2020/ 2021

CONTENTS

2 Executive Message
3 Evolution of ESG Investments and Our Initiatives
5 Features57
9Addressing Climate Change and Environmental Issues
Gender Diversity
SMTAM's Top Engagement

11 Purposes of Stewardship Activities
13 Stewardship Activity Focus Topics for 2019/2020
15 Stewardship Activity Initiatives
15
19
21
27

Overview
Top-down Engagement Activity ‒ Establishment of ESG12 Topics ‒Engagement
Exercise of Voting Rights

31 ESG Integration
31
33
36

Overview
ESG Integration in Domestic Shares
Fixed Income Engagement and ESG Integration

39 Disclosure of Climate-related Financial Information under TCFD
45 ReferenceThis is a booklet issued by Sumitomo
Mitsui Trust Asset Management Co., Ltd.
to report on its stewardship activities
and promote clearer communication
and understanding. Eﬀorts madethroughout the Sumitomo Mitsui TrustGroup include striving to provide
stakeholders with value andcollaborating on ESG activities withscope to boost the long-term company
value of the Group over time based ontransparency.
Sumitomo Mitsui Trust Holdingsʼ website(https://www.smth.jp/en/csr/) includes
a full report and provides additional
reports on topical areas other than
Stewardship, such as Natural Capitaland Environmental Real Estate.

Our aim at all times is to be an asset management company
with closer relationships with our clients.
At Sumitomo Mitsui Trust Asset Management (the Company ), our top priority is to strive consistently toboost the value of clients' assets entrusted to us in the medium to long term and actively promotestewardship activities as part of this aim. This volume Stewardship Report 2020/2021 ‒ the fourth
edition of the report ‒ systematically summarizes our stewardship activities. In addition to the previous
content, the report introduces the main activities during the year with regard to our focus themes ‒ climatechange, gender diversity, and engagement by our top management ‒ as featured stories. We will continue
to meet our responsibilities as one of Japan s largest asset managers and contribute to the developmentof our clients assets and society.

Managing Executive Oﬃcer
Responsible for
Stewardship Development Dept.

Representative Director
and President

Hiroyuki Horii

Yoshio Hishida

2

Evolution of ESG Investments and Our Initiatives
With the evolution of ESG investments around the world, we are one of the ﬁrst companies topromote proactive initiatives, including product development.
As a responsible institutional investor in favor of the Japan Stewardship Code, and as a body that has signed the UN PRI,
we aim to achieve sustainable growth and sustainability for the company and entire society by encouraging companies toresolve ESG issues through business excellence. Today, both throughout the world and in Japan, there is a major change
occurring in that companies themselves are seriously considering the balance between solving social issues and achieving
business results, and there is a call for how businesses should get there. As an asset management company, we take thischange seriously, and will identify and invest in companies that will grow at a new stage, to continuously pursue the"balance between solving social issues and gaining a return on investments.

Evolution of ESG Investments

1920s

1960s

1990s to 2000s

Initial ethical investment

SRI as a social movement

Both ﬁnancial and non-ﬁnancial● Choice of investees based on● Cooperation with social movements● Merging ﬁnancial and non-ﬁnancial (ESG)

religious and ethical motives

including human rights, labor,
and the environment

Our Initiatives

2003

2004

2006

2010

2014

Started oﬀering
publicly oﬀered
investment trusts ofJapanese shares
SRI for individual
investors

Started oﬀering SRI
funds to DC

Signed PRI(Principles for
Responsible
Investment)

Started oﬀering
publicly oﬀered
investment trusts ofChinese shares SRI

Accepted Japan
Stewardship Code
(SSC)

SRI

3

assessments

2006

2015

Presented the concept of ESG in
PRI (Principles for Reasonable Investment)
for the ﬁrst time in the world

Adopted the Sustainable Development
Goals (SDGs) at the UN Summit

2010s
assessments

Integrating the environmental and social impact of investments● Integrated an assessment of the company's

response to ESG issues and ﬁnancial impact● Integrating the environmental and social impact of investments

as well as investment returns

Received the Tokyo Financial Award

ESG Investment Categoryout of 40 ﬁnancial institutions across 10 countries
hosted by Tokyo Metropolitan Government

2015

2017

Introduced MBIS® for
non-ﬁnancial
information assessments

Established the
Stewardship Development
Department

Launched Quality
Growth, a strategy for
managing Japaneseshares (Research ROE
enhancement)

ESG

2019

Received the Tokyo Financial Award ESG Investment
hosted by Tokyo Metropolitan Government (February 2019)2019
Established the
Stewardship Activities
Advisory Committee
Accepted the revised SSC

Developed impact
investment products- The ﬁrst step is to set seeds for Japaneseshares for future global share development

ImpactDeveloped an impact investment fund as an evolution of SRI and ESG investments

4Features

Purposes of Stewardship Activities
Gender Diversity

Addressing Climate Change and Environmental Issues

1

FeatureStewardship Activity Focus Topics for 2019/2020
SMTAM's Top Engagement

ESG Activity Focus Topics

Addressing Climate Change and Environmental Issues
Importance of helping mitigate climate change issues
Under the Paris Agreement（Nov 2016）
signatory nations agreed to hold the increase in the global average temperature to well
below 2°
C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°
C above pre-industrial levels, inorder to ensure sustainability. Furthermore, the Intergovernmental Panel on Climate Change (IPCC) published its Special Report on
Global Warming of 1.5°
C in October 2018, which calls for the reduction of greenhouse gas emissions to net zero as soon as
possible. The use of fossil fuels must be significantly phased out if these goals of bringing global warming under control are to be
met, and it is an issue that has the potential to significantly convert the structure of the industry. Addressing climate change issues
is essential for investee companies to improve corporate value over a medium to long term period. At SMTAM, we are concernedthat businesses that consume a lot of energy, especially coal, run the risk of ending up with stranded assets in the future; at thesame time, we view environmental investments that take greenhouse gas reduction as a business opportunity and companies withtechnology that contributes to efficiency as promising investment opportunities. We properly assess the risks and opportunities
related to climate change, and through our engagements, work to contribute toward a smooth transition to a society with low or
net-zero carbon emissions. Below are some examples of our activities in Japan and overseas.

largest collaborative engagement, and also a major responsibility

Activities through Climate Action100+

to "move Asia and the world."(hereinafter referred to as CA100+)

Participation in the Steering Committee (April 2020)
More than 500 asset managers participate in CA100+ worldwide

Published new benchmarks and sent message letters
to target company representatives (September 2020)and carry out collaborative engagements with more than 160

In September 2020 as a new initiative, the CA100+ Steering

global companies with high greenhouse gas emissions. We had

Committee sent to the representatives of target listed companies

direct dialogs as a lead/corroborative manager for 9 companies ina "message letter on the introduction of Net-Zero Company

the Asia region, and in April 2020, we became a new member ofBenchmarks." The message letter called on companies to makethe CA100+ Steering Committee which represents Asia. The

ambitious efforts to achieve net zero greenhouse gas emissions,

CA100+ management is based on regional partnerships, but theand informed them that we will publish evaluation results of theSteering Committee, which consists of 10 representatives fromcompanies in the spring of 2021 based on benchmarks (undereach region of the world (as of the end of June 2020), is thedevelopment) that evaluate the integrity and materiality of thecenter of the management control, including the formulation of

migration plan to achieve net zero emissions. It is necessary toregional engagement policies, the formulation of engagement

achieve a carbon neutral status, which means to reduce global

p l a n s

5

w i t hgreenhouse gas emissions to zero by 2050, in order to achieve

governments, and thethe 1.5°
C scenario set forth in the Paris Agreement. However, thisrelaying of information.

is a hard goal to achieve even after adding national and corporate

Becoming a member

voluntary goals.

of the committee is a

While we are involved in the process of planning and developing

prestigious honor tothese projects in the Asia region, we will ask for positive

represent the Asia

corporate commitment through individual dialogs with target

region in the world's

companies which we take care of as a lead manager.

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Our Future Policychange the power supply portfolio once it has been formulated. In

We recognize that the global movement for carbon neutrality by

the past, electric utility companies have built their businesses

2050 will not stop. While checking company evaluations with thebased on the national basic energy plan, focusing exclusively on

CA100+ benchmark which is scheduled to be published in thestable supply. In recent years, however, the international society

spring of 2021, we will explain that proactive responses to climate

has expressed a strict view on the continued operation ofchange issues are essential for companies to survive and grow incoal-fired power plants with high greenhouse gas emissions, andthe medium-to long-term. In addition, in cooperation with thethe Ministry of Economy, Trade and Industry has also proposed

activities by the Steering Committee, we will ask governments ofthe suspension and abolition of inefficient coal-fired power

countries where issues still remain for a positive revision of theplants*1. In the future, we believe that electric utility companies will

NDC (Nationally Determined Contribution; voluntary emissions

be required to voluntarily build a power source composition that

reduction target in each country set forth in the Paris Agreement)

has a low environmental impact, and that each company mustand for disclosure of concrete mitigation plans for a decarbonizedestablish a power supply composition for medium- to long-termsociety, and will focus on monitoring these processes.

use and make the necessary preparations for realizing that. Since
there are many challenges that are difficult for electric utility

Engagement related to climate change in Japan

companies alone to address in achieving a power sourcecomposition centered on renewable energy with a low

In our efforts to help mitigate climate change in Japan, we areenvironmental impact, we are also working to promote

promoting engagement activities with megabanks, electric utility

cross-industry efforts, such as overcoming technical disruptions.

companies, and general industrial companies. First of all, we are

Interest in environmental management is growing in industrial

engaged in dialogs with megabank groups on the earlycompanies, especially global companies, with some of themwithdrawal from project financing particularly related toendorsing RE100 * 2 . On the other hand, there are also adevelopment of coal-fired power plants overseas. In 2020, someconsiderable number of companies which are slow to address themegabanks announced policies to withdraw from projectissues, even though it is very important to do so for theirfinancing related to the development of new coal-fired power

management. We encourage these companies to improve theirplants overseas.

efforts while citing examples of other companies. In order to

In individual dialogs, we ask for enhancement of TCFD disclosure

prevent environmental management from ending up as ainformation, which remains at a low rating, and incorporation of

temporary trend, we believe that it is necessary to establish

responses to climate change risks into management policy. We

medium- and long-term targets, make investments to achieve said

were able to confirm certain progress in efforts made by sometargets, and provide financial support for them. While encouraging

megabanks, such as responses indicated in the TCFD reportindustrial companies to address new financial methods such as

newly presented in this fiscal year. In terms of clarification ofgreen bonds and sustainability link bonds, we are preparing tocustomer response policies, however, there is room for

respond to social demands by developing systems to comply withimprovement. We will continue to encourage improvement in

the new financial methods.

responses to climate change through measures such as theestablishment and management of greenhouse gas reduction
targets in our company and for loan customers, and encourageinternational financial institutions to actively respond to the issue.
We have continued our dialog with electric utility companies on
the balance between stable power supply and contributing to the
reduction of GHG, and enhancement of TCFD disclosure items
and action plans for which they expressed their support. Since
large-scale power generation plants are expected to operate formore than 50 years after commencing operations, it is not easy to*1 Thermal power generation which is classiﬁed into subcritical pressure and supercritical pressure with a generation eﬃciency of 40 percent or less. Coal-ﬁred power generationaccounts for 32 percent of the composition of power sources in FY2018, and half of it (16 percent of the composition of power sources) is generated by ineﬃcient coal. In termsof the number of plants, 114 out of 140 coal-ﬁred power plants in Japan fall under ineﬃcient coal plants.
*2 One of the environmental initiatives established to reduce environmental impact caused by business activities. The goal is cover 100 percent of the energy needed to run
businesses with renewable energy.

6Features

Purposes of Stewardship Activities

Addressing Climate Change and Environmental Issues

2

Gender Diversity

FeatureESG Activity Focus Topics

GenderDiversity

Stewardship Activity Focus Topics for 2019/2020
SMTAM's Top Engagement

Why We Need Diversity
At SMTAM, we call on investee companies to put in place systems and structures that are capable of adapting to global
business expansion and changes in the business environment. We also actively engage in activities aimed at encouraging
investee companies to guarantee the independence of directors, to make effective use of human capital, and to respect diversity
through our unique engagement and cooperative initiatives. So why do we need diversity? Diversity and inclusion are a social
challenge, but are also one of the ways and solutions for companies to continue their sustainable growth. Diversity in companies
plays two roles.
1) "Board diversity for enhancing the monitoring ability of the board of directors" = "G" of ESG
2) "Diversity for improving business competitiveness through innovation and talent acquisition" = S of ESG

For diversity, we can take a variety of initiatives from perspectives including gender, race, generation, skill/experience, andculture. Among these, gender is the most important because the main target is female, who account for half of the population. In
the global market, promotion for female is the premise of businesses as part of their business strategy. Which is a moresustainable company, a company that only does conventional things and does not take on challenges, or a company that strives
to improve diversity with a strong desire to improve their business? We believe that initiatives taken by top management toward
diversity represents how serious the company is for corporate transformation.

Delays in initiatives by Japanese companies

of male―these are hurdles for female continuous service andpromotion, leading to a thin pool of candidates for female

We will look at the situation in Japan.

directors. Solving the issue requires a two-wheeled

While more companies are working to provide training for

approach:female and promote them to director positions, the initiatives
taken in Japanese firms are still much slower than the rest of
the world (Figure 1). The gender gap index survey by theWorld Economic Forum showed that Japan is ranked a1) Initiatives to promote change of corporate culture and executive/employee
attitude under the strong commitment by the top management
2) Establishment of a system for striking a balance between work andchanges in life stages

record-low 121st out of 153 countries in its 2020 report.

7

Although Japan is an advanced country, the economic sector

A change in attitude and workstyle reformation, which is

is also ranked low, being 115th. The background to this iscarried out under the strong will of the top and is not merely

the delay in promoting female to senior leadership positions

a formality, will create a working environment that bridges

in private companies and the large average wage gap

the gender gap where all employees are comfortable tobetween men and women. Why is there no progression inwork, and will lead to a competitive advantage forterms of gender diversity?

companies that can acquire excellent talent under the

The tax and employment system based on the assumption

declining birthrate. In addition, we believe that raising thethat " female are responsible for household chores andlevel of the managers, which are the candidate pool, is achildcare," and unconscious and deep-rooted biases ofchallenge that companies must address now for achieving

middle-level managers and executives which mainly consist

board diversity in the future.

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Figure 1: Global comparison on the proportion of female among directors of listed companies*
50％

2016

2017

2018

44.3%

2019

40％

37.6%

30％

26.1%

0％

29.1%
22.8%

19.5%

Source：Women on Boards 2019 Progress
4.8%

Report, MSCI ESG Research LLC,
December 2019 Used with the

8.4%

Japan

permission of MSCI ESG Research

USA

UK

FranceGermany

Our initiatives

Case 1

33.1%

25.3%

20.3%

20％
10％

37.1%
33.3%

31.7%

Engagement

With an awareness of these issues, we are engaged in

Italy

Figure 2: Engagement example cases
Our advice

Response from company

Japanese
electric
company A

Diversity is important in this phasefor future generational changes, and
it is crucial to strengthen thegovernance by appointing more
female employees to director
positions.

Appointed two female directors at
the 2020 general meeting. The top
management expressed acommitment to drastically changing
the executive personnel system.

Japanese
pharmaceuticalcompany B

The company has many female
customers, but the promotion of
female has been lagging. It iseffective to establish promotion
goals for female manager candidates
with a view to future promotion to
director positions, and to disclose
progress and related issues.

Disclosed a new KPI in the
mid-term management plan
published in January 2020 and set
a goal for the female manager
ratio.

US retailer C

As the company works to expand its
business operations, having diversity
among directors is important, and it
needs to promote a broad range of
personnel.

Appointed a female director for the
first time in July 2019.

US financial

Even after achieving a 30% female
director ratio, the company should
further deepen its efforts for diversity
without regressing back.

