2022/ 2023

CONTENTS

3 Message from the CEO
5 Purposes of Stewardship Activities
7 Evolution of ESG Investments and Our Initiatives
9 2021/2022 Stewardship Activity Focus Topics
11 Features
11
17
19
21

SMTAM Eﬀorts related to Climate Change Issues
SMTAM Eﬀorts related to Human Rights Issues
ATM/AMRICAP (Investor Climate Action Plans)

23 Stewardship Activity Initiatives
23
27
29
33
34
41
43
45

Overview
SMTAM s ESG12 Topics
Status of Top-Down Engagement Initiatives
Engagement that Contributes to Improved Investee Corporate Value
Engagement Example Cases
Activity Report from the New York Base
Activity Report from the London Base
Exercise of Voting Rights

51 ESG Integration
51
53
57
61

Overview
SMTAM's ESG Investment Strategy - Active Investment
SMTAM's ESG Investment Strategy - Passive Investment
Fixed Income ESG

65 Disclosure of Climate-related Financial Information under TCFD
73 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 made throughout the Sumitomo
Mitsui Trust Group include striving toprovide stakeholders with value andcollaborating on sustainability activities
with scope to boost the long-term
corporate value of the Group over time
based on transparency.
Sumitomo Mitsui Trust Holdings
website (https://www.smth.jp/en/csr/)
includes a full report and provides
additional reports on topical areas otherthan Stewardship, such as Natural
Capital and Real Estate ESG.

Our aim at all times is to be an asset management company
with closer relationships to our clients.
At Sumitomo Mitsui Trust Asset Management,
our top priority is striving to consistently boost the value of clients' assets entrusted to us in themedium to long term and actively promote stewardship activities as part of this aim.

2

Message from the CEO

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

2021/2022 Stewardship Activity Focus Topics

Realizing opportunities today
to ensure sustainable prosperity for tomorrow.
Your goals are our goals. Your success is our success.
We strive to create the new standard of asset management that
acknowledges the aspirations of all our investors and stakeholders
and work with each of you every step of the way.

From Transient ESG to Sustainable ESG.
The spread of the COVID-19 pandemic and therights issues on a global scale has increased, and many

invasion of Ukraine by Russia have had a major impact

companies are taken action by withdrawing theiron society, the economy, politics, and other areas

business from Russia. A number of investee companies

throughout the world, which has deeply affected

are not passively accepting the use fossil fuels but,people s lives. Some people may believe that efforts

rather, have shown a positive attitude by using these

related to ESG issues would be halted by such

efficiently based on a long-term perspective while also

emergencies and abnormal circumstances. However,reducing greenhouse gases.

we feel the opposite.
The pandemic and Ukraine are two major issues
The COVID-19 pandemic has encouraged work stylereminding us that efforts related to ESG issues andreform. Investee companies shifted their thinking so that

improving sustainability are vital even in times ofsuch workstyle reformations have lead to corporate

emergencies. We believe that the real value ofvalue. In anticipation of thein aconcepts, beliefs, and actions of society, companies,

post-pandemic world, we feel that more companies are

New Normal

and investors have been put to the test. Additionally,

promoting workstyles based on an understanding ofthese two issues have brought about apeople s behavior, the economy, and that business

ESG.

frameworks will never completely go back to the way

Permeation

tothey were, and are transitioning their business itself in

Particulars,

and from aorder to maintain and improve corporate value.

Compound perspective,
Transient ESG

3

Change in

In other words, it has transitioned from
Refinement,

to

from

Generalities

Singular perspective

to

to a

resulting in a change from

Sustainable ESG.

Therefore,

The invasion of Ukraine by Russia has had a major

although ESG issues change over time, the response

impact on humanitarian issues as well as on the global

to such issues and the priority on sustainability are

economy and the financial market, including issues

constant. Moreover, it will become ever morewith energy security and food. Awareness of humanimportant to carefully consider and respond to ESGs

Stewardship Activity Initiatives

Features

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Referencefrom a long-term perspective while considering suchchanges.
From this perspective, SMTAM, as a signatory instituteof the Principles for Responsible Investment (PRI), will
endeavor to understand such changes to society andcompanies in order to perform engagement, exercise
voting rights, and make investments for fulfilling its
mission to maximize returns on assets entrusted by ourclients.
Our Stewardship Report for this fiscal year will
introduce the various efforts we have made over the
past 12 months. Feature articles introduce our efforts
related to carbon neutrality as well as progress toward
human rights issues and issues related to access to
medicines. I hope that this report will help all tounderstand our company s activities, which are being
carried out by everyone reading this report including
our stakeholders.

Representative Director and President

Yoshio Hishida4Message from the CEO

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

2021/2022 Stewardship Activity Focus Topics

Purposes of Stewardship Activities

Supporting Value Creationin the Investment Chain.
Sustainable growth of investee companies drives growth in earnings, and growth in earnings drives growth individends and wages which, ultimately, benefits household economies and the growth of the economy as awhole. 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 corporate value, leading to maximum returns for our clients, while at the same time
contributing to the achievement of SDGs.

The foundation of
SMTAM's Stewardsip

Balance of assets
under management

Investee company

Clients and Society

Sustainable growth

Medium-to-long-term investment
return growthPursuing SDGs in partnershipwith investor(Stocks/Bonds)
41

analysts

Domestic Network

ct

s

e

dia

lo g

ht

iv

ue and en g age

me

nt

R

ig

rci

ru

t

E

xe

ns

16 organizations

Engagement
Constructive
DialogueCoeDisclosurInitiatives

s
Re

233

in v eInvestment
Chain Enhancement

Licensed securities

Global Network

d
an

ng

Engagement specialists

d

r ni

ings growth-dr
Earn
ive
nd
ivi
de
n

84 trillion yen

for growth of the global economy

th
grow
ge
wa

st m ent of ea

Activity*1s e o f V o tingInitiatives
6 organizations
Total commitment to our clients and our world.

External evaluation

SMTAM s ESG Materiality*2*1 As of the end of June 2022 (As the end of March 2022 for licensed securities analysts).

5*3 See our website. https://www.smtam.jp/company/information/philosophy/*2 See pages 78 to 80.

SMTAM s 6 Behavior Policies*3

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Realizing opportunities today
to ensure sustainable prosperity for tomorrow.

Stewardship Activities

Stewardship Activity Outcomes

Output*4

Domestic
Number of engagement
meetings: Approx. 1,200

Overseas
Number of engagement
meetings: Approx. 320

Positive actions byinvestee companies

Domestic
Targets for exercise of voting:Approx. 2,600 companies

Overseas

Contribution for responding to ESG issues

Features

Maximize investment
return for clients

Maximize corporate value
for investee companies

Increasing the wealthof stakeholders

Targets for exercise of voting:Approx. 2,700 companies

Reinvestment for increasing SMTAM value*４ The number of engagements are from July 2021 to June 2022, and the number of target companies for exercise of voting rights are as the end of June 2022.

6

Message from the CEO

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

2021/2022 Stewardship Activity Focus Topics

Evolution of ESG Investments and Our Initiatives
With the evolution of ESG investments around the world,
we are one of the ﬁrst companies to promote proactive initiatives, including product development.
As a responsible institutional investor in favor of the Japan s Stewardship Code, and as a body that has signed theUN PRI, we aim to achieve sustainable growth and sustainability for the company and all of society by encouraging
companies to resolve ESG issues through business excellence. Today, both throughout the world and in Japan, there isa major change occurring. Companies themselves are seriously considering the balance between solving social issues andachieving business results, and there is a call for how businesses should get there. As an asset management company, wetake this change 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.

Since theEvolution of
ESG Investments

1920s

Initial ethical investment

SRI as a social movement● Choice of investees based on● Cooperation with social movements including

1920

1960

religious and ethical motives

Our initiatives

1960shuman rights, labor, and the environment

2003

2010

Started oﬀering publicly oﬀered
investment trusts of Japaneseshares SRI for Individual investors

Started oﬀering publicly oﬀered
investment trusts of Chinese shares SRI

2004
Started oﬀering SRI funds to DC

2006
Signed PRI (Principles for
Responsible Investment)

7

2014
Accepted Japan s Stewardship Code (SSC)

Features

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

2006

Presented the concept of ESG in

PRI (Principles for Responsible Investment)
for the ﬁrst time in the world

2015

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

1990s to 2000s

2010s

Both ﬁnancial andnon-ﬁnancial assessments

Integrating the environmental andsocial impact of investments● Merging ﬁnancial andnon-ﬁnancial (ESG) assessments● Integrated an assessment of the company's

response to ESG issues and ﬁnancial impact

1990

2000
2006 SRI● Integrating the environmental and social impact ofinvestments as well as investment returns

2010

2020

2019 Impact an evolution of SRI and ESG investments

2015 ESG

Developed an impact investment fund as

2015

2019

2020

Introduced ＭＢＩＳ® for non-ﬁnancial
information assessment

Developed impact
investment products
Set Seeds in Japanese Stocks(Commercialized in 2020)

Set Global Shares Impact Fund Seeds

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

Accepted the revised SSC

2021
Listed on SMT ETF Carbon Eﬃcient Index Japan Equity

2017
Established the Stewardship Development Department

2022

Established the Stewardship Activities Advisory Committee

Bloomberg MSCI Global Aggregate Sustainability A+
Index-Linked Setting (Bonds)

Accepted the revised SSC

Sponsored by Tokyo

Tokyo Financial Award

ESG Investment Categoryout of 40 ﬁnancial institutions across 10 countries

Award-winning Company

Started high-return, low beta strategy (Domestic
shares, ESG consideration type) for pension trust

2019
Received the Tokyo Financial Award
ESG Investment hosted by
Tokyo Metropolitan Government(February 2019)

2022

Asia Asset Management magazine
Best of the Bests Country Awards <Japan> Category
Received Best ESG Engagement Initiative8

Message from the CEO

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

2021/2022 Stewardship Activity Focus Topics

2021/2022 Stewardship Activity Focus Topics
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 2021 and September 2022.

2021 11

Attended COP26 Glasgow, UK
Company Chairman, David Semaya, attended the 26th UN Climate Change
Conference of the Parties (COP26). He attended the World Climate Summit
where investors and non-governmental organizations from around the world
gathered to discuss climate change, and took the platform as a panelist.

Mr. Semaya is second from the left

Participation in Financial Sector Commitment Letter on
Eliminating Commodity Driven Deforestation

We were the only investment manager from Japan*1 to agree and join the Financial
Sector Commitment Letter on Eliminating Commodity Driven Deforestation
announced at the 26th UN Climate Change Conference of the Parties (COP26). Thisinitiative was approved by more than 30 global investment managers. Mr. Semaya
gave a speech at the memorial reception hosted by Prince Charles, and he
explained our company s activities to world leaders on climate change.

Panelist at the World Antimicrobial Awareness Week 2021 AMR*2 event(UK Base)

Stewardship Report 2021/2022 published

2022

1

Revision of Guidelines for the Exercise of Voting Rights for Domestic Shares*See pages 45.

Received Best ESG Engagement Initiative <Japan>
Received Best ESG Engagement Initiative for our ESG engagement activities presented by the Asia
Asset Management *3 magazine, and received the award for Best Impact Investing Manager for
impact investment based on achievement of SDGs.

Introduced Company Activities as ICAP Best Practices
The Investor Agenda *2, which is a global initiative, introduced our stewardship activities as a leading bestpractice for the assessment framework known as ICAP (Investor Climate Action Plans).

Participated in Ceres*2 Paris Aligned Investment Working Group Panel (US Base)
Since our company activities were selected as a leading best practice for ICAP, we participated in the panel,
which introduced the status of our efforts at the Ceres Working Group (WG). We also encouraged otherinvestment managers who attended the WG to participate in ICAP.

9Features

Stewardship Activity Initiatives

2022

3

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Selected as an Advisory Group member representing Asia
for the Net Zero Asset Managers Initiative (NZAMI)*2

We were selected as an Advisory Group member representing Asia that is made up of six signatory managers,
and participating in the overall management of NZAMI.

Participated in the FAIRR*2 Working Conditions Engagement Program (US Base)We became a leading investor through dialogue with Brazilian companies about human rights and work
environments as collaborative engagement phase 2 for the livestock supply chain.

45

Appointed as co-chair of the CA100+*2 Global Steering Committee
Up to now, we participated in the Global Steering Committee as an Asian representative. However, this time, wewere appointed as co-chair of the said committee (term is until September 2022).

Setting interim targets for net zero greenhouse gas emissions for assets under management
We set up interim targets for 2030 for net zero greenhouse gas emissions of investee companies by 2050, whichhave been promoted through NZAMI.

SMTAM President Hishida appointed to the 30% Club Japan*2 Steering Committee
He had been the chairperson of the 30% Club Japan Investors Group, and has also been assigned to participate
as a member of the Steering Committee.

Nikkei Project related to the future of the Asset Management

Companies SMTAM Senior Managing Director Horii on stage for
Questions on the Real Value of ESG Investment

Appearance at Webinar in Taiwan
Participated in a webinar for management at listed companies in Taiwan hosted by
the Taiwan Stock Exchange and Alliance Advisors * 4 and explained SMTAM sengagement activities and policy for exercise of voting rights, etc.

6Appearance at CDP*2 Webinar
Participated in an Investor-Corporate Dialogue webinar hosted by CDP in
Indonesia, and explained SMTAM s concept of the role of institutional investors who
support transitioning to a sustainable palm oil supply chain.

*1 As of November 2021
*2 See pages 75 and 76.
*3 Asset management related journal that began being published in Hong Kong in 1995, which presents Best of the Best Awards to excellent asset management companies andservice providers in the Asia-Paciﬁc region every year.
*4 Alliance Advisors is a consultation company focused on Hong Kong and Taiwan that specializes in ESG.

10

Purposes of Stewardship Activities

Message from the CEO

SMTAM Efforts related to Climate Change Issues

Feature1

Evolution of ESG Investments and Our Initiatives

SMTAM Efforts related to Human Rights Issues

2021/2022 Stewardship Activity Focus Topics

ATM /AMR

ICAP (Investor Climate Action Plans)

SMTAM Efforts related to Climate Change Issues

Realizing Carbon Neutrality by 2050

Climate change issues include a variety of phenomena（1）Confirming the current state of greenhouse gas emissions

which affect our lives that are caused by the progression of

by SMTAM200 companies*1

global warming, mainly attributable to human economic

Confirming gaps between greenhouse gas suppression

activities. Changes in weather patterns due to global

targets by the Japanese Government (Top-Down

warming cause changes to ecosystems and damage to

Scenario) and accumulated reduction plans byfood, water, health, and the economy, which can adversely

SMTAM200 companies (Bottom-Up Scenario)

impact sustainable social/economic activities. We prioritize

Confirming the industry-scope composition ratio

our responses to such climate change issues among our（2）Scenario analysis for reducing greenhouse gas emissions
by SMTAM200 companies

Stewardship Activities agenda. Here, we would like tointroduce the collaborative research being carried out with

（3）Identifying priority fields (industries, technologies, etc.) for

The Japan Research Institute, Limited (hereinafter JRI) as

achieving governmental goal by SMTAM200 companies

one of our activities over the past year related to this issue.

（4）
Determining SMTAM s carbon neutrality strategy
1.Confirming the current state of greenhouse gas emissions in

Collaborative Research with JRI

the domestic shares portfolio

We engaged in collaborative research with JRI for seven

When it comes to greenhouse gas emissions, the Japanesemonths from September 2021 to March 2022 in order toGovernment has currently set the goal of 46% Reduction byformulate strategies that contribute toward carbon

2030 (Compared to 2013) * 2 and Realization of Carbon

neutrality in Japan such as

Promotion of Engagement

Neutrality by 2050. We set this as a Top-Down Scenario,

with Added Value

Discovering Investment

and set the emissions outlook for SMTAM200 companies

The JRI combined their specialized(total reduction plan value by each company based on

knowledge related to climate change with the knowledge

disclosed data) * 3 as the Bottom-Up Scenario, and thenof our corporate analysts who are industry specialists andperformed a comparison and analysis of the outlook for

ESG specialists to promote research. The following shows

greenhouse gas emissions for both. As a result, we confirmed

the specific steps.

that the divergence for both 2030 and 2050 was about 4%

Opportunities.

and(Figure 1).

Figure 1: Comparison of Top-Down and Bottom-Up Scenarios（100 million CO₂t）

SMTAM200 Scenario

Total greenhouse gas emissions(actual value / target) by target
200 companies

Carbon neutrality
achievement scenario

Change from current (2020)
greenhouse gas emissions at the sameratio as the goal set by the government

14

Divergence in 2030

▲56 million CO₂t

12

8

Divergence in 2050

6

11

0

Compared to 2013
▲96％

Compared to 2013▲46％

4

▲55 million CO₂t

(4.3% of 2020 emissions)Compared to 2013
▲100％

2

Divergence of Reduction Amount(4.4% of 2020 emissions)Compared to 2013
▲42％

10

2020

2030

2040

2050

Source: JRI

Features

Stewardship Activity Initiatives

ESG Integration

Reference

Disclosure of Climate-related Financial Information under TCFD

Next, we checked forecasts for greenhouse gas emissions by

According Scope 1+2+3 base, compared to only Scope 1

SMTAM200 companies according to the industry for 2030

base, the ratio forand 2050 (Figure 2 (Scope 1 base), Figure 3 (Scope 1+2+3

relatively high. This is because in Scope 3, emissions arebase)).

expected to be high in Category 1 (Purchased Goods andAccording to Scope 1 base, the scenario is that emissions

Services) and Category 11 (Use of sold products).

fromEnergy Resources

andElectricity / Gas,

Automobile

andElectronics

is

which

As for industries where emissions are expected to remain in

accounts for a large portion as of 2020, will quickly reduce

2030 and 2050 for Scope 1 base and Scope 1+2+3 base, it

after 2030, and carbon neutrality will be achieved by 2050.

will be necessary to request further efforts for goals to

In addition, Steel / Nonferrous metals and Raw materials /reduce greenhouse gas emissions.

Chemicals will still have a high ratio in 2030 and 2050.

Figure 2: Expected greenhouse gas emissions by SMTAM200 companies in 2030 and 2050 (Scope 1 base)Transportation / Logistics

Transportation / Logistics

Energy Assets

2020

Electricity /Gas

Electricity /

2030

Gas

Construction /Materials

Steel /
Nonferrous metals

Steel /

Raw materials /Chemicals

Energy Assets

Electronics /Precision instruments

2050

Steel /

Construction /Materials
Raw materials / Chemicals

FoodTransportation / Logistics
Energy Assets

Nonferrous metals

Construction /Materials

Raw materials /Chemicals

Automobiles /Aircraft

Nonferrous metals（100 million CO₂t）
14
12
10
8
6
4
2
0
2020

2030

2040

Source: JRI

2050

Figure 3: Expected greenhouse gas emissions by SMTAM200 companies in 2030 and 2050 (Scope 1+2+3 base)Energy Resources

Electricity / Gas

Raw materials /ChemicalsElectronics /Precision
instruments

2020

Automobiles /AircraftEnergy Resources

Electricity / Gas

Electronics /Precision
instruments

Raw materials /Chemicals

2030
Automobiles /Aircraft

Machines

Machines

Transportation / Logistics

Information
communication /Service, other

2050

Electronics /Precision
instruments

Steel /
Nonferrous metals

Steel /
Nonferrous metals （100 million CO₂t）

Raw materials /ChemicalsElectricity / Gas

50

Automobiles /AircraftSteel /
Nonferrous metals

Machines

45
40
35
30
25
20
15
10
5
0
2020

Source: JRI
2030

2040

2050

*1 The top 200 companies for greenhouse gas emissions among domestic share investee companies. Estimated to be equivalent to 80% of emissions by listed companies in Japan.

*2 Also states Aiming for 50% reduction.
*3 As of the end of August 2021. To prevent overlap of Scope 2 by individual companies and Scope 1 power companies, only Scope 1 values by individual companies are usedinstead of Scope 1+2 (base is Scope 1). However, if only Scope 1 is not disclosed, Scope 1+2 and Scope 1+2+3 are used as alternatives. Also, Scope 1+3 values are onlyused for TEPCO and Chubu Electric Power in consideration of JERA. Scope 1+3 values are used for coal, oil, and gas due to their business style.

12

Purposes of Stewardship Activities

Message from the CEO

Evolution of ESG Investments and Our Initiatives

SMTAM Efforts related to Human Rights Issues

SMTAM Efforts related to Climate Change Issues

2.Scenario analysis for reducing greenhouse gas emissions
by SMTAM200 companies

2021/2022 Stewardship Activity Focus Topics

ATM /AMR

ICAP (Investor Climate Action Plans)

In this research, we also conducted scenario analysis on
methods for reducing greenhouse gases such as Energy

Next, we researched efforts for reducing greenhouse gas

conservation,

emissions and their expected effects through disclosed

・ Energy conservation : Energy conservation BAU *4 (① inElectricity, and Innovation.

information and hearings with SMTAM200 companies. As a

Figure 5)

result, we confirmed that between now and 2030, mostenergy-saving efforts

companies will focus on (Further) Energy Conservation and(hereinafter

Electricity, which is mainly a change in the composition of(same as ③) including Ambitious energy-saving efforts

procured electricity, and between 2030 and 2050, they will(both based on the assumption that the annual reduction

focus on Innovation by developing new technologies (Figure 4).

which does not include

Ambitiousin the 6th Basic Energy Plan

Basic Energy ) and

Energy conservation

ratio in 2030 continues after 2030) *4 Refers to Business As Usual・ Electricity : Estimation of Electricity BAU (same as ②)
when forced carbon neutrality is no longer effective (Mainly

Figure 4: Expected period and factors for greenhouse gas
reduction by SMTAM200 companies

Renewable energy + LNG thermal power, renewal ofAmount ofgreenhouse gas emissions

nuclear power plants does not progress), and Electricity(same as ④)

assuming zero-emission thermal power

generation and renewal of nuclear power plants according

Further energy
conservation

to the basic energy plan

Electricity

・ Innovation : Achieves carbon neutrality (same as ⑤) byInnovation (Developing
new technologies)

handling the reduction amount not achieved from thesefour items

Improving existing
technology

Figure 5 shows the transition in the greenhouse gas emission

Creditreduction amounts based on these assumptions.
The analysis results indicate that when it comes to the

Now

2030

2050

Effect accumulation⇒ High probability

amount of contribution toward reduction for achievingcarbon neutrality by 2050, Energy conservation BAU is 8%,

Qualitative evaluation⇒ Low probability

Electricity BAU is 16%, Energy conservation is 21%, andNote: Technological measures are sorted as Methods based on improvements toexisting technologies (Existing Type) and Methods based on newly

developed technologies (New Type). Hereinafter, newly developed
technologies that are important for achieving carbon neutrality are referred
to as Innovation.
Source: JRI

Innovation is 33%, and it was confirmed that Innovation
represents the largest contribution. Although

Energyconservation BAU and Electricity BAU can be expected toreduce naturally, Energy conservation,

Electricity, andFigure 5: Transition in amount of greenhouse gas reduction by SMTAM200 companies according to method
2020
0

2030

2040

2

2050

①Energy conservation
BAU

Natural reduction only

②Electricity BAU

Natural changewith electricity③Energy conservation

Achievement of aggressive
energy conservation④Electricity

Achievement of basic
energy targets⑤Innovation

Achieving carbon
neutrality by 2050

4

6

8

10

12

Method [100 million CO₂t]

2030

2050

①Energy conservation BAU

0.4

1.0

②Electricity BAU

0.8

2.0

③Energy conservation

1.0

2.7

④Electricity

1.6

2.7

⑤Innovation

0.7

4.2

Total

4.5

12.8

14
（100 million t）

13

Source: JRI

Features

Stewardship Activity Initiatives

ESG Integration

Innovation are each difficult to achieve, and we recognize

Figure 6: Improvement ratio in energy efficiency for achieving
2030 targets set by the Japan Governmentthat more aggressive efforts will be needed.
For example, regarding

Reference

Disclosure of Climate-related Financial Information under TCFD

Energy conservation,energy(%)

efficiency improvements by 2030 according to the Japanese

110

Government are far higher than the achievements between

1990-2010

1990 to 2010, and are also greater than the achievements

100

between 1970 to 1990, which include the first and second90

Oil crises (Figure 6).
As for Electricity, trends with nuclear power plants are a

80

major uncertainty factor. The Japanese Government showed

1970-1990

analysis where the number of operating plants will reduce70

drastically after 2040 if no new nuclear power plants areconstructed (Figure 7). In this case, in order to realize

60

balance between electricity demand and carbon neutrality, it
will be necessary to compensate for the lack in power supply

2012-2030
40％improvement

50

using zero carbon thermal power. There are some costs andtechnology issues related to practical use of zero carbon

40

thermal power, so we believe that realization of Electricity

05will be accordingly difficult.
Innovation

15

20（Years）

Source: Agency for Natural Resources and Energy
Expected Supply and Demand in FY2030 (Reference Document)

Based on such examinations, we concluded that progress
with

10

and efforts for implementing these tosociety as soon as possible are highly important for achievingcarbon neutrality.

