of opinions with the Central Research Institute of Electric Power Industry- Providing feedback on the Consultation Report Financing the Managed Phaseoutof Coal-Fired Power Plants in Asia Pacific by GFANZ

Strengthening guidelines related
to climate change issues in our Principles
for Exercising Voting Rights

Investee company

Reflecting climate change factors according
to individual fund styles,
and taking climate change factors
into account in investment decisions
on individual securities

SMTAM (Clients)

Supporting actions
to address climate change issues
by providing investment opportunities

Clients- Setting S&P/JPX Carbon Efficient Index-tracked type strategy (Japanese equity)- Setting Bloomberg MSCI Global Aggregate Sustainability A+ Strategy (Global bonds)

Clients (Including potential clients)- Publishing online articles- Promoting onsite financial lectures- Providing content to Nikkei MOOK Datsutanso Toshi Nyumon[Introduction to Decarbonization Investment] (in Japanese)- Engaging in dialogue with asset owners as a member of NZAMI advisory group

Enhancing awarenessof climate change issues by clients,
and approaching potential investors- Having implemented specific standards on climate change issues
and already had a record of approval for shareholder proposals

including climate change risks in the "risk management policy" stipulated by the board of directors' resolution. We articulated
the basic policy of sustainability risk management, the definition of each sustainability risk, the meaning of sustainability-related
risk management, the role, responsibility, and organizational structure of the board of directors/management meeting, and thethree lines defense system. Also, as to the asset management risk of assets under management, we stipulate proper
management in terms of fiduciary duty, etc., based on "the investment management business rule" as well as related rules which
are separately determined and integrated asset management risks, with comprehensive risk management process.
Definition of climate change risks
We define climate change risks as risks which give adverse effects on our group, clients, markets, financial infrastructure, andsociety by realizing physical and transition risks, and further define sustainability-related risks, including climate-related risks as apossibility in which each factor of medium and long-term issues in environment, society, and governance becomes a risk driver andgives our company adverse effects by influencing existing risk categories cross-sectionally or in which the adverse impact on ourcompany influences existing risk categories cross-sectionally, which affects our company's stakeholders negatively.

- ESG monitoring results for each fund are reported quarterly at in-house meetings- In addition to equity, climate change factors are also considered
for investment in corporate bonds and J-REITClassification of climate change risks
We regularly review risks which our group companies face, and identify the risks that should be monitored based on the scale
and trait of these risks under the framework of enterprise risk management with our parent company, Sumitomo Mitsui TrustHoldings. Among critical risks, we identify particularly significant risks as "significant risks" and classify them by risk driver, risk
category, etc., and by doing so, we manage significant risk inventory. Regarding significant risk management, we assess
significant risk inventory one by one under monitoring in terms of importance for the corporate management and decide

The following are considered to be essential items for acquiring a growth base and opportunities as a broad definition, strategies.
Proper response
to climate-related regulations

SMTAM- Disclosing information on climate-related risks based on SFDR disclosure regulations- Disclosing information based on TCFD

Improving personnel development
and resources
for climate-related response

SMTAM- Employees taking classes at the PRI Academy- Providing in-house e-learning- Holding in-house workshops on TCFD disclosure

Engagement with the value chain

Data vendors
Index vendors, etc.

- Engaging in dialogue with Bloomberg to improve ESG data
- Engaging in dialogue with ISS to clarify guidelines for the exercise
of voting rights related to climate change and voting recommendations- Engaging in dialogue with MSCI to change the calculation process for ESG scores- Engaging in dialogue with S&P to enhance climate change information disclosure via
the Carbon Efficient Index

whether they are applicable for top risks (risks which management needs to take care of because they will have significant
influence within one year) or emerging risks (risks which will not give substantial influence within one year but will giveconsiderable influence over one year or in medium and long term), etc. Besides, "climate change risks" were reclassified in 2021
from "emerging risks" to "top risks."
Organizational process for identifying and managing climate change risks
To manage climate change risks, our board of directors has developed a risk management policies and risk management plans
for sustainability-related risks, including climate change risks, based on risk management rules. The management meetingdevelops and reviews the organization to exhibit checking functions of sustainability-related risks, including climate change risks,
formulates appetite framework relating to sustainability-related risks, including climate change risks, and creates GHG emissions
reduction targets. Executive officers fully recognize belittling the risk management relating to sustainability-related risks, including
climate change risks, will significantly affect our company to achieve the strategic targets and, therefore, need to consider
sustainability-related risks, including climate change risks at risk management.
Our sustainability-related risk management, including climate change risks, is conducted by the three lines defense
system.
The first line of defense is defined as departments that are responsible for each business operation directly in our company.

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Providing clients with investment opportunities is for providing investment products, while Engagement with clients is for

These departments understand sustainability-related risks, including climate change risks, that our stakeholders, such asproviding diverse information to clients. Providing investment opportunities means setting an investment strategy inclients and employees, etc., face and think together about how to cope with such sustainability-related risks, including

consideration of climate change issues, and having the clients use related investment products for contributing to reduction ofclimate change risks in cooperation with stakeholders (engagement) and endeavor product development and expansion ofgreenhouse gas emissions. Engagement means having future or potential investors deepen their knowledge of climate changeclient base by identifying sustainability-related opportunities. Also, the first line of defense departments plays a significant

issues through information dissemination by means of online articles, and helping them see that they can help resolve suchrole in risk identification, risk assessment, and control based on our risk appetite relating to climate change and risk-taking

issues through investment.

policy. They correctly report the ongoing operation of risk management and risk itself to departments of the second line of

Finally, Enhancing SMTAM s response to climate change is the foundation of our growth, and we believe it to be an important

defense.

Strategy for obtaining a foundation for growth. In recent years, we have disclosed information on climate-related risks in

Our second line of defense that has formulated management policy for sustainability-related risks, including climate change risks,

accordance with SFDR disclosure regulations, and prior to that, we were already performing TCFD information disclosure. We

develops risk management plans, which are resolved at the Management meeting and the board of directors. Maintaining an

believe that it is very important for us to be recognized as an asset management company and to be sustainable. At the same

independent position from the first line of defense, the second line of defense monitors and checks the first line of defense's

time, improving personnel development and resources for climate-related response is essential for the continued existence ofidentification, assessment, and controlling of sustainability-related risks, including climate change risks, and instructs andour company, and we have been providing various types of in-house education and workshops.

supports the first line of defense's risk-controlling activity.

10

Maintaining an independent position of risk management functions by the first and second line of defense, our third line ofdefense conducts internal audits to assess the efficacy of climate change risk management.
Also, the Sustainability Committee discusses and monitors all stewardship activities relating to asset management. Conditions ofconsideration of ESG factors including climate change investment risks is monitored by the committee quarterly. This TCFD
report is reported to the committee, and that means governance makes effective to contents of disclosure of climate-related
financial information.
The Sustainability Committee is composed of not only market front departments and the Stewardship Development
Department, but also the Investment Risk Management Department, an independent and specialized department for monitoring.
Discussion at the Sustainability Committee is reported as necessary to the Management meeting, composed of executive
officers, with the president at the top as needed. By doing so, we develop and operate a corporate-wide, multitiered, andmultifaceted risk management system. Utilizing these organization, the role, and the process, we enhance the effectiveness of〜Engagement cases〜

CASE 1

A.P. Moller-Maersk(Denmark / Marine transport)- Climate change issues- Information disclosure

CASE 2AGL Energy(Australia / Power company)- Climate change issues- Information disclosure

Perspective of Engagement Specialist

Perspective of Engagement Specialist

As a major European marine transporter, in 2018, they were one of the firstin the marine transport industry to set the goal of being carbon neutral by
2050. Later, in January 2022, they set aggressive goals related to climatechange such as by moving their goal for achieving net zero up to 2040.
However, disclosure of their progress including quantitative goals for
specific initiatives is still insufficient, and as a global leader in the marinetransport industry, further initiatives are needed.