Disclosed more information on thesalary gap between male andfemale, set a KPI for the ratio of
female managers, and appointed afemale CEO in September 2020.

constructive dialog with investee companies from thefollowing perspectives, aiming to solve the issues together.
● Gender diversity is not just a social contribution, but animportant task to implement as part of a business strategy.
● Merely promoting female as a formality does not produce

primary effects of diversity. Rather than promoting uniform
measures, we identify challenges on the basis of situations
the companies are in and objectives to address toward
diversity, and share effective measures and best practices
after sharing awareness.
● In order to evaluate the initiatives and measures carried

Canada(www.msci.com/esg-ratings)

company D

out by the top management of companies, we encourage
more appropriate disclosure of information, including
historical disclosure on promotion of female at each level,

Major activities in the 30% Club Japan Investor Group

formulation/disclosure of diversity policies and targets(KPI) as business strategies, and the creation of skills
matrices for directors.
Case 2

Activities in Joint Initiatives

We are also working through joint initiatives to further
accelerate gender diversity. In 2017, we signed the 30% Club
(UK) Investor Group and 30% Coalition (US), investor groups
focused on promoting board diversity. With the launch of the
30% Club Japan in 2019, we used the insights we gained to・ Our company's managing director, Horii, held a study meeting for the media.
・ We sent out a message of support to companies that are promoting
workstyle reformation under the coronavirus situation.
・ As a board member and best practice subgroup member, we are
involved in the operation of the investor group, sharing dialog bestpractices, and creating annual reports.

start the investor group as the only founding member that is

30% Club Japan website

a Japanese asset manager. Currently, our president, Hishida,https://30percentclub.org/about/chapters/japan

serves as the vice chairperson of the board.
* This information is subject MSCI Inc s and MSCI ESG Research LLC s terms of use that you can find here: https://www.msci.com/terms-of-use and here
additional-terms-of-use-msci-esg-research-llc

This information may not be used for corporate financing purposes (including, without limitation, ESG-linked loans, credit facilities, securities or structured products), as a basis for any financial
instruments or products (including, without limitation, passively managed funds and index-linked derivative securities) or other products or services, to manage any funds or portfolios, to verify
or correct data in any other compilation of data or index, to create any derivative works, nor to create any other data or index (custom or otherwise), without MSCI's prior written permission.

8

Features

Purposes of Stewardship Activities

Addressing Climate Change and Environmental Issues

3

FeatureGender Diversity

Stewardship Activity Focus Topics for 2019/2020
SMTAM's Top Engagement

SMTAM's Top Engagement

SMTAM is Expanding Engagement Activities with its
Top Management Involved

Dialog with the Brazilian government and the Central
Bank of Brazil on the development andmanagement of rainforests in the Amazon basin

for 60% of the country's land, is a typical rainforest region, andenvironmental conservation in the region is required to prevent
climate change and maintain biodiversity. Investors are
increasingly concerned about the rapid development of forest

In June 2020, the PRI-Ceres forest conservation engagement

destruction̶the administration has expressed its policy toworking group, which we are a member and carried out

promote liberalization of the development of the Amazon basin

activities such as, submitting a public letter to public

and stand for liberalization and deregulation of agricultural

institutions supervised by the Brazilian government requestingdevelopment. Regular forest fires are also another factor.

the disclosure of information on the situation regarding effective

T hr ou g h t he dial o g s, w e a s s er t e d t o Br a z il t ha t " t heconservation, management, and development of the Amazon

effectiveness of and endorsement for the policies will increase

forest, and started engagement activities for the government.

by enhancing their transparency and verification." Brazil's

We are the only Japanese asset manager which participated in

response was that it will give it active consideration. As wethe project and have been active as a lead manager. In July,

continue to hold discussions with the country's authorities andwe had 4 dialogues including the vice president of the country

ambassadors in Japan, we will support and monitor theand the governor of the Central Bank of Brazil in addition tobalance between environmental conservation and economic

other working groups, we also had individual dialogs with thedevelopment in the Amazon basin, while firmly accepting thegovernor of the Central Bank of Brazil and ambassadors inefforts by the government. It was decided that a PRI working

Japan. Our president, Hishida, presented our views ongroup will be formed as a new entity to continue discussions

engagement to continue investments and financing, andwith Brazil, and as a core member of the group we plan toexchanged opinions in a meaningful way, highlighting thecontinue discussions with the country.

history of economic exchanges between Japan and Brazil. The
area called the Amazon and Amazon Biome, which accounts

Engagement activities for cluster bomb
manufacturing companies
What is a Cluster Bomb?
A cluster bomb is a bomb that contains several submunitions
inside a large shell. It scatters submunitions randomly over alarge area, and can indiscriminately kill people in the area,
whether they are military or civilian. Some of the submunitions
do not explode when the cluster bomb is used and become
unexploded shells. These shells are left on the ground likemines, making the affected fields and land unavailable tofarmers and depriving children of playgrounds. These shells
pose a major threat to reconstruction after a conflict.

Forest destruction in the Amazon region of Brazil is the worst in more than a decade.

9

In May 2008, 111 participating states endorsed a draft forStewardship Activity Initiatives

ESG Integration

the Convention on

Disclosure of Climate-related Financial Information under TCFD

Image of a cluster bombfor establishingfrom the business. The company has decided to focus onaddressing the ESG issues, with its policies shifting its main

Cluster Munitions in aninternational conference

Reference

Land
Midairbusinesses into solar power generation and financial
services. We believe that our engagement had an effectregarding this shift.

conventions forprohibiting cluster
bombs, held in Dublin,

Future Engagement Activities for Cluster Bomb Manufacturers

Ireland. The Japanese

Fortunately, the use of cluster bombs has been declining ingovernment wasrecent years. On the other hand, there have been somereluctant to negotiate,
but at the very end of
the conventionalin the U.S., Russia, China, and other countries that have not
Unexploded
shellsnegotiations in Dublin,
the government changed

trends that undermine the Convention on Cluster Munitions

Damage topeopleSource: Japan Campaign to Ban Landmines (JCBL)

ratified the Convention. Most manufacturers of cluster
bombs, including unlisted companies, are from countries thathave not ratified the Convention, and it is also expected thatits policy and decided tobombs will be exported from these companies to conflictendorse the Convention, signed the Convention at theareas. Under these circumstances, we will continue tosigning ceremony in December 2008 and ratified it in July

demand investee companies that manufacture cluster bombs

2009. We exclude shares of companies that manufacture

and other inhuman weapons to withdraw from the business.

inhuman weapons including cluster bombs (andOur top management will also participate in engagement as

anti-personnel mines, bioweapons, and chemical weapons)necessary to achieve more effective activities. Throughfrom new investment targets of equity and bond active funds.

cooperation with international NGOs * , we will demand awide range of companies that manufacture such weapons toEngagement with Hanwha Group

withdraw from the business even if they are not our

The Hanwha Group in South Korea is a company that has ainvestment targets.

cluster bomb manufacturing department. Over the past five
years, we have expressed our opinion on 1) humanitarian
viewpoints, 2) reputation risks, including recommendations
for investment exclusion from global investors, and 3)
profitability of the business. In September 2019, ourchairperson, Semaya, engaged with the group. At the end of
July 2020, the group announced its intention to separate thebusiness from other military departments and a withdrawal

July 2020
Hanwha Group (South Korea)
announced separation of the businessAugust 2016
Textron (USA) withdrew
from the business

December 2015
ST Engineering (Singapore)
withdrew from the business2015

Source: Japan Campaign to Ban Landmines (JCBL)

2016

2017
July 2017

SMTAM
Flow of our dialog with
Hanwha Group

Hanwha
Group

2018

2019

September 20182020
September 2019

Although we understand the situation in
the Korean Peninsula, your company
should withdraw from the cluster bomb
business, and improve information
disclosure with regard to the business.

There are high expectations that tensions in
the peninsula will be mitigated. The business isa negative factor from the viewpoint ofc orp or a t e v al ue. Y our c omp an y shoul dwithdraw from the business at this opportunity.

Your company's renewable energy
business should be highly valued from asustainability perspective, but the cluster
bomb manufacturing business may be an
obstacle.

Under the current situation, we believethat the Korean military will not stoporders for the time being, and we willcontinue manufacturing.

We may consider a withdrawal at thistiming. We think that the business is anegative factor for our corporate value.

We recognize that other companies thatwork on renewable energy are using suchto enhance their brand strength.

* Pax Christi
A catholic international NGO organization with its headquarters in Belgium, which advocates a ban on cluster bombs and other bombs. In order to raise awareness of the issue, it provides research to financial institutions.

10Features

Purposes of Stewardship Activities

Stewardship Activity Focus Topics for 2019/2020

Purposes of Stewardship Activities

Supporting Value Creation in theInvestment Chain

Earnings growth-driven dividend and wage growth

Investee Companies
Sustainable growthPursuing SDGs in partnership with investor

Investmen
Enhanceiormat on discl
Inf
os
ur

Engagement
Constructive
Dialog
E

xe

rc

is e

o f v o ti n g rightsConstructive dialog and engagement
11

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Sustainable growth of investee companies drives growth in earnings, and growth in earnings
drives growth in dividends and wages which, ultimately, beneﬁts household economies andthe growth of the economy as a whole. All of this together is known as the investment chain.
At SMTAM, we actively utilize our role as an asset manager in the investment chain to
support our investee companies create value, leading to maximum returns for our clients,
while at the same time contributing to the achievement of SDGs.

Clients and Society
Medium-to-long-term investment return growthfor growth of the global economy

Total commitment to our clients and our world

Reinvestment of earnings

nt Chainement

12Features

Purposes of Stewardship Activities

Stewardship Activity Focus Topics for 2019/2020

Stewardship Activity Focus Topics for 2019/2020
At SMTAM, we believe we have an important role to play in the investment chain as a responsible institutional
investor. Towards that end we are fully committed to the Stewardship Code and Corporate Governance Code, as
reflected in our domestic and overseas engagement efforts, exercise of voting rights and various other activities.
Below is a brief summary of the activities SMTAM was involved in between October 2019 September 2020.

2019

2020

OctoberNovemberDisclosure of voting record oneach proposal for each
investee company

Attendance in an Annual
Roundtable on Sustainable
Palm Oil

We disclosed the details on our
website, whatever we exercised ourvoting rights on proposals involving
investee companies in Japan.

On November 3 to 6, we attended the17th Annual Roundtable Meeting on
Sustainable Palm Oil in Bangkok,
Thailand. We identified and sharedvarious issues, including not only
climate change issues due to palm oil,but also human rights and labor issues
through the supply chain. In addition,
we carried out individual discussions
with palm oil-related companies,
taking advantage of the opportunities
where such companies gather.

October

1

Participation in Japan Climate
Action Summit 2019
(JCAS2019)
At the top leadership session for
JCAS2019 on October 31, ourchairperson Semaya took the platform
as the only participant from an asset
managing company, and talked about
Japan's responses to and challenges
with regard to climate change fromthe perspective of an investor.

2

January

3

Revision of Guidelines for the
Exercise of Voting Rights for
Domestic Shares
January/April/July

Disclosure of voting record oneach proposal for each
investee company
February/May

Proposal to the Japanese andKorean governments through theInvestor Agenda*, a collaborative
initiative among institutional
investors which seeks thetransition to a low-carbon society.
Through the Investor Agenda we
submitted proposals for moreaggressive and concrete commitments,
including raising the GHG emissions
reduction targets under the Paris
Agreement, to the Prime Minister ofJapan and President of South Korea.
* See page 50

March

Participation in Ceres * Annual
Conference as a speaker
We commented as a panelist on
information disclosure and initiatives
related to climate change in the
Asia-Pacific region. (Remote participant)* See page 50

1

The Japan Climate Initiative is a network designed to enhance informationtransmission and exchange of opinions among companies, local governments,
and NGOs which are actively engaged in countermeasures against climate

2

RSPO was established in 2004 by the World Wide Fund for Nature (WWF),
Malaysian Palm Oil Association, and other institutes, in response to concerns
regarding the environmental impact of rapid growth of oil palm plantations inchange in Japan.

Malaysia and Indonesia. It certiﬁes sustainable palm oil that meets principles andIt was an important opportunity to share a sense of crisis regarding climate

standards for reducing environmental load.

change and prompt calls for the achievement of the 1.5ﾟC target set forth in

It is operated by stakeholders in seven sectors related to the palm oil industry.

the Paris Agreement.

(Palm oil production, oil expression/trade, consumer products manufacturing, retail,bank/investment companies, environmental NGOs, and social/development NGOs)

13

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

April

May

June/July

Enhancement of commitment
to CA100+ activities*

Direct dialog with
Sustainalytics, a global ESG
vendor in the Netherlands

Dialog with the Brazilian
government*

We participate in the CA100+ Steering
Committee (consisting of asset owners
and managing company
representatives from key regions in theworld.) as the representative of Asian
asset managers.
* See page 49

April/May

Participation in various
ESG-related statements
following the spread of thenovel coronavirus
We sent out a message to companies
through Japanese and overseas
initiatives*, including IICEF, ICGN, ATM,
Investor Agenda, and 30% Club Japan.
* See page 49 and 50

May

Announcement of the "Policy
on exercise of voting rights
and stewardship activities inlight of the spread of novel
coronavirus" on our website

3

We checked the process for granting
scandal rating schemes and asked for
an improvement of operations andtransparency.

May

Announcement of approval of
the revised stewardship code
June

Participation in the ESG
Disclosure Study GroupThe ESG Disclosure Study Group
conducts research activities related to
ESG information disclosure, with theaim of creating a system that
harmonizes the sustainable
development of society together withcompanies' enhancement of theirvalue. At the time of its establishment,
the Group was composed of 19
private companies. We participated in
the group as a founding member andare a member of the Board of
Directors.

The points of the revision are as follows:
・ The scope of the request for further strengthening the governance by a board of4

We signed an investor statement toconvey concerns on laws andregulations related to Brazil's Amazon
development and exchanged opinions
directly with the Brazilian government.
* See page 9

July

4

Establishment of overseas
subsidiary in the U.S. andcommencement of operations
We dispatched and assigned
dedicated stewardship officer to the
U.S. subsidiary. This establishes athree-pole system of Japan, the UnitedStates, and Europe.

Sumitomo Mitsui Trust Asset Management Americas, Inc.
The United States, especially New York, is the global capital of the asset

directors (more than one third of appointed directors are outside directors tomanagement business, both in terms of scale and innovation. The purposes of thestrengthen supervisory functions and ensure independence) is expanded to all listed

establishment is to further enhance our operational capabilities, expand properties

companies in principle.

in trust from overseas investors, and improve investment managing service quality

・ The scope of "companies with parent companies" is expanded and criteria is made stricter.

and global presence through local activities.

・ Criteria (ROE) on performance of cash-rich companies is made stricter.

It carries out four operations: 1) client services, 2) manager research, 3)* See page 28

engagement research, and 4) consulting.

14

Features

Purposes of Stewardship Activities

Overview

Top-down Engagement Activity ‒ Establishment of ESG12 Topics ‒Stewardship Activity Focus Topics for 2019/2020

Engagement

Exercise of Voting Rights

Striving to maximize investment returns as a responsible
institutional investor.
As a responsible institutional investor, we pursue our three key pillars of stewardship activities that are built aroundengagement, the exercise of voting rights and measures for addressing ESG challenges. Our aim is to use stewardship
activities as a means of helping investee companies improve their corporate value, thereby helping us to maximize
medium-to-long-term investment return on the assets of our clients. Underlying all of this is our commitment to
uphold our fiduciary duties. Because we believe that appropriate management of conflicts of interest related to
stewardship activities helps us better to fulfil our fiduciary duties, we are constantly working to manage our conflict ofinterest management capabilities.

Maximize investment return

Help improve corporate value
1 Engagement

2 Exercise of Voting Rights

3 Addressing ESG Issues

Engagement activities provide

The exercise of voting rights provides

As an investor we call for investee

opportunities to seek best practices

opportunities to call for a minimum

companies to tackle ESG issues andfrom companies, and we express

standard of governance. We exercise

generate sustainable growth andour views to contribute to thevoting rights appropriately and in

added value.

enhancement of corporate value

accordance with a highly transparent

over the medium to long term.

decision-making process.

Platform to support 1

2 and 3

[Upholding our fiduciary duties][Conflict of interest management]
We promote initiatives aimed at providing client-oriented products and services
in line with the Policies regarding the Fiduciary Duties of the Sumitomo Mitsui Trust Group.

15

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Engagement

1

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
understanding of a company s state of management and business situation is crucial to engagement. The ESG experts in our
Stewardship 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 evaluation tool. We use our networks in Tokyo, New York and London to engage with our own
investee companies. We also conduct various activities and engage with stakeholders outside our investee companies througha wide variety of initiatives.

Exercise of Voting Rights

2

At SMTAM, we view the exercise of voting rights as an opportunity to call for a minimum standard of governance and consider it
to be one method of governance-related engagement. We emphasize three key points when exercising voting rights: (1)high-quality governance that respects shareholder interests; (2) efficient utilization of shareholders equity for sustainablegrowth; and (3) appropriate action in the event an incident occurs that damages corporate value. We disclose our guidelines forthe exercise of voting rights based on these criteria, and also actively pursue engagement with companies with respect to theexercise of voting rights.

Addressing ESG Issues

3

It is important to address ESG issues which can affect investee companies medium-to-long-term growth. ESG issues reside in
non-financial domains and do not manifest themselves in financial reporting, but they may have a considerable impact on
corporate value over time. It has long been our practice to actively address ESG issues, and when the Principles for Responsible
Investment (PRI) were established in May 2006 in order to prompt institutional investors to factor ESG considerations into theirinvestment decision-making processes, SMTAM was among the founding signatories. We have also participated in various
international initiatives which originated with the PRI and which led to expanding ESG activities being undertaken worldwide. Asa signatory to the PRI, we endeavor to pursue upside potential and curb downside risk by incorporating ESG factors into ourinvestment decision-making process and aim to maximize medium- to long-term returns for our clients.