Figure 7: Expected ability of nuclear power plants in Japan to generate power
According to the 2012 revisions to the Act on the Regulation of Nuclear Source Materials, Nuclear Fuel Materials and Reactors, it was determined that
nuclear power plants in Japan will operate for 40 years、However, this can be extended a maximum one time for up to 20 years if they comply with thestandards stipulated in the rules of the Nuclear Regulatory Commission.
million kW
5000

40-year operation scenario
60-year operation scenario
4000

2050
23 Units: 23.74 million kW(166.3 billion kWh)

3000

2060
8 Units: 9.56 million kW

2000

3 Units: 4.14 million kW(29 billion kWh)1000

3 Units: 4.14 million kW

2089

2087

2085

2083

2081

2079

2077

2075

2073

2071

2069

2067

2065

2063

2061

2059

2057

2055

2053

2051

2049

2047

2045

2043

2041

2039

2037

2035

2033

2031

2029

2027

2025

2023

2021

2019

2017

2015

2013

2011

0

Source: Agency for Natural Resources and Energy, Advisory Committee for Natural Resources and Energy,
Strategic Policy Committee, Investigation for Realization of Carbon Neutrality by 2050

14

Message from the CEO

Purposes of Stewardship Activities

SMTAM Efforts related to Climate Change Issues

Evolution of ESG Investments and Our Initiatives

SMTAM Efforts related to Human Rights Issues

2021/2022 Stewardship Activity Focus Topics

ATM /AMR

ICAP (Investor Climate Action Plans)

3.Identifying priority fields (industries, technologies, etc.) for

further implement Storage batteries in order to promoteachieving governmental goal by SMTAM200 companies

implementation of energy recycling while minimizing theRegarding fields where

Innovations

are expected, on

burden on electricity systems. At the same time, if Hydrogen

December 25, 2020, the government announced the Green/ Fuel ammonia,

Growth Strategy Through Achieving Carbon Neutrality inabundant, can be obtained through production based on

2050

which are clean, inexpensive, and(revised on June 18, 2021), and indicated therenewable energy and value chain establishment, existing

formulation of an action plan that sets ambitious goals

thermal power generation will become cleaner, making it

according to 14 priority fields, as well as the orientation forpossible to ensure power coordination, which is necessary

implementing all policies (Figure 8).

for implementing renewable energy. In addition, regarding

Although each of these 14 fields is important and require

Carbon recycling

attention, in our research, we focused on Storage Batteries,

dioxide is reused, use of hydrogen will make it possible toHydrogen / Fuel Ammonia, and Carbon Recycling fromexpand its usage including as fuel. We have concluded that itcomprehensive perspectives including

will be difficult to accomplish carbon neutrality in Japan

Diffusion Time,

Ripple Range,

Technological Superiority,

andwhere separated/collected carbon

without establishing such circulation.

Greenhouse Gas Gap. We believe that investee companies

In order to properly promote decarbonization while greatly

who engage in these will have business opportunities while

reshaping Japan's energy infrastructure, it is essential tocontributing to the environment from different perspectives

encourage all companies to properly transit through policy(Figure 9). On the other hand, there are a number of issues

inducements including providing funds, and improving policythat need to be resolved in these three fields, and we believe

foreseeability. Furthermore, it is assumed that existing policythat the impact which technological and commercial

support and subsidies are entirely insufficient as funds,

diffusion will have on each other is a major issue. It is vital toespecially for companies that discharge large amounts of

Figure 8: 14 priority fields for Green Growth Strategy Through Achieving Carbon Neutrality in 2050

14 Growth
Sectors

Energy1

Offshore wind power /Solar /
Geothermal industries

2

Hydrogen /Fuel ammonia

3

Next generation
thermal energy

5

Automobile /Storage batteries

7

Marine vessels

9

Food / Agriculture,
Forestry,and Fisheries

6

Semiconductors /Information
communication

8

Logistics, People flow,
Civil engineering
infrastructure

10 Aircraft

Housing / Buildings /12 Next-generation
power management

13

Resource
circulation related

14 Lifestyle related

Transportation/
Manufacturing
Action plan
formulationaccording to
field

Household/Office4

Nuclear power

11

Carbon recycling /Materials

Up to 2050

Implementation of all policies
for achieving ambitious targets

Major policy
tools forcross-sectional
fieldsBudgetTaxation

Finance

Regulatory reforms / Standardization

2 trillion yen fund for
10 years created by NEDO
Governmental and civil
sectors share specificambitious targets, andprovide support tocompanies who commit
to achieving targets

Formation of taxation for
promoting investment(Up to 10% tax deduction or
50% special depreciation)

Formulation of Japan s basic
guidelines and roadmap fortransition finance
Formulation of mechanism
for providing long-term
funds and provision ofinterest subsidies forlinked achievements
Formulation of green
investment promotion funds

Tightening and deregulation, and international
standardization for regulatory reforms andexpanding new technologies
Aggressive implementation of market mechanismsthat contribute toward growth strategies (emission
trading, carbon tax, border adjustment measures)

Raise upper limit ofdeduction for loss carriedforwardRaise upper limit ofdeduction for tax systemfor promoting R&D

International collaboration
Acquisition of markets in emerging countries,
collaboration with Europe/US

Source: Created by SMTAM and JRI based on the Ministry of Economy, Trade and Industry s Green Growth Strategy Through Achieving Carbon Neutrality in 2050

15

Features

Stewardship Activity Initiatives

Figure 9: Comparison of Ripple Range,

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Diffusion Time,

Technological Superiority, and Greenhouse Gas Gap

for the 14 green growth strategy fields
Field

Ripple EffectDiffusion period

Technological Superiority

Reference

Gap withgreenhouse gas emissions

Short

Practical use phase,problem is costMediumSuperiority of advanced
technology is key

Large

Increase in electricity
demand essential

MediumTechnology is available,
practical application foreseeable

High

Development needs
aiming for practical use

Large

Top energy demand alternative

MediumTechnology is available,
practical application foreseeable

High

Major gas companies
are prospects

Large

Top energy demand alternative

Large

Long

Development phasetargeting 2050

MediumHas various element

Small

Limited need for new technology

Automobile / Storage batteries

Large

Short

Practical use phase,problem is costMediumCan it survive cost competition

Large

Scope 3 / LCA are large

6

Semiconductors /Information communication

Large

Short

Practical use phase,problem is costMediumBreaking free fromgeneral-purpose products is key

MediumDeepen connection
though digitalization

7

Marine vessels

Medium

Impact mainly to logistics

MediumTechnology is available,
practical application foreseeable

Low

Body is superior, fuel is difficult

MediumLarge dependency on fuel8

Logistics, People flow,
Civil engineering infrastructure

MediumUnclear range

MediumTechnology is available,
practical application foreseeable

MediumElemental technologies
are superior

Small

Limited

9

Food / Agriculture, Forestry,
and Fisheries

MediumLong supply chain

MediumTechnology is available,
practical application foreseeable

MediumCan it be globalized

MediumUnique circumstanceswith methane, etc.

10

AircraftMedium

Impact mainly to logistics

MediumTechnology is available,
practical application foreseeable

Low

Body is superior, fuel is difficult

MediumLarge dependency on fuel11

Carbon recycling / Materials

MediumLong impact throughmaterials

Long

Development phasetargeting 2050

MediumIron-making, concrete, etc.,
are superior

MediumNeeds ofhigh-emission businesses

12

Housing / Buildings /Next-generation power management

Small

Mainly consumer demand

Short

Practical use phase,problem is costMediumCan it be globalized

Small

Mainly consumer demand

13

Resource circulation related

Small

Mainly consumer demand

MediumTechnology is available,
practical application foreseeableHigh

Can it be globalized

Small

Mainly consumer demand

14

Lifestyle related

Small

Mainly consumer demand

MediumTechnology is available,
practical application foreseeable

MediumCan it be globalized

Small

Mainly consumer demand

1

Offshore wind power / Solar /Geothermal industries

Large

2

Hydrogen / Fuel ammonia

Large

3

Next generation thermal energy

Large

4

Nuclear power5

Directly related to
Scope 1 (①②④) /Scope 2 (③) ofother companies

Major impact throughsupply chain

ChangeStore

ReduceSource: JRI

greenhouse gasses. Therefore, we believe that a realistic

example, when looking at 2030 and 2050 targets forsolution is to improve support for efforts towardgreenhouse gas emission reduction, business plans anddecarbonization through the provision of funds such as

investment plans need to be established in 10 year unitstransition finance, which require Aggressive target setting.

from a longer perspective than before. We at SMTAM wantto provide specific support through the engagement for the

4.Determining SMTAM s carbon neutral strategy (Summary)efforts of investee companies by understanding the

We believe it is important for each investee company to set

differences in their individual circumstances and business

ambitious targets and disclose that information in order toenvironments. To achieve carbon neutrality in 2050, we

promote transitioning toward carbon neutrality by 2050. It isbelieve it is our role to support the efforts of investee

necessary to set interim targets for 2030 as a bridge for this.

companies for achieving carbon neutrality by providing

However, we also recognize that many companies set interimtransition funds needed for properly promoting this. Our

targets without formulating a specific transition plan,

desire is to fulfill this role and contribute to the great

business plan, or funding plan. Each company must aspire totransition of social and industrial structures together withrealize a decarbonized society and raise the possibility ofinvestee companies.

realization while maintaining economic performance. For

16

Message from the CEO

Purposes of Stewardship Activities

SMTAM Efforts related to Climate Change Issues

Feature2

Evolution of ESG Investments and Our Initiatives

SMTAM Efforts related to Human Rights Issues

2021/2022 Stewardship Activity Focus Topics

ATM /AMR

ICAP (Investor Climate Action Plans)

SMTAM Efforts related to Human Rights Issues

For a society where everyone can have peace and freedom

Human rights refer to the inherent right of each person oneach company and organization to demonstrate responsibility

this plant to live as a human despite their race, ethnicity,and creative leadership in regards to 10 principles in four fields

gender, nationality, or age. It is a universal value owned by(Human Rights, Labor, Environment, and Anti-Corruption). In

everyone. This is something that everyone has an equal shareother words, the UN Global Compact represents the voluntaryin, and must be guaranteed for each person. When humanefforts by each company and organization as good members ofrights are protected and respected by society as a whole, it

society for realizing sustainable growth in harmony with the

becomes possible to have a society where everyone hascommitment made by top management. In addition, in 2011,

peace and freedom. The following will introduce SMTAM s

UN Special Representative of the Secretary-General John Ruggie

efforts toward human rights issues.

formulated and submitted the Guiding Principles on Businessand Human Rights to the Human Rights Council, which wasCompanies and Human Rights

supported by related resolutions. The three pillars of theseprinciples are (1) State duty to protect human rights, (2) The

On December 10, 1948, the Universal Declaration of Human

corporate responsibility to respect human rights, and (3) Access

Rights was adopted at the 3rd session of the United Nations

to remedy for victims of business-related abuses. In Japan as

General Assembly. The Universal Declaration of Humanwell, an Action plan on business and human rights was

Rights states that it is a common standard of achievements

formulated in 2020 by incorporating these guiding principles,for all peoples and all nations to ensure human rights andand this movement is in response to the global framework.

freedom. "Respect for basic human rights" is one of the threebasic principles in Article 11 of the Constitution of Japan, theothers being popular sovereignty and pacifism.

The Ten Principles of the UN Global Compact
Human
RightsCompanies are also important members of society. As
economies become more globalized, company activities that
impact society are drawing attention. Therefore, there are more
people who are requesting companies to take responsibility for

Businesses should support and respect the protection of internationallyproclaimed human rights; andPrinciple 2

make sure that they are not complicit in human rights abuses.

Principle 3

Businesses should uphold the freedom of association and the eﬀective
recognition of the right to collective bargaining;

Principle 4

the elimination of all forms of forced and compulsory labour;

Principle 5

the eﬀective abolition of child labour; andPrinciple 6

the elimination of discrimination in respect of employment and occupation.

Economic Cooperation and Development (OECD) formulated

Principle 7

Businesses should support a precautionary approach to environmental
challenges;

the OECD Guidelines for Multinational Enterprises, which

Environment Principle 8

undertake initiatives to promote greater environmental responsibility; andrequests multinational corporations in participating countries to

Principle 9

encourage the development and diﬀusion of environmentally friendly
technologies.

respecting human rights. In 1976, the Organization forvoluntarily take actions that are expected by companies. In
1977, the International Labor Organization (ILO) adopted theILO Tripartite Declaration of Principles concerning Multinational

17

LabourPrinciple 1

Businesses should work against corruption in all its forms, including

Anti-Corruption Principle 10 extortion and bribery.

Source: Created by SMTAM based on materials from the Global Compact Network JapanEnterprises and Social Policy to set guidelines for things such as

When companies take the initiative in their business to protect

employment, training, working and living conditions, andhuman rights, they can avoid risks related to human right withindustrial relations for multinational enterprises, governments,

supply chains inside and outside Japan. This also improves theand employer and labor organizations. This has raised a global

company s reputation in regards to handling human rights,

framework for corporate activities.

which helps to improve corporate brand value, ensures human

In 1999, UN Secretary-General Kofi Annan proposed the "UNresources, and employee motivation, which in turn contributes

Global Compact" at the World Economic Forum, that requested

to sustainable growth. It is believed that achieving SustainableFeatures

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Development Goals (SDGs) and protecting and promoting
human rights are two sides of the same coin, and that respect

Reference

Promotion and protection of children s rights in the workplace
For investee companies, engagement is carried out to encourage improving
responses including supply chains.

for human rights is essential for a company to engage in SDGs.

Protecting the rights of indigenous peoples and minorities

Major Risks to Human Rights in Supply Chains

When an investee company carries out a project for mining, etc., there are cases
where the protection of rights of indigenous peoples and minorities at plannedsites is required, and changes to plans or re-examination of the implementation
may be requested.

Procurement

Manufacturing

・Forced labor
・Child labor
・Destruction ofcommunities

・Forced labor
・Child labor
・Discriminationof foreigners

Logistics
・Overwork

Sales
・Overwork

Source: Created by SMTAM

SMTAM Engagement Activities related to Human Rights
In Japan, the Corporate Governance Code was revised inJune of 2021, and it clearly states that respect for humanrights is an issue that needs to be considered at company
board of directors meetings. Therefore, companies are
expected to make efforts related to human rights issues in

Conflict areas and human rights
SMTAM carries out engagement with investee companies who engage inbusiness in conflict areas to encourage them to thoroughly respect andprotection of human rights including in the supply chain.

Inhuman weapons and human rights
Inhuman weapons literally refer to specific weapons with various inhumane effects.
Examples include bioweapons, chemical weapons, incendiary bombs, anddepleted uranium ammunition. SMTAM carries out engagement by requesting
businesses to withdraw when an investee company is in anyway involved with the
manufacturing of inhuman weapons. Additionally, we have a policy whereby sharesand bonds issued by investee companies that manufacture cluster bombs,
anti-personnel mines, bioweapons, and chemical weapons are sold under specificconditions (divestment) when making actual investments.

Transitioning to a decarbonized society and human rights
We believe it is important that investee companies disclose their policy andachievements related to climate change and human rights as we face thetheir business. Through its engagement, SMTAM encourages

important task of transitioning to a decarbonized economy in order to realize acompanies to strengthen their governance as the foundation*Concept where the aim is to reduce any negative impact on employment caused byof their organization by establishing a human rights policy

just transition*, and we carry out engagement by supporting this.
transitioning to a decarbonized economy including unemployment and worsening labor
conditions in order to realize both economic growth and a sustainable society.

and identifying human rights risks.
Engagement Examples
They are required to incorporate human rights due diligence(DD) in their management decision-making processes. They

Japanese Chemical Company A[Agenda] Equality before the law

Australia Rio Tinto (Raw Materials)[Agenda] Protecting the rights ofindigenous peoples and minorities

are also required to evaluate human rights risks that may

Engagement Contents

Engagement Contents

impact stakeholders in their human rights DD process, toWhile the Chinese market, which isdeveloping, is a future growth driver, there are
human rights risks in the supply chain such as
issues with cotton in the Xinjiang Uygur
Autonomous Region. Therefore, shouldn t it
be necessary to disclose and explain themonitoring system including human rights DD?

Regarding development of the Pilbara Mine inWest Australia, mining began without
sufficient surveys, resulting in the destructionof the remains of aboriginal people.
In addition to clarifying who is responsible,
shouldn t it be necessary to implement
measures to prevent it from happening again?

prevent or reduce negative impacts according to the degreeof risk, conduct follow up on the implementation status andresults, and to disclose information on the overall process.

Human Rights Due Diligence Process and Supporting Measures

COMMUNICATEHOW IMPACTS ARE
ADDRESSEDTRACK
IMPLEMENTATION
AND RESULTS

54

1
EMBED RESPONSIBLE
BUSINESS CONDUCTINTO POLICIES AND
MANAGEMENTSYSTEMS2

IDENTIFY AND ASSESS ACTUAL
AND POTENTIAL ADVERSE
IMPACTS ASSOCIATED WITH THE
ENTERPRISE S OPERATIONS,PRODUCTS OR SERVICES

6 PROVIDE FOR OR
3

C O O P E R A T E I N
REMEDIATION WHEN
APPROPRIATE

CEASE, PREVENT AND
MITIGATE ADVERSE IMPACTS

Source: OECD Due Diligence Guidance for Responsible Business Conduct

Company Respons

Company Respons

The CSR Committee chair took the
initiative to establish a check system for
the PDCA cycle in regard to potential risks
with the supply chain including humanrights and the work environment. We haveexercise drills for the contact network anda decision-making process at board of
directors meeting for times when issues
come up so that we can respond quickly.

Officers were changed to clarify responsibility
and measures for preventing recurrence wereannounced. An announcement was madethat preliminary research will be sufficiently
carried out in the future for resource
development, dialogue with aboriginal
people will be strengthened, and these will
be reflected to in-house development plansand decision making processes.

This section focused on human rights, which is one of the ESG
12 Topics where SMTAM is making efforts. The elimination childlabor and forced labor by immigrants were mentioned alongwith thorough implementation of supply chain management.
Issues in the Xinjiang Uygur Autonomous Region, politicalchanges in Myanmar, and Russia's invasion of Ukraine have

The following are basic examples of agendas and concepts

raised global awareness on the protection of human rights.

used to carry out engagement.

SMTAM aspires to promote responsible corporate action

Equality before the law
Investee companies are required to conduct business activities based on theassumption that there is no political, economic, or social discrimination due torace, creed, gender, social status, etc., and if issues exist, they are required toaddress these.

Promotion and protection of decent work (rewarding and humane work)
Engagement is carried out to make improvements with various issues such as
long working hours, work-life balance, discrimination, and job satisfaction.

through engagement activities with investee companies forpromoting the protection of human rights of stakeholders
through global initiative activities, and to contribute tohuman rights protection and promotion for society as awhole, while also aspiring to help improve the corporate
value of investee companies and achieving SDGs.

18

Message from the CEO

Purposes of Stewardship Activities

SMTAM Efforts related to Climate Change Issues

Feature3

Evolution of ESG Investments and Our Initiatives

SMTAM Efforts related to Human Rights Issues

2021/2022 Stewardship Activity Focus Topics

ATM /AMR

ICAP (Investor Climate Action Plans)

ATM Access to Medicine / AMR Antimicrobial Resistance

SMTAM s Approach for Improving Access to Medicines and Addressing Antimicrobial Resistance

The COVID-19 pandemic has resulted in difficult situations

ATM for each company are pointed out so that they can use

for people all over the world. The pandemic reminds us all

it for future efforts.

of the importance of health. Sadly, though, this pandemic
also brought the gap in Access to Medicine (ATM) between

According to the latest ATM Index from 2021, the top threedeveloped and developing counties into clear focus. While

companies are GlaxoSmithKline (UK), Novartis (Switzerland) andsupplies of COVID-19 vaccines were limited, wealthierJohnson & Johnson (US), and among Japanese companies,

developed countries were able to secure vaccinations andTakeda Pharmaceutical was highest at 6th. The extent to which

succeeded in mitigating infections and deaths. On the othera company promotes ATM in developing countries byhand, developing countries struggled to secure vaccines

incorporating it into their business strategy is evaluated using

despite support from the World Health Organization

three evaluation items, which are governance of ATM, R&D(WHO).

that takes developing countries into consideration, andAntimicrobial Resistance (AMR), where antibacterial

medical supply systems for developing countries.

medicines used for treatment become ineffective, wasalready a serious issue in the field of infectious disease prior
to the pandemic. If drug-resistant bacterium spread at
medical institutions and nursing-care facilities, drug therapy
will become ineffective, resulting in loss of life, especiallyamong the elderly. Since such infections spread quietly, AMR

RankingCompanyCountry

Total Score

1

GSK

UK

4.23

2

Novartis

Switzerland

4.18

3

Johnson & Johnson

USA

3.76

4

Pﬁzer

USA

3.65

5

Sanoﬁ

France3.47

6

Takeda Pharmaceutical

Japan

3.31

7

AstraZeneca

UK

3.30

8

Merck KGaA

Germany

3.09

9

Roche Holding

Switzerland

3.07(hereinafter, ATMF) is an international initiative that aims to

10

Novo Nordisk

Denmark

2.96

improve and resolve such issues related to ATM. The ATMF

11

Eisai

Japan

2.87

was established in the Netherlands in 2003, and many

12

Boehringer Ingelheim

Germany

2.84

investment managers and asset owners in Europe and the US

13

Bayer

Germany

2.63

have joined. SMTAM agreed with the principles of their

14

Astellas Pharma

Japan

2.33

activities and became the first investment firm in Japan to

14

Gilead Sciences

USA

2.33

become a signatory in April of 2018.