While they will continue coal power generation business in Australia, they
are enhancing initiatives for addressing climate change issues throughorganizational changes such as by dividing their power generation anddistribution businesses. Based on their existing plan, they will not be able toreach the Paris Agreement scenario (1.5ºC), so they need to formulate anddisclose an effective plan for addressing climate change issues, and establish
climate change governance.

climate change risk management.
Contribution to risk management through engagement activities, exercising voting rights and investment decision-making in
portfolio companies, taking into account climate change factors.
（Identification of climate change risks as ESG materiality）
We define climate change as an ESG materiality on our ESG investment policy. ESG materiality refers to ESG issues that we view

Opinion from SMTAM

Opinion from SMTAM

In order to increase the probability of achieving ambitious goals, it seems
they need to actively disclose information related to engagement with their
supply chain in addition to establishing various measures.
Their policy is to transition 25% of fuel to green fuel by 2030 for achieving
their goal, but there has been little progress, so we want them to disclose
information on measures for increasing the probability of achieving theirgoal.

It is estimated that their coal-fired thermal power generation accounts for
8% of greenhouse gas emissions in Australia, so they need to accelerate
reduction of greenhouse gas emissions in order to achieve NDC * 2 inAustralia. Their transition plan was announced, but it remains insufficient,so we believe they should formulate an effective transition plan as quickly
as possible for accelerating withdrawal from coal-fired thermal power
generation and invest in renewable energy.

as important for improving the value of the investee company and promoting sustainable growth. We consider this ESG
materiality when performing ESG investment including ESG evaluation of investee companies, engagement activities, anddecisions for exercise of voting rights. The Sustainability Committee annually reviews ESG materiality based on informationcollected through ESG regulations by financial authorities, participations in various initiatives, dialogues with multiple
stakeholders, etc., and if the committee decides to amend or abolish them, the amendment and abolishment are to be resolved
at the Management meeting.
In conclusion, ESG materiality which we stipulate are considered through our engagement, exercise of voting right andinvestment activities, so that identification and response to climate change risks become possible.
（Engagement）
At SMTAM, we view engagement activities as opportunities to seek best practices from companies, and we communicate ourviews so as to contribute to the enhancement of corporate value over the medium to long term. Gaining a proper understandingof a company s state of management and business situation is crucial to engagement. The ESG experts in our Stewardship

Company Response

Company Response

To increase usage of green fuel, which is the key to reducing greenhouse gas
emissions for marine transport, we concluded supply contracts with eight energy
companies, and we have taken measures to increase confidence in the plan suchas by showing the management stage of price pass-through for each supplier.
At the same time, specific investment plans need to be examined for using
green fuel. Since there are different types of green fuel, we have to consider
future changes related to technology and supply and demand when making
investment decisions.

Our policy is to withdraw from coal-fired thermal power generation from a
mid- to long-term perspective. Then, we need to make decisions based on
economic rationale and market conditions. We are also considering selling
our coal-fired thermal power generation business when splitting thecompany. This issue involves business reorganization including investment
in renewable energy, so a specific transition plan needs to be made after
in-house restructuring is completed.

Corporate Action

Corporate Action

To increase the probability of achieving their ambitious commitment, they
are managing the stages of their response status to price pass-through foreach supplier, and disclosing information on their plan to secure green fuelwith energy companies.

A transition plan for climate change was proposed and approved by thecompany at their general meeting of shareholders in November 2022. At
the same time, they announced that the time for closing operation of acoal-fired thermal power generation plant in Victoria, which had long beena concern, will be moved forward 10 years.

Development Department work together with industrial corporate analysis professionals in the Research Investment Department
to conduct in-depth engagement from both an ESG and business perspective, utilizing our proprietary MBIS

non-financial

information assessments. We use our networks in Tokyo, New York and London to have our own engagement with investee

Evaluation by SMTAM / Future Policy

Evaluation by SMTAM / Future Policy

companies. We also conduct various activities and engage with stakeholders outside our investee companies through a wide

- We have proactively engaged in dialogue via email, the internet, and inperson since 2019 because they are one of our target 100 companies on
climate change response.
- It seems they will promote specific initiatives from now, and havedetermined that they are in a phase where progress must be confirmed.
- Our policy is to continue engaging in dialogue to encourage them tocontinue promoting aggressive initiatives as a leader in the industry.

Our policy is to confirm the progress of just transition including formulationand implementation of an employment strategy due to announcement of
their early transition plan such as withdrawal from coal-fired thermal power
generation.

variety of initiatives.
While engagement is something we can do on our own, it is also done in collaboration with other investors who share the same
beliefs. Engagement also includes activities that expand the investor base. Certain social issues such as climate change areglobal. Collaborative engagement is an approach to such issues across barriers in collaboration with other investors who sharethe same beliefs.

〜Collaboration with various initiatives〜
Activities at Climate Action 100+
As a lead manager, we continued to have collaborative engagement mainly with Asian companies in Japan, Indonesia, Korea,
and Thailand. As a collaboration manager, we continued to have collaborative engagement with companies in the US. As a leadmanager, we discussed ideal global decarbonization pathways for the steel industry, discussed disclosure and evaluation
methods for contributing parts to decarbonization through provision of technologies, products, and services from major
electronics industries, and discussed ideal disclosure on lobbying for examining engagement contents.
Activities at NZAMI（Net Zero Asset Managers initiative）
We acted as a contact point and conducted four consultations with Japanese asset management companies regarding their
NZAMI membership and setting of interim targets. In addition, our president spoke at a webinar for asset managers to promote
NZAMI membership. We supported these companies to join the NZAMI, among others.

1112

When NZAMI asked its members to introduce policies to achieve Net Zero, we acted as an advisory board to the Asian

disclosure of analysis results related to domestic and foreign stocks as well as domestic and foreign bonds managed by SMTAM.

signatories and encouraged them to consider regional approaches to 'Just Transition' through 'real solutions', including

The analysis was carried out using the data and analysis methods of an outside organization*5. (The base date is June 30, 2023.)

consideration of regional characteristics in Asia.
Besides, the analysis results on financed emissions from our sovereign bond portfolio are shown on pages 22 to 26.
（Exercise of voting rights）
Engagement at SMTAM, we view the exercise of voting rights as an opportunity to call for a minimum standard of governance

A．Fixed point analysis (Greenhouse gas emissions, etc.)

and consider it to be one method of governance-related engagement. We emphasize three key points when exercising votingThis is an attempt to ascertain the status of greenhouse gas emission exposure and other conditions at a fixed point in time,rights: (1) high-quality governance that respects shareholders equity; (2) efficient utilization of shareholders capital forbased on investee company disclosure data and other information. For example, when looking at the greenhouse gas emissions

sustainable growth; and (3) appropriate action in the event an incident occurs that damages corporate value. We disclose ourby asset class (targets are Japanese equity, Japanese bonds, foreign equity, and foreign bonds), the GHG emissions based on

Principles for Exercising Voting Rights based on these criteria. We also actively pursue engagement with companies regarding

Scope 1+2 of each asset are below the reference index. In addition, compared to the previous year*6, although the greenhousethe exercise of voting rights.