*See page 31

16

Features

Purposes of Stewardship Activities

Overview

Stewardship Activity Focus Topics for 2019/2020

Engagement

Top-down Engagement Activity ‒ Establishment of ESG12 Topics ‒Exercise of Voting Rights

Stewardship Activities Promotion Framework
Stewardship activities promotion is principally the responsibility of the Stewardship Development Department, which works in conjunction with highly
experienced analysts in the Research Investment Department. Within Japan, we pursue our own independent activities, as well as capitalize on theplatform provided by the Institutional Investors Collective Engagement Forum (IICEF) to pursue joint engagement. Outside Japan, we dispatch
representatives from Tokyo to meet with overseas companies, as well as rely on the independent engagement efforts of our London office; additionally,
we carry out engagement through global initiatives and undertake collaborative activities with LGIM. All stewardship activities are reviewed andreported on by the Stewardship Committee and by the Stewardship Activities Advisory Committee, the majority of whose members are independent,
outside experts.

Stewardship Activity
Advisory Committee *1
Comprised of three independent, external
experts (the majority of members) and

Reportone SMTAM representative

Stewardship Meeting

ReportInstitutional Investors
Collective Engagement Program
Host meetings, etc.

Engagement by overseas offices

UK Subsidiary*2

Engagement
Engagement policy andactivity reporting

Collective Engagement Forum

ReportStewardship
Development Department

Exercise of Voting Rights

SuMi Trust Internationl

US Subsidiary*2
SuMi Trust Asset Management Americas

Policy approval and results
reporting for the exercise of
voting rights

Cooperation

Global initiative-driven activities*3

Addressing ESG Issues
ESG activities policy andactivities reporting

Research Investment Department
Credit analysts
Corporate analysts*1 Please refer to our website for previous meeting minutes.
https://www.smtam.jp/company/policy/stewardship/activity̲status/*2 A subsidiary wholly owned by SMTAM.
*3 See pages 49-50 for a list of activities

17

Listed company

Recommendation

Collective dialog(authorized decision maker)

Joint engagement (domestic)

Inquiry

Program participation

Executive Officer in chargeof Stewardship
Development Department

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Conflict of Interest Management
The Sumitomo Mitsui Trust Group has established and publicly released its Policies regarding the Fiduciary Duties of theSumitomo Mitsui Trust Group. We promote initiatives aimed at providing client-oriented products and services in line with thesepolicies. As we step up our stewardship activities, we believe that proper management of conflicts of interest relating to these
activities will contribute to deeply embedding fiduciary duties into the way we do business; hence, we have put in place a
conflict of interest management system.

●Conflict of Interest Management System

Board of Directors

Executive Officer in chargeof Stewardship
Development Department

Inquiry /Recommendation

Inquiry /Recommendation

Fiduciary Duty
Advisory Committee

Sumitomo Mitsui Trust Holdings
Discussion / Enhancement

Sumitomo Mitsui Trust Asset Management

Board of Directors

Management meeting

Stewardship Activity
Advisory Committee

Inquiry /Recommendation

Preliminary
discussion

Conflicts of Interest Committee

Conflicts of Interest Management
Enhancement Committee

Fiduciary Duty Discussion Panel (cross-company)
Discussion / Enhancement
Discussion / Enhancement

Stewardship
Development Department

Fund management
departments

Supervision

Group companies
Sumitomo Mitsui Trust Bank

Conflict of interest management /Monitoring

Middle offices
Board of Directors

×Management meeting

Preliminary
discussion

Conflicts of Interest Management
Enhancement Committee

Corporate Sales Division

Restriction on personnel transfers, information exchange and interaction

18

Features

Purposes of Stewardship Activities

Overview

Top-down Engagement Activity ‒ Establishment of ESG12 Topics ‒Stewardship Activity Focus Topics for 2019/2020

Exercise of Voting Rights

Engagement

Top-down Engagement Activity‒ Establishment of ESG12 Topics ‒Our four key topics were climate change, water resources and marine pollution, backing governance reforms, andpromoting ESG information disclosure. In September 2019, we established the ESG investment policy and identified
ESG materiality therein. On the basis of that, we established 12 new ESG topics to further enhance top-down
engagement activities.

ESG materiality

E

Risk

S

Risk

G

Risk

Climate change Natural capital
Pollution & waste

Human rights & community Human capital
Security & liability

Behavior Organizational design
Stability & fairness

Opportunity

Opportunity

Opportunity

Environment-related opportunity

Society-related opportunity

Governance improvementNew
initiativeTop-down engagement ESG 12 topics

E

S

G

Climate change

Human rights

Behavior promotion

Natural capital/
resource conservation

Sustainable community

Fair governance system

Environmental destruction/
pollution prevention

Human capital

Governance reform

Environmental business opportunities

Health and safety
Supply chain management

Engagement (Corporate Analyst + Stewardship Development Department)

Target(Middle term)

Establish in accordance withcorporate ESG management degree

19

Goal
(Long term)

BackcastingStagesCorporate
ESG issues

2 Present issues
issues
3 Share(by persons in charge)
issues
4 Share(by managers)

Monitoring

1 Establish issues

ESG issues for each company and target setting

5 Implement measures
6 Solve issues

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

For each ESG topic, we select target companies from investee companies on the top-down basis, set long-term goals andintermediate targets using a backcasting method in accordance with each company's ESG issues and ESG management level,and promote our engagement. We manage the progress of engagement in four stages by ESG topic, and monitor companies
implement measures and solve the issues.

E

G

S

Climate change

Human rights

Behavior promotion

Although greenhouse gas emissions are expected

Human rights is an important issue for global

When a company conducts ESG management, it is

to decrease temporarily, green recovery is a top

business expansion. We believe that companies

important for it to identify materiality, establish

priority issue for avoiding an increase in emissions

need to work on their supply chain management

KPIs, and disclose performance. The company

after economic activity resumes. The frequentfrom a human rights perspective, including childneeds to disclose appropriate ESG information as

occurrence of intensifying natural disasters is saidlabor and forced labor for migrant workers.

to be attributable to the increase in greenhousea foundation for constructive dialog. Corporate
behaviors that contribute to capital efficiency

gas emissions from economic activities. We believe

Sustainable communitythat corporate behaviors that are in harmony with

Local depopulation and aging public infrastructureuse of capital of cash-rich companies, and thereview of the business portfolios of low-ROE andcontinue to be important, including the effective

the Paris Agreement are important in terms of theare important issues f or l ocal communities.

sustainability of the Earth, which is the foundation

Infrastructure companies need to make a conversion

conglomerate companies with unprofitableof economic activity. In line with this, we will

to sustainable social infrastructure in proportion tobusinesses. Some companies' mid- to long-term

continue to conduct engagement in relation to

mid- to long-term population decreases, and a shift

management strategies set targets only as an

climate change issues on a global level.

to a business model that sustains with a region

extension of traditional goals, but we believe that

Natural capital/resource conservationneeds to be taken into account.

strategic targets must be consistent with corporate
philosophy and based on backcasting from a

The expansion of corporate economic activities is

Human capital

linked with the negative impact on natural capital

Improvement of working environments, such as

will promote corporate behaviors from thisand biodiversity, and the challenge is conversion to

reductions in overtime and safety/healthperspective.

economic activities that are more appropriate formanagement, is still an important issue. In addition,

long-term management vision. Consequently, wenatural capital and biodiversity. In particular, foodwe will encourage companies to take measures for

Fair governance system

and water shortages and dangers regarding

reviewing systems for personnel evaluation andWe call on companies that have engaged inbiodiversity are a global issue, and reducing foodtreatment toward the establishment of diversified

misconduct to eliminate their failure in governance.

waste, securing water resources, and protecting

working styles such as working from home,

In addition, we encourage corporate behaviors

nature are also important issues for corporate

conducting personnel education, shifting to hightoward improvements in management discipline,

sustainability.

value-added products and services by means ofsuch as reductions in cross-shareholdings, andintangible asset investment such as DX, andabolition of anti-takeover measures. Furthermore,

Environmental destruction/pollution prevention
Among the destruction and pollution of the natural

improving human productivity.

we believe that the reviewing and strengthening ofgroup governance systems, such asenvironment, forest destruction and the problem of

Health and safety

marine plastics are important issues along with

While healthy management is expected to reduceshareholders, and the strengthening of overseas

climate change. Concerns are rising that illegal

economic losses due to employees' separation frombusiness including M&A, are important both for a

deforestation and agricultural development toworkplaces, a shift from healthy management togrowth strategy and risk reduction, and we are

secure food will reduce CO2 absorption, worsen

wellness management is desired, where increased

looking to encourage improvements regarding

climate change and adversely affect biodiversity.

employee satisfaction is connected to increased

these points.

The problem of marine plastics is an important

added value and productivity. We continue toissue to solve, which includes preventing marine

position access to medicine* as an important global

Governance reform

pollution, securing biodiversity, and achieving a

topic. Considering the current coronavirus situation

In order to bridge the gap between mid-term goalsr e c y cl ing - b a s e d e c onom y . W e b el ie v e t ha t

and problems concerning drug-resistant bacteria,

and mid-term milestones as an extension of thestrengthening efforts are essential in each industry

we believe that initiatives for health-conscious

current situation, technological and businessin a related supply chain.

economic activities are important, including infection

model reforms are required. Moreover, it isprevention/management, food safety, and thenecessary to continue reforming governance toproliferation of knowledge on infectious diseases.

achieve a desirable state, and important to have aEnvironmental business opportunities
With regard to ESG, people tend to place theirparent-subsidiary listings, relationships with major

governance system that can back aggressive

focus on risk containment, but we also direct our

Supply chain management

enforcement. We will encourage governanceattention to the perspective of businessIn expanding and sustaining global economic

reforms from various angles̶we believe that it isopportunities. Although there are short-term cost

activities, we believe that building supply chainsessential to review the skill set of the Board of

burdens for environmental responses, we consider

that are effective in solving and reducing labor,

D ir e c t o r s , p r o m o t e di v e r si t y m an a g e m e n t ,it essential to develop technologies that help

environment, and social problems is essential topromote female active participation for achieving

reduce environment al burdens and e xpand

avoid reputational risks and losses. The

gender diversity (first stage of diversity

environmentally-friendly products and services in

restructuring of supply chains in response to

management), and exercise the role oforder to eliminate the link between expansion of

intensifying natural disasters and the spread ofindependent external directors to enhance theeconomic activities and an increase ininfectious diseases is an important risk

effectiveness of the Board of Directors.

environmental impact.

management issue.

* This is a problem in which people cannot access the medicine and medical services they are in need of,mainly in developing countries and rapidly emerging economies, due to poverty and the lack of medical systems.

20Features

Purposes of Stewardship Activities

Overview

Stewardship Activity Focus Topics for 2019/2020

Engagement

Top-down Engagement Activity ‒ Establishment of ESG12 Topics ‒Exercise of Voting Rights

Improving Investee Corporate Value via Engagement
We have set our engagement targets as "all brands held, with mainly TOPIX composition brands," and by this point, wehave engaged with a broad range of companies representing roughly 90% of the total market capitalization of TSE1.
Our mission is to raise the level of medium-to-long-term corporate value and of the overall market and secure excess
returns which will help us in maximizing medium-to-long-term investment returns for our clients. In order to achieve thisgoal, we are also focused on making our engagement activities more efficient and effective by identifying the challenges
that each of our investee companies face.
Our approaches consist of the (1) market cap approach, (2) risk approach, and (3) top-down approach.
We select targets of the market cap approach on the basis of management situations, importance of management
issues, and market capitalization, among other matters. The risk approach targets companies for which opposition votes
were casted in the exercise of voting rights (low ROE, etc.) and companies that have engaged in misconduct.
As described in the previous page, we select target companies for the top-down approach on the basis of the 12 topics
established premised on our ESG maturity.

Transition of ratio of the number of companies taking corporate action to the numberof companies engaged (Accumulation)(Unit: Company) 300

32％
Number of companies taking corporate action (Accumulation)

250

26％

Ratio of companies taking corporate action

252

35%
30%
25%

200

19％

18％

150

201

20%

16％

14％

15%

141

100

99

10%

64

50

5%

35
0

End of June2015

End of June
2016

End of June
2017

SMTAM Engagement Process

End of June2018

End of June2019

End of June
2020

0%

Prepare opinions
analysis results and the like to help them identify management issues and

Pre
pa
r

formulate effective and coherent opinions.

ns
inio
op

d
an

nitor
mo

e

Rec
or
d

To achieve effective engagement, our analysts use non-financial information

We first submit the opinions formulated by each analysts to an internal review.
This both helps improve and standardize opinion quality among the analysts.

o

ni

dv

ss

an

re

ce

Exp

Express opinions

pi

on

s

Che

c

n
ki

a

Activities conducted in line with the above process
are counted in our total number of engagements(simply being in contact with a company is not counted as an engagement)

21

Check in advanceOur analysts meet with investee company executives and express their opinions.
At each meeting, a written oath stating the analysts will not make any material
proposals nor acquire insider information is signed and mutually recognized.

Record and monitor
After the meetings, we record investee companies responses to the analysts
opinions. We monitor the companies for any changes in management and thenutilize this information when identifying management issues for the next
engagement.

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Engagement Example Cases - Domestic
C ASE 1
Material Company A・ Greenhouse gas emissions reduction
・ Promotion of ESG information disclosure

Analyst s Perspective
Despite the large amount of greenhouse gas emissions in its business structure, the company has not published its medium- to long-term
reduction plan, and some overseas investors have listed it as a target of divestment. In order to achieve a sustainable society and improve
corporate value, the company must clearly express its mid- to long-term initiative policy and goals toward climate change.

Opinion from SMTAM
Although you have set targets for the percentage of sales of
products/technologies that contribute to the reduction ofgreenhouse gas emissions and environmental impact by FY2021, youneed to formulate a medium- to long-term GHG reduction plan tocomply with the Paris Agreement and set specific numerical targets.
In addition, you should clearly indicate not only the sales targets ofenvironmentally-friendly products, but also the GHG reduction
contribution amount. In order to increase the effectiveness of areduction plan, we believe it is good to add that to the evaluation
indicators for executive remuneration.

Although your strength lies in the low energy cost of coal-fired power
generation, coal-fired power has been under increasing pressure
from the world and you will likely lose your businesscompetitiveness.

Company Response
We are currently discussing the establishment of medium- tolong-term targets for environmental issues. In setting the target level
for reducing greenhouse gas emissions, we would like to take into
consideration the opinions of investors. We will use alternative
products and carry out recycling to reduce our environmental impact.
We also want to expand our environmentally-friendly products. We
take your opinion on reflection in compensation as valuable
feedback.

Although it is difficult to immediately stop our coal-fired power
generation, we are seriously discussing various matters, including the
replacement of our business portfolio.

Company Action
In April 2020, the company expressed its support for the TCFD, and announced that it "aims to reduce greenhouse gas emissions by 80% by2050" in the environmental vision that it subsequently announced. At the same time, it clearly indicated medium-term targets by 2030 for
reducing greenhouse gas emissions and for a sales composition of environmentally-friendly products.

Evaluation by SMTAM / Future Policy
The company took a step forward by clearly indicated a mid- to long-term policy and targets toward climate change. Since its mid-term targets do notmeet the target level under the Paris Agreement, we will continue to hold discussions on concrete measures to further reduce greenhouse gas
emissions and on the positioning of coal-fired power generation.

22

Features

Overview

Purposes of Stewardship Activities

Top-down Engagement Activity ‒ Establishment of ESG12 Topics ‒CASE 2
Electrical Equipment Company B

Stewardship Activity Focus Topics for 2019/2020

Engagement

Exercise of Voting Rights

・ Promotion of ESG information disclosure
・ Independence and gender diversity of the board of directors

Analyst s Perspective
While its core products gain a high global market share, given the growing awareness of ESG overseas, we believe that consideration of ESG inmanagement has become increasingly important in order to ensure its sustainable growth in the future.

Opinion from SMTAM
It has disclosed greenhouse gas emissions up to Scope 3, but has notclearly stated its reduction targets. In order to expand sales in
Europe, which has taken the lead in terms of responses to climatechange, you should set a medium- to long-term reduction target forgreenhouse gas emissions in your supply chains.

There are three independent external directors, not even making up
one-third of the board of directors, and there are zero female
directors and auditors. The percentage of female managers andexecutives also remains low.
We think you need to promptly strengthen the independence anddiversity of the board of directors and to expand the number offemale managers and executives in a far-sighted initiative.

Company Response
European customers have been asking us to disclose information on
greenhouse gas emissions even in the transaction stage, and so weare disclosing what we can.
The medium-term environmental goals have not been fully discussed,
and we recognize them as an issue. In the future, we will increase
our internal staff for responding to ESG matters, and strive toenhance the content to disclose.