15

Merck

USA

1.88

16

Daiichi Sankyo

Japan

1.80

17

AbbVie

USA

1.73

18

Eli Lilly

USA

1.59

19

Bristol Myers Squibb

USA

1.55

has been referred to as a silent pandemic. Improving ATM
and addressing AMR are urgent issues.

Initiatives for Improving ATM
The issue of ATM is that people in developing countries do
not have access to minimum necessary medicines andmedical services as a result of poverty or insufficient medical
insurance systems. The Access to Medicine Foundation

The ATMF announces the ATM Index every two years toencourage the pharmaceutical industry to help improve ATM.
The top 20 pharmaceutical companies in Europe, the US, andJapan are ranked, and the excellence and issues related to192021 Access to Medicine Index

Source: Created by SMTAM based on material by ATMF

Features

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Initiatives for Addressing AMR Issues

Reference

SMTAM is the only Japanese investment manager that is afounding member of the Investor Action on AMR, which isDuring this pandemic, people throughout the world witnessed

connected to FAIRR, and are disseminating the importance ofthe threat of infection. People must be keenly aware of how

AMR issues to the world through this initiative.

helpless they would be without vaccines and therapeutic
drugs. Similarly, if bacterial infections resulting from AMR
spread, there is nothing that can be done. If no effective

Future Efforts for Resolving Issues

antibacterial drugs are available, even simple infections could

Among the SDGs (Sustainable Development Goals), Good

result in death in modern medical settings such as removal of

Health and Well-being is included as Goal 3. Specific targets

wisdom teeth, organ transplants, and cancer chemotherapy

have been set to improve access to medical services fortreatments. Currently, about 700,000 people die worldwide

everyone by 2030, and to eliminate infectious disease, ineach year due to drug-resistant bacterium, including 8,000 inparticular AIDS/HIV, tuberculosis, and malaria. However,Japan. If no measures are implemented, it is predicted over 10

society has still low awareness of ATM and AMR issues.

million will die in 2050, which is more than the expected

Therefore, it is necessary to have people recognize that both

number of deaths from cancer.

of these issues exist and to provide social education
activities. For example, SMTAM attended the 8th NIKKEIExpected Number of Deaths from AMR by 2050
Now

2050

FT Communicable Diseases Conference held in October of2021 as the first institutional investor, and gave a presentationon the impact of AMR on society at the AMR Breakout
Session.
One of our ESG12 Topics is Health and Safety, and we willcontinue our activities for improving ATM and addressing

14 times

AMR issues through engagement with investee companies
and international initiative activities.

700,000

10 million=1 million deaths from AMR

Source: AMR Action FundTo resolve and improve AMR issues, it is first of all importantto thoroughly implement proper use of antibacterial drugs sothat drug-resistant bacterium do not appear, and secondly, it
is essential to establish a sustainable R&D system to prepare
for new drug-resistant bacterium.
Antibacterial drugs are not only used for treating humans.
These are also used for preventing infections with livestockat animal farms by mixing these into feed. Therefore, toimprove and resolve AMR issues, it is essential to integrate
and strengthen management of how antibacterial drugs
are used. Such efforts are referred to as the One Healthapproach.
R e g ar din g A M R i s sue s, S M T A M is c oll ab or a t ing w i thinternational initiatives such as ATMF mentioned previously
and the engagement organization Farm Animal Investment
Risk & Return (FAIRR) who is involved with the fishery andlivestock industries for a wide approach centering on thepharmaceutical industry and livestock industry. In particular,

8th NIKKEI FT Communicable Diseases Conference (October 2021)

20

Message from the CEO

Purposes of Stewardship Activities

SMTAM Efforts related to Climate Change Issues

Feature4

Evolution of ESG Investments and Our Initiatives

SMTAM Efforts related to Human Rights Issues

2021/2022 Stewardship Activity Focus Topics

ATM /AMR

ICAP (Investor Climate Action Plans)

ICAP (Investor Climate Action Plans)*1

Publishing Goals and Evaluation Guidance for Stewardship Activities Expected of
Worldwide Investors

The movement toward requesting greater transparency of

have made progress toward setting and implementing targets

Stewardship Activities by investment companies is(Tier 1).

intensifying.

In addition, this assessment is designed as a Self Assessment

In particular, in January 2022, The Investor Agenda*2, which

Checklist so that investors themselves can identify areas

is a global initiative, announced a new evaluation framework

where further improvements are needed. The following

for performing self evaluations for Stewardship Activities by

responses are expected by investors.

investment companies referred to as ICAP, and they

(1) Assessing their current approach to managing climate

recommend that investment companies disclose information
using ICAP.

change risk and opportunity(2) Publishing a standalone ICAP
(3) Embedding elements of the ICAPs into their climate change

Overview of ICAP
ICAP is a framework for carrying out self evaluation ofstrategies and disclosures(4) Communicating their current activities and plans tostakeholders

Stewardship Activities by investment companies that wasformulated by The Investor Agenda. As shown in Figure 1, theexpected achievement level for engagement activities ofinvestors is determined for four key focus areas andgovernance.

Disclosure of SMTAM s Stewardship Activities
in harmony with ICAP
SMTAM conducts self assessment of its current approach toclimate change risks and opportunities in the four key focus

Figure 1: The Investor Agenda Key Focus Areas① Investment
Managing systemic climate risks in investor portfolios andenabling the transition by shifting capital to value-creating
businesses set to succeed in a net zero future② Corporate Engagement
Engaging companies to drive and demonstrate real progressin line with a 1.5ºC future.
③ Policy Advocacy
Advocating for policies aligned with delivering a justtransition to a net zero economy by 2050 or sooner④ Investor Disclosure
Enhancing investor disclosure to help stakeholders track
investor action in line with a 1.5ºC pathway

areas shown in Figure 2 in harmony with the expectation
ladder assessment disclosed by ICAP.
Among the focus area, as an example of assessment item ②
Corporate Engagement (Collective/Collaborative
Engagement), appointment of Climate Action 100+ Steering
Committee Members, participation in collaborative
engagement program at AIGCC (Asian Utilities Engagement
Program) as well as appointment of lead managers are being
evaluated as our activity achievements. As for example ofassessment item ③ Policy Advocacy (Investor statements),
as part of forest conservation working group activities by
PRI/Ceres, we sent letters requesting the government ofBrazil to disclose information on Amazon forest
conservation/management along with their development

ICAPs Expectation Ladder

Central Bank Governor and Brazil s Ambassador to Japan.

ICAPs Expectations Ladder establishes four tiers of sequential

These are also assessed as achievements. We recognize that

accomplishment for stewardship activities, from investors justsuch assessment is equivalent to the Tier 1 in the ICAP

beginning to think about climate change (Tier 4) to investors

Expectations Ladder.

who have made net zero carbon emission commitments and21

status, and independently engaged in dialogue with Brazil sFeatures

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Figure 2: SMTAM s ICAP (Overview)
Focus Areas

Company Stewardship Activities① Investment
Strategy

Promote advancement of research/engagement toward 2050 net zero, and strengthen policies for the exercise of voting rights on climate change.

Risk management

Conduct evaluation of all owned assets ((1) Fixed-point analysis and (2) Transition pathway analysis based on future climate change scenarios).

Asset allocation

SMT ETF Carbon Eﬃcient Index Japan Equity listed on the Tokyo Stock Exchange in 2021.

Additional goal setting

Policy voting against proposals for election of Directors if there is no improvement after engagement.

② Corporate Engagement
Collective/Collaborative engagement

Appointment as Climate Action 100+ Steering Committee Member.

Bilateral engagement

Aiming to accomplish interim targets through collaboration with investee companies, asset owners, and industry groups, etc., inorder to realize net zero greenhouse gases emitted by investee companies and net zero for portfolio assets under management.

Corporate escalation

Policy voting against proposals for election of Directors if there is no improvement after engagement.

③ Policy Advocacy
Investor statements

As part of forest conservation WG activities, letters sent requesting disclosure on Amazon Forest conservation and development status.

Lobbying activities

TNFD study groups held with the Financial Services Agency, Ministry of Agriculture, Forestry and Fisheries (about loss of biodiversity, etc., due to climate change).

Advocacy

Presentation of recommendations on forest conservation to the UK Environment Minister (Lord Goldsmith), which was the host country for COP26.

④ Investor Disclosure
Commitment, purpose, and goals

Collaborate with clients who are asset owners about decarbonization.

Carbon emissions and portfolio evaluation

Disclosure of portfolio and benchmarks for weighted average carbon emissions (emissions per unit of sales).

Alignment with TCFD

Conduct evaluation of all owned assets ((1) Fixed-point analysis and (2) Transition pathway analysis based on future climate change scenarios).

Evaluation of disclosure

Posting of engagement example cases from inside and outside Japan through Stewardship Report issued once a year.
Source: SMTAMBest Practices published by The Investor Agenda

from each phase related to expected value into their plans,

In January 2021, The Investor Agenda announced the first

Moreover, Rebecca Mikula-Wright, Executive Director of thecase studies focusing on ICAP best practices to facilitate theAsia Investor Group on Climate Change and member of theimplementation of climate change measures by moreglobal Steering Committee of the Investor Agenda, pointed

institutional investors. These case studies included 10

out, The ICAPs Expectations Ladder and Guidance sets out

companies from 5 continents, with SMTAM being the only

a clear pathway for investor integration that leads to ancompany selected from Japan * 3 . In addition, SMTAM

ultimate goal of net zero that must be reached, wherever anmembers from the US base took the stage as panelist at ainvestor may be on that journey. By publishing a clear andwebinar hosted by Ceres in the US for introducing ICAP torobust climate action plan using the ICAPs framework, andinstitutional investors, where they explained SMTAM sacting on it, Asian institutional investors can be better

activities on climate change. In May of 2022, the second

positioned to seize the enormous investment opportunities

group of case studies were released, and it is expected thatthat are being created by the transition to net zero.

ICAP will become more common in the future.

Our policy at SMTAM is to use the information disclosed byreports, and strategies for the following year.

means of ICAP to improve the transparency of Stewardship

Expanded Goals on Disclosure regarding
Stewardship Activities by Investment Managers
Who Use ICAP
The aim of The Investor Agenda is have at least 50% of all
major institutional investors disclose information with ICAP
within the next five years, and it is expected that investors
who disclose such information will incorporate elements

Activities and to strengthen those activities.
*1 ICAP = Investor Climate Action Plans*2 An integrated and comprehensive Leadership Agenda on the climate crisis

focusing on accelerating investor action toward an economy with net zero carbon
emissions (actual zero). Founding partners include the following seven major
institutions which work with investors: Asian Investor Group on Climate Change(AIGCC), CDP, Ceres, Investor Group on Climate Change (IGCC), Institutional
Investor Group on Climate Change (IIGCC), Principles for Responsible Investment(PRI), and United Nations Environment Program Finance Initiative (UNEP FI).
*3 Release of SMTAM case studies
https://theinvestoragenda.org/wp-content/uploads/2022/01/SMTAM-pdfca
se-study.pdf

22

Message from the CEO

Purposes of Stewardship Activities

SMTAM s ESG12 Topics

Overview

Evolution of ESG Investments and Our Initiatives

Status of Top-Down Engagement Initiatives

2021/2022 Stewardship Activity Focus Topics

Engagement that Contributes to Improved Investee Corporate Value

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 incorporating ESG factors into investment decision-making processes.
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 conflictsof interest related to stewardship activities helps us better to fulfill our fiduciary duties. We are constantly working tomanage our conflict of interest management capabilities.

Maximize investment return
Improving the corporate value of investees

Help improve corporate value

3

2

1

Incorporate ESG Factors into
Investment Decision-Making
Processes

By incorporating ESG factors into
investment decision-making processes, ouraim is to maximize medium-to long-term
investment returns for client assets.

Exercise of Voting Rights

The exercise of voting rights provides
opportunities to call for a minimum standardof governance. We exercise voting rights
appropriately and in accordance with ahighly transparent decision-making process.

Engagement

Engagement activities provide opportunities
to seek best practices from companies, andwe express our views to contribute to theenhancement of corporate value over the
medium to long term.

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.

23

Features

Stewardship Activity Initiatives

Engagement Example Cases

ESG Integration

Activity Report from the New York Base

Disclosure of Climate-related Financial Information under TCFD

Activity Report from the London Base

Reference

Exercise of Voting Rights

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 understandingof 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 assessments. We use our networks in Tokyo, New York and London to have our own engagement with investee
companies. We also conduct various activities and engage with stakeholders outside our investee companies through a 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 shareholders equity; (2) efficient utilization of shareholders' capital for sustainable growth;and (3) appropriate action in the event an incident occurs that damages corporate value. We disclose our Guideline on the
Exercise of Voting Rights based on these criteria. We also actively pursue engagement with companies with respect to theexercise of voting rights.

Incorporate ESG factors into Investment Decision-Making Processes

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. We encourage investee companies to address ESG issues, and support them so that they canminimize impact on corporate value, and increase corporate value by creating business opportunities.
In May 2006, SMTAM was among the founding signatories of PRI for prompting them to factor ESG considerations into theirinvestment decision-making processes. We have also participated in various international initiatives which originated with the PRI
and which led to expanding ESG activities being undertaken worldwide. As a signatory to the PRI, we endeavor to pursue
investment return upside potential and curb downside risk by incorporating ESG factors into our investment decision-making
process and aim to achieve maximize medium- to long-term returns for our clients.

* See page 51.

24

Message from the CEO

Overview

Purposes of Stewardship Activities

SMTAM s ESG12 Topics

Evolution of ESG Investments and Our Initiatives

Status of Top-Down Engagement Initiatives

2021/2022 Stewardship Activity Focus Topics

Engagement that Contributes to Improved Investee Corporate Value

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 execute inhouse stewardship, as well as join the platform provided by
the Institutional Investors Collective Engagement Forum (IICEF) to pursue joint engagement. Outside Japan, we dispatch representatives from Tokyo tomeet with overseas companies, as well as rely on the inhouse engagement efforts of our New York and London bases; additionally, we carry out
engagement through global initiatives and undertake collaborative activities. All stewardship activities are reviewed and reported to the Stewardship
Committee and to the Stewardship Activities Advisory Committee, the majority of whose members are independent, outside experts.
The Stewardship Committee meets monthly, and the Stewardship Activities Advisory Committee (hereinafter referred to as the Advisory Committee) meetsquarterly. At these meetings, deliberations are held on revisions to Guideline on the Exercise of Voting Rights and reports are made on stewardship
activities. Reports on stewardship activities are also made to the Board of Directors, management meetings, and the FD Advisory Committee once a year.

Stewardship Activities
Advisory Committee*1

Inquiry

Executive Officer in charge of Stewardship
Development Department

Comprised of three independent,(Authorized decision maker)

external experts (the majority of members)

Recommendationand one SMTAM representative.

ReportStewardship Committee
Engagement

Engagement policy and activity reporting

ReportExercise of Voting Rights

Policy approval and results reporting for the exercise of voting rights

Addressing ESG Issues

ESG activities policy and activities reporting

Global initiative-driven activities*3

ReportStewardship
Development Department

Collaboration

Research
Investment Department
Corporate analysts, Credit analysts

Collaboration

Global 3-pole system*4

Host meetings, etc.

Listed company

Institutional Investors
Collaborative
Engagement Program

engagement

Collaborative
Engagement Forum

Collaborative

Program participation

Collaborative engagement(domestic)

US Subsidiary
SuMi Trust AssetManagement Americas*2

UK Subsidiary
SuMi Trust International *2*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 75 and 76 f for a list of activities*4 The 15 employees who engage in stewardship promotion (including those in London and New York) are mainly composed of analysts,
fund managers, and overseas expatriates. They have an average of 20 years of investment experience.
(As of the end of September 2022)

25

Stewardship Activity Initiatives

Engagement Example Cases

ESG Integration

Activity Report from the New York Base

Reference

Disclosure of Climate-related Financial Information under TCFD

Activity Report from the London Base

Exercise of Voting Rights

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
SUMITOMO MITSUI TRUST ASSET MANAGEMENT
Board of Directors

Executive Officer in chargeof Stewardship
Development Department

Inquiry/
Recommendation

Fiduciary Duty Advisory Committee

Inquiry/
Recommendation

Sumitomo Mitsui Trust Holdings

Discussion/Enhancement

Features

Board of Directors
Management meeting

Inquiry/Recommendation

Preliminary discussion

Conflicts of Interest Committee
Conflicts of Interest Management
Enhancement Committee

Fiduciary Duty Discussion Panel (cross-company)

Stewardship Activities
Advisory Committee

Discussion/Enhancement
Supervision

Stewardship Development Department

Discussion/Enhancement

Group companies

Each operation department

Sumitomo Mitsui Trust Bank

Conflict of interest management/Monitoring

Middle department

Board of Directors

×Management meeting

Preliminary
discussion

Conflicts of Interest Management
Enhancement Committee

Corporate Sales Division

Restriction on personnel transfers, information exchange and interaction

Regarding possible conflicts of interest related to stewardship activities, we will conduct strict management according tocompany rules including conflict of interest management rules, investment management business rules, and other related rules
in order to put the interests of customers (beneficiaries) first. We have also disclosed an overview of the policies determined inthese conflict of interest management rules.
https://www.smtam.jp/company/policy/coi/At the Company, the Executive Officer in charge of Stewardship Development Department has exclusive authority over the
exercise of voting rights independent of the executive authority of other departments, which eliminates any possible conflicts ofinterest regarding the exercise of voting rights. Specifically, conflicts of interest include other departments exercising influence on
the investment department based on, for example, the importance of a business partner or the size of transactions. The Advisory
Committee consists mainly of external experts with guaranteed independence. This organization deliberates on various inquiries
made by the Executive Officer in charge of the Stewardship Development Department, and then makes a report. This organization
deliberates on various inquiries made by the Executive Officer in charge of Stewardship Development Department, and then makes
a report. They establish, amend, or abolish company Guideline on the Exercise of Voting Rights, approve or disapprove proposals
not stipulated in the Guideline, determine the appropriateness of interpreting the Guideline in individual proposals, and verify or
improve the process for determining whether to implement a proposal that could cause a conflict of interest. The Executive Officer
in charge of the Stewardship Development Department makes decisions on various matters while respecting reports from theAdvisory Committee, and if the committee submits a report on improvements to the exercise of voting rights, prompt necessary
corrective and improvement measures are taken while respecting the report to the extent possible.
Regarding all proposals to the parent company, Sumitomo Mitsui Trust Holdings, Inc., and regarding proposals for candidates as officers
of investee companies who have a close relationship with the Company or the parent company (active officers, persons who were inimportant positions, etc.), in order to manage conflicts of interest, we consider the advice of voting advisory companies based on the
Guideline on the Exercising Voting Rights, and properly deal with conflicts of interest after confirmation is made by the Advisory
Committee before exercising voting rights. At general meetings held from July 2021 to June 2022, determinations were made using theabove process for 12 companies.

26

Message from the CEO

Overview

Purposes of Stewardship Activities

SMTAM s ESG12 Topics

Evolution of ESG Investments and Our Initiatives

Status of Top-Down Engagement Initiatives

2021/2022 Stewardship Activity Focus Topics

Engagement that Contributes to Improved Investee Corporate Value

SMTAMʼs ESG12 Topics
SMTAM promotes top-down engagement with 12 ESG topics. We revised some topics this time to improve ourengagement.
In particular, the topic Sustainable local society was changed to Social business opportunities. The perspectives ofPromoting expansion of products and services that address social issues and Just transition were added to Building
sustainable social infrastructures and business models with the aim of expanding the range of dialogue for achievingbalance with the resolution of environmental issues and creating business opportunities while resolving social issues.
The three topics Climate change issues

Corporate activity promotion, and Governance reform continue to bepositioned as priority topics. Natural capital and resource protection, which SMTAM believes are becoming increasingly
important, has been added to priority topics, which will encourage multifaceted engagement with a wider range of
dialogue than before.

S ocial

E nvironment
Climate Change Issues
Reduction of greenhouse gas
emissions and decarbonization
Promotion of corporate activitiesaligns with the Paris Agreement

Natural capital andresource protection
Promoting efforts to improvesustainabilit y through corporate
activities that are highly dependent on
and impact natural capital andresources
Conservation of forests and water
resources, and recovery of biodiversity

Environmental destruction /Pollution control
Expansion and promotion ofsustainable procurement (palm oil,natural rubber, etc.)
Tackling issues of illegal
deforestation and agricultural landdevelopment, and ocean plastic

Environmental business
opportunities
Expansion and promotion ofenvironmentally-friendly products andservices
Promotion of technology
developments that help reduce
environmental load
Transitioning to a resource circulation
type business model

Governance
Promotion of
Corporate Activities
Promotion of non-financial (ESG)
information disclosure
Improving awareness of capitalefficiency and capital costs andproper capital policy, and promotionof business portfolio reformation
Consistency between corporate
philosophy and management strategies,
and promotion of purpose management

27

Human Rights
Enhancement of human rights due
diligence, and visualization of
responses/handling of human rights
issues by setting up a grievancemechanism

Social business
opportunities
Building sustainable social
infrastructure and business model
Expansion and promotion of products
and services that address social issues
Just transition

Stable andFair Governance System
Elimination of governanceincompetence at companies facing
misconduct (Product service safety,organizational culture reform)
Enhancement of risk management(Personal data information leakage)
Improvement of management rules(Cross-shareholding, takeover
defense measures)
Review and strengthen group
governance systems (Including
parent-subsidiary listing issues)

Governance Reforms
Better board of directors skill set
Promotion of diversity management
Improving the effectiveness of theboard of directors

Features

Stewardship Activity Initiatives

Engagement Example Cases

ESG Integration

Activity Report from the New York Base

Disclosure of Climate-related Financial Information under TCFD

Activity Report from the London Base

ESG12 Topics

E（Environment）
Climate Change Issues

Natural capital andresource protection

Human Capital
Clarification of human resource
strategies (Recruitment, training,
placement, and evaluation)
Response to work satisfaction
improvements
Promotion of DE&I (Diversity, Equity andInclusion) management, establishmentof diversified working styles, and amore flexible organization culture

Health and Safety
Promotion of well being initiatives
Improving global medical access
Countermeasure for infectious disease
and management of antibiotics

Supply Chain
Management
Elimination of labor, environmental,
and social issues from supply chains
Restructuring of global supply chains(Geopolitical and geomorphologicalcorrespondence)

Environmental destruction /Pollution control

Environmental business
opportunities

S（Society）
Human Rights

Social business
opportunities(Formerly: Sustainablelocal society)
Human Capital

Health and Safety

Supply Chain
Management

G（Governance）
Promotion of
Corporate Activities

Stable andFair Governance System

Governance Reforms

Reference

Exercise of Voting Rights

Review of Our Activities
During the Past Year

Future Activity Policy

After positioning priority issues, we
promoted goal setting and theformulation of an action plan that aligns
with the Paris Agreement in regards to
the reduction of greenhouse gas
emissions, which is causing natural
disasters to intensify. In particular, there
was dialogue on a concrete action planfor the interim targets set for 2030.