gas emissions from Japanese equity increased, there was a greater reduction in Japanese bonds and foreign equity, so theRegarding our response to climate change, we are opposed in principle to companies with relatively high levels of greenhousegreenhouse gas emissions from the overall portfolio was 20.9 million tCO₂e (21.3 million tCO₂e the previous year), which was agas emissions that fall into any of the following categories and do not provide a rational explanation for their actions.

decrease from the previous year. On the other hand, while GHG emissions were below the reference index for all asset classes①Cases where there has been inadequate disclosure in accordance with the Task Force on Climate-related Financial
Disclosures (TCFD) or equivalent framework.
②When there has been a failure to set medium- and long-term goals in line with the Paris Agreement or to disclose specificmeasures to achieve them.

for Scope 3, when compared to the previous year, with the exception of Japanese bonds, it increased for three asset classes.
Therefore, the overall portfolio increased significantly to 197.0 million tCO₂e (171.2 million tCO₂e the previous year). Looking at
the reason, the greatest increase was with Japanese equity because some companies expanded the measurement range foremissions compared to the previous year resulting in a sudden increase in Scope 3 emissions, so it is assumed that changes in③When there has been no evidence of progress in reducing greenhouse gas emissions.

the measurement range resulted in a temporary increase. Emissions according to industry showed the same tendencies as theprevious year where the utilities sector and materials sector made up the largest amount for all asset classes.

（Investment decision making）
As a signatory asset manager on the Principles for Responsible Investment, we conduct investment activities (ESG investment)
focusing on medium- to long-term environmental, social, and governance (ESG) on the basis of the values presented in the
United Nations Global Compact and SDGs. We believe that fulfilling the role as an investment manager in an investment chain

Figure 7: Greenhouse gas emissions by asset class*7*9*10

through ESG investment will make contributions in value improvement and sustainable growth in investee companies,
maximizing the investment return of clients (beneficiaries) over a medium to long term, reducing downside risks, and achieving asustainable society.

Japanese
equityIncluding climate change risks, we conduct non-financial evaluations using our in-house ESG score calculation based on ESG
materialities and MBIS , which is a proprietary system, and reflect these into our investment decision-making process according
to portfolio characteristics in order to maximize investment return.

Japanesebonds

of score granting, cases of score granting based on ESG materiality, verification of score effectiveness, etc., are quarterly

Foreignequityreported to the Sustainability Committee. Also, we develop the system enabling the calculation of our in-house ESG scores by
each portfolio. In particular, we chronologically monitor our primary products and funds that we certify as "ESG products" bycomparing them with reference indices and similar strategies.
Climate change risks of investee companies and portfolio

11.8

Reference index (2023)

12.8

Portfolio (2022)

11.3

Reference index (2022)

12.3
4.3

Reference index (2023)

6.9

Portfolio (2022)

5.2

Portfolio (2023)

7.6

Reference index (2023)

7.8

Portfolio (2022)

8.1

Reference index (2022)

8.4

119.7
2.5
1.6
3.1

58.4
58.6
51.9
52.4
0.3
0.6

Reference index (2023)

0.3

Portfolio (2022)

0.6

Reference index (2022)
Overall
portfolio

140.0
112.9

8.5

Portfolio (2023)
Foreign
bonds

132.7

1.3

Portfolio (2023)

Reference index (2022)

Principally, we give an in-house ESG score on the investment universe for the whole asset, and our analysts give covered bands
ratings of MBIS . Our in-house ESG scores, which are granted to all investment asset universes, with information such as status

Portfolio (2023)

Portfolio (2023)

20.9

Portfolio (2022)

21.3

As to climate change risks of investee companies, we capture and analyze not only carbon-related indices of the corporation

Scope 1+2 (Million tCO₂e)

1.7

Scope 3 (Million tCO₂e)

3.6
1.3
3.1
197.0
171.2

0

itself but also recognition and contributed emissions, etc., of the life cycle and entire supply chain of investee companies'(Unit: Million tCO₂e)

50

100

150

200

products and services through the utilization of our in-house corporate research and ESG scores and engagement. By doing so,
we utilize them for our investment decision-making.
As to climate change risks of a portfolio, we capture and analyze them through ISS's analysis function and our own due diligenceon foreign investment trust companies, which we have chosen and placed into our FoFs, etc. The Sustainability Committee

Figure 8: Industry breakdown of greenhouse gas emissions*8*10
Japanese equity

monitors the risks and reports to the Management meeting and the board of directors as needed.
Japanese bonds

By doing so, we identify and assess climate-related risks to establish the management process, and integrate this process into
the comprehensive risk management process.

Foreign equity
Foreign bonds（２）Climate change risk assessment of our portfolio
We evaluate risks for portfolios*4

related to climate change by asset class, and then integrate asset classes to evaluate held

Overall portfolio
0％

10％

20％

30％

40％

50％

60％

70％

Industrials

Financials

EnergyConsumer staples

80％

90％

100％

assets. Our assessment method involves using (1) fixed point analysis based on the disclosed information of companies thatmake up our portfolio, along with their performance figures, (2) transition pathway analysis based on future climate

Utilities

Materials

Information technology

Consumer discretionary

Otherchange-related scenarios, and (3) portfolio resilience analysis related to climate change. The following is a summarized13

14

Figure 9: Weighted average carbon intensity (WACI, emission per sales unit) by asset class*8*9*10

Japanese
equity84.9

Reference index (2023)

88.5

Portfolio (2022)

93.5

Reference index (2022)

95.5

Japanese
equity472.4

Portfolio (2022)

201.1

138.5

Reference index (2023)

142.1

100.5

Reference index (2022)

103.9
269.7

Reference index (2023)

474.2

Portfolio (2022)

269.7
498.8

Portfolio (2023)

159.0

Reference index (2023)

164.0
180.5

Portfolio (2022)

187.5

Portfolio (2023)

Reference index (2023)

170.9

Portfolio (2022)

103.1

Portfolio (2022)

Reference index (2022)

68.0

Foreign
bonds

77.2

Reference index (2022)
Overall
portfolio

Foreignequity187.3

Portfolio (2023)

100.0

Reference index (2023)

Reference index (2022)

180.7

Portfolio (2022)
Reference index (2022)

Foreignbonds

Japanese
bonds

439.3

Portfolio (2023)(Unit: tCO₂e / $US 1 million)

Portfolio (2023)

224.4

Reference index (2023)
Reference index (2022)

ForeignequityFigure 11: Carbon intensity by asset class*8*9*10
Portfolio (2023)

Portfolio (2023)

Portfolio (2023)
Japanesebonds(Unit: tCO₂e / $US 1 million)

112.2

Portfolio (2022)

Overall
portfolio

137.0

0

100

Reference index (2023)

187.0

Portfolio (2022)

176.3

Reference index (2022)

197.5

Portfolio (2023)

164.4

200

300

400

226.2

Portfolio (2023)

121.7

Portfolio (2022)

129.0

0

500

100

200

300

400

On the other hand, as with the previous year, the weighted average carbon intensity (WACI, emission per sales unit) is below

B．Transition pathway analysis

the reference index for all asset classes. Also, compared to the previous year*6, improvement was seen for asset classes with the(a) Climate change scenarios and transition path analysis of GHG emissions regarding our portfolio

500

600

exception of Japanese bonds, and, as a result, for the overall portfolio with 112.2tCO₂e/million USD (137.0tCO₂e/million USD

Here, a method called transition pathway analysis is used to assess how the portfolio s climate change risks will change in thethe previous year). The reason that the value of Japanese bonds is higher than other asset classes is that there is a highface of different scenarios for future climate change. Specifically, future estimated values for greenhouse gas emissions from thecomposition ratio from the utilities sector including power companies, which have a higher carbon intensity. In addition, theportfolio are compared to the carbon budgets of the climate change scenarios, and the portfolio s consistency with thesevalue of foreign equity is also higher than other asset classes, and it is believed that the shareholding ratio of companies' equity

scenarios is assessed. The scenarios used were the three scenarios of the International Energy Agency (IEA), which are the SDS:in the utilities and materials sectors, which have higher carbon intensity, is relatively high compared to other asset classes.