We have been gradually streamlining the composition of the boardof directors in order to increase the ratio of external directors. We
are selecting candidates for additional external directors at the next
general meeting. Although we have female executive officers, we will
appoint female internal directors under fair evaluation with othercandidates rather than for the sole purpose of hiring female
directors.

Company Action
At the general shareholders' meeting in June 2020, the company elected one female external director. The ratio of independent and external
directors became more than one third of the total number of directors.

Evaluation by SMTAM / Future Policy
We appreciate the progress the company has made regarding its efforts for its governance system. We will encourage the company to set goals for increasing
the ratio of female managers. On the other hand, its efforts to address climate change have been delayed, and we will encourage an early formulation of
medium- to long-term targets, disclosure based on TCFD, and efforts to improve CDP evaluation.

23

Stewardship Activity Initiatives

ESG Integration

CASE 3
Electrical Equipment Company C

Disclosure of Climate-related Financial Information under TCFD・ Group governance・ Addressing ESG issues

CASE 4Service Company D

Reference・ Cross-shareholdings,
mutual installation of external directors
・ Executive remuneration system

Analyst s Perspective

Analyst s Perspective

Although the company has been steadily promoting its efforts toward a reform of
its earnings structure, analysts thought that there is a room for improvement in
how parent-subsidiary listings should be in terms of capital efficiency.
As social issues manifest themselves under the coronavirus situation in addition toclimate change, we have deepened discussions on business opportunities that willlead to solve these issues.

Although the current performance is strong, the trust in the governance system
was not sufficient, including the strengthening of cross-shareholdings and mutual
appointment of external directors that went against capital efficiency
improvement, and the executive remuneration system that had a high fixed
remuneration ratio. We thought these are potential risk factors for sustainableimprovement in corporate value.

Opinion from SMTAM
Although the listed financial
company has stable businessperformance, it does not contributesignificantly to the expansion of thegroup's profits, and pushes down
capital efficiency in particular. You
should establish a policy based on
the presence or absence ofsynergies.

ESG inf ormation is pre- financial
information that should be reflected infinances over a medium to long term.
Y ou mus t es t ablish appropriat e
non-financial KPIs that will lead tofuture sales growth, such as making
contributions to productivity
improvements through digitalizationand t o envir onment al is sue s b ymaking recycling-oriented anddecarbonized products moreprevalent. Although the spread of thenovel coronavirus has had a significant
impact on your core business, thepervasion of the "new lifestyle" maybe a new business opportunity thatwill solve social problems.

Company Response
We recognize that the financial
business in our group is the causeof an expanding balance sheet anddeclining capital efficiency. We do
not believe that the status of theparent-subsidiary listing is the best.
We would like to examine whether
synergy effects are linked to thestrengths of our core business andthen set out a policy.

While we will publish ESG targets
for each stakeholder, we will
perform detailed internalmanagement in line with ourbusiness plan, and will link
numerical targets to them fromvarious perspectives, including a
breakdown for each customer.
One of the social issues thatemerged in the coronavirus
situation is the need for businessdigitalization in companies,
including the spread oftelecommuting. With our eyes
focused on this change, we will
free ourselves from existing
business models and accelerate
the transformation into a company
that offers new value.

Company Action
In March 2020, the company
transferred part of the shares of thesubsidiary, and excluded it fromgroup management. The company
explained that the transfer is basedon its zero-based review from theperspective of each company's
future growth and capital cost.

・ In June 2020, the company
announced that it will add ESG
indicators to evaluation indicatorsfor calculating executive bonuses.
・ Based on the judgment that thechanges in business environmentthat had been anticipated before
the coronavirus recession havequickly progressed, the company
expressed its intention toaccelerate business transformation.

Opinion from SMTAM
While the company increases thenumber of cross-held shares, there is
the risk of it taking away the sense oftension from the corporate
management and goes against
improvement in capital efficiency.
Because of the mutual appointment of
external directors and auditors withmajor shareholders, the board of
directors are not sufficiently
independent, and we are concernedthat the board may not be able tofulfill its highly effective supervisory
function.

The majority of the current executive
remuneration system is fixed cash
remuneration, and has no remuneration
elements as an incentive for improving
corporate value other than a very small
amount of share-based remuneration.
Given that the company has a mediumto long-term business strategy andin v e s t m e n t p l a n in i t s mi d - t e r mmanagement plan, and a corporate
policy that places an importance on
C SR (E SG ), y ou shoul d e s t ablish
performance-linked remuneration andnon-financial KPIs related to ESG thatare consistent with the achievement of
the medium- to long-term businessgoals.

Company Response
After SMTAM pointing out that wehave not gained sufficient trust in
our governance system, we haverenewed our awareness on thematter. However, current external
directors provide us with opinions
and discuss with us from an
independent standpoint, and major
shareholder companies do notinterfere with our management
decisions.

We have not introduced aremuneration system that is linked
to performance in order to avoid
attaching too much importance on
short-term performance, but wewill consider a remuneration
system linked to mid- to long-term
performance. We are aware that
other companies have
remuneration systems linked to
ESG targets, and we will actively
consider a similar system by
establishing a remunerationcommittee.

Company Action
・ In January 2020, the company
acquired its own shares after its
major shareholder companies
indicated their intent to sell theshares.
・ It reduced cross-shareholdings.

In October 2019, the company
established a voluntary
nomination/remunerationcommittee.

Evaluation by SMTAM / Future Policy

Evaluation by SMTAM / Future Policy

We will track the progress of the company's efforts toward acceleratingtransformation and continue discussions to ensure sustainable growth.

The company took a step forward by establishing a nomination/remunerationcommittee, but because it has not solved the specific concerns and issues
pointed out by us, we will continue to engage in discussions.

24

Features

Purposes of Stewardship Activities

Overview

Top-down Engagement Activity ‒ Establishment of ESG12 Topics ‒Stewardship Activity Focus Topics for 2019/2020

Engagement

Exercise of Voting Rights

Engagement Example Cases - Global
At SMTAM, our emphasis on ESG engagement activities extends worldwide. We focus on (1) engagement activities thatare based on action principles or guidelines, such as the PRI, (2) activities aimed at addressing misconduct and otherproblems in accordance with international norms, and (3) independent activities aimed at promoting greater efficiency incorporate management and the establishment of outstanding corporate governance. For example, our (1) engagement
activities that are based on action principles or guidelines, like the PRI, include active efforts to help companies with ESG
issues limit their risk, such as by serving as the lead manager handling PRI working group promotion.

CASE 5KEPCO(South Korea / Power Company)

Climate Change
・ Promotion of climate change-related information disclosure
Engagement Specialist s Perspective
Although it is expected that the company's business will be heavily affected by climate change, its response is insufficient. It has a plan toimplement coal-fired power plants in South Korea and the Southeast Asia region, and it is at risk of developing stranded assets.

Opinion from SMTAM[Independent discussion between SMTAM and the company]
・You have plans to invest in coal-fired power plants in the Southeast
Asia region through your subsidiaries, but considering thef r a m e w or k of the P a r is a gr eement, ther e ma y be a risk ofdeveloping stranded assets or profitability issues in terms of power
generation costs.
・ It is expected that your company's business will be heavily affectedby climate change, which is a concerning matter for investors both
domestic and abroad. You should intensify efforts against climatechange, formulate a policy for that, and consider disclosing
information based on the TCFD framework.

[Engagement with government]
We advised the Ministry of Economy and Finance in South Korea,
which is a stakeholder of the company, to encourage it to address
climate change. We sent a letter under a joint signature of four
institutional investors.

[Use of CA100+]
In collaboration with local stakeholders, we announced CA100+'s
opposing opinions against the plan to invest in coal-fired power
plants in Indonesia, Vietnam, and the Philippines through local media.

Company Response
・ We will comply with the ROK government policy. With regard to GHG emissions, we will consider formulating reduction targets and disclose
information within the framework of TCFD. Specifically, we will retire inefficient power plants and convert them to highly efficient power plants
to reduce GHG emissions. In addition, we are carrying out projects for developing renewable energy power supplies in South Korea, mainly
wind power generation.
・ With regard to concerns over overseas coal-fired power generation projects, we will conduct an environmental assessment and gain anunderstanding regarding the matter from relevant parties. We have no plans to change our position.

Company Action
We received a letter in which the company stated that it would disclose information related to climate change within the TCFD framework in
the 2020 Sustainability Report (which is not yet published).

Evaluation by SMTAM / Future Policy
More and more investors are avoiding investing in coal-fired power generation projects. There are still reputational risks and the risk of stranded asset
development, so we will continue to encourage the company to withdraw from the business.

25

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFDC ASE 6
Novartis

Reference

CASE 7(Switzerland/Healthcare)

Access to Medicine

・ Promotion of information disclosure regarding access-to-medicine activities

Citigroup(U.S./Finance)

Backing Corporate Governance Reform・ Promotion of gender diversity

Engagement Specialist s Perspective

Engagement Specialist s Perspective

The benefits of carrying out Access to Medicine activities are
difficult for investors to understand, and the company needs todemonstrate the relationship between the activities andcorporate value improvement.

The percentage of female board of directors exceeded 30
percent, but we thought it was important to increase the ratio inorder to improve management execution.

Opinion from SMTAM

Opinion from SMTAM

With regard to access-to-medicine activities, your company
provides support and low-cost products for treatment of endemic
diseases such as malaria, but it is difficult to understand how thiscan improve corporate value. We recognize that access to
medicine is your company's investment activity, and the company
must promote it from a long-term perspective. For example, you
should demonstrate the series of activities you are engaged in, andshow the countries you working with and what plans you have.

The percentage of female board of directors exceeds 30
percent, but we believe it is important to increase the ratio inorder to improve management execution. The 30% Coalition,
which we have signed, has set a target for increasing the numberof female senior leaders. It is important to increase thepercentage of female managers through continuous initiatives.

Company Response

Company Response

There is currently no prospect for monetization of ourdeveloping country strategy in five to ten years, and we do nothave clear long-term plans for each country. The challenge is
how to promote monetization with the background of anincreasing population in developing countries, particularly Africa,and expected improvement in income levels. Linkage withcorporate value improvement is an important piece of advice,
and we would like to share it with management.

We are aware that we need to raise the percentage of female
middle management and above in order to resolve the salary
gap between male and female. We aim to improve thepercentage to 40% by 2021. We have incorporated diversity
improvement as an evaluation item for department leaders, andhave also given incentives.

Company Action

Company Action

The company shared an awareness with investors thataccess-to-medicine activities should be linked to medium- tolong-term corporate value improvement.

In September 2020, the company announced that Jane Fraser(woman) will be appointed as the next CEO.

Evaluation by SMTAM / Future Policy

Evaluation by SMTAM / Future Policy

We do not think this is a problem that will be solved in the short term,

We will continue to engage with the company in regard to efforts forand will continue discussions with the company and encourage strategic

narrowing the salary gap between male and female and for improving

development.

gender diversity in middle management and above.

26

Features

Purposes of Stewardship Activities

Overview

Top-down Engagement Activity ‒ Establishment of ESG12 Topics ‒Stewardship Activity Focus Topics for 2019/2020

Engagement

Exercise of Voting Rights

Taking the Spread of the Novel Coronavirus into Accountand Enhancing Disclosure of Reasons for Voting Based on the
Revised Stewardship CodeAs a responsible institutional investor, we consider the exercise of voting rights to be an important part of ourstewardship activities. To maximize the medium- to long-term investment returns of clients and beneficiaries, we voteappropriately from the perspective of enhancing corporate value and boosting the interests of shareholders after
considering the circumstances of investee companies and the details of our engagements with them.

Addressing the Spread of the Novel Coronavirus
In May 2020, we published the "Policy on exercise of voting rights and stewardship activities in light of the spread of novel
coronavirus." In order to protect a sustainable economic society in the midst of stagnating economic activity to contain the
spread of the novel coronavirus, we recognize that it is extremely important for companies to ensure sufficient liquidity in hand
and to maintain their business activities. Therefore, we do not mechanically apply our guideline for the exercise of voting rights
on topics regarding dividend of surplus, which is on the assumption of a normal economic environment, but rather we set a
policy for voting decisions with due consideration to ensuring corporate liquidity in hand. We list companies that applied andagreed to the above policy regarding a surplus standard at the general meeting in June 2020 in documents for disclosing
individual voting records.

Enhancing Visibility for Approvals and Disapprovals in Voting Activity
Principle 5 of Japan's Stewardship Code, which was revised in March 2020, says that "in particular, institutional investors should
disclose their voting rational with respect to either for or against vote, which are considered important from the standpointof constructive dialogue with the investee companies, including those perceived to have conflicts of interest or those which
need explanation in light of the investors voting policy." We have published reasons for voting "against" to company proposals,
however since the disclosure of individual voting records in July 2020 (for general meetings from April to June), we also publish
all reasons for voting, regardless of it is "for" or "against," on proposals perceived to have conflicts of interest or those which
need explanation in light of investors' voting policy. We introduce the details of proposals which need explanation in light of theinvestors' voting policy in the section below.

Proposals which Need Explanation in Light of the Investors' Voting Policy(proposals that are not stipulated in the guideline, and those that are decided differently from the guideline)

9301 Mitsubishi Logistics
No.
7

8

27

Proposal[Shareholder proposal]
Appointment of one director[Shareholder proposal]
Appointment of one director

Voting record

For

For

Background/reason
・ The Board of Directors consists of 14 directors, including three external outside directors, according tothis year's company proposal.
・ As the proposers pointed out, all three external directors are from Mitsubishi Group companies. However,independent director notifications have been submitted, and the criteria of the independent directors
stipulated in our guidelines for the exercise of voting rights have been fulfilled. However, from theviewpoint of the effectiveness of governance, the board of directors should consist of candidates withvarious attributes.
・Based on the above circumstances, we voted "for" to the shareholder proposal.

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

9308 Inui Global Logistics
No.

Proposal

Voting record

Background/reason
・ Requests for providing information to specific shareholders do not require a resolution in a generalshareholders meeting, and there is no criteria for the request in our guidelines.
・ Alphaleo Holdings G.K. is its major shareholder holding 29.01% of the total issued shares and 30.34% of[Company proposal]

3

Approval of request by theboard of directors for providing

the total voting rights.

For・ We voted "for", because if the proposal is rejected, it is possible that the company will not be able torequest Alphaleo Holdings G.K. to provide information. We also think that constructive dialogs withmajor shareholders would contribute to sustainable improvement of corporate value for otherinformation regarding Alphaleo

shareholders.

Holdings G.K.

・ This proposal shall be a legally non-binding advisory resolution, and the purpose is to confirm theshareholders' intention. There is no penalty if information is not provided, and it is not a defense against
a takeover.

Guideline Revisions for the Current Fiscal Year
We revised the guideline in January 2020 (published in December 2019). The main points of revision are shown below.

Various criteria used in the guideline
Criteria
Criteria on misconduct

Before
(new)

After

Our View

When serious governance failure isClassification was performed, and it wasobserved

clearly stated that it falls under
misconduct.

Appointment of directors
Criteria

BeforeAfter

Our View

A company with a parent company in
its corporate governance report, or a

A company with a parent company ora controlling shareholder in its

We assume cases where a shareholder
has 50% or less shares but damages

Criteria on the percentage of external
directors in a company with a parent
company, etc.

Opposed to appointment of directors
if independent, external directors do
not make up one-third or more of all
directors in a company with a parent
company, etc.

Opposed to appointment of directors
if a system for securing independent
decision making *1 has not been
established in a company with aparent company, etc.

For companies with controllingshareholders, such as a parent
company, we require a governancesystem with higher independence fromthe perspective of protecting generalshareholders' profit.

Criteria on the number and percentageof external directors

・ 2 or 20% or more independent,
external directors
・ For companies with nominations andsupervisory committees, independent
external directors shall make up
one-third or more of the total.
・ However, an interim measure shall betaken. *2

・ O ne- t hi r d o r mo r e a nd mul t i p l e
independent, external directors
・ However, an interim measure shall betaken. *3

The scope of the request for further
strengthening the governance by aboard of directors (strengthening
supervisory functions and ensuring
independence) is expanded to alllisted companies.

Criteria on parent companies, etc.

company with shareholders holding
more than 50% of its shares

corporate governance report

the general shareholders' profit due toits substantial management control.

*1 When a company where independent external directors make up one-third or more or over half of all directors falls under the condition below: Independent external directors in anominating committee (including any advisory committee) make up a majority of all members, or independent external directors make up half of all members and the chairperson
is an independent external director.
*2 "For", if it is judged that there is no interference with improvements to mid- to long-term corporate value in the performance (ROE) criteria*3 "For", if it is judged that there is no interference with mid- to long-term corporate value improvements in the performance (ROE) criteria regarding a company with multiple
independent external directors

Disposal of surplus funds
Criteria

Criteria on disposal of surplus funds

BeforeAfter

Our View(added)"Against", if the current-term ROE of acompany that falls under the cash-richcriteria is in the lower 50 percentile
level of TOPIX composition brands,
and dividend criteria are not met

For companies with surplus funds, weraised the required performance (ROE)level from the lower 25 percentile levelto the lower 50 percentile level.