It is still positioned as an issue of highest
priority. We will encourage the taking ofspecific effective action as soon as
possible. We will continue having
dialogue with management for requesting
the formation of specific action plans forthe transition path according to theindustry while also raising targets that inline with the Paris Agreement.

Discussions were held about industries andcompanies that have a large impact on theshift to corporate activities that take theprotection of natural resources andbiodiversity into consideration. Dialogue
was held for selecting appropriate topics
and identifying issues since wide concepts
are included.

Maintaining and ensuring natural capitaland biodiversity are important
obligations. We will prompt companies
to take action with the aim of not justachieving forest conservation and nearzero water resource damage, but also
positive recovery.

We strengthened dialogues withcompanies connected with initiatives
and issues for preventing marine
pollution and realizing biodiversity and arecycling-based economy.

To realize a recycling-based economy, it isessential to strengthen cooperation
between industries and companies at
each stage of the supply chain. We willhold talks that include the value chain andencourage actions toward its realization.

Continuous dialogues were held on
clarification of definitions for target
products and services as well as ontarget setting in order to encourage thepromotion of technological development
and products and services that will help
reduce environmental load.

It is essential to find balance between
resolving environmental issues andachieving economic returns in order toachieve social and corporate
sustainability. We will continue having
dialogue for requesting companies tomake efforts for its realization.

We verified the existence of child laborand forced labor of migrant workers inthe supply chain, and discussed methods
for checking human rights issues,
especially with the Board of Directors.

We will work to encourage the board of
directors to set a human rights policy,
establish and manage a human rights due
diligence system, and to proactively
disclose information.

Discussed business model reforms forbetter sustainability of local
infrastructure.

We will encourage companies to shift to abusiness model that is sustainable withincommunities with aging populations anddeclining birthrates. We will also encouragecompanies to carry out Just transition
such as through the creation of employment
opportunities and employment support.

Talks were held on the progress of work
style reformation related to the spread of
remote work due to the COVID-19
pandemic, and on increasing profitability by
improving human productivity DX promotion.

In addition to the utilization of humancapital through diversity and inclusion,
we will hold employee engagement toimplement corporate philosophy andbusiness strategies.

Discussed AMR issues as potential risks
in addition to maintaining/managing
health during the COVID-19 pandemic
while securing and improving access to
medicine.

Along with efforts to improve access to
medicine and initiatives for addressing
AMR issues, we will encourage efforts
related to the maintaining and promotingof the health of employee from theperspective of well being.

We confirmed supply chain issues
exposed by the COVID-19 pandemic andnatural disasters, and discussed theprogress status of restructured supply
chains.

We will hold dialogs on the restructuringof supply chains and risk management inresponse to lack of materials and priceincreases caused by the COVID-19 andthe conflict in Ukraine.

While encouraging disclosure, materiality
identification, and the setting of KPIs, we
reviewed the effective use of funds andunprofitable businesses, and discussed
measures for improving capital efficiency
such as by reviewing business portfolios
based on capital costs.

A backcast perspective based on along-term vision is important for a company's
medium-term management plan. We willcontinue to have discussion withmanagement personnel on setting goals
through backcasting as external uncertainties
increase, and on their achievement, alongwith the resolution of various issues.

We strongly requested companies facing
misconduct to work to prevent
recurrence and strengthen governance.
We explained the importance ofimproving management rules by reducing
cross-held shares and abolishing takeover
defense measures.

We will confirm risk management processes
for preventing misconduct, and willencourage companies facing misconduct totake corporate action for preventing
recurrence and improve management rules.
Dialogue will also continue to be held on
the strengthening of group governance.

Discussions were held on improving theratio of women and initiatives that canenhance the effectiveness of the board of
directors for promoting diversity andimproving the skill set of the board of
directors.

We will continue having dialogue withmanagement personnel to establish a diverseand highly independent board of directors, andto carry out functional management in order toachieve the purpose, corporate philosophy,
and long-term vision (future ideal situation).

28

Message from the CEO

Purposes of Stewardship Activities

SMTAM s ESG12 Topics

Overview

Evolution of ESG Investments and Our Initiatives

Status of Top-Down Engagement Initiatives

2021/2022 Stewardship Activity Focus Topics

Engagement that Contributes to Improved Investee Corporate Value

Status of Top-Down Engagement Initiatives
In 2019, an ESG investment policy was established at management meetings and ESG materiality was identified.
Based on this materiality, in 2020, we set 12 specific ESG engagement topics and promoted top-down engagement
activities after discussions at Stewardship Committee meetings and consultations and reports at Stewardship
Activities Advisory Committee meetings. In June of 2022, we reviewed certain topics.

Setting goals and targets, and the engagement process
1. Identifying Engagement from ESG Materiality

ESG Materiality(Important Issues)

Risk

Risk
Human Rights & Community

Climate Change
Natural Capital

Human Capital

Pollution & Waste

Security & Responsibility

ESG Engagement Topics

Opportunity

Social Opportunities

Environmental Opportunities

E nvironment

S ocialClimate Change Issues

Human Rights

Natural capital andresource protection

Human Capital
Health and Safety

Environmental destruction /Pollution control

Supply Chain Management

Environmental business
opportunities

Social business
opportunities

Governance
Promotion of Corporate Activities
Stable and Fair Governance System
Governance Reforms

Risk
Behavior
Structure
Stability ＆ Justice
Opportunity
Governance Improvement

29

Opportunity

Features

Stewardship Activity Initiatives

Engagement Example Cases

ESG Integration

Activity Report from the New York Base

Disclosure of Climate-related Financial Information under TCFD

Activity Report from the London Base

Reference

Exercise of Voting Rights

2. Selecting Target Companies and Setting Goals and Targets according to ESG Topics

Corporate ESG issues

Target (Middle term)

Established in accordance withcorporate ESG management level

Goal (Long term)

Backcasting

After selecting around 100 target companies from among investee companies from the top down analysis according toeach ESG topic, engagement activities will be promoted by setting goals (long-term goals) for each ESG topic andsetting targets (interim targets) by backcasting based on the ESG issues and ESG management level of each company.
Setting effective goals and targets, and effective engagement are possible based on our deep understanding andknowledge about companies and industry trends that has been accumulated through numerous engagements up until
now, and knowledge on global trends related ESG gained through domestic and foreign initiatives that we are actively
participating in from our three bases in Japan, the United States, and Europe.

3. Stage management and monitoring
Engagement progress is managed in four stages according to the ESG topic, and further measures are then implemented and theresolution of issue is monitored.

(1) Issue setting(2) Issue presentation(3) Issue sharing(with person in charge
at the company)(4) Issue sharing(with management group)(5) Implementation of measures(6) Issue resolution

・Identifying important ESG issues with investee companies and setting specific topics (issues)
・Setting targets (interim targets) by backcasting from topic goals

・Issues are presented during interviews with companies and engagements are held continuously
for sharing issues

・While sharing issues with the person in charge at the company, engagements is escalated to the
management for implementing measures and resolving issues

・Issues are shared with management group and best practices are introduced・Internal examination is promoted for implementing measures and resolving issues

・Corporate policy statements (corporate actions) are confirmed
・Progress is monitored

・Target achievements are confirmed and shared with the company
・If the progress is insufficient, consideration is given when exercising voting rights

4 . Improving corporate sustainability and corporate value for investee companies

30

Message from the CEO

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

SMTAM s ESG12 Topics

Overview

Status of Top-Down Engagement Initiatives

2021/2022 Stewardship Activity Focus Topics

Engagement that Contributes to Improved Investee Corporate Value

Composition of top-down engagement topics

G

Governance Reforms

Stable andFair Governance System

6%2%Promotion of

Corporate Activities

13%

0%

Climate Change Issues

27%

7%
21%

E

16%

Supply Chain
Management

Health and Safety

OutsideJuly 2021 - June 2022

5%
5%
3%

InsideJuly 2020 - June 2021

8%
0%

4%

Natural capital andresource protection

7%
13%

11%

S

0%

Environmental destruction /Pollution control

23%
2%
1%

Human Capital

1%
Social business opportunities(Formerly: Sustainable local society)6%

Human Rights

19%
Environmental business opportunities

Trends according to topic
Regarding topics, we not only proactively held discussions on business risks such as Climate change issues
27%, Environmental business opportunities 19%, Promotion of corporate activities 13%, and Human capital
11%, but also on opportunities.

Balance among E, S, and G
According to ESG, E (environment) is 53%, S (society) is 26%, and G (governance) is 21%.
There was well-balanced engagement focusing on important issues related to E and S with investee companies.

Alignment with other topics
Setting sub-topics for target companies in addition to the initially set topics allows us to have engagement
over a wider area. We are involved in multifaceted engagement at the same time as our main engagement
activities including the diversity with the board, advancement of women, reduction of strategically held
shares, human rights in the supply chain, and natural capital / biodiversity.
31

Stewardship Activity Initiatives

FeaturesEngagement Example Cases

ESG Integration

Activity Report from the New York Base

Disclosure of Climate-related Financial Information under TCFD

Activity Report from the London Base

Reference

Exercise of Voting Rights

Progress in 2021 (July 2021-June 2022)
We have taken advantage of many opportunities such as Stakeholder Relations (SR), Investor Relations (IR), and opportunities forengagements on the exercise of voting rights, and have taken steps with engagement by proactively approaching target
management group.
During FY2021, many companies made progress with Step 4 (Issue sharing with management). There were also many cases
where companies that were in Step 4 as of the end of FY2020 were able to move to Step 5 (Implementation of measures) andStep 6 (Resolution of issue). We will continue taking action with a strong awareness of helping them progress from Step 4 toSteps 5 and 6 while continually taking steps forward as a whole during FY2022.
At the same time, we will keep an eye on alignment with other important ESG issues, add bottom-up engagement from abusiness perspective and risk approach engagement elements/activities, and encourage positive corporate activities.

E

Average progress
Period ending
June 2022

Period beginning
July 2021

2.8 step

4.3 step*

Progress in engagement（Composition ratio）50%

Case Example of Global Retailer A
Environmental destruction / Pollution control selected from
ESG12 Topics

E

40%

Long-term goal: Transforming to a sustainable business model

30%
20%
10%
0%

step1

step2

step3

Period beginning July 2021

S

step4

step5

step6

Period ending June 2022

Average progress(1) Issue setting

Period ending
June 2022

Period beginning
July 2021

2.5 step

July
2019

Task set as Eﬀorts to eliminate waste during
production according to the company s
supply chain management policy

4.3 step*

Progress in engagement（Composition ratio）70%

Medium-term target: Announcement of a resource circulation typebusiness policy(2) Issue presentation

60%

October
2019

Presented issue to person in charge

50%
40%
30%
20%
10%
0%

step1

step2

step3

Period beginning July 2021

G

step4

step5

October
2019 /
October
2020(4) Issue sharing (withmanagement group)

October(5) Implementation of
measuresDecember

Sharing awareness of marine
pollution caused by waste plastic
Discussion of technology establishment /commercialization for resource circulation

step6

Period ending June 2022

Average progress

2021

Dialogue with External Directors
on the need for setting andimplementing long-term goals

Period ending
June 2022

Period beginning
July 2021

2.9 step

4.5 step*

Progress in engagement（Composition ratio）60%(3) Issue sharing(with person in charge
at the company)

2021

Setting long-term goals and announcementof environmental policy for engaging in aresource circulation type business model

50%
40%

(6) Issue resolution

30%

From
January2022

Conﬁrmation of expanded productsales according to the policy

20%* Step as of end of June 2021 does not match with step at beginning of July 2021 for the

10%0%following reason.
step1

step2

step3

Period beginning July 2021

step4

step5

step6

Period ending June 2022

・Brand/topic are replaced as part of annual plan for the period beginning July 2021.
・Topics (Steps 5, 6) where targets were achieved by the end of June 2021 were excluded.

32

Message from the CEO

Purposes of Stewardship Activities

SMTAM s ESG12 Topics

Overview

Evolution of ESG Investments and Our Initiatives

Status of Top-Down Engagement Initiatives

2021/2022 Stewardship Activity Focus Topics

Engagement that Contributes to Improved Investee Corporate Value

Engagement that Contributes to Improved Investee Corporate Value
We set our engagement targets as all brands held, especially TOPIX (Tokyo Stock Price Index) composition brands.
Up to this time, we have engaged with a broad range of companies representing roughly 90% of the market
capitalization of TOPIX companies.
Our mission is to maximize medium- to long-term return on investment for clients by improving corporate value overa medium- to long-term period for investee companies, and acquiring excess return through investment while raising
the market as a whole. To accomplish these, we identify issues with each investee company, and conduct effective
and efficient engagement.
Our engagement approach consists 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 cast in the exercise of voting rights (low ROE, etc.) and companies that have engaged in misconduct. We
select target companies for the top-down approach on the basis of our ESG12 topics, and perform stage
management for engagement.

SMTAM Engagement Process
Prepare opinions

Prep
are
ex
p

improve and standardize opinion quality among the analysts.

Our analysts meet with investee company executives and express their opinions.

n ti

c
Che

d

in

Record and monitorteAfter the meetings, we record investee companies responses to the analysts opinions.

adseacquire insider information is signed and mutually recognized.

es

At each meeting, a written oath stating the analysts will not make any material proposals nor

Expr

Express opinions

nce

We first submit the opinions formulated by each analysts to an internal review. This both helps

va

Check in advance

nd

Rec
or
d

a

the like to help them identify management issues and formulate effective and coherent opinions.

tention
d in
sse
re

nitor
mo

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

We monitor the companies for any changes in management and then utilize this informationkinwhen identifying management issues for the next engagement.

Transition of ratio of the number of companies taking corporate action* to the numberof companies engaged (Accumulation)（Unit: Companies）
350

Number of companies taking corporate action (Accumulation)

300

26％

250
200
150

19％

18％

38％

40%

330

35%

285

30%

252

25%

201

20%

16％

14％

15%

141

100

10%

99

50
0

32％

Ratio of companies taking corporate action

34％

64

5%

35
End of June 15

0%
End of June 16

End of June 17

End of June 18

End of June 19

End of June 20

End of June 21

End of June 22* Only actions that are in harmony with the opinions expressed by our company are counted. * See pages 34-36 for specific examples.

33

Features

Stewardship Activity Initiatives

Engagement Example Cases

ESG Integration

Activity Report from the New York Base

Disclosure of Climate-related Financial Information under TCFD

Activity Report from the London Base

Reference

Exercise of Voting Rights

Engagement Example Cases ‒ Domestic
C A SE 1
Company A in the
manufacturing sector

Addressing social issues(Human rights)
Gender diversity with theBoard of Directors

CASE 2Company B in the
non-manufacturing sector

Business strategy
Human capital

Analyst's Perspective

Analyst's Perspective

A third-party evaluation of their response to human rights was low, so it isnecessary to disclose implementation and evaluation of human rights due
diligence in the supply chain to improve risk response transparency. There arealso no women on the Board of Directors, so it is necessary to improve diversity.

Since the business environment has been changing during the COVID-19
pandemic, it is necessary to shift to sustainable business management that does
not depend solely on increasing the number of users. We felt that a humanresource strategy needed to be formed that is linked with the management
strategy.

Opinion from SMTAM
Human rights evaluation by anthird-party evaluation institution was
low. For global companies, consumer
boycotts due to human rights issues
and damage to brand and corporate
value are serious risks. To eliminate
such concerns, it seems necessary tostrengthen efforts related to humanrights.

According to the revisions to
Guideline on the Exercise of Voting
Rights in January of 2022, our policy
is principally against re-election
proposals for directors whose term is
3 years or longer at TOPIX100
companies with no female directors.
This agenda has been discussed anumber of times, so it seems
necessary to appoint a female
director as soon as possible.

Company Response
We are implementing human rights
due diligence according to the rulesin RBA *1 , and conducting surveys at
consigned factories throughout theworld. We do not publish survey
results, but there are no business
partners with low evaluations where
improvements need to be made.

We are making efforts to help withadvancement of female employees
and have two female executive
officers. Our policy is to electpersonnel who meet the requirements
as internal directors regardless ofgender. At the same time, although
we have been considering inviting
women to become External Directors,
we have been unable to find someone
who meets our standards for election.

Corporate Action
Group human rights policy formulated and disclosed in October 2021, and humanrights risks were identified.

Opinion from SMTAM
When considering the changes inlifestyle caused by COVID-19, a
medium-long-term decrease indomestic population, and issues withphysical capacity, it is necessary to
shift to sustainable business
management that is not overly
dependent on increasing the numberof facility users.

Examples of corporate value
improvement cycles need to bepresented starting with humancapital, KPIs for human capital need
to be determined as ESG issues, andefforts need to be made for achieving
these with the aim of increasi n g
corporate value.

Company Response
We recognize that, in the past, wewere overly dependent on increasing
the number of users. Regarding futurebusiness management, we want tofocus on growing the customer unit
price by increasing customer
experience value.

We understood the need to set KPIs
for personalization and employee
engagement, etc., for CSV*2 from theperspective of human resource
utilization, and the need to explainthese in the management
decision-making process.

Corporate Action
In April 2022, announced the
medium-term management planshowing the policy to (1) increase
sales per customer by improving theexperience value, and (2) achievesustainable business management byimproving the work environment andensuring necessary human resources
while decreasing the upper limit on
the number of users per daycompared to before the pandemic.

Human resource strategy alsoannounced in the medium-term
management plan. Work satisfaction
survey conducted for visualizing theactual status. In addition to efforts for
improving organizational
management, conducting personnel
systems and treatment review, etc.

Evaluation by SMTAM / Future Policy

Evaluation by SMTAM / Future Policy

At the General Meeting of Shareholders, re-election of directors with terms of three
years or longer are opposed since there are no female candidates for director.
Continue to emphasize the importance of efforts for diversity and encourage theelection of female directors as soon as possible.
Although only an overview of human rights due diligence implementation wasdisclosed, it was confirmed that there are no low evaluations with business
partners. Dialogue for encouraging the strengthening of human rights responses willcontinue while confirming the status of functions in sections that handle complaints.

Successfully achieved a shift in strategy to sustainable business management that
does not depend only on increasing the number of users. In the future, the policy
will be to encourage improvement of experience value online and outside offacilities to transcend physical restrictions, and encourage more specific efforts
toward developing new business.
Although a human resource strategy linked with the management strategy wasformed, the policy will be to confirm the effectiveness of the PDCA cycle by using
work satisfaction surveys to improve coordination among the two strategies.

*1 Responsible Business Alliance. This determines the standards for ensuring thatwork environments are safe and that workers are treated with respect anddignity, that their business activities are being carried out responsibly andethically in regards to the environment for the electronics industry, industries
where these are main components, and in their supply chains.

*2 Abbreviation for Creating Shared Value. Management strategy framework thathas balance between Social value (positive impact on the environment andsociety), which is created by resolving social issues through company business,and Economic value (business profit, growth).

34

Message from the CEO

Purposes of Stewardship Activities

SMTAM s ESG12 Topics

Overview

CASE 3Company C in the
non-manufacturing sector

Evolution of ESG Investments and Our Initiatives

Status of Top-Down Engagement Initiatives

Business strategy
Greenhouse gas emissions
reduction

Engagement that Contributes to Improved Investee Corporate Value

CASE 4Company D in the
non-manufacturing sector

Greenhouse gas emissions
reduction
Corporate governanceAnalyst's Perspective

Analyst's Perspective

Company with a high business ratio related to mineral resources. Stock price likely
below PBR 1 as a reflection of the risk of becoming a stranded asset due toclimate change. Necessary to have business portfolio strategy that is linked withresponse to climate change issues.

Since there is growing interest in climate change issues, companies with highabsolute greenhouse gas emissions are being looked at more strictly,
necessitating a quick response.
There are no female directors on the board, and the ratio of External Directors is
less than 1/3, which indicates a need to improve corporate governance.

Opinion from SMTAM
Although scenario analysis by businesssegment is being done as part of disclosure
based on TCFD recommendation, response to
climate change issues and the businessportfolio strategy are not sufficiently linked. In
the next medium-term plan, it seems necessary
to show a business portfolio strategy that is
linked with response to climate change issues
so that efforts for improving sustainablecorporate value are made while maintainingbalance between acquiring profit opportunities
and suppressing risk.

We think the whole supply chain is responsible
for responding to climate change. It seems
necessary to set medium- to long-term goals by
including equity method investment not only in
Scope 1+2 but also in Category 15*3 of Scope 3.
It also seems necessary for the trading portionin Category 11*4 to be handled by contributing
to greenhouse gas reduction through thecreation of business opportunities toward thedecarbonization of the client as well as byverifying and disclosing stranded asset risks inthe portfolio assets.

Company Response
When forming the medium-term
management plan, each businesssegment was categorized according
to environmental load, and businessportfolio replacement was considered
for achieving transitioning.
Discussions are being held byreflecting internal carbon pricing foreach individual investment.

We could organize our thinking on how to respondto Scope 3. As for Categories 11 and 15, we wantto proceed with examinations for disclosure. At thesame time, SBTi*5 carbon neutrality only approvesdecarbonization, but we want to consider offset
responses that include credits. We will organize
visualization tools for stranded asset risks, andpromote risk management according to thebusiness segment. We will examine a review ofbusiness portfolios based on profitability thatreflects internal carbon pricing.

Corporate Action
The new midterm management plan disclosed
in the announcement of 2022 financial
statements clarified alignment of the
management strategy with environmental
vision and goals.
Disclosed cross-sectional business department
efforts for promoting energy transition
investment and transition, governance systems
for monitoring progress of sustainability
initiatives, and composition ratio plan in green
assets balance sheets, etc. Implemented
mechanisms for achieving balance between
portfolio decarbonization and strengthening.

In October 2021, publicly announced
that GHG emissions will be reducedby half (compared to FY2020) by
FY2030 including Scope 1+2(Ownership ratio) of affiliatedcompanies, while aiming for net zeroby 2050. Formulated investments
related to energy transition by
FY2030 worth several trillion yen
along with its roadmap.

Opinion from SMTAM
If other stockholders make a proposal
related to climate change, which SMTAM
considers a priority ESG issue, decision toact will be based on whether a greenhousegas reduction plan is presented and on past
performance. Their reduction plan is basedon the premise that greenhouse gases canbe collected and stored, but from atechnical perspective and based on social
trends, we feel there are certain risks related
to its effectiveness. It seems necessary toconsider and disclose alternative scenarios.

Their ratio of independent External Directors
is below 1/3, so it does not meet SMTAM s
Guideline on the Exercise of Voting Rights. It
seems necessary to improve corporate
governance including raising the ratio ofindependent External Directors.
How do they recognize and analyze resultsfrom a low approval rate related to proposals
for the election of chairperson and president
at the annual meeting of shareholders? It
seems necessary to link such results toimprovement of corporate governance.

Company Response
According to the greenhouse gas
reduction plan for 2030, renovationof aging plants and operation
stoppage are planned. However, eachindividual plan has not beenpresented outside the company.
Since the effect of CO2 reduction at
newly built plants depends on whichplant is suspended, it cannot be
disclosed.

As for increasing the ratio ofindependent external directors to 1/3
or higher, reviews are under discussion
during this year including onorganization design. It was concluded
that factors for the low approval ratethat was pointed out are due to a low
ratio of external directors and lack offemale directors. Although notpossible this time, efforts will continue
to find suitable people.