Sustainable Development Scenario,

Regarding the carbon footprint, all asset classes are below the reference index, same as the last year s. The carbon footprint of（Climate change scenarios）

the overall portfolio improved to 64.8 tCO₂e/million USD (66.5 tCO₂e/million USD the previous year*6). By asset class, reducing

IEA uses a forecast model called the global energy climate (GEC) model, and forecasts future CO₂ emissions using various

the carbon footprint in foreign and Japanese equities that compose of large ratio contributes to the improvement.

carbon prices, which are supposed by scenario, country or region, and decade. Based on a carbon price (Figure13) as one of

APS: Announced Pledges Scenario, and STEPS: Stated Policy Scenario.

the significant inputs of this forecast model and CO₂ emissions (Figure14) as an output of this model, the characteristics of thethree scenarios mentioned above are explained.

Figure 10: Carbon footprint by asset class*8*9*10
Portfolio (2023)
Japanese
equity(Unit: tCO₂e / $US 1 million)

Figure 12: Scenarios used for analysis

74.4

Reference index (2023)

80.5

Portfolio (2022)

SDS

74.6

Reference index (2022)

80.6

Portfolio (2023)
Japanese
bonds

335.1

Portfolio (2022)

166.6
319.7

Portfolio (2023)

51.3

Reference index (2023)

52.5

Portfolio (2022)

54.0

Reference index (2022)

56.1

Portfolio (2023)
Foreignbonds

Stated Policy Scenario

Normative scenario in harmony with

Exploratory scenario where ambitious

Exploratory scenario for achieving theinitiatives to keep the temperaturetargets (NDC) set by each government

goals stated by governments (end of

below +2ºC and +1.5ºC as stipulated

are met (end of this century +2.1ºC).

this century +2.6ºC).

in the Paris Agreement.
Source: World Energy Outlook 2022

30.7

Reference index (2023)

SDS Scenario

67.9

Portfolio (2022)

29.5

Reference index (2022)
Overall
portfolio

STEPS

Announced Pledges Scenario

170.5

Reference index (2023)
Reference index (2022)

ForeignequityAPS

Sustainable Development Scenario

Under the circumstances all advanced countries and many emerging and developing countries are supposed to introduce

72.5

Portfolio (2023)

64.8

Portfolio (2022)

66.5

0

carbon prices, which will be raised step by step, it is assumed that the high-level carbon prices are set in 2050 at 200 USD/tCO₂
in advanced countries declaring net-zero and at 160 USD/tCO₂ in other advanced countries which do not declare net-zero and
100

200

300

400

emerging countries declaring net-zero. With this assumption, CO₂ emission is supposed to significantly reduce from 34.2 billion
tCO₂ in 2020 to 8.2 billion tCO₂ in 2050, and therefore, it is forecasted that the temperature rise by 2100 will be able to belower than 2℃.

Carbon intensity is also under the reference index in all asset classes, same as the last year's. Regarding the overall portfolio,
carbon intensity improved to 121.7tCO₂e/million USD (129.0tCO₂e/million USD the previous year*6). By asset class, a reduction

APS Scenario

of carbon intensity in foreign equity contributed to the improvement.

It is assumed that about 50 countries including countries/regions and China that have declared net zero, would introduce
carbon prices, and the prices are same level as the SDS scenario according to APS scenario. Since it is assumed that countries
other than those mentioned above would not introduce carbon prices, CO₂ emissions in 2050 are forecasted to be 20.7 billion

15

16

tCO₂. The emissions reduction remains half of the current emission level according to APS scenario. Therefore, the temperaturerise is forecast to be 2.1℃, higher than the SDS scenario.

Figure 15: Expected transition pathway for each strategy*10*11
Passive Investment Strategy

STEPS Scenario
According to STEPS scenario, the carbon prices are assumed, and future CO₂ emissions are estimated based on the price plansof countries/regions that have introduced or decided to introduce carbon prices. The carbon price in the EU, which will
introduce the highest level, is supposed to remain at 90 USD/tCO₂ in 2050. Therefore, global CO₂ emissions are estimated to be
33.9 billion tCO₂ in 2050, which remains at as same as the current level. Therefore, the temperature rise will be 2.6℃ in 2100.
In conclusion, IEA's scenario analysis shows that a wide range of introductions of high-level carbon prices enables to reduce theemissions significantly and that it is inevitable to globally introduce high level carbon price to attain net-zero by 2050. We thinkthat it is necessary to realize net zero society by accelerating investments and allocating more such investment capital for
innovative use for decarbonization rather than bearing such high costs.

60%
40%

2041

2042

2043

2044

2041

2042

2043

2044

2050

2040
2040

2050

2039
2039

2049

2038
2038

2049

2037
2037

2048

2036
2036

2048

2035
2035

2047

2034
2034

2047

2033
2033

2046

2032
2032

2046

2031
2031

2045

2030
2030

2045

2029
2029

2028

2027

2026

2025

Active Investment Strategy

120

170

200

Developed countries other than those above

100

140

160

Emerging and developing countries declaring net-zero including China

40

110

160

Emerging and developing countries other than those above exluding some African and Asian countries

‑

35

95

African, Middle-east and Asian countries

‑

‑

‑

Developed countries declaring net-zero

120

170

200

Emerging and developing countries declaring net-zero

40

110

160

China

30

95

160

‑

‑

‑

EU

65

75

90

Canada55

60

75South Korea

40

65

90

Chile, Columbia

15

20

30

China

30

45

55

‑

‑

‑

Source: added some comments by SMTAM based on Table B.2 of World Energy Outlook 2021(p.329)

120%
100%
80%
60%
40%
20%

Portfolio

2028

Developed countries declaring net-zero

2027

2050

2026

2040

2025

2030

Countries which do not either plan or implement carbon price

2024

2023

Carbon price (USD/tCO₂)

Country/Region

Countries other than above

STEPS

80%

2024

APS

100%

2023

Scenarios

120%

20%

Figure 13: IEA's Carbon price assumption by scenario

SDS（Transition path analysis of GHG emissions regarding our portfolio）

Sustainable Development Scenario (SDS)

Announced Pledges Scenario (APS)

Stated Policy Scenario (STEPS)

It was confirmed that SMTAM portfolio emissions would likely reach the upper limit of the SDS scenario by 2038 with the
Passive Investment Strategy and by 2042 with the Active Investment Strategy. However, compared to the previous year*6, thetime to reach the upper limit was postponed by two years with the Passive Investment Strategy (2036 the previous year) and by
about 6 years for the Active Investment Strategy (2036 the previous year), so there was some improvement. The Active
Investment Strategy has a lower holding ratio in the energy sector, which is expected to greatly exceed the carbon budget, andFigure 14: IEA's Global carbon emission estimation by scenario
400

is a possible reason why the acceptable level comes later than with the Passive Investment Strategy.

(Unit: 100 million tCO₂e)(b) Survey on climate-related targets

350

We confirmed that there are a certain number of investee companies in our portfolio that are not aggressively addressing

300

climate change issues. We consider increasing the number of investee companies that can set ambitious goals, commit to SBT,
and obtain certification*12 to be an important measure, and we will actively work with investee companies. When looking at the250

composition ratio of companies with SBT certification by asset class compared to the previous year *6 , Japanese assets

200

increased to 37% (31% the previous year) and foreign assets increased to 38% (33% the previous year). On the other hand, thecomposition ratio of No Target decreased to 18% (23% the previous year) for Japanese assets, and to 11% (15% the previous

150year) for foreign assets, which was recognized as a considerable achievement. We will continue to make such efforts so that this100

trend continues in the future.