28

Features

Purposes of Stewardship Activities

Overview

Stewardship Activity Focus Topics for 2019/2020

Engagement

Top-down Engagement Activity ‒ Establishment of ESG12 Topics ‒Exercise of Voting Rights

Record of exercising voting rights for Japan-listed companies
Voting Record (all company proposals)
Company proposals
July 2019 - June 2020

For

AgainstAbstention

Opposition %18,637

4,703

0

20.1%

Proposals concerning capital policies(excluding those related to articles of incorporation)

Proposals concerningcompany systems

Other proposals

20,186

Total proposals

23,3401,721

Proposals concerning remunerationfor executives

949

Proposals concerning articles
of incorporation

476

8

Breakdown of voting record on company proposals
Proposals concerningcompany systems
Appointment/dismissal of directors
For

17,573

Appointment/dismissal of
corporate auditors

100％

2,549

100％

64

Appointment/dismissal of accounting auditors

1,536

Remuneration for executives*3

For

100％

100％

35

Restructuring-related*1
For

35

0％

50％

100％

Introduction/renewal/abolishment of
takeover defense measures
For

For
0％

476

458

100％

50％

Shareholder proposals

100％

54

Against

54

0

50％

For

18

100％

8
Against

5

3

0％

100％

90

Other proposals

Against

160

50％

96

50％

0％

160
Against

0

0％

100％

Against

6

0％

For

For

789
113

50％

Payment of retirement benefits forresigning executives

0949
Against676

0％

AgainstOther proposals concerning capital policies*2

Proposals concerning articles
of incorporation

For

15

50％

0

50％

Against1,521

0％Against64

0％

Disposal of surplus funds(excluding those related to articles of incorporation)

326

50％

For

Proposals concerning
remuneration for executives

Against

2,223

0％

1,721

3,978
50％

For

Proposals concerning
capital policies

Against13,5950％

20,18650％

100％*1 This includes mergers, business transfers
and acquisitions, share swaps, sharetransfers, and corporate splits.
*2 This includes treasury stock acquisitions,decrease in statutory reserves, newshare allocations to third parties,
decrease in capital, reverse stock splits,
and issuance of class shares.
*3 This includes amendments toremuneration for executives, issuance ofstock options, introduction/alteration of
performance-linked remuneration
systems, and executive bonuses.

For

AgainstAbstention

Opposition %

44

188

0

81.0%

With regard to share lending transactions, we set loan limits for securing voting rights. For voting rights secured in shares outside of the loan limits, we exercise said rights inaccordance with our policy on the exercise of voting rights.

29

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Record of exercising voting rights for foreign-listed companies
Voting Record (all company proposals)
Company proposals
July 2019 - June 2020

For

AgainstAbstention

Opposition %35,645

4,013

0

10.1%

Proposals concerning capital policies

7,507

Proposals concerning remunerationfor executives

4,143

Proposals concerning articles
of incorporation

1,495(excluding those related to articles of incorporation)

Proposals concerningcompany systems

Other proposals

17,857

Total proposals

39,658

8,656

Breakdown of voting record on company proposals
Proposals concerningcompany systems

17,857

Appointment/dismissal of directors
For

For
100％

Appointment/dismissal of
corporate auditors
For

796

100％

Board of Directors(limits on number of directors, etc.)
For

448

0％

467

100％

Appointment/dismissal of
accounting auditors
For

0％

For

26

50％

50％

100％

Proposals concerning articles
of incorporation
For
0％

1,495

1,348
50％

Shareholder proposals

100％

172

179
7

100％

8,656
Against

7,917

0％

100％

100％

50％

For

147

0

50％

AgainstOther proposals

Against120％12Against142

Takeover defense measures

0％

Presentation of retirement benefits

100％

Against

50％

For

330

887

745

0％

Against

50％

For
100％

100％

767

437

0％

34

Mergers, corporate splits, conversions toholding company, business transfers, etc.

Against

2,056

0％

2,082

812

419

Stock options

Against

3,364

50％

For
100％

4,143
Against

2,945

0％

9

50％

For

19

50％

100％

Establishment of share buyback frameworks 846

AgainstFor

Against1,523

0％

Remuneration for executives

625

50％

For

Proposals concerning
remuneration for executives

AgainstProfit disposal and loss disposition plans 1,532

72

50％

4,063

3,438

0％

Against724

0％

Shareholders equity

1,444
50％

7,507

(excluding those related to articles of incorporation)

Against13,0680％

14,512

Proposals concerning
capital policies

739

50％

100％

For

AgainstAbstention

Opposition %

1,250

435

0

25.8%

30

Features

Purposes of Stewardship Activities

Overview

ESG Integration in Domestic Shares

Stewardship Activity Focus Topics for 2019/2020

Fixed Income Engagement and ESG Integration

ESG Integration
We have identified 12 important sustainability challenges as "ESG materialities." In our investment decisions, we takethe ESG investment evaluation into consideration, which is compared with the ESG materiality and incorporates
quantitative evaluations based on both SMTAM and external data in line with portfolio characteristics. Following this,we carry out ESG integration.

E (Environmental)

S (Social)

G (Governance)

Climate Change

Human Rights & Community

Behavior

ESG Materiality
We have identified important sustainability
challenges as "ESG materialities." We take into
consideration the SDGs and the SASB

Risk

Opportunity(Sustainability Accounting Standards Board).

Natural Capital

Human Capital

Structure

Pollution & Waste

Security & Liability

Stability & JusticeEnvironmental Opportunities

Social Opportunities

Governance Improvement

MBIS*1The MBIS® is our proprietary, non-financial information evaluation tool which we have used since 2015 to evaluate domestic shares and bonds. Our analysts use MBIS® tohelp them gather, analyze and evaluate non-financial information which cannot be expressed in terms of financial data for the companies they cover; such information
includes the level and sustainability of added value for a company s products and services, the governance system which supports the added value the company
provides, and the company s impact on the societal and environmental foundations which sustain its growth. MBIS® is an acronym which stands for Management (M),Business Franchise (B), Industry (I) and Strategy (S). It is the M which comes into play when evaluating efforts aimed at risks associated with ESG issues, and it is
the S which comes into play when evaluating efforts aimed at commercializing and capitalizing the opportunities associated with ESG issues. Some of the evaluations
are based on ESG evaluation by external ESG data vendors. We incorporate the concept of the SDGs and the 17 goals into our evaluation.

Strategy execution capabilities
ESG initiatives
Improvement and innovation capabilities● Capital and investment eﬃciency

ESG Materiality (new)●●●Checklist (14 items)

B

Business FranchiseI

Industry

S

Strategy

Client value● Client base● Barriers to entry●

Checklist (7 items)
Market assumptions● Competitive environment● Regulations and policies●

External ESG data, etc. *2

MChecklist (20 items)

Management

Risk

E (Environmental)

S (Social)

G (Governance)

Climate Change

Human Rights &Community

Behavior

Natural Capital

Human Capital

Structure

Pollution & Waste

Security & Liability

Stability & JusticeEnvironmental
Opportunities

SocialOpportunities

GovernanceImprovement

Checklist (10 items)
MarketingEarnings contributions from ESG
Business portfolio● Investments, M&A, etc.
●●●

Opportunity

Strengthen Connection with SDGs

*1 MBIS® is a registered trademark of Sumitomo Mitsui Trust Bank.
*2 Evaluations conducted by analysts using external ESG data and other resources for reference

31

https://www.un.org/sustainabledevelopment/Stewardship Activity Initiatives

ESG Integration

Reference

Disclosure of Climate-related Financial Information under TCFD

1

ESG materiality

ESG screening

All active products: ESG-minded stock screening

Sumitomo Mitsui Trust
Research Institute

ESG integration

ESG investment evaluation(non-financial information)

External ESG data vendors, etc.

Quantitative assessment based on proprietary and external data in light of SMTAM materiality

Domestic shares

Domestic bonds

Foreign shares

Foreign bonds

J-REIT

2

2

3

3

4

MBIS®-based
evaluation(enhancement)

MBIS®-based
evaluation(enhancement)

In-house ESG scores

In-house ESG scores

In-house ESG scores

Reflection
in investment
decisions

Consideration in line with portfolio characteristics

Investment and risk committee

ESG monitoring

In-house ESG Score

J-REIT

We grant in-house ESG scores to domestic shares

In J-REIT management, we conduct ESG integration using ESG scoring granted by Sumitomo Mitsui Trustof companies that are not covered by analysts,

Research Institute. Evaluations under ESG scoring by Sumitomo Mitsui Trust Research Institute look at four

overseas company shares, etc. and domestic

major considerations: the ESG promotion framework and initiatives related to the environment, society, andcorporate bonds. Using ESG materiality as a base,governance. Each item has its own checklist by which it is scored.

we identify the ESG issues of investee companies
and then utilize external ESG data and otherresources to perform three-tiered scoring. Thisscore is taken into account when qualitatively
assessing earnings and valuation in the case ofshares, or creditworthiness or spread in the caseof corporate bonds, and it is thus reflected instock selection.

(4) Financial status evaluation(1) Owned property
quality screening(2) Managing company
qualitative evaluation(5) Other qualitative evaluation

Excess investment
returnstrategy
Portfolio decision(3) Individual brandinvestment equity valuation

Sumitomo Mitsui Trust Research Institute

ESG evaluation
ESG evaluation by SMTAM

External ESG evaluation

Provision of ESG evaluation for all listed companies

32

Features

Purposes of Stewardship Activities

Overview

ESG Integration in Domestic Shares

Stewardship Activity Focus Topics for 2019/2020

Fixed Income Engagement and ESG Integration

ESG Integration in Domestic Shares
We spoke to Tatsuya Suzuki, the fund manager of the Shares Management Unit of the Active Investment Department,
which has been responsible for "domestic equity research and the ROE improvement strategy" for performing
concentrated investment with a focus on non-financial information since its establishment.

Tatsuya Suzuki

Using non-financial information to make concentrated investments onbrands that are expected to see a sustainable ROE improvement
ーTell us about investment processes.

Head of Bottom-up Investment Team,
Equity Investment Unit,
Active Investment Department

Because the analysis of non-financial information as well as
financial information is critical to sustainable growth, we will focus
on a selected 20 to 50 brands using MBIS®, our own framework forevaluating non-financial information. Our analysts use MBIS® toInvest in companies where ROE is continuously improving
and return the fruits of growth to customers

gather and analyze non-financial information which cannot be
expressed in terms of financial data and evaluate corporate
strength and challenges toward sustainable growth; suchーTell us about the domestic equity research and ROE improvement strategy.

information includes the level and sustainability of added value for
a company s products and services, the governance system which

Companies that continuously improve ROE by increasing theirsupports the added value the company provides, and therevenue (increasing their earning power) are valued in sharecompany s impact on the societal and environmental foundations

markets. We will invest in companies for a medium to long period

which sustain its growth. MBIS® scores are granted to 500 brands

that are expected to do so and seek to acquire a stable return. In

under our analysts' concentrated coverage, including an estimation

evaluations in selecting brands, we focus on two common factors

for the 5-term performance, out of approx. 800 brands covered byfor companies that are expected to continuously increase ROE

our analysts. MBIS® is an acronym which stands for Management

through increasing revenue: "client value" and "sustainable growth."(M), Business Franchise (B), Industry (I) and Strategy (S), andOn the assumption of "client value" as the first evaluation axis,

scores are granted to each of them. In this investment strategy, we"corporate sales" is considered the same as "compensation forbuild a portfolio by focusing on "Management" and "Businessadded value provided." The source of added value is goods andFranchise" out of the elements in MBIS ® , which are highly

services that satisfy consumers' needs. It fulfills human desires, suchcompatible with "client value" and "sustainable growth".

as joy, health, wealth, effective use of time, and investment in thenext generation. "Client value," we analyze the power to appeal toーTell us about the details of cooperation with analysts.

consumers regarding added value provided. For the second

33

evaluation axis "sustainable growth," we analyze market creativity

We call the approx. 500 brands under our analysts' concentrated

for driving client value. We ascertain the potential for expanding

coverage, which I mentioned earlier, as the investment universe.

regions and client bases and arousing new demands in other areas,

We narrow the approx. 500 brands down to approx. 100 brands

and use non-finance information to evaluate "client value" andon the basis of (1) brands with top MBIS ® scores and (2)"sustainable growth." We believe that we can acquire a return by

estimated 5-term performance by analysts (future transition ofanalyzing and evaluating non-financial information, which does notsales, business margin, and ROE). Our fund managers discussappear in financial information, and carefully selecting investee

MBIS® scores and expectations with analysts, with a central focus

companies. The expected investment length for each company inon the evaluation of "client value," a source of added value, andthis product is three to five years, and engagement will help an"sustainable growth," an indicator of market expandability andinvestee company increase its corporate value in a medium to longcreativity, and will consult with analysts about the MBIS® scoreperiod and continue to grow.

and future expectations.

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Overview of investment process
・ Top MBIS® scores granted by analysts (out of 500 brands)

Investment targets (All listed brands in Japan)

・ Screening based on quantitative criteria, such as sales growthrate, business margin, and ROE (expectations by analysts)

・ Thoroughly discuss MBIS ® scores and expectations with

Brands covered by analysts 800 brands*

analysts, with a central focus on the evaluation of "client
value" and "sustainable growth"

Qualitative/quantitative screening(Investment universe: 100 brands*)▪ Excludes brands with low MBIS® scores even when there are brands withhigh expectations▪ Shares the background of brands with high scores and low expectations

Qualitative screening(Investment candidates: approx. 50 brands*)

・ After additional information gathering, our fund managers
re-evaluate MBIS® scores

Share price judgment

・Build a portfolio based on market sentiment for share price(comparatively expensive/inexpensive) of investment
candidate brands

Portfolio (20 to 50 brands*)* As of the end of June 2020. The number of brands is an approximate figure and is subject to change.

Brands with high expectations and low MBIS ® scores shall be

doubling in 3 to 5 years, room for improving its position in the

excluded from the investment universe, and those with high MBIS

market, and expected improvements for its profitability.

®

scores and low expectations shall remain after the reason isshared. Our fund managers then gather information from executive
officers and business representatives under cooperation with our

Promoting mid- to long-term corporate value improvements andsustainable growth through constructive "purpose-based dialogs"

analysts, re-evaluate MBIS ® scores, and narrow investment
candidates down to approx. 50 brands. In the discussion withanalysts, the fund managers focus on "appropriate corporate
value." They share the potential of a company reflected in MBIS

ーTell us about some examples of investment decisions
based on engagement.

®

scoring, including the possibility of its market capitalization

In engagement, our fund managers check whether investors andcompanies are "on the same boat" (i.e., whether they are in thesame direction for "improving mid- to long-term corporate value").

Financial information is just the tip of theiceberg for corporate value (Image)

Financial information(Settlement information, etc.)

With financial information alone,
there is the possibility ofunderestimating (oroverestimating) the capabilities
of a company.

Linked to future financial information

Non-financial information(ESG information)

If our fund managers confirm that they are on the same boat withcompanies, they will make new investments or continue anexisting investment for the companies even when engagement is
not directly connected to the companies' actions. If they cannot
make this confirmation, they will sell the shares. In order to takethese steps, it is also essential that investee companies haveroom to accept discussions. The room a company has for
accepting discussions changes from time to time, depending on
performance trends and the external environment. Even when aCompanies actively disclose
information to investors (integrated
reports, CSR reports, etc.)

company is going through a difficult time to accept ourengagement, our fund managers recognize that a company is "onthe same boat" if it gives serious consideration to our engagement,
and has an attitude to explain matters in as much detail as

Corporate efforts toward "sustainable growth"(Example: Enhancement of business strategies and governance for achieving SDGs)

possible regarding things such as "why it cannot take actions
now," "when it can take actions," and "why it cannot accept
discussions," and if we confirm that the grounds are reasonable.