Corporate Action
While transitioning to a company with an Audit and Supervisory Committee,
achieved a ratio of at least 1/3 for independent External Directors along with theappointment of female directors.

Evaluation by SMTAM / Future Policy

Evaluation by SMTAM / Future Policy

Dialogue goals for set issues were achieved. Policy is to monitor the effectivenessof the business portfolio strategy that is linked to responses to climate change
issues according to the mid-term management plan.
In addition, for greenhouse gas reduction, policy is to have continuous dialogue on
improving disclosure based on TCFD recommendations including a breakdown of
the action plan and reduction plan for achieving Scope 3 reduction target range
expansion (Category 11, etc.) and 2030 goals, and improvement of scenario
analysis.

At the annual meeting of shareholders, shareholder proposals requesting the addressing of climate change
issues were made. From the perspective of encouraging the company to take action, and since there was noproblem based on SMTAM s Guideline on the Exercise of Voting Rights, we voted for the shareholder
proposal. In the future, we will request to formulate and disclose specific and effective measures forachieving 2030 and 2050 goals.
From the perspective of corporate governance, it seems that some progress has been made. But the policy
will be to continue dialog on efforts for improving corporate governance such as the selection of successors
for independent External Directors with long years of service causing questions about their independence.

*3 One of the 15 Categories of Scope 3 (Other indirect emissions) outside of Scope
1 (Direct emissions) and Scope 2 (Indirect emissions such as electricity), andreferred to as greenhouse gas emissions by investees.
*4 Similarly, it refers to emissions from the use of sold products.
*5 An initiative to encourage companies to set reduction targets that are based on scientificknowledge with the goal of limiting the rise in global average temperature caused byclimate change to 1.5 degrees Celsius compared to before the Industrial Revolution.

35

2021/2022 Stewardship Activity Focus Topics

Features

Stewardship Activity Initiatives

Engagement Example Cases

ESG Integration

Activity Report from the New York BaseC A SE 5
Company E in the
non-manufacturing sector

Disclosure of Climate-related Financial Information under TCFD

Activity Report from the London Base

Reference

Exercise of Voting Rights

Greenhouse gas emissions
reduction
Supply chain management(Society)

Analyst's Perspective
Considering the increased environmental load due to the large amount of resources being
used, an increase in lifecycle CO2 emissions, and final disposal through incineration andlandfills for mass production and mass sales, it is necessary to set goals for reducing CO2
emissions and the recycle ratio.
As business risks such as import bans on some countries have started to be imposed as aresult of human rights issues in the supply chain, it is believed that response to human rights
issues needs to be strengthened to eliminate problems, and to then disclose this information.

Opinion from SMTAM
It seems necessary to make adeclaration on efforts for shifting to asustainable business model from amass production and mass sales
business model, and to set goals forresponding to climate change issues
in line with TCFD recommendations.

Regarding supply chain management,
it seems necessary to monitor raw
material production processes in
addition to supervising raw material
factories and production factories,
including global base suppliers andconsignees, in order to establish
traceability for improving brand value.

Company Response
Billions of products are sold every
year, so efforts to recover and recycle
these are accelerating. As for setting
goals related to climate change
issues, the policy is to have disclosurein line with TCFD recommendations,and it is now under discussion.

Organizational adjustments to trackand monitor raw material production
processes have started. A department
for sustainability marketing is being
set up in the Public Relations section
to organize a system for disseminating
efforts related to supply chain
management outside the company.

Corporate Action
In September 2021, goals for FY 2030 were
set including ▲90% compared to 2019 forgreenhouse gas emissions in Scope 1+2, ▲20％ for product raw materials, material
production, and product manufacturing
processes in Scope 3, and a renewable energy
rate of 100% for electricity used inhouse, alongwith the announcement of SBT certification*6.
Announcement of the 2030 action plan at thesustainability briefing held at the end of thesame year. Setting a new goal to switch toabout 50% recycled material for overall raw
materials used by FY2030.

Announcement in October 2021 about
conducting surveys including the most
upstream portion for raw material
procurement such as production farmers,
and announcement of a policy forensuring higher traceability. Establishmentof a global project team and efforts
started for identifying production farmers.

Evaluation by SMTAM / Future Policy
Although the dialogue targets for set issues were achieved, regarding greenhousegas reduction, monitoring will be carried out on the progress status for achieving
set targets through dialogue.
For supply chain management, the policy is to confirm the progress status of the
global project team through dialogue.

*6 Certified that it is consistent with known climate science through *5 SBTi.

36

Message from the CEO

Overview

Purposes of Stewardship Activities

SMTAM s ESG12 Topics

Evolution of ESG Investments and Our Initiatives

Status of Top-Down Engagement Initiatives

2021/2022 Stewardship Activity Focus Topics

Engagement that Contributes to Improved Investee Corporate Value

Engagement Example Cases ‒ Global
At SMTAM, our emphasis on ESG engagement activities extends worldwide. We focus on (1) engagement activities
that are based on action principles or guidelines, such as the PRI, (2) activities aimed at addressing misconduct andother problems in accordance with international norms, and (3) independent activities aimed at promoting greater
efficiency in corporate management and the establishment of outstanding corporate governance. Target companies
were selected by referring to information from collaborating organizations and initiatives, and activity policies andgoals were set based on our ESG engagement topics.

CASE 6CASE 7

Nextera Energy Inc.（US / Electric Power）

Cigna Corp （US / Healthcare Services）

Climate change issues
Promotion of disclosure (Environment)
Engagement Specialist's Perspective

Engagement Specialist's Perspective

A high greenhouse gas emitter without any disclosure of specific long-term
measures. We believe this point needs to be improved.

Although it is possible to give a partially good evaluation of efforts toward diversity
related to gender and race, shareholder proposals were made on further
promoting diversity, indicating it is insufficient compared to advanced companies.
It is believed that this point can be improved.

Opinion from SMTAM

Opinion from SMTAM

Although they are a strong investor in renewable energy in the industry and theirdisclosure of greenhouse gas reduction performance and their specific short term
goals, there is no long-term net zero commitment. Alignment with the 1.5 degree
scenario is also not clear. It seems necessary to show a roadmap along with thelong-term net zero commitment.

We highly rate their improvements to disclosure of organizational composition including
appointment of female managers and inclusion of different races. At the same time,advanced companies in the US have even begun disclosing gaps in salaries, promotions,employment, and turnover rates. As an example, median salary is easy information forstakeholders because it is simple and makes it easy to understand results of efforts and such
movement. It seems that their company should make greater efforts toward improvements.

Company Response

Company Response

・ Although it is important to commit to long-term transition toward net zero
greenhouse gas emissions, it will be promoted by considering stable power
supply and acceptable price setting.
・ Power composition in the state of Florida is 60% from gas and 20% from nuclear powerwith the remaining coming from solar power and storage. The issue with solar power isthat the amount of power generation depends on the amount of sunlight, and nuclear
needs to maintain a constant operation rate, which lacks flexibility for fluctuations indemand, so power generation from gas is an important cushion for making adjustments.
・ In the future, it will be possible to shift to hydrogen.

・ There are jobs at our company that have traditionally been held by women, so
even if the ratio in female managers increases, it will have little impact on
median salary, and it will be difficult to visualize company efforts.
・ Our efforts toward diversity are not limited to management. Note that it is being
promoted throughout the company.

Corporate Action

Corporate Action

・ Announcement of long-term (2045) net zero goal in June 2022.
・ Comprehensive goals include acceleration of renewable energy, decarbonizationof power sources such as promotion of energy storage and hydrogentechnology, and economical effects such as the creation of employment for justtransition.

・ Compared to 2019 before dialogue started, the ratio of female directors has
nearly doubled, and in 2022, the ratio exceeded 30%, which shows significant
improvement.
・ On the other hand, their aggressive goal of having a ratio of 50% female
managers is progressing slowly.

Evaluation by SMTAM / Future Policy

Evaluation by SMTAM / Future Policy

・ Dialogue conducted from business perspectives together with consideration of
the management environment including technology, regulations, and politics, andmutual understanding with company was deepened.
・ Achievement of effective engagement including submission of written opinions tothe chairperson that referenced collaborative initiative tools such as CA100+*1.
・ Policy is to continue making the specific plan, by considering social impact, etc.,
through a long-term action plan, investment plan, and decarbonization transition,from PDCA perspective.

・ Discussions held since 2020 based on shareholder proposals regarding improving theratio of female in the board of directors and the disparity in salary between male andfemale employees. Dialogue widened to include governance and issues withorganizational structure by linking these with the exercise of voting rights, andstructural factors such as organizational rigidity under management group deepened.
・ In addition to confirming progress with diversity improvements with management
group, the policy is to continue dialogue toward advancing disclosure of efforts
for visualization and improvement of organizational structure issues andregarding human capital, and to improve corporate value based on this.

*1 See page 75.

37

Diversity

Features

Stewardship Activity Initiatives

Engagement Example Cases

ESG Integration

Activity Report from the New York Base

Disclosure of Climate-related Financial Information under TCFD

Activity Report from the London Base

Exercise of Voting Rights

C ASE 8CASE 9TotalEnergies （France / Energy）

Moncler （Italy / Apparel）

Climate change issues

Reference

Promotion of disclosure

Engagement Specialist's Perspective

Engagement Specialist's Perspective

Since 2021, proactive and advanced efforts related to climate change have beenpromoted. However, as an industry leader, we felt they should endeavor tostrengthen and accelerate this.

We have engaged in dialogue with this company since 2019. Because
disclosure related to ESG including climate change is not sufficient, it seems
necessary to have them make proactive efforts.

Opinion from SMTAM

Opinion from SMTAM

This is a major energy company in Europe, and is a target brand in CA100+.
Therefore, it attracts attention from investors. It seems necessary to strengthen
various efforts related to achieving net zero greenhouse gas emissions. In
particular, they are expected to promote leading strategies in the industry,including the disclosure of progress on investment projects related to renewableenergy, and deepening efforts with Scope 3*2.

Seems they should show their policies on various issues related to ESG. Overall,
their disclosure of ESG policy, climate change issues, and tax affairs are insufficient.
It is believed that each stakeholder including shareholders and general consumers
who are their customers seem to have questions about their stance on ESG issues.

Company Response

Company Response

Since our commitment to net zero was announced in 2020, details on investment
projects related to renewable energy have been disclosed, and detailed initiatives
and policies for Scope 3 were announced.
Dialogue with each stakeholder is also carefully being promoted. It is our desire tocontinue this while keeping an eye on what our competitors are doing.

We have a strong desire to make efforts, but as a relatively new company, weneed considerably more time to disclose our detailed plan and to implement
measures.

Corporate Action

Corporate Action

Direct dialogue was conducted on site in July 2022. Individual policies forachieving net zero were made and their stance of aiming to be top tierrepresentative of the energy industry and strong commitments were made.

In 2021, the said company published a Non Financial Report for the first time
based on requests for various disclosure including ESG. At the same time, theystated that they will continue improving disclosure.

Evaluation by SMTAM / Future Policy

Evaluation by SMTAM / Future Policy

・ Although they have already promoted advanced initiatives for reducing
greenhouse gases, it was explained they are in a phase of improving eachmeasure for making solid progress, and they understood this.
・ Prior to engagement, our opinions were presented in letters to establish moredetailed discussions and a good relationship.
・ Policy is to monitor future progress related to specific efforts for achieving net
zero.

After achieving a core understanding of insufficiencies related to disclosure on
ESG, their efforts have improved. The policy is to continue monitoring to further
improve information disclosure.

*2 Scope1 : Direct emission of greenhouse gases by a company (Combustion offuel, industrial process)Scope2 : Indirect emissions from use of electricity, heat, and steam provided byother companies
Scope3 : Indirect emissions other than Scope 1 and Scope 2 (Emission by othercompanies related to a company s activities)

38

Message from the CEO

Purposes of Stewardship Activities

SMTAM s ESG12 Topics

Overview

Evolution of ESG Investments and Our Initiatives

Status of Top-Down Engagement Initiatives

2021/2022 Stewardship Activity Focus Topics

Engagement that Contributes to Improved Investee Corporate Value

CASE 10C A S E 11

PGE Polska Grupa Energetyczna （Poland / Utilities）

DBS Group Holdings （Singapore / Bank）

Climate change issues

Climate change issues
Human rights issues

Engagement Specialist's Perspective

Engagement Specialist's Perspective

There is a lack of urgency in the environmental policies of the Polish government
such as on climate change issues. The largest shareholder is the government,
which we understand will inevitably have an impact, but as an EU company, we
feel they should proactively respond independently.

Largest bank based on assets in the ASEAN region, so it seems necessary toenhance supply chain management in the palm oil section, which is an important
industry in the region.

Opinion from SMTAM

Opinion from SMTAM

The largest shareholder is the Polish Government, and we understand the influence thatgovernment environmental policies have on their business plan, and also understand thesituation in Poland where coal is still widely used for energy. However, they are also an
EU company and are expected to proactively implement efforts for the environment. In
particular, they are expected to have a more proactive response to climate change
issues in compliance with EU standards. It seems there is a need for them to show theirthinking based on the policies of the Polish Government and discussions with them.

In addition to individual engagement with this company, we have had continuous
communication with them through the PRI Palm Oil Working Group. As
deforestation and human rights and labor issues have become more serious in thepalm oil sector supply chains in the ASEAN region, as the largest financial
institution in the region, it seems necessary to implement solid supply chain
management.

Company Response

Company Response

・ Although the response toward climate change issues was passive due to thestance of the Polish Government, in 2021, the government shifted to an active
stance on environmental policies. As a result, the said company announcedplans for net zero greenhouse gas emissions, shifting to a proactive stance.
・ Stance on discussions with stakeholders became positive, and opportunities fordiscussion with institutional investors and industrial institutions were set aswell as for collecting feedback (SMTAM participated as only investor fromAsia).

We have been strengthening monitoring of the palm oil sector supply chain as partof our sustainability activities based on our position as a bank. Specifically, we
have encouraged all customers in the supply chain to thoroughly comply with
NDPE (No Deforestation, No Peat and No Exploitation) policies. We recommend
participation in RSPO*3 and acquiring certification.

Corporate Action

Corporate Action

Announcement of policies on climate change issues in March 2021 including
polices on net zero greenhouse gas emissions.

As a result of efforts, as of 2020, 45% of customers in the palm oil sector supply
chain committed to NDPE, and 5% committed to RSPO. Disclosed that these wereincreases of 26% and 4% respectively compared to 2019.

Evaluation by SMTAM / Future Policy

Evaluation by SMTAM / Future Policy

・ Showing net zero policies is a major step in the right direction, but there are still
points that need improvement. Through continuous dialogue, including
confirming the progress of each plan, we will give support so that they cansmoothly promote efforts for achieving net zero.
・ They are also expected to play an important role in the energy policies of thePolish Government, so the status of discussions with the Polish Government will
be confirmed.

・ This was evaluated as an achievement of multifaceted engagement through
RSPO and PRI*4 (Palm Oil WG) in addition to individual engagement.
・ There has been engagement with other banks in Indonesia and Malaysia forencouraging them to strengthen supply chain monitoring. However, there are few
banks that fully appreciate the importance of such activities and implement theminto their strategies. Therefore, the policy is to continue providing educational
activities.

*3 Roundtable on Sustainable Palm Oil*4 See page 75.

39

Features

Stewardship Activity Initiatives

Engagement Example Cases

ESG Integration

Activity Report from the New York Base

Disclosure of Climate-related Financial Information under TCFD

Activity Report from the London Base

Exercise of Voting Rights

C A SE 12

C A S E 13

POSCO （Korea / Steel）

Top Glove （Malaysia / Healthcare）

Climate change issues
Promotion of disclosure

Reference

Addressing companies with misconduct

Engagement Specialist's Perspective

Engagement Specialist's Perspective

While they are developing their business through four business segments, theirsteel business emits a large amount of greenhouse gas including production of
hot-rolled steel, cold-rolled steel, and stainless steel, so we believe a quick
response is needed.

As the world s largest manufacturer of rubber gloves for medical use, they own
40 factories as a group in Malesia for producing natural rubber and gloves, andhave a large number of employees. There are human rights infringements
including forced labor of migrants at subsidiary factories.
After receiving reports about this, we feel it is necessary to confirm the facts
and to request improvements.

Opinion from SMTAM

Opinion from SMTAM

Our understanding is that the whole steel industry needs to do something about
the large amount of greenhouse gas emissions. Since their investments innecessary equipment for realizing zero carbon steel is extremely large, it seems
necessary to have a detailed strategy including a capital plan, and to disclose thisinformation.

First, it is necessary to implement measure for preventing recurrent of thisproblem. Then, it seems necessary to disclose the handling status and results forimport bans given by US agencies related to this matter.
(Utilization of ISS ESG-Norm Based Engagement (hereinafter, ISS ESG-NBE) *5
collaborative engagement programs)

Company Response

Company Response

・ Based on the Group's response to climate change issues, we want to giveconsideration to existing coal power plants including the possibility ofwithdrawal.
・ We consider trends with major customers such as the automobile industry to
be important, so we also want to focus more on joint research anddevelopment with customers.
・ We also want to improve business strategies including Scope 3 target setting
and response plans that include the value chain.

In June 2020, a contract was made with the independent international ethicaltrading consultant Impactt, and a cause investigation and implementation of
measures for preventing recurrence were announced.

Corporate Action
・ Announced the goal of net zero greenhouse gas emissions in December 2020.
・ In January 2021, disclosed plan in consideration of the 1.5 degree scenario.

Corporate Action
Impactt conducted an assessment of 11 points where forced labor was suspected, and in April
2021, they publicly announced that all items including cases where questions were raised had
been resolved. Through this assessment, a Zero Recruitment Policy was implemented, and unpaid
salary was given to all employees (farm workers) who had made contracts prior to January 2019.
Announced that the policy was added to prevent workers from being deceived by brokers during
the employment contract period. Moreover, based on disclosure by Impactt, US agency announced
in September 2021 that the import ban was cancelled, and imports to the US resumed.

Evaluation by SMTAM / Future Policy

Evaluation by SMTAM / Future Policy・ Engaged in CA100+ collaborative initiatives as a lead investor, and utilized
comprehensive capabilities including suggestions to Korean policy makers andcollaboration with investors in Korea as well as asset owners in Europe foraccomplishment.
・ Technical advancements such as hydrogen reduction are needed to reducegreenhouse gas emissions, so the policy is to give suggestions on infrastructureorganization to those in charge of Korean policies for achieving this.

・Achievement was made through collaborative engagement program activities of
the ISS ESG-NBE. In addition to our independent engagement, the policy is to use
the ISS ESG-NBE program to encourage improvements to the work environment
in the natural rubber and rubber glove sectors in Malesia.

*5 Department that identifies companies violating international regulations onhuman rights, labor, and corruption and that provide special collaborative
engagement programs for requesting improvements by ISS ESG, which is the
Responsible Investment Division of the global voting advisor ISS.

40

Message from the CEO

Overview

Purposes of Stewardship Activities

SMTAM s ESG12 Topics

Evolution of ESG Investments and Our Initiatives

Status of Top-Down Engagement Initiatives

2021/2022 Stewardship Activity Focus Topics

Engagement that Contributes to Improved Investee Corporate Value

Activity Report from the New York BaseSumitomo Mitsui Trust Asset Management Americas

Masaru Okubo
SMTAMA Senior Stewardship Oﬃcer
Has worked in international equity investment
since 1998. Has been stationed for 16 years in
New York, Silicon Valley, and Edinburgh, UK.
Has accumulated knowledge throughdiscussions with many global companies.

are often addressed. Dialogues include those conducted byour company independently as well as in collaboration withinitiative organizations. Regarding collaborative engagement,
we participate in engagement programs on risk management
enhancement for climate and water resources in the
agricultural supply chains of food makers, and in dialogues
related to improving work environments at meat packing
plants. We have been continuously engaging in some ofthese programs for years. Approaches through collaborative
engagement, such as organizing issues for target companies
while utilizing the expert knowledge of international

Sumit omo Mit sui T rus t A s s e t M ana g ement Americ asinitiatives on specific issues and consideration of best

(hereinafter, SMTAMA) was established as a wholly-owned

practices, setting goals for each phase, and then confirming

subsidiary in New York, USA in July 2020. In the US, anachievements are extremely helpful for us. Such efforts areentrepreneurial spirit that incorporates new technologies andshared by each global office, and this contributes to effective

social trends, and dynamic financial markets that support

implementation of independent engagement as well.

rapid commercialization have been the backbone ofRegarding climate change and water resource management,

economic growth and a positive growth cycle. At the same

which are among our priority issues, we select target

time, when it comes to responding to ESG issues including

companies, conduct shared evaluation scoring with Asian

negative externalities, Europe has been at the forefront.

and European companies, and clarify engagement goals andHowever, recently, the SEC conducted hearings focusing on

the status of improvements. Nextera (US / Electric Power)

climate issues with investors and initiative opinions for

was one target and an example case where the response toimproving corporate disclosure. On the corporate side,climate change issues was improved by deepening mutual

environmental and social issues are viewed as businessunderstanding through collaborative engagement with ouropportunities, and they focus on solution development, which

global impact investment team.

reminds me of the importance of US capital markets.
Regarding stewardship engagement, we believe that

As part of our ESG research activities, we collect information

deepening mutual understanding between ourselves andon ESG trends in the US through working with international

investee companies is of utmost importance. We are

initiatives, and share this within the company. At the meeting

endeavoring to collaborate with initiatives for effectiveof the Council of Institutional Investors (CII)*, we reported toprogress and to share the latest information on best practices

Tokyo and UK bases about discussions on a wide range ofthrough information sharing among our global bases.

issues including employee safety and health management,
response to human rights in the supply chain, and reflecting

41

Sharing Knowledge from Global Initiatives

ESG evaluations to remunerations for executives. For the

The main stewardship activities by SMTAMA involve

30% Coalition * , we participated in regular meetings forengagement activities with companies in the US as well as

investors members, and reported about the widened

Central and South America. Primary topics are climate issues,

discussions on diversity in the US including on the hiring of

biodiversity, diversity, and disclosure, which are positioned as

female directors and on race and ethnicity, promotion ofpriority issues by our company. Recently, human capital

diversity in the workplace, and efforts for preventing different

management including human rights and work environments

types of harassment.