50

2010
Actual

2019
STEPS

2020
APS

2030

2040

2050

SDS

Source: Made by SMTAM from World Energy Outlook 2021

17

18

Figure 16: Survey results on climate-related targets by asset class*10

Approved
SBT

Committed
SBT

Japanese assets

One index for evaluating portfolio transition risk is the power generation mix ratio of the portfolio based on the amount of

38

32

power generation. Here, the power generation mix ratio is compared for each asset class and reference index. Additionally,
the power generation mix ratio was estimated for the overall portfolio for 2030 and 2050 under the SDS scenario. Figure 18

Japanese assets
Foreign assets

shows an overview of these values. Based on this, the power generation mix ratio for each asset class is nearly the same as

Overall portfolio

the reference index. Additionally, as of now, about 2/3 of the overall portfolio is based on fossil fuels, which shows the needJapanese assets

Ambitious
TargetForeign assets

Non-Ambitious
TargetForeign assets

No Target①Portfolio power generation mix analysis

38

33

Overall portfolio(a)Transition risk analysis

37

31

Foreign assets

C．Portfolio resilience analysis related to climate change(Unit: %)to reduce the fossil fuel composition ratio to about 1/3 in 2030, and to reduce it to 7% for 2050.

Overall portfolio

Figure 18: Power generation mix ratio by asset class*9*10

Japanese assets
Overall portfolio
18

Japanese assets

11

Foreign assets
Overall portfolio

15
14Japanese equity

2023

23

5

10

15

Portfolio

83.9

5.3

10.8

Reference index

84.0

5.1

11.0

2022
19

Japanese bonds
0(Unit: %)

20

25

30

35

40

Foreign equity(c)Temperature score analysis
The temperature score index expresses how consistent the future estimated value of the portfolio greenhouse gas emissions iswith the carbon budget for achieving the SDS scenario by converting it to a rise in temperature. For example, with a portfolio

Foreign bonds

consistent with the SDS scenario in 2050, it will be 1.5ºC. Looking at the temperature score for each asset class compared tothe previous year, Japanese equity was 1.8ºC (1.9ºC the previous year), and Japanese bonds were 2.0ºC (2.8ºC the previousyear), foreign equity was 2.8ºC (2.9ºC the previous year), and foreign bonds were 2.7ºC (3.0ºC the previous year), and theoverall portfolio was 2.1ºC (2.4ºC the previous year). Although the result for the overall portfolio shows a temperature rise
exceeding 1.5ºC, compared to the previous year, the score itself is getting closer to 1.5ºC. This indicates that consistency with

84.0

Portfolio
Reference index

11.5

6.2

12.3

Portfolio

52.6

25.0

22.4

Reference index

53.0

24.6

22.4

Portfolio

42.0

27.6

30.4

Reference index

41.2

28.7

30.2

Overall portfolio

15.8

66.8

Power generation mix ratio under the SDS scenario in 2030

10.0

37.0
7.0

Power generation mix ratio under the SDS scenario in 2050

the SDS scenario has improved.

0

10

17.4

53.0

9.0

84.0
20

30

Nuclear power

Fossil fuelFigure 17: Temperature score by asset class*10*11

4.5

81.5

(Unit: ºC)

40

50

60

70

80

90

100

Renewable energy*The total composition ratio may not be 100% depending on the way fractions are handled.

1.8Japanese equity②Portfolio transition VaR analysis

1.9

Another transition risk evaluation indicator is called transition value at risk (hereinafter, VaR). Transition VaR is an indicator

2.0Japanese bondsthat converts the impact on investee companies to portfolio value based on the Net Zero Emission (NZE) Scenario announced

2.8

by the International Energy Agency (IEA). When comparing each asset class and reference index using this indicator, as shown

2.8

Foreign equity

in Figure 19, the amount of transition risk for SMTAM with each asset class is equivalent to the reference index or lower.

2.9

Domestic bonds and foreign bonds in particular have a very narrow risk range. Additionally, it was determined that the

2.7

Foreign bonds

transition risk amount for the overall portfolio is 9%.

3.0

Figure 19: Transition VaR by asset class*9*10

2.1

Overall portfolio

2023

2.4
1.5

2.0

2.5

3.0

2022

Japanese equity(Unit: %)Japanese bonds

Foreign equity

Foreign bonds

Overall portfolio

Portfolio (A)

12

19

5

2

9

Reference index (B)

12

32

5

6

-

0

-13

0

-4

-

Difference (A-B)

Figure20 shows the composition ratio of overall portfolio transition VaR by sector, and as can be seen, over half is comprised of
the Materials and Industrials sectors. Since a high carbon price is introduced with the NZE Scenario, companies that have highemissions face a heavy burden, and this is believed to impact the corporate value of investee companies. As for transition risk, it
can be seen that our portfolio is designed in such a way that it is strongly impacted by these two sectors.

19

20

Figure 20: Sectoral composition ratio of transition VaR by asset class*10(Unit: %)Looking at the overall analysis results, to effectively reduce greenhouse gas emissions for our portfolio, Japanese equity andforeign equity are important as asset classes, and utilities and materials are important as sectors, and the approach to theindustrials sector is important from the perspective of reducing transition risk. We will encourage investee companies inJapanese equity

prioritized target assets and sectors to enhance their initiatives related to climate change issues through our engagement andexercise of voting rights.

Japanese bonds*4. Based on assets under management excluding domestic and foreign sovereign bonds, etc.

*5. ISS (Institutional Shareholder Services)*6. Since the values for the previous year (end of June 2022) were calculated (remeasured) using updated data such as carbon emissions, these do not match with the values in

Foreign equity

the SS report from last year.

*7. Based on Scope 1+2+3*8. Based on Scope 1+2*9. The following are reference indices used.

Foreign bonds

Japanese equity: Tokyo Stock Price Index (TOPIX)

Japanese bonds: NOMURA-BPI Overall (Corporate bonds only)
Foreign equity: MSCI-ACWI (ex Japan)

Overall portfolio

Foreign bonds: Bloomberg Global Overall (excluding Japan) (Corporate bonds only)*10. Calculated based on SMTAM's holdings for the adjusted corporate value of each asset.
0

10

20

30

40

Materials

Industrials

Public utility

Financials

EnergyConsumer staples

50

60

70

80

Real estate

Information technology
Consumer discretionary

90*11. All industries except the fossil fuel production industry: Scope 1+2, Fossil fuel production industry: Scope 3, Electric power: Scope 1*12. SBT (Science Based Targets). Targets for reducing greenhouse gas emissions set by companies with a target year of 5 to 15 years in the future in harmony with the standards

100

stipulated in the Paris Agreement. Numerical values must be aligned with the latest indicators from meteorological science. These are implemented as WMB (We Mean

Healthcare

Business) initiatives, and are established and carried out by WMB constituent organizations such as the World Resources Institute (WRI) and CDP. SBT certification indicatesthat goals are certified based on the above. Even after being certified, it is necessary to disclose emission amounts, the progress of measures every year, and to regularly

Communication service

confirm the validity of targets. Also, SBT commitment refers to the declaration that SBTs will be set within 2 years.