34

Features

Overview

Purposes of Stewardship Activities

ESG Integration in Domestic Shares

Stewardship Activity Focus Topics for 2019/2020

Fixed Income Engagement and ESG Integration

I will talk about an example of our engagement with machine

Directors decided to change its executive officers, showing that

manufacturer S.

there was a direction of improvement for its governance. From the

The company primarily manufactures key parts devices for thefollowing month, we held discussions with the new executive

automation of production lines.Corporate customers such as

officers, and since then, the company has made progress in its

automotive, semiconductor manufacturing equipment, andgovernance reforms, including the establishment of a nomination

machine tool manufacturers approve and accept the company's

and compensation committee, abolition of the retirement bonus

solutions from their development stage. Manufacturer S supplies

system for directors, and the introduction of a stock

highly reliable products within a short delivery time fromcompensation system. For environmental information disclosure it

production/sales bases around the world. We appraised its

expanded the contents of its CSR reports, and for cash equivalentstrategy to focus on expanding new production facilities andit increased dividends for return; we believe that our engagement

updating existing equipment, and to maintain and improve its

l ed to the actions it carried out, the mid- to l ong - termmarket share while streamlining and reducing costs. Because withimprovement in its corporate value, and to its sustainable growth.

its equipment, users could achieve low-cost automation and laborsaving, we evaluated that it had a high market growth potential inーTell us about SMTAM's goals and aims.

both emerging and developed countries. On the other hand, theissue of the company was weak corporate governance due to theFive years have passed since we started the "domestic equity

top-down management by its founder. Although its performanceresearch and ROE improvement strategy" in 2015, and we received

remained strong, there were causes for concern such as theinvestments from not only customers in Japan but also fromstructure regarding succession of staff and strategic global

overseas who have sympathized with the concept; the trusted

expansion, which we believed were risks that would hinder its

amount for the investment strategy has been steadily increasing.

further development. Other issues included that it did not disclose"Invest in companies where ROE is continuously improving andsufficient information on its environmental initiatives, which

return the fruits of growth to customers" has been our constantnegatively affected the evaluation it received by externalgoal since the start of the strategy. With that in mind, we engage

evaluation institutions, and that its capital efficiency was poor due

with and support companies with the goal of growth throught o abundan t c a sh e qui v al en t i t o w ne d. W e c onduc t e dstrong management without being influenced by the external

engagement for the company every quarter for improving its

environment, and we will develop ourselves as a fund with thegovernance, which we believed was the most important issue. In

intent of delighting our customers from the perspective of "client

September 2019, the company announced that its Board ofvalue" and "sustainable growth."

Creating a virtuous cycle through engagement

Sumitomo Mitsui
Trust Asset Management

State opinions on management policies,
business strategies,
and responses to ESG (Present hypotheses)

Investee companies

MBISⓇ
・ Extract management issues andthe root of competitive power・ Identify factors that hinder growthfrom the perspective of ESG
・ Make a hypothesis based on them

Direct interviews with top management on
management policies, business strategies,
and responses to ESG (Verify hypotheses)

Accumulate effective engagement
Improve return on investment
Enhance MBISⓇ and engagement

35

Increase corporate value

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Fixed Income Engagement and ESG Integration
We are promoting engagement and ESG integration for fixed income management. Here, we will introduce a glimpseof the cooperation between credit analysts who conduct engagement and fixed income fund managers who actually
use it for their management.

Atsushi Hamada

Hiroshi Tsubota
Cooperation

Head of Credit Strategy Team,

Head of Credit Research Team,

Fixed Income Investment Unit,
Active Investment Department

Research Investment Department

Importance of fixed income engagement

in-house bonds. While it is natural to investigate financial andHamada: Some say that engagement is difficult for fixed income

business risks, I have the impression that more managing

investments because they do not require the exercise of voting rights.

companies take ESG elements into investment decisions.

Tsubota: Of course you cannot deny such an aspect, but I
believe that engagement will contribute to the medium- tolong-term growth of investee companies, and the reduction of(1) Select non-investment brands

downside risks, regardless of shares or fixed income. On that

[Take ESG into consideration and identify non-investment brands]
Stewardship
Development Make it impossible to invest in companies that manufacture

premise, we conduct engagement from the viewpoint of

Department

influencing creditworthiness in particular for the fixed income
side. Green bonds*1, etc. are specific to the fixed income side,and if a company has a target business, we may express ourinhumane weapons. This applies to all assets.

Have an outlook for the spread with a top-down approach and decide on a positionbuilding policy on the basis of judgment on the spread situation in a credit cycle judgment.

opinion on the issuance of green bonds.

(2) Evaluate creditworthiness

Hamada: Fixed income engagement is becoming increasingly
important, with questions on fixed income-specific engagement

Creditanalysts

added in the PRI survey.
*2

Tsubota: Fixed income issuance is becoming increasingly
important for companies to continuously procure funds, and[Give in-house rating with ESG factors taken into consideration
when evaluating creditworthiness]
・ Take ESG factors into qualitative judgment. Perform evaluation
using MBISⓇ and in-house ESG scores.
・ Set G (Governance) as the center of focus.

(3) Evaluate spreadthere is also a growing number of engagement opportunities
for analysts. There is also a wide range of fixed income types

Fundmanagers

issued, including subordinated bonds, and we have expressed
a number of different opinions concerning such.

[Take ESG factors into evaluation of spread level]
Give comprehensive consideration to ESG factors, liquidity, andsupply/demand depending on the in-house rating and on the basisof required spread level obtained in the company, and judge
appropriate spread level.
Build portfolio(4) Evaluate portfolio, etc.

Taking governance into account is important for fixedincome engagement and ESG integration

Fundmanagers

Tsubota: As a part of ESG integration in the fixed income
investment, it is normal to take ESG into account for rating

Glossary*1

Green Bond
A bond issued to procure funds required for a green project*2

For brands with low ESG scores, fund managers and credit analysts
work on engagement under cooperation with relevant
departments. Change investment decisions depending on thestatus of initiatives to address ESG issues in investee companies.

PRI
PRI: Principles for Responsible Investment (See page 49)

36

Features

Overview

Purposes of Stewardship Activities

ESG Integration in Domestic Shares

Stewardship Activity Focus Topics for 2019/2020

Fixed Income Engagement and ESG Integration

Hamada: Indeed it is difficult to find an asset manager that does

Tsubota: Even if there is a "label" called a green bond, thenot conduct ESG integration. Out of E, S, and G, G (Governance)

creditworthiness of the bonds is the same as that of unlabeled

is often directly included in a market price and should be viewed

bonds. In theory, they should be the same price. There may beas the most important item.

differences in yield due to differences in market size andTsubota: Exactly. A governance failure has a direct impact on

distribution volume, but I think they are insignificant.

prices not only in a share market but also in a fixed income

Hamada: If terms and risks are the same, it is natural to invest in

market. Recently, real estate company A and service company B

high-yield shares, but if there is no difference in yields, it is a

saw a significant spread expansion (a significant price decline),

sufficient reason to choose green bonds. By issuing green bonds,

which is likely to be attributable to governance failure.

issuing bodies engage in public relations on their

Hamada: On the contrary, some companies saw a reduction inenvironmental/social initiatives, investors can earn a return on their

thick spreads (increase in price) when it was confirmed that theirinvestment through the provision of funds, and society cangovernance had been improved. We should avoid monolithic

contribute to environmental conservation; this is close to the idea ofactions, including selling shares of companies under governance"all three parties doing well" by Oumi merchants of the Edo period.

failure, and it is very important to check the direction of changes

Tsubota: Green bonds and social bonds are mainstream now,

through engagement.

and it is expected that sustainability-linked bonds*6 and transition
bonds*7 will be issued and that the SDGs-related bond market

Increasing attention to the environment and society

will be developed. We will also actively make investments andHamada: On the other hand, investment mainly in Europe iscontribute to the environment and society. By the way, as aincreasingly focusing on E (Environmental) and S (Social). In someunique initiative by Japan, if an investor makes an investment in

aspects, various laws established for solving social issues are

such bonds in an issue market, it is published on the website ofsupporting this situation.

each issuing body as an investment announcement.

Tsubota: I think environmental awareness is growing considerably

Hamada: As an investor, it makes it clear that we contribute toin Japan. Companies that do not take care of the environment

the environment and society, so we have asked for our company

and society must have medium- to long-term downside risks.

name to be published since day one. Looking at our performance

Hamada: An explosive number of SDGs-related bonds *3 havelast year, I believe we were one of the institutions that made abeen issued in Japan since last year because they contribute tolarge number of investment announcements in the asset

solving environmental and social issues. The Ministry ofmanagement industry.

Environment is also pushing the issuance by supporting costs
Cooperation with equity analysts

required to issue green bonds in its policies.
Tsubota: Companies issuing green bonds and social bonds had*4

to pay the additional cost of evaluation by external institutions

governance through engagement. Are there other outcomes ofand of annual reporting. Thanks to initiatives taken by the Ministry

engagement? Also, tell me more about the cooperation withof Environment, fixed income is now a common means to inform

equity analysts.

people of their initiatives for the environment and society in an

Tsubota: For example, I think the increase in green bonds issued

easy-to-understand manner.

by REITs is one of the outcomes of engagement. Since around

Hamada: It has been pointed out that "Greenium" *5 exists in

2017, we have been talking with REIT issuing bodies andregard to green bonds, which means that the yield of green

suggested reviews of fixed income issuance management andbonds is slightly lower than that of general bonds. What do you

expansion of investors. To begin with, REIT is an entity that often

think about this?

acquires and possesses properties with excellent environmental*3

SDGs-related bondA generic term for bonds that contributeto the environment and society

37

Hamada: You said that you check the quality and direction of*4

Social bondA bond issued to procure funds for
projects that help solve social problems*5

Greenium
The eﬀect of reducing yields byincorporating green investor demand*6

Sustainability-linked bondA bond whose interest rate and otherthings ﬂuctuate depending on how
much the ESG goals are achieved

Stewardship Activity Initiatives(Unit: 100 million yen) 700

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Status of green bond issuance in REIT bonds(Source: QUICK)Green bonds
600
500
400
300
200
100
0

April
to
June
2015

April
to
June
2016

April
to
June
2017

April
to
June
2018

April
to
June
2019

April
to
June
2020

performance, and requires continued financing. I think discussions

Future Activities Regarding ESGs-related Bonds

on the possibility of issuing green bonds as a means of raising

Hamada: We have taken a variety of initiatives. What are yourfunds by using such properties has helped increase in the number

thoughts on the next steps?

of green bonds issued by REIT.

Tsubota: We have built up our investment achievements, so

Hamada: Green bond issuance is definitely increasing and I feel

we will thoroughly review issuing bodies of SDGs-related

the number of investors is also expanding.

bonds. We will not only check whether they have an impact

Tsubota: Cooperation with equity analysts includes discussions

on the environment and society that corresponds to thewith companies in severe conditions under the coronavirus

purpose of issuance, but will also think about and ask issuingrecession regarding strengthening of the financial base using

companies on the next issue for achieving a sustainablehybrid financing . While hybrid financing is a debt, some of thesociety.

amount may be recognized as capital by rating companies andHamada: It seems to be a difficult issue, but I think there arefinancial institutions. By discussing with equity analysts, we havestill many things that companies should carry out to solve

been making efforts to have better dialogs with companies on

various social problems, including global warming.

*8

whether equity finance or hybrid finance would be appropriate to

Tsubota: With regard to funds needed to solve issues,

strengthen their financial foundations in view of growth strategies

various sustainable financing methods are being developed

after the coronavirus recession.

in addition to green bonds, and we intend to work with

Hamada: While some people think that the fixed income andcompanies to think about social actions taken by them andequity side are in conflict, because the former requires thefinancing methods for them.

certainty of cash flow and the latter wants growth investments andHamada: It is also becoming increasingly important todividends from investee companies, I think that they have the same

cooperate with equity analysts and persons responsible forgoal in the sense that the growth of a company will contribute to

the Stewardship Development Dept. We are pleased to see

the stability of cash flow and improvement in corporate value. We

an increase in the targets of ESG investment and in liquidity

conduct medium- to long-term engagement for improving

as a result of these efforts. It is the real pleasure of this job

corporate value, and we believe that the goals we need to achieve

to see the market growth up close.

through engagement are the same regardless of the asset.

*7

Transition bondA bond that, in general, is used for projects that do not meet the criteria for issuinggreen bonds in terms of carbon emissions, etc. but that is for transition to a
low-carbon economy and society, etc.

*8

Hybrid financing
Financing that is between debt and capital. It is a form of ﬁnancing and a corporatebond, but if it has a long-term special agreement with a lower priority on repayment,
some of it is allowed to be incorporated as capital by rating companies.

38

Features

Purposes of Stewardship Activities

Stewardship Activity Focus Topics for 2019/2020

Disclosure of Climate-related Financial Information under TCFD
We believe that important issues concerning Environmental, Social, and Governance(hereinafter, ESG) will affect the long-term return of assets under management entrusted
from our customers. In particular, the effects of climate change have certainly begun tomaterialize and are beginning to have an impact on the corporate value of our investee
companies. We believe it is important to evaluate the potential profit opportunities andrisks in these investee companies. As such, we are reflecting the evaluation in
investment decision processes and leveraging it in business management. Based on thisconcept, SMTAM endorsed the recommendations of the Task Force on Climate-related
Financial Disclosures (TCFD) in February 2019. This report discloses our response
policies for climate change issues implemented in accordance with therecommendations, and we explain the response policies against climate change issues
as an asset manager.

Representative Director and Chairperson /Chairperson of the Board of Directors

David Semaya

Our Approach against Climate Change Issues
Climate change issues are a variety of phenomena caused by the progression of global warming, mainly attributable to humaneconomic activities. Changes in weather patterns due to global warming cause ecosystem changes and damage to food, water,
health, and the economy, which can adversely affect sustainable social/economic activities. Under the Paris Agreement thatcame into force in November 2016, signatory nations globally agreed to hold the increase in the global average temperature towell below 2°
C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°
C above pre-industrial
levels, in order to ensure global sustainability. Furthermore, the Intergovernmental Panel on Climate Change (IPCC) published
its Special Report on Global Warming in October 2018, which calls for the reduction of greenhouse gas emissions to net zero assoon as possible. The use of fossil fuels, which are the source of greenhouse gas, must be significantly phased out if these goalsof bringing global warming under control are to be met. Penalties such as usage constraints, carbon taxes, and carbon credits
will increase costs for companies, and companies that own fossil fuels as assets must amortize them. On the other hand,demand for products and services that contribute to the reduction of greenhouse gas is expected to continue to increase andcreate new growth opportunities. We believe that climate change has the potential to cause the global environment todeteriorate in an irrecoverable manner in the medium to long term, and have a significant impact on the corporate value of ourinvestees over time. We are bolstering various activities and information disclosure on climate change issues in order to solve
one of the biggest challenges facing the international community, and to fulfill our fiduciary duty of maximizing the return on
medium- to long-term investments entrusted by our customers and to reduce downside risks.

39

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

TCFD
The recommendations announced by the TCFD call for companies and other organizations to disclose climate change-related
information in the four core areas of (1) governance, (2) strategy, (3) risk management and (4) indicators and goals. The
following is a disclosure of measures on climate change issues to be taken by our company in accordance with therecommendations.

Information Disclosure Recommended by the Task Force*

・ Climate-related risks and opportunities
・ Effects of climate-related risks and opportunities
・ Potential effects of climate scenarios, including the 2°
C or less scenario

・ Process for identifying and evaluating climate-related risks
・ Process for managing climate-related risks
・ Integration of processes for identifying, evaluating, and managing climate-relatedrisks into comprehensive risks

Indicatorsand goals

Risk management

Climate change-related strategies

Climate-Related Governance・ Role of monitoring and management by the board of directors

・ Indicators for evaluating climate-related risks and opportunities
・ GHG emissions under Scope 1, 2, and 3
・ Targets used to manage climate-related risks/opportunities* The underlined items are particulary required for asset managing companies.

Climate-Related Governance
At SMTAM, the Board of Directors performs a supervisory function
on issues related to climate change as well as other important

Supervision

Board of Directors

Execution

Management meeting

management issues. Since 2020, the issues have been clarified as
matters to report to the Board of Directors in the board of directors
regulations so that more direct oversight can be carried out. The
matters to be reported to the Board of Directors consist of thecompany's strategies for climate change issues, risk management,
and monitoring of indicators and goals. These matters are discussed,
planned, and checked by the management meeting chaired by the

Stewardship Committeepresident and organized by the officers who control each businesssector. Under this structure, the stewardship meeting̶across-company organization acting as a secretariat̶promotes
administrative work on risk management and strategies related toStrategy

Engagement
Cooperation with stakeholders
Investment strategy (e.g. ESG integration)

climate change. The supervision and execution of climate change
issues will be primarily carried out through the strategies we
describe later ("Engagement," "Cooperation with stakeholders," and"Investment strategy.")40

Features

Purposes of Stewardship Activities

Stewardship Activity Focus Topics for 2019/2020

Climate Change-Related Strategies(1) Common Climate Change Risks and Opportunities
Opportunities

Transition risks
Regulatory risk

Stricter environmental standards

Technological risk

Obsolescence of existing technology

Market risk

Shift of fossil fuel assets into stranded assets

Reputational risk

Risk of boycotts by consumers

Acute risk

Flood risk, etc.

Chronic risk

Drought risk, etc.

ClimatechangePhysical risks

More efficient resources

Energy-saving technologies/products

Energy shift

Renewable energy

Products/services

Development / volume sales of EVs, etc.

Financial market

Carbon credit, etc.

Resilience

Recycled products, etc.