Features

Stewardship Activity Initiatives

Engagement Example Cases

ESG Integration

Activity Report from the New York Base

Disclosure of Climate-related Financial Information under TCFD

Activity Report from the London Base

Reference

Exercise of Voting Rights

Focus on Information Dissemination in the US

capital has progressed, we will focus on human capitalIn addition to the collection of such ESG information from

including diversity in the workplace and work environments as

actual sites, we also make efforts to disseminate

priority issues. Regarding natural capital, the TNFD (Taskforce

information on our Stewardship Activities in the US. We

on Nature-related Financial Disclosures) has begun in

introduced an example of our corporate engagement

earnest. SMTAMA also supports the establishment of natural

involving policy engagement in Asia to the investor

capital disclosure frameworks through dialogue withworking group (Paris Aligned Investor Working Group) ofcompanies and stakeholders, and are aiming to hold dialogue

the environmental initiative group Ceres*, and it was highly

for resolving related issues such as water resources andevaluated as a good example of multifaceted engagement

deforestation.

by an international investor group on climate change
issues (The Investor Agenda*). SMTAMA is also proactively
involved in multifaceted engagement. We participate inmeetings for exchanging opinions on best practices fordisclosure by food companies and investors hosted by an
NGO (FAIRR*), and we engaged in dialogue on ESG activity
promotion by listed companies.
Acceptance of Student Interns
In addition to our Stewardship Activities, SMTAMA also
engages in due diligence of US investment products for ourJapanese clients, and promote our investment products forcustomers in the US. Here, we have been expanding our

Author is at center of photo. Together with local staﬀ.

network including with investment managers, investors,in v e s t e e c omp anie s, indus t r y g r oup s, and me dia f ordeveloping business. It has been two years since ourestablishment, and we have begun a student internshipprogram as part of our business activities. Target work includes
ESG investigations and research on investment industries.
While providing actual work experience for students, this can
produce a positive effect through their fresh perspective andawareness of issues when considering matters related to ESG
for our company.
Future Activities
2022 is the year of the US midterm elections, and discussions
about ESG have recently become more political. However, wewant to continue dialogue that helps companies strengthenrisk management and that establishes trust among internaland external stakeholders. Since the setting of global
non-financial disclosure standards on climate and human* See pages 75, 76.

42

Message from the CEO

Overview

Purposes of Stewardship Activities

SMTAM s ESG12 Topics

Evolution of ESG Investments and Our Initiatives

Status of Top-Down Engagement Initiatives

2021/2022 Stewardship Activity Focus Topics

Engagement that Contributes to Improved Investee Corporate Value

Activity Report from the London BaseSumitomo Mitsui Trust International Limited

Tetsuro Takase
SMTI Director of ESG
Engaged in investments as the Asia Equity
Portfolio Manager since 2002. Assigned to
London based from the end of 2017, in chargeof Stewardship Activities, etc., mainly for
Europe.

European countries that are dedicated to various
ESG-related issues. Such initiatives are exclusively for specifictopics and often provide opportunities for communications
between asset managers and investee companies. If we canagree with the thoughts and directions of an initiative, we
become signatory members and proactively participate indiscussions and activities.
SMTI Activities
SMTI s aim is to contribute to enhance the enterprise value
through various engagement activities, which is why we are

The UK̶ An Advanced ESG Country

usually conducting the meetings in person with investee

Sumitomo Mitsui Trust International Limited (hereinafter

companies in Europe, as well as discussions and

SMTI) is a wholly owned subsidiary of the Company

collaborative engagement activities with initiative

based in London, UK. Our office is located in the City oforganizations based in Europe. We also conducting theLondon, which is the financial district, and is our base for

dialogues with regulators, service providers, and the media

providing investment products to asset owners such as

as a part of multi-engagement activities. The knowledge

pensions/SWF (Sovereign Wealth Fund) in Europe andacquired through such activities is shared and reported

the Middle East, and for our Stewardship Activities inthrough opinion exchange with the staffs in both Tokyo andEurope.

New York for enhancing the level of our stewardship

Since many financial companies from all over the world haveactivities.

offices in the UK, large international conferences are
frequently held here. In Europe, ESG-related discussions andWe have focused our activities on investee companies

implementation are advancing, and the UK is where themainly in Western Europe, additionally, we also coverlatest intelligence on ESG is concentrated.

countries in Central and Eastern Europe such as Poland andOver the past few years, the COVID-19 pandemic has

the Czech Republic, which have significant economic

impacted various aspects of lives in Europe, but it has

growth, as well as companies in Africa. We think that a

gradually been brought under control as vaccines havewide range access and consistent dialogues are attributed

become penetrated. Currently, in-person communication andto the contribution by the dedicated staffs in London. We

visits to investee companies are resuming.

have achieved more than 100 engagement activities in thepast one year despite the difficulties by the COVID-19

Discussions related to ESG have progressed in Europe, andpandemic.

responses to climate change issues including intergovernmental

In addition to issues such as climate change and diversity,

initiatives such as EU taxonomy have been proactively

we have dealt with a wider range topics such as supply

implemented by companies belonging to sectors that are

chain management, human rights, and access to medicine,

categorised as ones with larger environmental impact. In

which have also recently gained attention in Japan. We will

addition to climate change issues, a wide range of topics,

still conduct our activities with paying attention forsuch as human rights, diversity and access to medicine, haveenhancing the presence.

been actively discussed. On the background of this situation,
there are a number of initiative organizations based in43Features

Stewardship Activity Initiatives

Engagement Example Cases

ESG Integration

Activity Report from the New York Base

Disclosure of Climate-related Financial Information under TCFD

Activity Report from the London Base

Reference

Exercise of Voting Rights

Case Studies

In recent years, awareness about antimicrobial resistance

1. Climate Change

have been increased significantly under the pandemic

We have set a wide range of the engagement targets fromsituation of COVID-19 in the past couple of years. To

the Upstream Energy companies such as Shell (UK, Energy)

address this issue in a professional way, in 2021, Investor

and BP (UK, Energy) to Consumer Related companies such

Action AMR was established in 2018 with the cooperation

as Volkswagen (Germany, Automobiles) and Nestle

between ATMF and other initiative organizations. Our(Switzerland, Food). Here, we would like to mention you acompany participated as the only Asian investmentcase of PGE. The Polish Government is the main

management company when it was established. SMTI andshareholder of this company, and they supply power for all

persons in charge from Tokyo cooperated to join asof Poland. Since 2020, SMTI has conducted the continuous

panelists at meetings attended by both the public andengagement activities with them for addressing various ESG

private sectors, and proactively are making effort to raise theissues, especially climate change. In addition to thesepublic awareness about this issue in Japan and makeefforts, since the Polish Government revealed theirprogress toward its resolution.

proactive stances on climate change issues, PGE alsoannounced their stance on achieving net zero greenhouse

Next Action

gas emissions in 2021. As they continuously show their

As mentioned previously, various kind of advances ESG topics

strong commitment toward climate change issues, SMTI

have been discussed in Europe. As all of you may be aware of,plans to contribute to climate change issues through the

but we feel that some number of topics, such as climate

engagement activities with them and to enhance thechange and diversity, have made significant impact onenterprise value of PGE with it.

Japanese society. We will continue to work further withkeeping in mind of the importance of the latest ESG trends.

2. Issues with Access to Medicine and Antimicrobial Resistance

Recently, topics related to supply chain management requiring

We also take a proactive approach to topics other thana wide-ranging response from companies including humanclimate change issues. As an example, we would like to talkrights and environmental issues are gathering more and more

about initiatives for addressing access to medicine andattention. SMTI plans to conduct the dialogues with investee

antimicrobial resistance. In 2018, we were the first Japanesecompanies and other stakeholders with focusing on thesefinancial investment manager to join the Access to Medicine

points in order to enhance the long-term enterprise value andFoundation (hereinafter, ATMF), which is an initiative that

contribute to resolve the social issues.

aims to resolve issues with access to medicine. Since then,we have proactively been involved in collaborative
engagement activities for access to medicine as well asprotein management and more. We have conducted the
dialogues with European pharmaceutical companies such as
Merck KGaA (Germany, pharmaceuticals) and Novartis(Switzerland, pharmaceuticals) by developing collaboration
with the initiatives, and SMTI is playing a role as a contact
person for the dialogues with one of major Japanesepharmaceutical companies where we are lead managers bymeans of collaboration with this initiative, which has its head
office in the Netherlands.

Author is on the right in the photo. Managing director of SMTI on the left.

44

Message from the CEO

Overview

Purposes of Stewardship Activities

SMTAM s ESG12 Topics

Evolution of ESG Investments and Our Initiatives

Status of Top-Down Engagement Initiatives

2021/2022 Stewardship Activity Focus Topics

Engagement that Contributes to Improved Investee Corporate Value

Added criteria for Responding to Climate Change andAppointment of Female Directors to Guidelines on the
Exercise of Voting Rights for responding to ESG issues
Purpose of Exercise of Voting Rights
As a responsible institutional investor, we position the exercise of voting rights on entrusted assets (hereinafter referred to as
exercise of voting rights ) as one of our important stewardship activities.
The purpose of exercising voting rights is to maximize the medium- to long-term investment returns for customers (beneficiaries) byimproving the corporate value of investee companies and promoting sustainable growth. Please visit our website for more details.
https://www.smtam.jp/institutional/stewardship̲initiatives/stewardship̲activities/voting̲index/voting̲thoughts.html

Revisions to the Guideline on the Exercise of Voting Rights
We revised the Guideline on the Exercise of Voting Rights in January 2022 (published in December 20201). The main points
that were revised were the addition of standards for responses to climate change for addressing ESG issues, addition ofstandards for the appointment of female directors, and changes in harmony with revisions to the Corporate Governance Code.
Since July 2021, we have been a part of the global Net Zero Asset Managers initiative by asset management companies
whose aim is to achieve net zero greenhouse gas emissions from investee companies by 2050. By establishing standards forresponding to climate change to the Guideline on the Exercise of Voting Rights, our goal is to prompt investee companies totake action for addressing climate change and to achieve sustainable growth and the sustainability of companies and society as
a whole.

Main Revisions to the Guideline on the Exercise of Voting Rights
Revised Items
Standard

Added period of service to the independency standards for external oﬃcers, etc.

Composition of
the board of
directors,
appointment of
directors

For responding to ESG issues, added standards related to responses to climate change and standards on the appointment of female directors

Performance-linked
remuneration,
stock remuneration,and stock options
Takeover defense
measuresShareholder proposals

45

Revision Details

For listed companies in the Prime Market, request the having of multiple independent external directors and that these be at least 1/3 of thetotal directors (applicable to shareholder meetings from April 2022)
Companies that have parent companies, etc., are requested to have a majority of directors be independent external directors
Added concept on the number of companies where external directors hold concurrent posts

Revised the period for possibility of selling stocks to after 3 years
Newly set exception standards for cases where a non-performance-linked stock compensation system / Stock remuneration type stock options
are provided for external directors

Added standards for takeover defense measures implemented in emergencies

Added standards for amending the Articles of Incorporation
Added standards for responses to climate changeStewardship Activity Initiatives

FeaturesEngagement Example Cases

ESG Integration

Activity Report from the New York Base

Disclosure of Climate-related Financial Information under TCFD

Activity Report from the London Base

Reference

Exercise of Voting Rights

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" company proposals, however since the disclosure of individual voting records inJuly 2020, we also began publishing all reasons for voting, regardless of it is "for" or "against," on proposals perceived to haveconflicts 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 the investors' voting policy in the section below.

PDCA in the Exercise of Voting Rights
We established a Stewardship Activities Advisory Committee that is made up of independent external experts for ensuring theproper exercise of voting rights. Our operations are carried out through proper monitoring based on clear decision standards inharmony with our guideline established after consulting with the Advisory Committee. The Advisory Committee plays animportant role in the following PDCA cycle.

Formu
latio
na
nd

s
ion
vis
e
r

A

P

P

D

opos

a ls

nes
deli
gui
of

,a

nd

of v

o t in gr e s ult s

D e citsi o n

o

ex

ua

vid

in g

ur e

C

The results from the exercise of voting rights are analyzed, and are then reported
to the Stewardship Committee and Advisory Committee. In addition, the resultsfrom the execution of all proposals are published. Moreover, when published,business partner flags are given so that results from the exercise of voting rights forbusiness partners can be confirmed by a third party.

di

ort

lo s

Analysis, reporting, and disclosure of voting results

in

rep

sc

For proposals that can be determined based the guideline, an execution draft iscreated by the Stewardship Development Department. The General Manager of
the Stewardship Development Department confirms that the decision is incompliance with the guideline before making a final decision.
If the decision is different from the guideline or there is there not applicable rule in
the guideline, the Stewardship Committee holds a discussion, and then theAdvisory Committee verifies the propriety of the decision process. The Executive
Officer in charge of the Stewardship Development Department makes the final
decision on execution while following the recommendation of the Advisory
Committee to the extent possible.

s
ci

e

si s,

di

D

l pr

A n al yC

The guideline for determination standards on the exercise of voting rights isformulated and revised by the Executive Officer in charge of Stewardship
Development Department after examination by the Stewardship Committee andafter consulting and reporting to the Advisory Committee.

Decision to exercise individual proposals

pu
bl

g
in
ish

Gu
ide
lin
e

Formulation and publishing of guidelines

er

Guideline revisions

A

In addition to analysis of the execution results, the guideline is revised and publishedas needed based on confirmation of changes in social circumstances such asrevisions to the Stewardship Code and Corporate Governance Code, engagementwith investee companies and recommendations by the Advisory Committee.

In order to help visualize the above process, we publish guidelines and deliberation contents
by the Advisory Committee (summary), and disclose results from the exercise of voting rights
for each proposal (in addition to disclosing the existence of business relationships with
Sumitomo Mitsui Trust Group and reasons for opposing).

46

Message from the CEO

Overview

Purposes of Stewardship Activities

SMTAM s ESG12 Topics

Evolution of ESG Investments and Our Initiatives

Status of Top-Down Engagement Initiatives

2021/2022 Stewardship Activity Focus Topics

Engagement that Contributes to Improved Investee Corporate Value

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)

6335 TOKYO KIKAI SEISAKUSHO, October 2021 General meeting
ProposalsNo1

Proposal[Company proposal]
Gratis allotment ofstock acquisition rights

Voting record

Background / Reason

For・ Proposal for implementing takeover defense measures based on stock accumulation
by Asia Investment Fund Co. Ltd.
・ Regarding takeover defense measures implemented in the event of an emergency,
based on the determined substantial shareholder value including future prospects, thedecision is being made to exercise takeover defense measures together with the pros
and cons of invoking the takeover defense measures regardless of whether the formal
requirements are met.
・ A takeover bid was not used this time and there was no opportunity for minor
shareholders to sell their stocks, and the decision was made from the perspective ofwhether corporate value would be damaged if the offeror maintained a 40% holding.
・ The offeror did not have a policy or plan for explaining how they would improve thecorporate value of the said company.
・ Because of this stock accumulation (large volume holding), users seemed to put off
order and delivery of newspaper presses.
・ On the company side, no mid-term plan was published and there were no clear
measures by the current management system for improving corporate value. However,
we determined that the risk of damage to corporate value under control by theofferor would be higher.

9919 KANSAI FOOD MARKET (Formerly Kansai Super Market), October 2021 General meeting
ProposalsNo

1-5

Proposal[Company Proposal]
Share Exchange and Related Proposal

Voting record

Background / Reason

Against・ This case involved selecting either (1) continued listing under H₂O based on a businessmerger with a H₂O Retailing (hereinafter, H₂O) subsidiary, or (2) delisting after atakeover bid by OK Co., Ltd., (hereafter, OK), who is the tender offeror. The decision
was made from the perspective that it would be possible to have a share price with
(1) that was higher than the tender offer price (2,250 yen) in (2).
・ According to a calculation by a third party requested by the said company, thetheoretical price after the business merger in proposal (1) would be higher than thetender offer price (2,250 yen being the highest price after listing, which was morethan double the price on the offer date). However, the business plan that was thepremise for the calculation showed a graph rising to the right, and there was no
persuasive explanation about how it would be realized. Since the realization accuracy
was unclear, we determined that the takeover bid by OK in (2) was desirable.
・ Moreover, the takeover bid by OK was based on the premise that it would be done withthe agreement of the said company after the company proposal is denied at the general
meeting of shareholders. Although there were concerns that it would not be approved
and that the takeover bid would fail, we expected the opposing company proposal
would push the management of the said company to have positive dialog with OK.

2928 RIZAP GROUP, June 2022 General meeting
Proposals
No

5

47

Proposal[Company Proposal]
Appointment of Directors

Voting record

Background / Reason

Partially Against

・ One of the candidates for director was involved in misconduct related to managementof general meetings of shareholders at another company.
・ Because the person s actions were against corporate ethics related to the operationof general meetings of shareholders, which is a place for making the most important
decisions for a stock company, we determined the person was not appropriate as adirector.

Stewardship Activity Initiatives

FeaturesEngagement Example Cases

ESG Integration

Activity Report from the New York Base

Disclosure of Climate-related Financial Information under TCFD

Activity Report from the London Base

Reference

Exercise of Voting Rights

6406 Fujitec, June 2022 General meeting
Proposals
No

Proposal

Voting record

5[Company Proposal]
Appointment of Directors

Partially Against

8[Company Proposal]
Revision to remuneration amount

AgainstBackground / Reason
・ The investment fund that is a shareholder publicly stated their suspicion of a conflictof interest between a manager from the founding family of the said company and thecompany, so we considered this in our decision for the exercise of voting rights.
・ It was determined that all re-elected directors had a defect in their qualifications for
execution of duties and management/supervision because they are reluctant to havean investigation by a third-party or an external briefing about suspicious legal or
corporate governance actions.
・ It was also determined that approval cannot be given to increase remuneration for aboard of directors that does not properly execute their duties.

Proposal Withdrawal 8303 Shinsei Bank, November 2021 General meeting
ProposalsNo1

Proposal[Company proposal]
Gratis allotment ofstock acquisition rights

Voting record

AgainstBackground / Reason
・ Regarding takeover defense measures implemented in the event of an emergency,
based on the determined substantial shareholder value including future prospects, thedecision is being made to exercise takeover defense measures together with the pros
and cons of invoking the takeover defense measures regardless of whether the formal
requirements are met.
・ It was determined that the offeror, SBI Holdings, handled the provision of information
to existing shareholders properly and gave consideration to minor shareholders by
doing the following.
(1) Handling procedures while showing consideration to shareholders such as byextending the period for the takeover bid(2) Stating that more than half of the board of directors will be independent external
directors after acquisition, which shows consideration to minor shareholders after
acquisition
・ After considering the fact that the company was unable to improve their corporate
value despite having sufficient time, we determined that the choice including the
takeover bid with a certain premium and pursuit of growth opportunities under the
new strategy of the offeror was not unreasonable.

Proposal Withdrawal 1890 Toyo Construction, June 2022 General meeting
Proposals
No

5

Proposal[Company Proposal]
Policy for responding tolarge-scale purchase

Voting record

Background / Reason

Against・ The said company did not set a relevant response policy for takeover defense
measures, but assumed that gratis allotment of stock acquisition rights was theircountermeasure. We viewed this as a practical emergency takeover defense measure,so we made the execution decision based on the actual determined shareholder
value including future prospects.
・ The said company stated that the key is either (1) medium- to long-term corporate
value achieved by the 100% acquisition of the said company by the offeror including
the joint company Vpg, etc., or (2) the medium- to long-term corporate value andshareholder shared profit achieved by the said company themselves or incollaboration with a third party, which ever is higher, but there is no explanation
about specific measures for improving medium- to long-term corporate value by thesaid company.
・ Since the company cannot share any specific measures for improving corporate value,
we decided that there is no legitimate reason to remove the TOB application
opportunity of the investor

48

Message from the CEO

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

SMTAM s ESG12 Topics

Overview

Status of Top-Down Engagement Initiatives

2021/2022 Stewardship Activity Focus Topics

Engagement that Contributes to Improved Investee Corporate Value

Record of exercising voting rights for Japan-listed companies
Voting Record (all company proposals)
Company proposals
July 2021 - June 2022

For

AgainstAbstention

Opposition Ratio

21,006

5,228

0

19.9%

Proposals concerning capital policies

1,803

Proposals concerning remunerationfor executives

1,219

Proposals concerning articles
of incorporation

2,377(excluding those related to articles of incorporation)

Proposals concerningcompany systems

Other proposals

20,825

Total proposals

26,234

10

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

19,197

Appointment/dismissal of
corporate auditors

100％

1,525

100％

Appointment/dismissal of
accounting auditors

1,590

Remuneration for executives*3

For

103

100％

50％

100％

55

For
0％

50％

100％

Introduction/renewal/abolishment of
takeover defense measures
For

100％

96
Against

96

0

0％

50％

Shareholder proposals

50％

For

42

100％

100％

58

50％

100％

10

Other proposals

Against

2,335

132

50％

62

4

0％

For

132
Against

0

0％

100％

Against

0％

For

2,377

For

1,087
171

50％

Payment of retirement benefits forresigning executives

2

1,219

Against916

0％

Against53

Other proposals concerning capital policies*2

Proposals concerning articles
of incorporation

For

70

Restructuring-related*1

050％

Against1,520

0％Against103

0％

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

210

50％

For

Proposals concerning
remuneration for executives

Against

1,315

0％

1,803

4,538
50％

For

Proposals concerning
capital policies

Against14,6590％

20,825

Against

5

5

0％

50％

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, new shareallocations to third parties, decrease incapital, reverse stock splits, and issuanceof class shares*3 This includes amendments to remunerationfor executives, issuance of stock options,introduction/alteration of
performance-linked remuneration systems,
and executive bonuses

For

AgainstAbstention

Opposition Ratio

16

285

0

94.7%

Factors that affect the result of exercising voting rights and the opposition ratio
Regarding the comparison of the opposition ratio to company proposals over the same period during the previous year, the opposition ratio slightly increased due to revisions
with the guideline such as stricter standards for companies who have parent companies, and the addition of service years to independency standards for external officers.
With regard to stock 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. In daily processes, our fund manager confirmed positions such as the number of lent stock.

49

Stewardship Activity Initiatives

FeaturesEngagement Example Cases

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Activity Report from the New York Base

Activity Report from the London Base

Reference

Exercise of Voting Rights

Record of exercising voting rights for foreign-listed companies
Voting Record (all company proposals)
Company proposals
July 2021 - June 2022

For

AgainstAbstention

Opposition Ratio

37,981

5,711

0

13.1%

Proposals concerning capital policies

7,416

Proposals concerning remunerationfor executives

4,859

Proposals concerning articles
of incorporation

1,970(excluding those related to articles of incorporation)

Proposals concerningcompany systems

19,181Other proposals

10,266

Total proposals

43,692

Breakdown of voting record on company proposals
19,181

Proposals concerningcompany systems
Appointment/dismissal of directors
For

Appointment/dismissal of
corporate auditors

For
100％

781

50％

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

326

Appointment/dismissal of
accounting auditors
For

For

27

50％

50％

100％

Proposals concerning articles
of incorporation
For
0％

1,970

50％

Shareholder proposals

100％

188

195
7

100％

10,266
Against

9,080

0％

100％

100％

50％

For

515

0

50％

AgainstOther proposals

Against

1,455

13

0％

13
Against254

Takeover defense measures

0％

Presentation of retirement benefits

100％

Against

50％

For

431

971

717

0％

Against

50％

For
100％

100％

1,037

606

0％

36

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

Against

2,259

0％

2,286

1,059

526

Stock options

Against

3,809

50％

For
100％

4,859

Against

3,283

0％

7

1,023

0％

For

Against

50％

For
100％

1,654

Establishment of share buyback frameworks

14

50％

100％

1,647

0％

Against

312

0％

100％

Remuneration for executives

547

50％

For

Proposals concerning
remuneration for executives

AgainstProfit disposal and loss disposition plans

106

3,537

2,990

0％

Against675

0％

Shareholders' equity

2,055
50％

For

(excluding those related to articles of incorporation)

Against13,7330％

15,788

7,416

Proposals concerning
capital policies

1,186
50％

100％

For

AgainstAbstention

Opposition Ratio

1,159

451

0

28.0%

50

Message from the CEO

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

SMTAMʼs ESG Investment Strategy - Active Investment

Overview

2021/2022 Stewardship Activity Focus Topics

SMTAMʼs ESG Investment Strategy - Passive Investment

Fixed Income ESG

ESG Integration
We have identified 12 important ESG challenges as ESG Materiality. We take the ESG evaluation conducted basedon this ESG Materiality into the investment decision-making process in line with portfolio characteristics, and thencarry out ESG integration with the aim of maximizing investment return.