D．Analysis of GHG emissions (Financed Emissions) of our sovereign bond portfolio(b)Physical risk analysis (Portfolio physical VaR analysis)
There is also a physical risk evaluation indicator called physical value at risk (hereinafter, VaR). This is an indicator that converts thephysical risk impact on investee companies to portfolio value based on the assumed scenario (a 2ºC rise in temperature) prepared

Partnership for Carbon Accounting Financials（PCAF）proposed a calculation methodology and a format of information disclosure

by the Intergovernmental Panel on Climate Change (IPCC). Figure 17 shows a comparison between the reference index and theof GHG emissions from sovereign bond investment, etc., (hereinafter, Sovereign GHG emissions) in "The Global GHG Accounting

physical risk by asset class based on this indicator. As can be seen, our physical risks by asset class are the same as the reference

and Reporting Standard Part A: Financed Emissions. Second Edition" in December 2022.

index or below. Additionally, physical risk for the overall portfolio is 1%, which is much lower than the transition risk of 9%.
(a)Sovereign GHG emissions

Figure 21: Physical VaR by asset class*9*10(Unit: %)Japanese equity

Japanese bonds

Foreign equity

Foreign bonds

PCAF stipulates sovereign GHG emissions as "GHG emissions from production activities within a country's boundary" and sets it
as "Scope 1." This scope 1 emission is also called the "production emissions," and PCAF set it as a mandate for disclosure.

Overall portfolio

Portfolio (A)

2

3

1

1

1

Reference index (B)

2

4

1

1

-

Difference (A-B)

0

-1

0

0

-

Figure 22 shows the composition ratio of overall portfolio physical VaR by sector, and as can be seen, about half is comprised ofRegarding the production emissions, PCAF recommends disclosing both numbers: GHG emissions with LULUCF (Land Use, Land
Use Change, and Forestry, hereinafter, "Forest absorption") and without it. In addition, these production emissions include GHG
emissions from the companies because the production emissions are caused by the production facilities in that country. Though
it is named "sovereign," it is worth noting that the emission does not mean the GHG emissions from only the public sector.
Figure 23: Definition of each scope relating to GHG emissions from sovereign bonds

the industrials and consumer discretionary sectors. It can be seen that our portfolio is designed in such a way that it is strongly
impacted by these two sectors.

Category

Figure 22: Sectoral composition ration of Physical VaR by asset class*10(Unit: %)Japanese equity

Disclosure
Recommendation
Level

Definition

Scope１*13（Production emissions）

Mandatory（shall）

GHG emissions from the production activities in the realm of the country are called
production emissions, and it is recommended to disclose GHG emissions considering
forest absorption (LULUCF), etc.

Scope2*14

Recommended（should）

GHG emissions that are emitted when energy imported and consumed in that country
was produced outside of that country.

Scope3*14

Recommended（should）

GHG emissions that are emitted when products and services (excluding energy)
produced overseas and consumed in that country were produced outside of thatcountry.

Exported
Emissions*15−

Regarding export, GHG emissions emitted in the country during the production of thesaid products and services (including energy) in the country.

Imported
Emissions*15−

Regarding import, GHG emissions emitted in other country during the production of thesaid products and services (including energy) in that country.

Consumption
Emissions

Recommended（should）

GHG emissions that are emitted by production processes relating to products andservices used within the country's realm.

Japanese bonds

Foreign equity

Foreign bonds

Overall portfolio

0

21

10

20

30

Industrials

Consumer discretionary

Financials

Energy40

50

Materials

Consumer staples

60

Information technology

Real estate

70

80
Public utility

90
Healthcare

100

Source: made by SMTAM based on PCAF report, etc

Communication service

22

PCAF also recommends disclosing the "consumption emissions" as the metrics corresponds to the production emissions. The

the corporate value (EVIC) of investee companies the denominator; GHG emissions of sovereign bond portfolio are derived byconsumption emissions" are defined as "GHG emissions that are emitted by production processes relating to products andmaking investment exposure of sovereign bonds of the invested country the numerator while nominal GDP adjusted byservices used within the country's realm." For example, a country where its consumption scale is more significant than its

purchase power parity, the PPP-adjusted GDP*16, the denominator.

production scale globally contributes to increasing GHG emissions through imported products and services, although thatcountry's production emissions are relatively small. To visualize the transfer of GHG emissions from a GHG production country to

PCAF explained there was an option that the public debt of invested country should be a denominator based on thea GHG consumption country, PCAF recommends disclosing the consumption emissions.

calculation methodology of the investment portfolio of corporate stocks and bonds, but we finally chose PPP-adjusted GDP,The consumption emissions are calculated by adding the GHG emissions from the production process relating to imported products

which had a higher correlation with each country's emissions, as the denominator because the attribution factor of a country

and services categorized by Scope 2 and 3 to the production emissions and by excluding the GHG emissions from the production

with large outstanding public debt was underestimated.

process of products and services which are produced in the country and exported to other countries (exported emissions).
Besides, Scope 2 means "GHG emissions that are emitted when energy imported and consumed in that country was produced(c)GHG emissions from our sovereign bond portfolio

outside of that country, and Scope 3 means "GHG emissions that are emitted when products and services (excluding energy)

Based on PCAF's recommended methodology, GHG emissions from our sovereign bond portfolio are shown in Figure25. Our

produced overseas and consumed in that country were produced outside of that country. Also, exported emissions are "GHG

production emissions without LULUCF amount to 40 million tCO₂e, and those with LULUCF amount to 38 million tCO₂e; also,

emissions emitted in the country during the production of the said products and services (including energy) in the country"

our consumption emissions without LULUCF amount to 45 million tCO₂e, and those with LULUCF amount to 43 million tCO₂e.

regarding the export goods. Figure 24 shows these relationships. The category of sovereign GHG emissions is as a same term as
GHG protocol, but we have to be careful that it is different by coverage from the scope of GHG emissions that companies use as
Scope2 and Scope3.

Scope1＝Production Emissions
Exported Emissions

15,054

10,039

Exported Emissions (Only CO₂)⑤(Energy)

Export87

Scope 3 (Only CO₂)④

Scope2

Production in the realm of the country

37,642

Scope 2 (Only CO₂)③

Scope3

Import40,377

Scope 1: production emissions (GHG+CO₂, with LULUCF)②

Production in the realm of the othercountry(productions and services)
Consumption in the realm of the country= Consumption emissions*(Unit: thousand tCO₂e)

Scope 1: production emissions (GHG+CO₂, without LULUCF)①

Figure 24: Coverage of each scope regarding sovereign GHG emissions
Imported emissions:regarding import, GHG emissions emitted in othercountry during the production of the said products
and services (including energy) in that country.

Figure 25: Sovereign GHG emissions by scope

45,479Consumption emissions (①+③+④−⑤)(GHG+CO₂, without LULUCF)

Exported emissions:regarding export, GHG emissions
emitted in the country during the
production of the said products andservices (including energy) in the
country.

42,744

Consumption emissions (②+③+④−⑤)(GHG+CO₂, with LULUCF)

0*Consumption emissions = Production emissions (Scope1) + Imported emissions - Exported emissions

5,000

10,00015,00020,00025,00030,00035,00040,00045,00050,000Also, PCAF recommends portfolio analysis using two ways of carbon intensities: the production emissions intensity and the

Source: made by SMTAM

consumption emissions intensity. Emissions intensities by country are derived from the formula below.