We have identified climate change as one of the ESG material items and are engaged with domestic and overseas companies̶
we are tackling matters by exercising voting rights and as well as are developing and providing investment products, while
integrating various climate-related risks and opportunities. We are also contributing to the creation of a sustainable future byparticipating in initiatives such as the UN Global Compact, the UN Principles for Responsible Investment (PRI), and CA100+.

(2) Climate Change Risks and Opportunities in the Asset Management Industry

Risk
External
evaluation

Remuneration

Fiduciary
duty
Engagement

Discussion
withstakeholders

Investment
strategy

Opportunity
A. Risk
Risks that the asset management industry receives from climate change include reduced management remuneration. As transition and physical risks become
apparent, management assets from customers are reduced thus reducing management remuneration, undermining the stakes of management. In terms of
fiduciary duty, the industry must actively address climate change risks as asset managers that accept customer capital. As asset owners are increasingly focusing
on climate change initiatives in selecting companies to which they entrust their assets, we believe that failure to do them will lead to a decline in competitivenessas an asset manager.

B. Opportunity
We believe that climate change is an opportunity to expand managing assets by carrying out engagement, collaborating with stakeholders, and making investment
strategies more sophisticated. Engagement with investee companies and cooperation with stakeholders are the most important activities closely related to investment
and product strategies. Said activities include discussions with investee companies, direct/indirect statement of opinions, and support from various policy/institutional
aspects. "Making investment strategies more sophisticated" is to incorporate climate change risks into existing or new investment strategies (ESG integration) and toincrease investment importance on securities issued by companies that take a proactive stance on climate change issues. Through such efforts, we believe it will bepossible to contribute to solving the issues related to climate change.

41

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference(3) Strategy
Strategy

Activity examples

Engagement

Target・ Engagement with individual investment companies

Investee・ Cooperative engagement through PRI, CA100+, etc.

companies

・ Engagement with government offices and industry groups

Cooperation with stakeholders

Investment strategy

Government offices

・ Partnership with NGOs such as Ceres

Industry groups

・ Policy recommendation activities through initiatives such as the Investor Agenda

・ Reflect climate change factors depending on the individual fund style
・ Take into account climate change factors in investment decisions on individual securities

NGO

Customers

Based on our understanding of climate change risks and opportunities in the asset management industry outlined in the previous
section, we have established our specific strategies. We view engagement as a direct opportunity to actively ask for investee
companies to make management decisions and build structures on the basis of climate change risks, in order to maximize asset
under management and reduce operational risk. Engagement may be conducted by SMTAM as its own activities or throughinitiatives*1 such as PRI and CA100+. In cooperation with stakeholders related to climate change, we carry out engagement withgovernment offices and industry groups and offer opinions on policies through the Investor Agenda*1. We reduce management
risks and improve returns by adopting investment strategies based on climate change risks. We reflect climate change factors
depending on the customer's intentions, investment strategies, and other specific circumstances. We increase or decrease
composition the weight of individual securities in consideration of climate change under our investment decisions. We also offer
our customers investment opportunities related to climate change by providing investment products.

Active/passive Investment target

passivepassive

ActiveActiveIndex / investment strategy name

Details

S&P/JPX Carbon Eﬃcient Index*2

・S&P Dow Jones Indices, the world's largest independent index company, builds the index
based on carbon emissions data from Trucost, a pioneer in environmental evaluation.
・The index puts heavier investment weight on companies that have high carbon eﬃciency (lowgreenhouse gas emissions/sales) and companies that disclose information on greenhouse gas
emissions in the same industry. We provide products that are linked to the index.

Global shares(including
domestic shares)

SMT MIRAIndex Eco Index*2

・We use our knowledge of quant active management to formulate the methodology for the
FactSet Global Environmental Opportunities Index, which is an environmental-related theme
index, and FactSet performs calculations.
・Investment targets are companies that obtain more than half of their sales fromenvironmental-related businesses, including "alternative/renewable energy," "energy
conservation," "eﬃcient use of resources," "waste disposal," and "water resource
conservation," and we oﬀer products that are linked to the index.

Domestic shares

Japanese Equity
Impact Investment Strategy

・This is an absolute return-type active investment strategy which aims to achieve social
returns as well as economic returns by means of concentrated investment in companies thatwork on SDGs and other activities to solve social issues.
・The objective is to engage with companies and increase the probability of earning social andeconomic returns on the basis of an impact KPI set for each brand.

Domestic shares

Japanese Equity
Responsible Investment
Management Strategy

・This is an active investment strategy to achieve an excess return againston TOPIX by
investing in companies that have a strong commitment to ESG.
・We select investment brands on the basis of credit risk judgment, ESG evaluation, and shareprice evaluation from SRI universe candidates selected by the Japan Research Institute,which excels in ESG research.

Domestic shares*1 See page 49 and 50*2 See page 48

42

Features

Purposes of Stewardship Activities

Stewardship Activity Focus Topics for 2019/2020

Risk Management
We evaluate the risk of assets under our management related to climate change by asset class. Our assessment method
involves using (1) fixed point analysis based on the disclosed information of companies that make up our portfolio, along with
their performance figures, and (2) transition pathway analysis based on future climate change-related scenarios. The following isa summarized disclosure of analysis results related to domestic and foreign shares managed by SMTAM. The analysis was
carried out using the data and analysis methods of an outside organization *1. (The base date is June 30, 2020.)(1) Domestic Shares
A. Fixed Point Observation
This is an attempt to ascertain the status of Greenhouse Gas Emission Exposure and other conditions at a fixed point in time, based on investee company disclosure
data and other information. Looking at industry-specific emissions shows that utilities and materials account for 70% of total emissions. Notably, even when we lookat portfolio emissions per unit of sales, we see that these two industries still contribute nearly 60% of total emissions.

Industry-speciﬁc Breakdown of Greenhouse Gas Emissions
for the SMTAM Portfolio *2

Comparison of Greenhouse Gas Emissions per Unit of Sales *3

General consumer goods and services 5%

Portfolio

Daily necessities 2%
Energy 7%

Utilities 35%

Benchmark0

Capital goods and services 14%

20

40

60

80

(Unit: tCO2e / $US 1 million）

Information technology 3%

Materials 35%

Telecommunications and services

General consumer goods and services

Daily necessities

EnergyFinance

Health care

Capital goods and services

Information technology

Materials

Real estate

Utilities

Other

B. Transition Pathway Analysis
Transition pathway analysis assesses how the portfolio's climate change risk will change in the face of different scenarios for future climate change. The projected
greenhouse gas emissions of the portfolio are compared with the projected carbon budgets calculated according to different climate change scenarios, and thisproduces an assessment of the portfolio's resilience relative to the different scenarios over time. The portfolio was specifically compared against the 2°
C scenario of
the Paris Agreement, as well as a 4°
C scenario and 6°
C scenario. Assuming the current level of the portfolio is maintained, its emissions would remain within
acceptable levels for the 2°
C scenario until 2036, after which time it is highly likely to exceed them.

Estimated Future Greenhouse Gas Emissions of the Portfolio in Comparison with Various Climate Change Scenarios *4(unit: in 1thousand of tons of CO2e)80,000Emission Budget 6℃

70,000Emission Budget 4℃

60,000Emission Budget 2℃

50,000

Portfolio Emissions

40,00030,00020,000

43

2050

2049

2048

2047

2046

2045

2044

2043

2042

2041

2040

2039

2038

2037

2036

2035

2034

2033

2032

2031

2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2020

10,000

Stewardship Activity Initiatives

ESG Integration

Reference

Disclosure of Climate-related Financial Information under TCFD

(2) Foreign Shares
A. Fixed-Point Observation
Industry-speciﬁc Breakdown of Greenhouse Gas Emissions

Comparison of Greenhouse Gas Emissions per Unit of Sales *3

for the SMTAM Portfolio *2

General consumer goods and services 2%
Portfolio

Daily necessities 3%
Energy 21%

Utilities 36%

Benchmark0

Finance 1%

50

100

150

(Unit: tCO2e / $US 1 million）

Capital goods and services 6%
Information technology 2%

Materials 28%

Telecommunications and services

General consumer goods and services

Daily necessities

EnergyFinance

Health care

Capital goods and services

Information technology

Materials

Utilities

Real estate

Other

B. Transition Pathway Analysis
Emissions in the portfolio would remain within acceptable levels for the 2°
C scenario until 2027, after which time it is highly likely to exceed them.

Estimated Future Greenhouse Gas Emissions of the Portfolio in Comparison with Various Climate Change Scenarios *4(unit: in 1thousand of tons of CO2e)

40,000Emission Budget 6℃

35,000Emission Budget 4℃

30,000Emission Budget 2℃

25,000

Portfolio Emissions

20,00015,00010,000

2050

2049

2048

2047

2046

2045

2044

2043

2042

2041

2040

2039

2038

2037

2036

2035

2034

2033

2032

2031

2030

2029

2028

2027

2026

2025

2024

2023

2022

2021

2020

5,000

Indicators and Goals
Taking into account the strategies, risk management, and various issues regarding access to data discussed so far, we monitor
periods until greenhouse gas emissions per unit sales (GHG intensity: Scope 1 + Scope 2) or future estimation of GHG emission
levels in each portfolio (Scope 1) exceeds the emissions based on the 2°
C scenario with regard to all investee companies withdomestic shares and investee companies with foreign shares managed by SMTAM. In order to secure global sustainability
agreed under the Paris Agreement, signatory nations will continue to hold the increase in the global average temperature towell below 2°
C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°
C above pre-industrial
levels, in order to ensure sustainability.

Policies and Issues for the Future
Under the supervision of the Board of Directors, we will enhance our efforts and disclosure on climate change issues. We
reduce greenhouse gas emissions generated by investee companies through our engagement, provide investment strategies andinvestment products in relation to climate change issues, and allocate resources in an optimal manner, with the aim of
maximizing customers' returns on investments and contributing to climate change issues under the cooperation with investee
companies. We are committed to continuing our efforts to achieve this goal.

*1 Institutional Shareholder Services Inc. *2 Scope 1+2+3*3 Scope 1+2*4 Scope 1

44

Features

Purposes of Stewardship Activities

Stewardship Activity Focus Topics for 2019/2020

Corporate Profile

Provide people and society with everlasting security. That is our mission.
As one of the largest asset management companies in Japan and Asia, we will continue to fulfill our social
responsibilities.
Balance of assets under management

Approx.
67.8 trillion yen

As of the end of June 2020

Investment advisor business Approx. 54.8 trillion yen
Investment trust businessApprox. 13.0 trillion yen

By asset class

By client type

OthersDomestic
shares9.1

Foreign
bonds
10.4

17.2

Other

67.8

11.6
Domesticbonds

Government
fund

19.5
ForeignsharesPublicpensionInvestment
trust

13.0

67.8

6.8

32.7

1.8
13.5

Corporate
pension

54.8
Institutional
Investors

・Shares and bonds make up more than 50% and 30%, respectively,

・We are trusted with a large amount of long-term funds for savings,of the balance of assets under management, and we are actively

including pension funds and investment trusts. We believe that ESG

promoting engagement activities for our investee companies. We

investment from a long-term perspective meets the needs of many

are also working on ESG integration for both shares and bonds.

customers.
・Most of our customers are in Japan, but foreign customers in the
Middle East and Europe have been increasing in recent years.

Companies exercising voting rights

As of the end of June 2020

Number of Japanese companies

Approx. 2,300

Investment balanceApprox. 17 trillion yen

Number of foreign companies

Approx. 2,600

Investment balanceApprox. 19 trillion yen

Stewardship activities [Number of meetings per year]

July 2019 - June 2020

Number of engagements

Approx. 560

Number of engagements

Approx. 370

Number of contacts with companies (total*) Approx. 6,000* Total number of contacts including general interviews, company briefing sessions,factory tours, and telephone conferences as well as engagements

45

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Responding to the Stewardship CodeAt SMTAM we are addressing the principles of the Stewardship Code via the initiatives described in the table below.
And, moving forward, we will continue to fulfill our stewardship responsibilities.

Principle 1
Policy formulationand disclosure

Principle 2
Conflict of interest
management

Principle 3
Accurate understanding

Initiative

Self-assessment

In consideration of the revised Principles for Responsible
Institutional Investors <<Japan s Stewardship Code>>, which
was published on March 24, 2020, we re-endorsed theprinciples and updated our response policy on our website.

・We think our response at present is appropriate, but wewill review our response from time to time when we deem
it necessary.

・As the investment managing company of the Sumitomo
Mitsui Trust Group, we have put in place an essential
conﬂict of interest management system.

・We think our response at present is appropriate, but wewill continue to review it at correct times asenvironmental changes and other factors warrant.

・W e h a v e d i s c l o s e d s u m m a r i e s a s n e e d e d o f t h edeliberations of the Stewardship Activities Advisory
Committee, which is an independent committee.
・We promoted engagement through top-down approaches
on prescribed focus topics.
・W e a i m e d t o f u r t h e r i n c r e a s e c o r p o r a t e v a l u e b y
conducting in-depth analysis on companies with which we
had engagement, and also expanded the number of thecompanies.
・We published the "Policy on exercise of voting rights andstewardship activities in light of the spread of novel
coronavirus" on our website.

Principle 4

・We disclosed our voting records on all proposals for all
brands we hold (in Oct 2019 and Jan, Apr, and Jul 2020).
・We started to disclose the reasons for voting for each of
the proposals which need explanation in light of theguidelines for exercise of voting rights (in July 2020).

Exercise of voting rights

・By March 2018, we had engaged with companies which(cumulatively) cover 90% of the total market capitalizationof TSE1.
・The number of companies we have had engagement withreached approx. 800. Corporate actions that areconsistent with the opinions expressed by us are also
increasing.
・The novel coronavirus is likely to cause signiﬁcant changes
in the way companies do business, and we have declared
and implemented a plan to conduct engagement inresponse to that.

Dialog with companies

Principle 5

・We focused on engagement on agenda such as climatechange, backing corporate governance reform, andpromotion of information disclosure.

・For the shares of the parent company (Sumitomo Mitsui
Trust Holdings), in consideration of conﬂict of interest
management, we use the advice given from proxy advisory
companies for the exercise of voting rights based on ourguidelines for the exercise of voting rights, appropriately
manage conﬂicts of interest with checks that are carriedout by the Stewardship Activities Advisory Committee, andexercise voting rights. In exercising these rights, we started
to disclose the names of proxy advisory companies for the
exercise of voting rights that we used (in July 2020).

・We think our response at present is appropriate, but wewill work to maintain and enhance the transparency of our
exercise of voting rights going forward.
・Moving forward, we will continue to revise our Guidelines
for the Exercise of Voting Rights in a timely andappropriate manner, taking into consideration such factors
as environmental changes facing companies and changing
corporate governance practices.
・In the coronavirus recession, we responded to ourinvestee companies with due consideration to each of
their situations. We will continue to handle matters in thesame manner in the event of another emergency.

・We revised and published our Guidelines for the Exerciseof Voting Rights (in Jan 2020).

Principle 6
Reporting to clientsand beneficiaries

Principle 7
Development of skills

・W e c o n t i n u e t o p r o v i d e e x p l a n a t i o n s a b o u t o u r
stewardship activities to asset owners.
・We released our 2019/2020 Stewardship Report inNovember 2019.

・W e t h i n k o u r r e s p o n s e a t p r e s e n t i s a p p r o p r i a t e ,considering our direct reporting to asset owners, ourhosting of seminars, the release of our Stewardship
Report, and the enhancement of information disclosed on
our website.
・Moving forward, we will endeavor to report in a timely andappropriate manner and also improve and expand thecontent of our activity reports.

・We established a new organization (ESG Reseach andDevelopment Team) within the Stewardship Development
Department to enhance top-down engagement anddispatch related information.
・We started operation of a U.S. local subsidiary (Sumitomo
Mitsui Trust Asset Management Americas, Inc.) on July 1,
2020.

・We believe that it will lead to top-down theme-oriented
engagement and improvement in activities on global
initiatives related to ESG.
・With the tripolar structure of Tokyo, London, and New
York, we believe that we will be able to conduct global,
comprehensive engagement and further enhancestewardship activities.

46

Features

Purposes of Stewardship Activities

Stewardship Activity Focus Topics for 2019/2020

Active Involvement in the Principles for Responsible Investment (PRI)

Established with the support of the United Nations, the Principles for

2020

Responsible Investment (PRI) encourage institutional investors to incorporate
environmental, social and governance (ESG) factors into their investment
decision-making processes. The 100 signatory institutions to the PRI at thetime of its launch in April 2006 represented total assets under management(AUM) of US$6.5 trillion, but as of March 2020, the number of signatories

Strategy and governance(comprehensive assessment)

A＋Integration status of listed equity into
responsible investment

A＋

Active ownership in listed equity

A＋

had increased to 3,038, representing total AUM of around US$103.4 trillion
and a strong indication of the growing importance of responsible investment.
Since becoming a signatory to the PRI in May 2006, we have drafted policies
in accordance with the six principles and implemented initiatives in light of
the latest developments. The PRI evaluates each signatory with respect totheir commitment to and progress on implementing the six principles basedon their reports. A score of A+ is the highest, while E is the lowest. As shownin the table to the right, we have collected favorable scores on the whole
and received a comprehensive assessment score of A+ for the sixth year in arow. We will continue with our active involvement in the PRI going forward

Engagement

A＋

Exercise of Voting Rights

A＋

Fixed income investment(e.g., government bonds)

A＋

Fixed income investment(e.g., corporate bonds)

A＋

and will make every effort to maintain and improve our ratings.