12 important ESG Materiality

ESG screening

All active products: Screening by ESG related issues

ESG investment
evaluation(non-financial
information)

Corporatebonds(Domestic)

ForeignstocksCorporate
bonds(Foreign)

Sovereign

J-REIT

Investment universe evaluation based on in-house ESG score

Evaluation®
by MBIS
Reflection toinvestment
decisions

Evaluation®
by MBIS

Investment decision-making in line with portfolio characteristics

Investment and risk committee

ESG monitoring

MBIS®*2In-house
ESG score

M

Management

B

Business Franchise

Management group(Checklist 5 items)
Organizational ability(Checklist 5 items)
Diﬀerentiating factor(Checklist 5 items)
Client base (Checklist 3 items)

I

Industry

S

StrategyMarket growth potential(Checklist 2 items)
Competitive environment(Checklist 5 items)
Skillful investment(Checklist 5 items)
Skillful withdrawal(Checklist 5 items)

Reference

External ESG data / Qualitative evaluation

Overall MBIS® score

G-REIT

ESG Materiality

ESG integration

Domestic
stocks

MBIS® is our unique system for evaluating the medium- to long-term sustainable growth of companies utilizing non-financial information including ESG elements. We
started performing such evaluations for domestic companies in 2015, and are using these for ESG integration related to domestic shares and domestic bondinvestment. Our analysts use this to help them gather, analyze and evaluate non-financial information which cannot be expressed in terms of financial data for thecompanies 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 anabbreviation for Management, Business Franchise, Industry, and Strategy, and it also incorporates our in-house ESG score evaluations for each evaluation item. In thisway, we consider the impact of the investment opportunities and risks through the initiatives of each company for ESG issues for the creation of new markets andbusiness models such as commercialization and monetization on medium- to long-term sustainable growth of each company. We incorporate the concept of theSDGs and the 17 goals into our evaluation.

51

Features

ESG Integration

Stewardship Activity Initiatives

Reference

Disclosure of Climate-related Financial Information under TCFD

ESG Materiality
ESG issues that we view as important for improving the value of the investee and to promote sustainable growth are identified as ESG Materiality from the perspectiveof both risk and opportunity. As we give consideration to things such as SDGs, and then reflect this to ESG evaluations of investees, our engagement activities, anddecisions for exercise of voting rights.

Risk

Opportunity

E

S

G

Climate Change

Human Rights &Community

Behavior

Natural Capital

Human Capital

Structure

Pollution ＆ Waste

Security & Responsibility

Stability & JusticeEnvironmental
Opportunities

Social Opportunities

GovernanceImprovement

https://www.un.org/sustainabledevelopment/

In-house ESG Score
SMTAM In-house ESG Score Overview according to Assets

Target assets

StocksBonds(1) Evaluation items(2) Quantitativeevaluation

12 important ESG Materiality

External ESG data, etc.*1(3) Qualitativeevaluation(4) In-house
ESG score

REIT

Various data fromthe World Bank,etc.

ESG Evaluation by
Sumitomo Mitsui Trust
Research Institute

External
ESG data, etc.

Utilization of information and analysis results acquired
through research activities by analysts and engagement activities

Domestic stocks

Foreign stocks

Corporate bonds（Domestic/Foreign）

Sovereign

J-REIT

G-REIT

Principally, we give an in-house ESG score on the investment universe for the whole asset. The in-house ESG score is our investment evaluation index given from theperspective of investors after analyzing the impact of opportunities and risks resulting from ESG issues on nations and companies, etc. It is calculated based on ESG
Materiality by utilizing external ESG data and by reflecting information acquired through research activities by analysts and engagement activities, and then reflecting
the analysis results. In order to select brands and determine the investment weight, we add company performance, financial status and valuation for stocks and REIT,
and add credit evaluation and spread evaluation for Sovereigns and corporate bonds.

J-REITIn J-REIT investment , we conduct ESG integration utilizing ESG scoring granted by Sumitomo Mitsui Trust Research Institute. Evaluations under ESG scoring by
Sumitomo Mitsui Trust Research Institute assesses four major aspects look at four major considerations: the ESG promotion framework and initiatives related to theenvironment, society, and governance. Each item has its own checklist by which it is scored.

*1 We use data such as from external ESG data vendors as references for our own ESG quantitative evaluations. We have engagement with ESG vendors at least once a year to
confirm and improve service contents based on what we use (universe expansion, higher data accuracy, better information on misconduct, etc.).
*2 MBIS® is a registered trademark of Sumitomo Mitsui Trust Bank.

52

Message from the CEO

Overview

SMTAM s ESG
Investment Strategy

Ⅰ

ActiveInvestment

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

SMTAMʼs ESG Investment Strategy - Active Investment

2021/2022 Stewardship Activity Focus Topics

SMTAMʼs ESG Investment Strategy - Passive Investment

Fixed Income ESG

Japan Equity Impact Investment Strategy
Pursuing social return andeconomic return through engagement

Kuniyuki Sugihara
Senior Portfolio Manager,
Equity Investment Unit

Strategy overview

Future outlook

Long-term investments are made in companies where resolution

Impact investment is still in the early days throughout theof social issues is itself the growth driver. Impact KPIs that areworld, but I believe that it will develop greatly in the future. I

for measuring the degree to which social issues are resolved arewant to carry out daily activities with the aim of giving

set for each company, and probability for obtaining social andlong-term impact and investment return that exceed

economic return are increased through engagement based on

customer expectations while also contributing toward thethese KPIs.

development of impact investment.

Development backgroundIn 2015, which was when SDGs were adopted by the United
Nations, I got the idea of impact investment for achieving
resolution of issue to create a better society for future
generations while performing investment through discussions
with major global foundations and institutional investors. I
felt it was something I needed to do at the time, so I beganpromoting development. Usually, I try to grasp incidents
related to social and environmental issues occurring aroundthe world through help from experts and others, and havediscussions with companies in each industry about how toresolve such issues. Also, by conducting engagement forinvestees together with our corporate analysts and ESG

Portfolio construction process
All listed stocks in Japan
Evaluation of corporate practical businessability and growth potentials

specialists, we are encouraging the improvement ofcorporate value.

Impact evaluation
Stocks with
impact KPIs

Portfolio

53

Features

Stewardship Activity Initiatives

SMTAM s ESG
Investment Strategy

Ⅰ

ActiveInvestment

ESG Integration

Reference

Disclosure of Climate-related Financial Information under TCFD

Global Equity Impact Investment Strategy
Combining research, engagement,
and quants skill to pursue resolving social issues and achieve investment returns.

Yoshiki Takeda
Head of Global Equity,
Equity Investment Unit

Fund overview

Future outlook

Long-term investments are made in companies where

Companies, investors, and society as a whole must recognize

resolution of social issues is itself the growth driver. Bysocial issues caused by changes in global structure, andutilizing knowledge obtained through company research,promote innovations for resolving such issues. Through both

engagement, and participation in global initiatives, we are

top-down engagement based on our participation in global

able to identify social issues requiring resolution, and extract

initiatives, and bottom-up engagement based on dialog withinvestment target companies based on quantitative analysis.

companies, it is our desire to help companies contribute to

We measure Impact KPIs for each company, and carry out

the resolution of social issues, and to pursue asset

engagement based on this in order to increase themanagement capable of leading to a better future society.

probability of obtaining social and economic return.
Development backgroundWe believe that a strategy for discovering and investing incompanies addressing social issues based on collaboration
with professionals from a variety of fields allows us torespond to the desires of investors who want to contribute

Overview of Investment Process

to society, which lead to the development of this strategy.

ESG research

Members include corporate analysts, quants analysts who

ESG

are professionals at data analysis, ESG specialists, andportfolio managers belonging to different bases in Japan,
Hong Kong, Singapore, London, and New York. As a team, we
carry out engagement for the growth of investee companies
to maximize social and economic return.

Engagement Exercise of
voting rights
AN

FM

Quants research
Corporate research

ESG

FM

Investment decision

QA

AN

Impact KPI

FM

FM

AN

ESG

FM

Fund managers

QA

Quants analysts

AN

Corporate analysts

ESG

ESG specialists

54

Message from the CEO

Overview

SMTAM s ESG
Investment Strategy

Ⅰ

ActiveInvestment

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

SMTAMʼs ESG Investment Strategy - Active Investment

2021/2022 Stewardship Activity Focus Topics

SMTAMʼs ESG Investment Strategy - Passive Investment

Fixed Income ESG

Japan Quality Growth Strategy（Research, ROE Improvement）
In addition to financial information,
analysis of non-financial information is important for determining sustainable growth

Development background
Rather than focusing on short-term performance, we wanted

Tatsuya Suzuki

to invest in the medium- to long-term growth of the company
and then return achievements back to the client. This is what

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

lead to the development of this strategy. In addition tofinancial information, analysis of non-financial information isimportant for determining sustainable growth, so we utilize
MBIS®, which is our unique evaluation framework for assessing
non-financial information, focusing investment on 20 to 50

Fund overview
Acquisition of stable returns is pursued by medium- tolong-term investments in companies whose ROE continuously
improves through profit expansion. We focus on

Value

Proposition and Growth Frontier as evaluation axes forselecting brands. The premise of Value Proposition is thebelief that Company sales are compensation for the added
value it provides. The source of added value is goods andservices that meet the demands of consumers, and that help
realize human desires such as for joy, health, prosperity,
effective use of time, and investment to the next generation.
For Value Proposition, the appeal of added value provided tocustomers is analyzed, and for Growth Frontier, the creativityof the market where client value is developed is analyzed.

stocks. With this product, the assumed investment period forindividual companies is three to five years, so we encourage
investee companies to improve their medium- to long-term
corporate value and sustainable growth through engagement.
Future outlook
It has been over seven years since this operation began back in
2015, and we have been entrusted by our customers who agreewith this concept to invest, which results in a solid increase inbalance of assets under management. Our desire to invest incompanies whose ROE continuously improves and then returnachievements back to the client has not changed since thisoperation started. We want to support companies that arecontinuously growing with a strong management determination
regardless of the external environment, and it is our desire todevelop this product as a fund for satisfying our customers from

Portfolio construction process

the perspectives of Value Proposition and Growth Frontier.

Investment target (All domestic listed brands)

MBISⓇ
evaluation

800 stocks covered by analysts*

Higher rank insame evaluation

Qualitative/Quantitative screening(Investment universe 100 stocks*)

Confidence
evaluation

Qualitative screening(Investment candidates Approx.
50 stocks*)

Stock pricedetermination

Stock pricedetermination

Stock selection

Portfolio(20 to 50 stocks*)

・ Higher MBISⓇ score by analysts (500 stocks)
・ Screening according to quantitative standards such as sales growth rate,business margin, and ROE (Forecast by analyst)

・ Thorough discussion with analysts on MBISⓇ score and forecast using
Value Proposition and Growth Frontier as evaluation axes
Elimination of items with low MBISⓇ score despite high forecast
Share background of items with a high score but low forecast
・ After additional research, etc., a fund manager re-evaluates the MBISⓇ score・ Consider the implications of stock price level(overpriced/underpriced) for

55

candidate stocks and construct a portfolio* As of the end of March 2022. Brand numbers are approximates since they ﬂuctuate.

Features

Stewardship Activity Initiatives

SMTAM s ESG
Investment Strategy

Ⅰ

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Domestic Shares High Dividend, Low Beta, ESG-Friendly Strategy
Proactively utilizing ESG information from

ActiveInvestment

the perspective of upside potential

Development backgroundWe wanted to respond to the demands of investors who wish

Eiichi Yamada

to invest in high-dividend shares rather than bonds, which lead

Active Investment Department,
Equity Investment Unit
Domestic Shares Investment Team,
Senior Fund Manager

to the development of this strategy. Since this is an alternative
to bonds, we carefully established the investment process forfurther reducing the risks of the stock price dropping anddividend reduction when compared to general high-dividend
strategies. We added low beta standards to the quantitative
screening phase as well as dividend yield standards, and also

Fund overview
Investment is made in companies with a high dividend
yield that can achieve stable profit growth over the
medium- to long-term and increase dividends regardlessof business fluctuations. When selecting brands to be
included, in addition to determination standards forHigh dividend yield,

Low beta

to business fluctuation risks, andindicating resilience
High ESG

indicating

medium- to long-term sustainability are added andenhanced for increasing the probability of achieving
stable profit growth over the medium- to long-term andincreasing dividends regardless of business fluctuations.

added check items such as recession resistance andshareholder return stance from an economic perspective, andsustainability from and ESG perspective during the qualitative
determination phase. Qualitative determination is the key tothe success of this strategy, and it is fully supported bycorporate analysts and ESG specialists.
Future outlook
This was developed to meet investment needs as an alternative
to bonds. In the past, ESG information was utilized forsuppressing downside risks such as risks of the stock pricedrops and dividend reduction. However, we want to proactively
utilize ESG information for upside potential for increasing
corporate competitiveness and dividend growth capability.

Liquidity standards（Approx. 900 companies）

Dividend yield standards（Approx. 400 companies）

Beta standards（Approx. 100 companies）

Brand selection
ＳＴＥＰ④(Evaluation of performance /current status)

ＳＴＥＰ③(Evaluation of future potential)

ＳＴＥＰ②

Quantitative
screening

ＳＴＥＰ①

Specific Standards, etc

Qualitative
determination

Portfolio construction process（Approx. 30 companies）

Final Portfolio

ＳＴＥＰ①

・ TSE First Section with market capitalization
Liquidity
over 50 billion yen Liquidity

ＳＴＥＰ②

・ Dividend yield usually
above market average High dividend

High
dividend

ＳＴＥＰ③

・ Market β (beta) usually
below 0.8 Low β

Low β

ＳＴＥＰ④

・ Brand selection based on Stable dividend
increase / High dividend and Risk control
・ Fund managers make ﬁnal
Highdetermination of brands todividend
be included based on ESG
Low β ESG
evaluation by analysts

・ Portfolio with low turnover ratio
・ Retention weight per stock based on equal weight56

Message from the CEO

Purposes of Stewardship Activities

SMTAMʼs ESG Investment Strategy - Active Investment

Overview

SMTAM s ESG
Investment Strategy

Ⅱ

Passive
Investment
Strategy

Evolution of ESG Investments and Our Initiatives

2021/2022 Stewardship Activity Focus Topics

SMTAMʼs ESG Investment Strategy - Passive Investment

Fixed Income ESG

ESG investment approach and our efforts
in passive strategy

ESG investment has already become a common investment strategy in Europe and the US, and the investment
amount is increasing worldwide. Although the amount is far below that of Europe and the US, in Japan, the ESG
investment amount for 2020 increased to more that six times higher than in 2016, becoming the third largest market
after the US and Europe. However, the ESG investment ratio is lower than in Europe and the US, so it is believed there
is still potential for great expansion.
With ESG investment, in addition to active strategy products, ESG passive strategy products have become morecommon, which is where investment is made with the aim of tracking with ESG indices that reflect ESG-related
information to indices.

Changes in ESG investment amount by region and ESG investment ratio(Unit: Trillion USD)
2016

20

2018

2020

（42％）

（33％）

（62％）

（38％）

（24％）

EuropeUSA

CanadaAustralia

Japan

15

10

5

0

Parentheses indicate 2020 ESG investment ratio
Source: The Global Sustainable Investment Alliance

ESG Index
There are differences between each ESG index, such as (1) gap with market benchmarks like TOPIX, and (2)ESG characteristics
as a portfolio, such as greenhouse gas emissions and ESG score in ESG index, etc. in the ESG index. The characteristics of (1)and (2) tend to be tradeoffs. The stronger (weaker) the ESG characteristics in (2), the higher (lower) the gap from the index
market benchmark. ESG indices can be classified according the following perspectives.
Classification according to Comprehensive type where each ESG evaluation is reflected, and Specific topic type where
one specific ESG evaluation is reflected such as E where climate change topic are mainly reflected.
Classification according to ESG index construction method into Stocks screening type where the number of stocks adopted forthe index is narrowed down to stocks with high ESG evaluations, and Weight tilt type where narrowing down the number ofstocks adopted for the index is minimized and stocks with high (low) ESG evaluations are given higher (lower) weight in the index.

57

Features

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

As explained, there are various types of ESG indices. It is believedthat investment in an ESG index and its expansion will have apositive impact for supporting company initiatives for ESG issues

Reference

Effect from Expanding ESG Index investment
Expansion of ESG index investment

through the adoption of a company index and incentives such as
higher benchmark weight.
In addition, since a company s information disclosure is used in
ESG evaluations that are used for ESG indices, it is believed to bean effective way to promote a company s disclosure of
non-financial information.

Promotion of company efforts for ESG issues
Aiming for
adoption to an index

Desire to increase
benchmark weight in an index

Promoting company disclosure of non-financial information

In this way, it is believed that improving awareness of ESG
indices and expanding usage by market participants willencourage companies to change their behavior, which will

Improve corporate value

maximize corporate value, and in turn maximize investment
return.

Maximize investment returnSource: SMTAM

SMTAM s ESG Passive Investment Strategy
SMTAM s ESG Passive Investment Strategy Map
Comprehensive type
Domestic stocks
MSCI Japan ESG
Select leaders index-tracked type
Domestic stocks

Developed Market stocks (Excluding Japan)

LGIM Domestic stocks

MSCI Kokusai ESG

ESG index-tracked type

Leaders index-tracked type

Developed Market stocks (Excluding Japan)

Emerging Market stocks

LGIM Foreign stocks ESG

MSCI Emerging ESG

index-tracked type

Leaders index-tracked type

Global bonds
Bloomberg MSCI
Global Aggregate (Including Japanese yen)
Sustainability A+
Global bonds
Bloomberg MSCI Global Aggregate(Excluding Japanese yen,
open currency)
Sustainability A+

Stocks screening type

Weight tilt type
Domestic stocks
S&P/JPX
Carbon Efficient Index-tracked type* Quadrant using the vertical axis and horizontal axis to show the diﬀerent types.
The position does not indicate the degree of each type.

Specific topic type

Source: SMTAMAt SMTAM, we believe that providing a wide range of ESG investment products for passive strategy, active strategy, and assets
are an important part of our work as Responsible Investors from the following perspectives.
Part of Stewardship Activities in the sense that it can encourage companies to change their behavior through ESG investment.
Providing a variety of investment opportunities makes it possible for clients to contribute toward better sustainability forsociety and companies, as well as investment return.
From the next page, two of our company s passive investment strategies will be introduced.

58

Message from the CEO

Overview

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

SMTAMʼs ESG Investment Strategy - Active Investment

2021/2022 Stewardship Activity Focus Topics

SMTAMʼs ESG Investment Strategy - Passive Investment

Fixed Income ESG

S&P/JPX Carbon Efficient Index-tracked type strategy (Domestic stocks)
We participate in Net Zero Asset Management initiatives. We believe that developing and providing investment products that
address climate change issues are an effective way to accomplish net zero greenhouse gas emissions from investee
companies by 2050. Regarding this index, in 2018, SMTAM was the first to launch passive product, and in 2021, the tracked
ETF was listed in the Tokyo Stock Exchange.
(Introduction to Ticker 2642: SMT ETF Carbon Efficient Japan Equity by TSE Money-bu https://money-bu-jpx.com/news/article031223/)(1) Index features
Adopting rules such as increasing the weight of companies who have sufficient information disclosure on greenhouse gasses andcompanies who have high carbon efficiency (low carbon emissions per sale) can be expected to help promote company
information disclosure and carbon efficiency.
(2) Expected impact from investment
Since it is investment to weight tilt type indices where TOPIX constitution stocks are universe, it is limited the gap with TOPIX
and aim for the same level of risk/return, and also possible to improve the carbon efficiency of the investment portfolio
compared to TOPIX, resulting in visualization of that improvement.
On the other hand, stocks of companies where information disclosure related to greenhouse gas are insufficient or those withlow carbon efficiency are also held. Continuing investment in such companies is in harmony with the purpose of our Stewardship
Activities, which is engagement and exercise of voting rights as a shareholder to raise the whole market.

Comparison of S&P/JPX Carbon Efficient Index and TOPIX Carbon Efficiency*
0%

18/03

18/09

19/03

19/09

20/03

20/09

21/03

21/09

▲5%

▲10%

▲15%

▲20%

▲25%
Source: S&P Global Ratings* Carbon emissions / Sales (tCO2e / Million USD)

59

Features

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Bloomberg MSCI Global Aggregate Sustainability A+ Strategy (Global bonds)
In recent years, there have been more investments with higher credit risk in order to improve return on bond investment, and it
is more important than ever to improve resilience against interest rate hikes (bond price drawdown). Incidents such as Russian
invasion of Ukraine have greatly affected the order of international society, and it have become more important to consider ESG
factors for making investment decisions on government bonds (Sovereigns).
In order to respond to such clients needs, we launched and began providing a new ESG bond index-tracked type strategy byadding ESG evaluations to countries, government agencies, and companies in March 2022.
Bloomberg MSCI Global Aggregate Sustainability A+ index is comprised of ESG bond indices where the Bloomberg Global
Aggregate is the parent index and where an MSCI ESG score of A or higher is the investment universe including government
bonds, agency securities, and corporate bonds. Our aim is to both improve return by incorporating corporate bonds and to
improve resilience against bond price drawdown through ESG screening. Regarding ESG screening, in this index, the ESG scorethreshold is set higher than the original screening threshold of the Bloomberg MSCI Sustainability Index (investment target ESG
score is A or higher).

Overview of the Index Construction Process
ESG scoring of countries and government agencies
Bloomberg aggregate index (Parent index)

Excluding bonds with an ESG Government Score (7 level evaluationfrom AAA to CCC) of BBB or lower.
Covers 198 countries and regions, and is calculated according to

Screening based on ESG scoremore than 100 items related to the environment, society, andSelection of bondissues based onmarket cap weightExcluding those with an ESG Score (7 level evaluation from AAA to

governance (finance/politics)
ESG scoring of companies
CCC) of BBB or lower (A or higher are included).
Covers about 8,500 companies, and is calculated according to items

Sustainability A+ Index

related to the environment, society, and governance (corporate
governance) across 69 industries
Company misconduct score
Excluding those with less than 1 in the 11-level evaluation from 10 to 0.
Evaluated when misconduct is found with operations, products, andservices related to ESG

60

Purposes of Stewardship Activities

Message from the CEO

Evolution of ESG Investments and Our Initiatives

SMTAMʼs ESG Investment Strategy - Active Investment

Overview

2021/2022 Stewardship Activity Focus Topics

SMTAMʼs ESG Investment Strategy - Passive Investment

Fixed Income ESG

Fixed Income ESG
This section will give an overview of ESG integration related to our bond investments.