(b)Calculation methodology of GHG emissions from sovereign bond portfolio
PCAF defines the methodology of GHG emissions from the sovereign bond portfolio below, being based on the calculation
methodology of GHG emissions emitted from a portfolio of invested and loaned companies, so called financed emissions.
【Formula】
Sovereign Financed Emissions=

Σ

S=all countries included in portfolio measured

Outstanding Amount toSovereign Bonds of Country S
PPP-adjusted GDP of Country S*16

【Formula】
Production emissions
intensity of country S

× GHG emissions of Country S

Attribution factor=

Consumption emissions=
intensity of country S

Production emissions of country S
PPP-adjusted GDP of country S*16
Consumption emissions of country S
Population of country S*17

Each invested country's emissions intensity is calculated based on the formula above. Then, based on the formula below, theportfolio-based emissions intensity is derived by weight-averaging each country's intensity using each country's investment

The sovereign financed emissions are derived by GHG emissions of each country issuing sovereign bonds invested (= GHG

weight of the portfolio, which is shown in Figure26. The production emissions intensity of our sovereign bond portfolio (without

emissions of country S) multiplied by each country's attribution factor, which shows to what extent invested money to the bonds

LULUCF) is 222.1tCO₂e / million USD, and our consumption emissions intensity (without LULUCF) is 12.7tCO₂e per capita.

contributes to GHG emission of each country (= invested money to sovereign bonds of country S / PPP-adjusted GDP*16), andadding up derived numbers of emissions among countries belonging to the portfolio. The calculation methodology is as same asthat for the portfolio of investee and loan companies.
However, a different point of the calculation methodology of GHG emissions of sovereign bond portfolio from that of corporate
stocks and bonds is the calculation methodology of the attribution factor. GHG emissions from the investment portfolio ofcorporate stocks and bonds are derived by making the investment exposure of investee companies the numerator while making

23

24

sink." The importance has been recognized globally. On the other hand, the amount of CO₂ emitted by illegal lumbering and

Figure 26: Our production emissions intensity and consumption emissions intensity(unit: tCO₂e / million USD)
Production emissions intensity(GHG, without LULUCF)(unit: tCO₂e per capita)

Production emissions intensity(GHG, with LULUCF)

some understanding of the degree of contribution of forest benefit or impact on global warming through the emission of fixed

Consumption emissions intensity(GHG, without LULUCF)

222.1

12.7

Consumption emissions intensity(GHG, with LULUCF)

207.0

land use change, etc., is said to reach a significant scale. Therefore, seeing the scale of forest absorption by country gives us

11.9

CO₂ from land, etc, by deforestation.
Figure28 shows three countries with the largest net positive absorption and three countries with the largest net negative
absorption in our sovereign bond portfolio, under the definition of difference between the number including gross forest
absorption and the number excluding gross forest absorption as net forest absorption based on the production emissions data by

0

50

100

150

200

250

0

2

4

6

8

10

12

14

country. Countries that most benefit from forest absorption are China and the U.S., which own large lands and enormous forest
resource, while countries that have negative influence are unexpectedly Indonesia and Brazil. Both countries own large amounts【Formula】
Production emissions ofsovereign bonds portfolio

Consumption emissions ofsovereign bonds portfolio

=

=

Σ

Production emissions
intensity of country S

×

Investment weight ofsovereign bonds of country S

of forest assets; however, it is thought that this fact indicates that the massive CO₂ emissions by decomposition of sludge andforest fire by influence of deforestation, etc., through plantation development and development to farmland and ranch is larger
than the absorption capacity by the forest. The protection of tropical rainforests is an urgent matter internationally because theenormous amount of CO₂ emitted by deforestation can be a significant obstacle to achieving net zero by 2050 globally.

ΣConsumption emissions
intensity of country S

×

Investment weight ofsovereign bonds of country S

Figure 28: Comparison of net absorption by country in terms of sovereign bond portfolio

Ranking

The countries withsignificant net
absorption

1st

China

1,114,790

Indonesia▲821,254

The result of the analysis of SMTAM's contribution to production emissions and consumption emissions by country is shown in

2nd

USA

754,225

Brazil▲290,867

Figure 27. Japan Government Bonds and U.S. Treasury are largely contributing to both production emissions and consumption

3rd

Malaysia

260,457

Peru▲86,741

S=all countries included in portfolio measured
Investment weight of sovereign bonds of country S = investment value of country S's sovereign bonds / entire value of sovereign bonds portfolio

emissions. To align our sovereign bond portfolio with 1.5℃ scenario, it is indispensable that Japan and U.S. firmly reduce theirAbsorption(thousand tCO₂）

The countries withnegative net
absorption

Absorption(thousand tCO₂）

GHG emissions. Therefore, intensively and actively engaging with companies in our major invested countries, including not only

Next, the impact of forest absorption on our sovereign bond portfolio is considered. Our production emissions with forest

Japan but also the U.S., is crucial.

absorption are 37.6 million tCO₂e and 40.4 tCO₂e without forest absorption; therefore, the net absorption of our sovereign
bond portfolio is 2.7 million tCO₂e. The net absorption is equivalent to about 6% of our production emissions without forest
absorption. Also, looking at the contribution to this net absorption country-by-county, countries that work negatively for this net

Figure 27: Country contribution to GHG emissions from our sovereign portfolio(unit: thousand tCO₂e)absorption value, in other words, countries with significant CO₂ emissions by deforestation are Indonesia, Mexico, Ireland, Peru
and Brazil. (Figure29)

Production emissions without LULUCF

22,585

10,69625,678Consumption emissions without LULUCF

0

5,000

10,000Japan Government Bonds

7,095

11,96915,00020,000U.S. Treasury

25,00030,00040,555

7,832

35,00040,000Figure 29: Impact by country on net absorption in our sovereign bond portfolio

45,74345,00050,000Other(d)Next step
We calculated GHG emissions from our sovereign bond portfolio using the PCAF recommended methodology. Based on thisCountry

Impact on forest absorption of
our portfolio (thousand tCO₂e)

1stIndonesia

41.5

2nd

Mexico11.6

3rd

Ireland

7.4

4th

Peru

7.4

5th

Brazil

6.8（Reference）
Forest absorption of our sovereign bond portfolio▲2,735.2

calculation, GHG emissions by country come from OECD and UNFCCC statistics; it is noted that two statistics coverages differ in

We are collectively engaging in forest conservation and restoration activities with other investors through some global initiatives

data coverage: OECD statistics is based on CO₂ emissions while UNFCCC statistics is based on GHG emissions. Also, there issuch as "The Investors Policy Dialogue on Deforestation (IPDD)" and "Financial Sector Deforestation Action (FSDA)." From thesemuch room for improvement in user-friendliness because updating GHG emissions data is slow, and data of some countries areanalyses, intensively engaging the Indonesian and Brazilian governments is very worthwhile because it substantially impacts

unavailable.

reducing financed emissions from our portfolio.