We will incorporate ESG issues into investment analysis and decision-making processes.
Principle 1

We analyze and evaluate non-ﬁnancial information, such as management thoroughness, strategy execution capabilities, and capacity for reform, withthe aim of identifying improvements in or maintenance of sustainable corporate value at investee companies. Furthermore, we seek to implement
initiatives (ESG integration) that utilize the knowledge gained from our analyses and evaluations in our investment management operations.

We will be active owners and incorporate ESG issues into our ownership policies and practices.
Principle 2

We conduct engagements and exercise voting rights with ESG issues in mind; through these activities, we encourage investee companies toimplement appropriate initiatives to tackle ESG challenges.

Principle 3

Principle 4

We will seek appropriate disclosures on ESG issues by the entities in which we invest.
We seek appropriate disclosure of ESG issues from investee companies.

We will promote acceptance and implementation of the Principles within the asset management industry.
We actively promote engagement and awareness-raising activities with investee companies so these Principles gain acceptance and are
implemented in the asset management industry.

Principle 5

We will work together to enhance our eﬀectiveness in implementing the Principles.
We collaborate with investment institutions in Japan and overseas through participation in PRI-sponsored working groups and involvement insignatory bodies established with the aim of resolving ESG issues in order to improve eﬀectiveness in implementing the Principles.

Principle 6

We will report on our activities and progress towards implementing the Principles.
We implement these Principles and produce and issue reports that meet the requirements for signatories to disclose their activities and progress
towards implementing them.

47

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Recognizing and Addressing General Market Risks andSystemic
Risks to Promote Appropriate Function of Financial Systems
As a participant in the global financial market, we also consider it is our responsibility to contribute to the upkeep ofa stable financial system. We control risks in our assets by appropriately understanding market risks, such as eachcountry's interest rates and exchange rates. In addition, we consider the climate change risk, which can affect many
economic sectors and destabilize financial systems, as important criteria for decisions on investment, and will actively
carry out initiatives for addressing it.

Managing market risks
Asset managers conduct transactions in various markets and are having an increasingly large impact on financial markets as their scale of management increases.
Therefore, appropriate risk management is necessary from the viewpoint of smooth market continuation and development.
By measuring tracking errors and durations in portfolios under our management, we understand market risks such as interest rates, exchange rates, and stock prices,and set appropriate limits and thresholds for controlling said risks. In addition, we use methods such as VaR and stress testing to understand the impact of market
fluctuations on our portfolio, and conduct capacity control, such as capping the amount of investment, in order to ensure that each portfolio is managed with anappropriate asset scale.
We secure a healthy operating status by getting an independent department outside investment departments to monitor it. The independent department also
conducts transactions and places orders in markets using the best possible method with due consideration to scale and liquidity of each market.

Addressing climate change risks
There is a growing perception that climate change will destabilize financial systems from the two aspects: physical risks, such as heat wave, drought, and flood, andtransition risks, such as decline in corporate profits and asset value in the midst of the shift to a low-carbon society.
With global ESG activities and investment decisions that take into account ESG elements, we conduct investment activities with due consideration to climate changerisks, and are actively involved in the international society's initiatives against climate change, including participation in TCFD.

Cooperation with other stakeholders
We have signed international corporate behavior policies and principles, and conduct engagement in collaboration with the United Nations and various global
initiatives. Specifically, we signed the PRI (Principles for Responsible Investment), and joined the water risk working group and palm oil working group to carry out
engagement with investee companies. For Climate Action 100+, we play an important role as the lead manager for nine companies mainly in Asia and as a memberof the Steering Committee to formulate plans for activities in Asia, organize signatory organizations, and spread information.
In addition, we were the only Japanese asset manager that joined a collaborative engagement with the Brazilian government on the destruction of the Amazon
forest through the forest conservation working groups in PRI and Ceres. We also held individual discussions with the Central Bank of Brazil and Brazilian
ambassadors in Japan.

Note on the S&P/JPX Carbon Eﬃcient Index
The index provided by S&P Dow Jones Indices LLC is a product of S&P Dow Jones Indices LLC (SPDJI), which is licensed to Sumitomo Mitsui Trust Asset Management Co.,
Ltd. Standard & Poor s® and S&P® are registered trademarks of Standard & Poor s Financial Services LLC (S&P), and Dow Jones® is a registered trademark of Dow Jones
Trademark Holdings LLC (Dow Jones). A license to use these trademarks and a sublicense to use them for specific purposes is granted to SPDJI and Sumitomo Mitsui
Trust Asset Management Co., Ltd, respectively. The financial products in the document are not sponsored, warranted, sold, or promoted by SPDJI, Dow Jones, S&P or its
affiliates, and these parties do not make any representations regarding the appropriateness of investment in the products, and do not bear any liability for errors,omissions, or suspensions in the Index.

Note on the SMT MIRAIndex Eco Index
FactSet and FactSet Global Environmental Opportunities Index are trademarks of FactSet UK Limited and its affiliates and are licensed to Sumitomo Mitsui Trust AssetManagement Co., Ltd. FactSet UK Limited does not support, warrant, sell, or promote this fund and does not make any representations regarding the appropriateness ofinvestment in this fund. FactSet UK Limited does not warrant the accuracy and/or integrity of this index or data contained therein, and bears no responsibility for any
errors, omissions, or suspensions therein.

48

Features

Purposes of Stewardship Activities

Stewardship Activity Focus Topics for 2019/2020

Status of Participation in Global Initiatives (as of the end of July 2020)
As a signatory asset manager to international guidelines and principles on corporate conduct, we engage withinvestee companies while cooperating with the United Nations, NGOs, and other organizations to implement
activities in keeping with our signatory commitments.

Initiatives related to the United Nations and climate change

PRI

Climate Action 100+

Principles for responsible investment which requires institutional
investors to incorporate ESG factors into investment decisionmaking processes.

Joint engagement that requires companies with high GHG
emissions to disclose information based on TCFD

● Signed in May 2006

● Signed in December 2017

(Responsible for the Asia-Pacific region)

Initiatives related to speciﬁc topics

FAIRR

49

Access to Medicine

An engagement body focusing on the ﬁshery and livestockindustries

A collaborative body in which major asset managers andowners in the United States and Europe seek to improve accessto medicine● Signed in October 2018

● Signed in April 2018

30% Coalition
30% Club

SPOTT

An investor network that promotes greater diversity on theboards of directors at investee companies

An initiative established by the Zoological Society of London(ZSL) to support sustainable commodity products● Signed in April 2017

● Signed in February 2020

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

United Nations GC(Global Compact)
Action principles on human rights, labor, environment andanti-corruption. Signatory companies require initiatives for
implementing them.
● Sumitomo Mitsui Trust Group was the first Japanese bankwhich signed the initiative in July 2005

CDP
International NGO to address environmental issues such as climatechange (The forerunner of the NGO was Carbon Disclosure Project)● Signed in April 2014

Initiatives related to ﬁnancial institutions

Ceres
A NGO that promotes corporate
initiatives on environmental issues suchas global warming● Signed in April 2017

ICGN
CIＩ
A non-proﬁt organization thatshares information and views on
corporate governance,
shareholder rights, and so on

An investor association that provides support and advice for
implementing excellent corporate governance practices● Signed in September 2017

● Signed in June 2018

Investor Agenda
AIGCC
An Asian investor association on
climate change

An institutional investor initiative
for promoting low carbon whichacts on climate change● Signed in June 2019

● Signed in December 201750

Purposes of Stewardship Activities

Features

Stewardship Activity Focus Topics for 2019/2020

SMTAM's ESG Investment Policy
Basic Policy
1.

Purpose and Signiﬁcance of ESG Investment
As a signatory asset manager on the United Nations Principles for Responsible Investment, we conduct investment activities(ESG investment) focusing on the medium- to long-term environmental, social, and governance (ESG), on the basis of thevalues presented in the United Nations Global Compact and SDGs. We believe that fulﬁlling the role as an asset manager in
an investment chain through ESG investment will make contributions in promoting value improvement and sustainablegrowth of investee companies, maximizing the investment return of clients (beneﬁciaries) over a medium to long term,
reducing downside risks, and achieving a sustainable society.
The purpose of this policy is to clarify the basic policies and views when we make an ESG investment to reﬂect it ininvestment decision making.

2.

Positioning
1) ESG investment refers to activities as an institutional investor with a focus on challenges and investment opportunities
related to E (Environmental), S (Social), and G (Governance).
2) ESG investment is part of the eﬀort to fulﬁll stewardship responsibilities as a responsible institutional investor.
3) ESG investment is promoted by utilizing direct portfolio management methods such as selection of investment target
brands and weight decision, and other methods including engagement and exercise of voting rights, which are the core of
stewardship activities.

3.

Commitment
1) We take ESG investment into consideration to the maximum extent for all products under our management.
2) We make ESG investments in order to fulﬁll our responsibility (stewardship responsibility) to increase investment return toour clients (beneﬁciaries).
(1) ESG-related issues are non-ﬁnancial issues that do not appear in ﬁnancial information, and may have a signiﬁcant
impact on business opportunities, risks, and corporate value over time.
(2) Actively investing in companies that positively address ESG-related issues and seeking best practices from companies
will lead to the pursuit of a medium- to long-term upside potential.
(3) Reducing investments in companies with ESG issues and correcting ESG-related issues that could damage corporate
value will lead to a reduction of downside risks.
3) We manage portfolios for various investment strategies, and are consistent with each client's investment purposes. In
making ESG investments, we use methods that are most appropriate for investment purposes, targets, and strategies.
4) In making ESG investments, we take ESG materiality below into consideration.

51

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

ESG Materiality
1.

ESG materiality
There are many tasks and topics in each perspective regarding ESG, and information providing institutions, index providers,and other entities evaluate corporate activities with diﬀerent evaluation items as their core. In order to systematize
evaluation items for an ESG investment, we arrange major topics related to ESG on the basis of the purpose of the basic
policy, and deﬁne them as "ESG materiality" as below.

2.

Environment
1) Overview
While all economic activities depend on the natural environment, the activities by humankind after the Industrial
Revolution have placed a signiﬁcant burden on the natural environment and are a challenge that threatens its sustainable
prosperity. In order to achieve a sustainable society and secure medium- to long-term investment return from client
assets, it is necessary to take into account elements of the natural environment in investment activities and to support therealization of a recycling-oriented society.
2) Climate change
Global warming, which is attributable to the accumulation of greenhouse gases such as carbon dioxide, and the resulting
extreme weather are not a threat in the future, but rather a reality that is in front of us. We consider climate change as
the most important issue aﬀecting all economic entities, and reﬂect measures for mitigating and adapting to it in ESG
investment decisions.
3) Natural capital
Improper use of natural capital, which is a major material in economic activities, makes sustainable use of resources
impossible and threatens the sustainable prosperity of society. We will reﬂect the situation regarding the sustainable useof natural capital such as water resources, mineral resources and ﬁshery resources in our ESG investment decisions.
4) Pollution & waste
If various wastes generated as byproducts of economic activity are not properly managed by companies, the naturalenvironment will be damaged and scarce resources will be consumed. We reﬂect the sustainability of material ﬂow
throughout life cycles of products in our ESG investment decisions.
5) Environment-related opportunity
The environmental issues in 2) to 4) above lead to the creation of new markets as represented by renewable energy
through policy changes at a government level and changes in consumer awareness. We view this as an investment
opportunity and reﬂect it in our ESG investment decisions in order to support the shift to a sustainable society andachieve growth of client assets.

3.

Society
1) Overview
Companies must not only comply with internationally supported laws and regulations, but also operate with consideration
to the interests of diverse stakeholders, including clients, employees, local communities, and members of worldwide supply
chains. As the population structure changes and awareness of diversity deepens, the standards required for companies are
increasing daily. In order to realize a sustainable society and ensure medium- to long-term investment return from client
assets, companies must always seek a high level of eﬀort.
2) Human rights and community
As a signatory asset manager for the United Nations Principles for Responsible Investment, we urge investees to act incompliance with international standards. For companies that have signiﬁcant problems in relation to international
standards, such as the manufacturing of cluster bombs and other inhumane weapons, we approach them through ourengagement, and consider removing them from our investment targets. We reﬂect corporate activities related to humanrights and community in our ESG investment decisions.

52

Features

Purposes of Stewardship Activities

Stewardship Activity Focus Topics for 2019/2020

3) Human capitalAs the economy pushes a shift to service, the quality of employees and the degree of engagement with employees are
becoming more important factors that determine corporate performance.
On the other hand, at one end of expanding supply chains, there is a risk of inappropriate actions, such as neglecting
work environments and abusing the human rights of workers. We approach companies that violate laws and regulations
through our engagement and consider removing them from our investment targets. Additionally, we reﬂect the status ofinitiatives for improving performance through motivation improvement in our ESG investment decisions.
4) Security and liability
As economic activities become more complex, including globalization of supply chains and the rapid progress ofdigitization, there is growing risk of tangible and intangible damage to clients and other stakeholders through products
and services that are the output of corporate activities.
We take into account the vulnerabilities that lead to such risks and consider how we should respond to and reﬂect themin our ESG investment decisions.
5) Society-related opportunities
The social issues in 2) to 4) above lead to the creation of new markets through policy changes at a government level andchanges in consumer awareness. In addition, expanding services to communities and people where basic services
necessary for achieving SDGs, such as medical services, are lacking, will lead to create new markets. We view this as aninvestment opportunity and reﬂect it in our ESG investment decisions in order to support the shift to a sustainable society
and achieve growth of client assets.
4.

Governance1) Overview
Investment return is obtained when the interests of a target company coincide with those of stakeholders represented byinvestors, and its business goal is achieved. Corporate governance is the most basic system for this purpose, and it isnecessary to consider it as a common important matter for all investees in order to secure investment return from client
assets over a medium to long term.
2) Behavior
Whether a company conducts management with due consideration to the interests of its stakeholders is evident in its
behaviors. We take into account behaviors such as capital eﬃciency and information disclosure and reﬂect them in our
ESG investment decisions. We take particular care with regard to information disclosure in accordance with all ESG topics
because it is the starting point of relevant action.
3) Organizational design
Corporate governance should be expressed objectively in corporate organizational design, including the composition of aboard of directors. We check the appropriateness of organizational design with consideration to formal requirements
such as the composition of a board of directors and shareholders, and anti-takeover measures, as well as thecharacteristics of the industry and country/region, and reﬂect it in our ESG investment decisions.
4) Stability and fairness
During a company's economic activities, there may be events that can have negative impacts inside and outside the company,
ranging from deliberate violations of laws and regulations, to accidents. Depending on their details, they will not only go againstsocial interests, but also greatly undermine the value of the company. We take into account the code of conduct for appropriately
addressing these risks and risk management systems including their prevention, and reﬂect them in our ESG investment decisions.
5) Governance improvement
Because corporate governance is positioned as the core of corporate economic activities, it is expected that improvements incorporate governance with signiﬁcant problems will quickly see an improvement in corporate performance and investment
return. We will take into account the progress of governance improvements and reﬂect it in our ESG investment decisions inorder to improve investment return over a medium to long term with appropriate engagement.

53

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

ESG Investment Methodology
In order to reﬂect this policy in investment decisions, we implement an appropriate combination of the following methods
depending on the characteristics of the fund, and make eﬀective ESG investments.
1.

ESG negative screening
Under certain criteria, we exclude companies from our investment universe who have signiﬁcant problems from theperspective of ESG, such as those that manufacture inhumane weapons and that conﬂict with international codes.

2.

ESG positive screening
We actively invest in companies with high ESG ratings within each sector.

3.

Integration of ESG-related information
We incorporate knowledge obtained from analyzing/evaluating non-ﬁnancial information regarding ESG and other matters
into processes regarding selecting brands of each fund and building portfolios in an explicit and systematic manner.

4.

Topic investment
We establish topics regarding ESG and organize and manage funds that mainly incorporate companies related to it.

5.

Impact investment
We form and manage funds with an explicit purpose of having a positive impact on society from the ESG perspective, as wellas producing economic investment return.

6.

Engagement
we hold constructive dialogs on ESG topics with investee companies as an opportunity to seek best practices fromcompanies and improve their value over a medium to long term.

7.

Exercise of voting rights
We call for minimum standards and value improvement in investees by reﬂecting ESG factors in voting "for" or "against" anagenda item in the exercise of voting rights of investees.

54

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.