Despite such limitations, it is significant progress for us to visualize GHG emissions from our sovereign bond portfolio in realizing*13. Calcuration of Scope1 uses GHG total data with and without LULUCF in 2021 of UNFCCC Annex I. Recent year's data from the non-Annex I list is used for non-Annex I countries.
LULUCF is an abbreviation of land use, land use change, and forestry and shows the capacity for GHG emissions absorption. As to countries in which data is not available, GHG
emissions are estimated based on a similar country's GDP intensity with a consideration of economic and geographical conditions. Unit is tCO₂ equivalent, including other GHGs
like methane, etc.
*14. We use OECD statistics for the calculation of Scopes 2 and 3 . Countries that have no emission data are treated as "no emissions." Only CO₂ emission data is available in thesestatistics. Data from 2018, which is the most recent, is used for the analysis. The unit is tCO₂.
*15. Data used for calculating exported and imported emissions is from OECD statistics. Only CO₂ emission data is available in these statistics. Countries that have no emission data
are treated as "no emissions." Data from 2018, which is the most recent, is used for the analysis. The unit is tCO₂.
*16. Data of PPP-adjusted GDP is from FY2021 of World Bank statistics.
*17. Data of Population is from FY2021 of World Bank statistics.
*18. Data of sovereign bond portfolio used for analysis is as of the end of June 2023. The total amount is 181.8 billion USD, which is calculated with the exchange rate at the end ofJune 2023 (144.99 yen/USD).

net zero of our entire portfolio under management. Our sovereign bonds portfolio amounts to 27.5 trillion JPY*18, and it is one ofour major asset classes. We will make efforts to monitor our sovereign bonds' GHG emissions and reduce them by further
improving analysis methodologies and through policy engagement.
（Appendix）
An analysis of forest absorption impact on our portfolio
Data that can derive the production emissions give us useful information relating to each country's GHG emissions profile. One
of interesting information is LULUCF (hereinafter, forest absorption). Forest's role in absorbing and storing CO₂ is called "carbon

25

Ranking

26

Metrics and targets

Reference

As a responsible institutional investor, we are promoting the reduction of greenhouse gas emissions by investee companies
through our engagement and exercise of voting rights, collaboration with stakeholders such as asset owners and governmental
agencies, improving investment strategies, and providing investment opportunities (products) to clients. In this way, we will help
our investee companies achieve net zero greenhouse gas emissions by 2050, which is our commitment*19 when joining NZAMI,
and reduce these by half compared to 2019, which is our interim target for 2030.
As for our own greenhouse gas emissions, we will also make effort under the net zero realization framework of the Group-based
CO₂ emissions (Scope 1+2) by 2030, which was set by the Sumitomo Mitsui Trust Group.

Our carbon emissions data list
（１）Data related to asset class
Asset class*19. Our interim target for 2030 is to halve the emissions compared to the levels in 2019. The emission amount is calculated based on 43 trillion yen (excluding sovereign bondportfolio), which is about half of the total operational asset balance of approximately 85 trillion yen as of the end of June 2021. The ultimate goal is to achieve net zero for all
assets under management

Targetyear

Total
portfolio(Billion USD)

2023

158.6

Japanese equity

2022

2023

Plans for the Future

2022

9.7

2023

148.3

2022

149.6

2023

8.8

2022

9.0

2023

323.2

2022

320.5

Foreign equity

with stakeholders such as engagement, exercise of voting rights, and policy advocacy activities, and in addition to the
optimal allocation of resources through investment strategies and investment products for responding to climatechange issues, we aim to both maximize customer returns on investments and contribute to climate change issues
through customer initiatives and enhancement of our organizational structures for climate-related responses. We are

7.5

Japanese bonds

Under the supervision of the Board of Directors, we will continue our efforts and disclosures on climate change
issues. In addition to reduction of greenhouse gas emissions generated by investee companies through collaboration

152.3

Foreign bonds

committed to continuing our efforts to achieve this goal.
Overall portfolio

Portfolio /Reference index

Carbonemissions(Scope 1+2)
(tCO₂e)Total
carbonemissions(tCO₂e)CarbonCarbonintensity
footprint(tCO₂e /（tCO₂e/Million USD） Million USD)

Portfolio

11,792,794

144,469,857

74.4

Reference index

12,762,122

152,754,621

Portfolio

11,349,818

124,249,405

Reference index

12,278,324

Portfolio

1,274,893

Reference index
Portfolio

WACI(tCO₂e /Million USD)

Temperature
score
(ºC)

Transition
VaR(%)

Physical
VaR
(%)

100.0

84.9

1.8

12%

2%

80.5

103.1

88.5

74.6

100.5

93.5

1.9

10%

2%

131,983,314

80.6

103.9

95.5

5,529,261

170.5

269.7

224.4

2.0

19%

3%

2,505,642

9,427,194

335.1

474.2

472.4

1,622,053

6,815,285

166.6

269.7

201.1

2.8

18%

2%

Reference index

3,112,543

11,594,720

319.7

498.8

439.3

Portfolio

7,606,930

65,971,960

51.3

159.0

138.5

2.8

5%

1%

Reference index

7,781,838

66,365,578

52.5

164.0

142.1
2.9

5%

1%

2.7

2%

1%

3.0

2%

1%

Portfolio

8,071,511

59,929,687

54.0

180.5

180.7

Reference index

8,390,593

60,822,131

56.1

187.5

187.3

Portfolio

269,766

1,959,297

30.7

164.4

68.0

Reference index

597,294

4,162,489

67.9

187.0

170.9

Portfolio

263,7031,560,023

29.5

176.3

77.2

Reference index

649,546

3,749,770

72.5

226.2

197.5

Portfolio

20,944,383

217,930,375

64.8

121.7

112.2

2.1

9%

1%

Portfolio

21,307,085

192,554,400

66.5

129.0

137.0

2.4

8%

2%

Portfolio /Reference index

Carbonemissions(Scope 1+2)
(tCO₂e)Total
carbonemissions(tCO₂e)CarbonCarbonfootprint
intensity（tCO₂e/(tCO₂e /Million USD） Million USD)

WACI
(tCO₂e /Million USD)

Temperature
score
(ºC)

Transition
VaR(%)

Physical
VaR
(%)

（2）
Data related to investment strategy

27

Investment
strategy

Targetyear

Total
portfolio(Billion USD)

Passiveinvestment
strategy

2023

297.5

Portfolio

19,126,271

202,049,621

64.3

120.8

113.6

2.1

9%

1%

2022

294.2

Portfolio

19,343,241

178,034,809

65.7

127.8

138.7

2.4

8%

1%

Activeinvestment
strategy

2023

24.3

Portfolio

1,754,741

15,214,855

72.3

134.9

98.7

1.9

11%

2%

2022

24.8

Portfolio

1,874,264

13,806,562

75.5

142.4

119.5

2.5

10%

2%

28

Definition of main terms
Term

Description

Portfolio GHG total emissions (Unit: CO₂ converted
Total Carbon Emissions /Financed Emissions

tons (tCO₂e))
GHG emissions for investee companies are based

Calculation formulaΣ

on Scope 1+2+3.

Investment market value
Investee company s EVIC *× Investee company s GHG emissions

Value that can be acquired by total carbon
emissions over market value of portfolio（Unit: CO₂
Carbon Footprint

Total Carbon Emissions

converted tons (tCO₂e)）
per million USD (present
value of portfolio) ）Market Value of Portfolio

GHG emissions for investee companies in total
carbon emissions are based on Scope 1+2.

Value that can be acquired by dividing the total

Total carbon emissions

carbon emissions by the total sales of each
Carbon Intensity

investee company in the portfolio (Unit: CO₂
converted tons (tCO₂e) per Million USD).
GHG emissions for investee companies in total

Σcarbon emissions are based on Scope 1+2.

Investment market value
Investee company s EVIC *× Investee company s sales

Weighted average for carbon emissions per unit
Weighted Average
Carbon Intensity(WACI)

sales of each investee company using investment
weight of each investee company (Unit: CO₂
converted tons (tCO₂e) per Million USD).

ΣInvestment market value
Portfolio market price×

Investee company s GHG emissions
Investee company s sales

GHG emissions for investee companies are based on
Scope 1+2.

* EVIC stands for Enterprise Value Including Cash and expresses corporate value including cash.
EVIC = Market capitalization (Class stocks such as common stocks and preferred stocks) + Interest-bearing debt (Book value) + Controlling stockholder equity (Book value).

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30

Inquiries

Sumitomo Mitsui Trust Asset Management Co., Ltd.
Stewardship Development Department (ss̲oﬃce̲hp@smtam.jp)
Please send any inquiries regarding this Stewardship Report to the above email address.