Atsushi Hamada
Active Investment Department
Fixed Income Investment Unit
Associate General Manager

Significance of ESG integration, in with fixed income investment and equity investment respectively
Figure 1: Comparison between bonds and stocks

Due to the difference in product characteristics shown on the left,

Stocksthere are differences between stocks and bonds investment

Yes

No

Consideration for
creditworthinessevaluation

・ Qualitative evaluation
・ Valuation assessment

related to the significance of ESG integration and investment

How to use
ESG evaluations

Return on investment

Fixed at the time of investment
based on assumption that
default will not occur

・ Corporate growth through ESG・ Downside risk reduction

Point comparison

Credit evaluation andwhether defaults occur
based on ESG factors

Based on ESG initiatives,
・ Expansion of non-ﬁnancial value
and exchange to ﬁnancial value
・ Capital cost reduction and stability

Maturity ofiInvestment target

Bonds(Capital cost, etc.)

points. Although bondholders do not have voting rights, as a direct
funder, we believe that they have an important position forcorporate management. Therefore, as a bondholder, while wehave the right to ask investee companies to take measures for
medium- to long-term growth and to reduce downside risk, we
also believe we have responsibilities to request social contribution.

Cooperation between credit analysts and equity analysts
Figure 2: Collaboration between domestic bonds and domestic stocks

Investee company
Equity side

Debt side・ Exercise of voting rights andrelated dialog

・ Discussion about diverse
ﬁnancing methods andbetter ﬁnancial balance

Engagement / Non-ﬁnancial evaluation（MBISⓇ）・ Growth through initiatives for
ESG issues(outcome)

Credit Analysts

・ Exercise of voting rights

・ No exercise of voting rights

・ No maturity

・ Has maturity

・ Maximization of corporate value・ Minimization of default risk

Based on collaboration61

are unique in that our credit and equity analysts work
together. The purpose is the same; to improve thesustainability of investee companies and society, and toincrease corporate value. Both sides perform research andengagement from different perspectives for the sameinvestee company, which makes it possible to add value toactivities and to strengthen support, allowing companies toaddress ESG issues.

・ Creation of social value

・ Downside risk reduction

Equity Analysts

There are some differences between bonds and stocks, we

・ Added value from engagement

・ Strengthening of support for investee

・ Maximization of investment return

companies to address ESG issues

Features

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

ESG integration for fixed income investment
ESG information is used according to the flow in Figure 3 for fixed income management. Details for [Take ESG factors into
evaluation of spread level] in (3) Evaluate spread of this flow are shown in Figure 4.

Figure 3: Flow of ESG information utilization for bonds(1) Select non-investablesecurities

Stewardship
Development
Department[Take ESG into consideration and identify non-investable securities]
Prohibit investing in companies that manufacture inhumane weapons.
This applies to all assets.

Have an outlook for the spread with a top-down approach anddecide on a position building policy based on spread situation judgment considering a credit cycle.
[Give in-house rating with ESG factors taken into consideration when evaluating creditworthiness](2) Evaluatecreditworthiness

Credit Analysts

・ Take ESG factors into qualitative determination.
(Evaluate using MBISⓇ and in-house ESG score.)・ Set G (Governance) as the center of focus.

[Take ESG factors into evaluation of spread level](3) Evaluate spread

Fund managers

Based on the required spread level depending on the in-house rating of the company,
give comprehensive consideration to ESG factors, liquidity,
and supply/demand, and judge appropriate spread level for the company.

Build portfolio(4) Evaluate portfolio,etc.

Fund managers

For securities with low ESG scores, fund managers and credit analysts work on
engagement cooperating with relevant departments.
Change investment decisions depending on the status of initiatives to address
ESG issues in investee companies.

Figure 4: Relationship between spread evaluation and ESG evaluation when making investment decisions
ESG evaluation

High

Ｃ

A

Can be owned

Actively invest
SpreadOvervalued

Bargain

B

D

Improve
ESG evaluation
through engagement

Sell / Not owned

LowA

Actively invest

It is a bargain and has a high ESG evaluation,so active investment is likely (purchase/hold).

B

Improve ESG evaluation through engagement
It is a bargain, but the ESG evaluation is low.
Effort to improve ESG evaluation through engagement.

ＣCan be owned (Possible to own but subject to sell (Not owned))
It is overvalued, but the ESG evaluation is high, so it can be owned.

D

Sell / Not owned

It is overvalued, the ESG evaluation is low, and the spread may widen(price decline) in the future, so it is subject to sell (Not owned).

62

Purposes of Stewardship Activities

Message from the CEO

Evolution of ESG Investments and Our Initiatives

SMTAMʼs ESG Investment Strategy - Active Investment

Overview

2021/2022 Stewardship Activity Focus Topics

SMTAMʼs ESG Investment Strategy - Passive Investment

Fixed Income ESG

Figure 5 shows the securities selection process and a schematic diagram of ESG integration for government bond investment(Sovereigns) and corporate bond investment (Credit). For government bond investment in particular, financial soundness andpolitics are scored in the SMTAM country score. For political score, each country is evaluated and given a score on
environmental aspects (E) such as climate change, social aspects (S) such as human capital, and governance aspects (G) such aslegal system and political stability. This is equivalent to an ESG score. The higher the score, the higher the credit rating.

Figure 5: Securities selection process for government bond investment and corporate bond investment

ESG integration for government bond investment
Screening
Screening of investment target government
bonds using quantitative model
Rating/Lquidity: Determination of target
investment countries[References]High correlation between political (ESG) score
and credit ratingHigh score

10
8
6
4
2
0

ESG factor

Financial soundness evaluation(SMTAM Country Risk Score):
Determination of investment
upper limit ratio
Maximization of
expected return:
Determination of
investment allocation

4

8

12

16

20

FiscalPolitics

Financingof foreign
currency

MarketIntegration

High credit rating
0

SMTAM Country Risk Score

Portfolio

ESG integration for credit investment
Screening
Screening of companies based on whether
they manufacture inhumane weapons
Evaluation of creditworthiness /sustainability (In-house rating)
Quantitative model[Financial information]

Qualitative determination[Non-financial information]

Evaluate spread

Qualitative determination

Integration
ESG factor

Business

Portfolio

63

FinanceLiquidity

Features

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Dialogue on Bond Investment and Examples of Investment Decisions
This section will introduce examples of dialogues with companies about corporate bonds and related decisions on
investments and policies.

Hiroshi Tsubota
Research Department
Head of
Credit Research Team

Real estate company A

Steel Company B

This was a case where we decided that dialogue was

For company B, which belongs to an industry that emits a large

needed since there were governance related

amount of greenhouse gases, a transition strategy is an urgent issue

concerns ｗhile spread was undervalued compared torequiring a large amount of capital. We believed that more effective

the rating. This company applied to quadrant B in

dialogue would be possible with the company if we collaborated

Figure 4 on page 62, and we believed it waswith an equity analyst.

necessary to

Improve ESG evaluation throughdialogue for investment.
Evaluation of
creditworthiness

Evaluation of non-ﬁnancial
information such as governanceBusiness risk was reduced bycontrolling the size andturnover period of projects.
Proﬁtability was high, so theﬁnancial metrics was good.

Their orientation toward
proactive business expansion
and related business policies
indicate latent governancerisk such as quality issues
and sales misconducts.

Opinion by equity analyst
In order to respond to climate change issues, it seems it would be good to consider
disclosing ﬁnancial impact based on scenarios, a breakdown of greenhouse gas
reduction goals, and a speciﬁc investment plan that supports reduction eﬀorts.

Company Response
Regarding disclosure including technical responses and methods for 2030 interim targets,
we will consider so that items such as capital expenditure and amounts can be disclosed.
We will need to raise funds for capital expenditure. As an industry with large GHG
emissions, is the investment hurdle getting higher in the steel sector? Also, does theinvestment decision depend on whether it is an SDGs-related bond?

Dialogue with companies
・ We conﬁrmed that personnel quality control is set as the highest
priority for management, the establishment of in-house manuals
on sales, and the implementation of measures for improving
customer satisfaction.
・ We conducted analysis using online reviews by employees as
supplemental material. Results indicated high Job satisfaction
but low Ease of work, so we conducted interviews regarding
measures for maintaining employee motivation and morale.

Opinion by credit analyst
It seems that implementation of transition ﬁnance in harmony with the roadmap
developed by METI is an important way to raise funds for the transition strategy. We set
2030 interim targets in May of 2022 with the aim of achieving net zero greenhouse gas
emissions for assets under management by 2050. There is the possibility that it will be
gradually harder to invest depending on the amount of eﬀort toward the transition
strategy by investee companies.
In addition, it is common to make an investment decision based on creditworthiness andappropriate spread level regardless of whether it is an SDGs-related bond or not. If
economic return is the same, we may prefer SDGs-related bonds from the perspective ofsocial return.

Investment decision
There are still some concerns related to governance, but we
decided that investment was possible conditional upon continuous
dialogue and monitoring. As a result, we invested this bondpremised on a high spread level relative to the rating. We willconsider selling this bond if governance risk is found that has asigniﬁcant adverse impact on the business base andcreditworthiness.

Our policy
We can appreciate their eﬀort to share recognition of ﬁnancial matters with investors
and their action while eﬀorts toward achieving carbon neutrality by a greenhouse gas
heavy industry gained attention. Our policy is to continue encouraging them to reducegreenhouse gas emissions and to help them improve corporate value while also
having dialogue with related parties such as securities companies, related
governmental agencies, and third-party evaluation institutes to help expand thetransition ﬁnance market.

64Message from the CEO

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

2021/2022 Stewardship Activity Focus Topics

Disclosure of Climate-related Financial Information under TCFD
We believe that important issues concerning the Environment, Society, 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 this concept, SMTAM endorsed the recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD) in February 2019. The following is an
explanation of the measures taken by our company on climate change issues inaccordance with the recommendations.
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 that came into to force in November 2016, signatory nations globally agreed to hold the increasein the global average temperature to well below 2 degrees Celsius above pre-industrial levels and to pursue efforts to limit
the temperature increase to 1.5 degrees Celsius above pre-industrial levels, in order to ensure global sustainability. A
forecast released by the Intergovernmental Panel on Climate Change (IPCC) in August 2021 pointed out that the temperature
will increase 1.5 degrees between 2021 and 2040, and stated, It is unequivocal that human influence has warmed theatmosphere, ocean and land. The 26th UN Climate Change Conference of the Parties (COP26) held in Glasgow, UK in the fallof 2021 gained attention as the first COP during the critical decade until 2030 for avoiding the negative influence of climatechange. According to the Glasgow Climate Pact, which includes the essence of the agreement at this conference, 1.5 degrees
became a clear target rather than just a non-binding goal by stating the determination to limit the rise in the global averagetemperature to 1.5 degrees. I personally had the opportunity to participate in COP26, which allowed me to join in various
meetings and panel discussions. This reminded me of the important role that management companies play in addressing
climate change issues.
The use of fossil fuels, which are the source of greenhouse gas, must be significantly phased out if these goals of bringing global
warming under control are to be met. However, the sharp increase in energy prices caused by the invasion of Ukraine by Russia
and the strain on energy supply and demand in Japan are examples indicating the need for a short- term transition that is inline with a long-term transition. Such transitions are necessary for concepts, perspectives, and methods for both from now
and up to now.
We still firmly believe that climate change has the potential to cause the global environment to deteriorate in an irrecoverable
manner in the medium to long term, and have a significant impact on the corporate value of our investees over time. It will
become a more important issue from a longer term perspective while responding flexibly to changes. Based on this big picture,
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.

65

Features

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
Governance

Climate change-related
strategies

・ Monitoring by the board of directors
・ Role of management

・ Climate-related risks and opportunities
・ Effects of climate-related risks and opportunities*
・ Potential effects of climate scenarios, including the 2℃ or less scenario
・ Process for identifying and evaluating climate-related risks*

Risk management

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

Indicators and goals

・ GHG emissions under Scope 1, 2, and 3*
・ Targets used to manage climate-related risks/opportunities* Items are particularly 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. In 2020, the issues were been clarified as mattersto 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, andmonitoring of indicators and goals. These matters are discussed, planned,
and checked by the management meeting chaired by the president andorganized by the officers who control each business sector. Under thisStewardship Committee

structure, the stewardship meeting̶a cross-company organization acting
as a secretariat̶promotes administrative work on risk management andStrategy

strategies related to climate change. The supervision and execution ofclimate change issues will be primarily carried out through the strategies

Engagement and exercise of voting rights
Cooperation with stakeholders
Investment strategy (e.g. ESG integration)

we describe later ( Engagement and exercise of voting rights,
Cooperation with stakeholders, and Investment strategy. )SMTAM is using a remuneration evaluation method of prominent officers such as CEOs determined by the Compensation
Committee, which mainly consists of external directors, and KPIs related to the reduction of greenhouse gas emissions from ourportfolio are being introduced in the evaluation. For example, a certain percentage of long-term incentives for CEOs are evaluatedbased on these KPIs. Similar evaluation methods are also used for other major officers.

66

Purposes of Stewardship Activities

Message from the CEO

Evolution of ESG Investments and Our Initiatives

2021/2022 Stewardship Activity Focus Topics

Climate change-related strategies(1) Common Climate Change Risks and Opportunities
Transition risk

Opportunity

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

Physical risk
Acute risk

Flood risk, etc.

Chronic risk

Drought risk, etc.

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 companies inside and outside Japan,
we are tackling matters by exercising voting rights and 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 by participating
in initiatives such as the UN Global Compact, the UN Principles for Responsible Investment (PRI), CA100+, and the Net Zero
Asset Managers Initiative.

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

Opportunity

Risk

Engagement andexercise of voting rights

Cooperation withstakeholders

Investment strategy

External evaluation

Remunerations

Fiduciary duty

A. Risk
Risks that the asset management industry receives from climate change include reduced management fee. As transition and physical risks become apparent,
management assets from customers are reduced, thus reducing management fee, 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 inselecting companies to which they entrust their assets, we believe that failure to do this will lead to a decline in competitiveness as an asset manager.

B. Opportunity
We believe that climate change is an opportunity to expand managing assets through engagement and exercise of voting rights, 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. These activities include discussions with investee companies, direct/indirect statement of
opinions, and support from various policy/institutional aspects. Making investment strategies more sophisticated means incorporating climate change risks
into existing or new investment (ESG integration) and to increase investment importance on securities issued by companies that take a proactive stance on
climate change issues. Through such efforts, we believe it will be possible to contribute to solving the issues related to climate change while also increasing ourassets under management.

67

Features

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference(3) Strategy
Strategy

Activity
examplesEngagement and exercise of voting rights

・ Unique engagement by SMTAM withinvestee companies

・ Engagement with government offices andindustry groups

・ Collaborative engagement through PRI,
CA100+, etc.

・ Partnership with NGOs such as Ceres

・ Expression of opinions by exercise of
voting rights

TargetMain initiatives
during theprevious year

Investee company

・ Added standards for responses toclimate change to the principles for the
exercise of voting rights for the electionof directors in the Guideline on the
Exercise of Voting Rights
・ Made about 30% of dialogue topics for
top-down engagement targets to climatechange issues

Investment strategy

Cooperation with stakeholders

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

・ Policy recommendation activities throughinitiatives such as the Investor Agenda

・ Commercialization of investment strategies
that take climate change issues
into consideration

Government offices, Industry groups, NGOs

Clients

・ Appointed as co-chair of the CA100+ Global
Steering Committee
・ Agreement and participation in Financial
Sector Commitment Letter on Eliminating
Commodity Driven Deforestation as the
only Japanese investment manager

・ Set Bloomberg MSCI Global
Aggregate Sustainability A+
Index-Linked Strategy (Bonds)
・ Started high-dividend, low beta strategy(Japan equity, ESG-restricted type) for
pension trust

Based on our understanding of climate change risks and opportunities in the asset management industry listed in the previous
section, we have established our specific strategies.
We view engagement and exercise of voting rights as a direct opportunity to actively ask for investee companies to makemanagement decisions and build structures on the basis of climate change risks, in order to maximize asset under management
and reduce investment risk. Engagement may be conducted by SMTAM as its own activities or through initiatives*1 such as PRI
and CA100+. Also, for the exercise of voting rights, we added standards for responses to climate change to the principles forthe exercise of voting rights for the election of directors. We will not simply withdraw from investment (divestment) to exclude
companies with high greenhouse gas emissions from investment universe. Rather, through engagement and the proper exercise
of voting rights, our aim is to encourage investee companies to promote realistic solutions for addressing climate change
including transition, and to achieve sustainable growth and sustainability for society as a whole.
In cooperation with stakeholders related to climate change, we carry out engagement with government offices and industry
groups and offer opinions on policies through such as The Investor Agenda*1.
We aim to reduce investment risks and improve returns by adopting investment strategies based on climate change issues. We
reflect climate change factors depending on the client's intentions, investment strategies, and other specific circumstances. We
increase or decrease the composition weight of individual securities in consideration of climate change factors in our investment
decisions. We also offer our customers investment opportunities related to climate change by providing investment products.

*1. See pages 75 and 76.

68

Message from the CEO

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

2021/2022 Stewardship Activity Focus Topics

List of investment strategies that take climate change issues into consideration
Active/Passive

Passive

Passive

Asset Class

Japan Equity

Global Equity(Including
Japan Equity)

Details

S&P/JPX Carbon Eﬃcient Index*2

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

SMT MIRAIndex Eco Index*2・ We use our knowledge of quant active management to formulate themethodology for the FactSet Global Environmental Opportunities Index, which isan environmental-related theme index, and FactSet performs calculations.
・ Investment targets are companies that obtain more than half of their sales fromenvironmental-related business, including alternative/renewable energy,
energy conservation, eﬃcient use of resources, waste disposal, and water
resource conservation, and we oﬀer products linked to the index.

Passive

GlobalFixed Income

Bloomberg MSCI Global Aggregate
Sustainability A+ Index-Tracked Strategy(Global Fixed Income)・ Bloomberg MSCI Global Aggregate Sustainability A+ is comprised of ESG bondindices where the Bloomberg Global Aggregate is the parent index and wherean MSCI ESG score of A or higher is the investment universe including
government bonds, agency securities, and corporate bonds. Our aim is both toimprove return by incorporating corporate bonds and resilience against bondprice drawdown through ESG screening.

ActiveJapan Equity
Global Equity

Japan Equity Impact Investment Strategy
Global Equity Impact Investment Strategy

・ This is an absolute return-type active investment strategies which aims to achievesocial returns as well as economic returns by means of concentrated investment
in companies that work on SDGs and other activities to solve social issues.
・ The objective is to engage with companies and increase the probability of earningsocial and economic returns on the basis of an impact KPIs set for each brand.

Japan Equity

Japan Equity Responsible Investment
Management Strategy

・ This is an active investment strategy for achieving an excess return against
TOPIX by investing in companies that have a strong commitment to ESG.
・ We select investment stocks on the basis of credit risk judgment, ESG
evaluation, and stock price evaluation from SRI universe candidates selected byanalysts and ESG specialists.

ActiveActiveJapan Equity

Japan Equity High Dividend Low Beta
Strategy Fund (ESG-restricted)

・ Investment is made in companies with a high dividend yield that can achieve
stable proﬁt growth over the medium- to long-term and increase dividends
regardless of business ﬂuctuations. In addition to determination criteria such as
High dividend yield,
Low beta for identifying resilience to economic
ﬂuctuation risk and High ESG for determining medium- to long-termsustainability are added and it is strengthened.

ActiveJapan andGlobal Equity

Decarbonization-related
Global Equity Strategic Fund
(Asset growth type) /(Expected dividend oﬀer type)*2・ This is an active management fund where investment stocks are selected fromamong companies related to decarbonization after verifying growth potential
and degree of undervalue on stock by means of fundamental analysis.

Future Focus Corporate Bond
Investment Strategy

・ This is an active management strategy of investing in the bonds issued bycompanies (including issuers other than companies such as governments,
government-aﬃliated organizations, local governments, and internationalorganizations) that have a track record of issuing bonds, etc., where use of funds
is related to the resolving of environmental and social issues, and bonds thatincorporate resolving environmental and social issues in the issuance conditions,etc.

ActiveJapan andGlobalFixed Income*2 See pages 81 and 82.

69

Index/Investment strategy nameFeatures

ESG Integration

Stewardship Activity Initiatives

Reference

Disclosure of Climate-related Financial Information under TCFD

Risk management
We evaluate risks for managed assets related to climate change according to the asset class, and then integrate asset classes toevaluate all held assets. Our assessment method involves using (1) fixed point analysis based on the disclosed information disclosureof companies that make up our portfolio, along with their performance figures, and (2) transition pathway analysis based on futureclimate change-related scenarios. The following is a summarized disclosure of analysis results related to domestic and foreign sharesas well as domestic and foreign bonds managed by SMTAM. The analysis was carried out using the data and analysis methods of an
outside organization*3. (The base date is June 30, 2022.)(1) Fixed point analysis (Greenhouse gas emissions, etc.)
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. Domestic shares, domestic bonds, foreign shares, and foreign bonds are the targets, and the total carbon emissions for each asset(Scopes 1 and 2) are below the benchmarks, and have decreased compared to the previous year (end of June 2021). However, regarding Scope 3 emissions, changes
to the methodology by external institutes (adoption of company published figures that meet the conditions, segmentation of industry classification for stochastic
models, and widening of the stochastic target categories) has had a major impact, and three assets excluding foreign fixed incomes increased over the previous year.
In particular, there was a significant impact on domestic shares, and total emissions (Scopes 1, 2, and 3) slightly exceeded benchmarks in a reversal from the previous
year. Looking at industry-specific emissions, utilities and materials made up a large part of the total for each asset, which means there was no change.

Greenhouse gas emissions by managed assets*4 *6 *7

Industry-speciﬁc breakdown of greenhouse gas emission*5 *7(Unit: Million tCO 2 e)
Domestic
stocksDomestic
fixed
incomes
ForeignstocksForeign
fixedincomes

Portfolio

148.1

Benchmark147.9

Domestic
fixed
incomes

5.3

Portfolio

10.0

BenchmarkPortfolio

60.3

Benchmark61.1

Portfolio

1.5

Benchmark3.7

ForeignstocksForeign
fixedincomes
Scope1+20

Domestic
stocks

20

40

60

80

100

120

Scope3
140

160

0％

20％
Materials

Weighted average carbon emissions (Emissions per unit sales)*5 *6 *7

40％

60％

Utilities

Energy80％

100％

Industrials

Consumer Discretionary

Consumer staples

Information technology

Financials

Other(Unit: tCO 2 e / $US 1 million)
Domestic
stocksDomestic
fixed
incomes

ForeignstocksPortfolio

93.5

Benchmark

95.5

159.0

Portfolio

405.8

BenchmarkPortfolio

182.1

Benchmark189.0

On the other hand, as with the pervious year, weighted average carbon
emissions (emissions per unit sales, Scopes 1 and 2) are below thebenchmarks for each asset. It seems that the value of domestic bonds
are high due to the large composition ratio from the utilities sector such

Foreign
fixedincomes

Portfolio

as electric power companies. The value of foreign shares is also high,78.2

but it is believed that this is due to the relatively large number of held

196.4

Benchmarkshares issued by companies in the utilities and materials sectors in
China and Asia.

0

100

200

300

400

70

Purposes of Stewardship Activities

Message from the CEO

Evolution of ESG Investments and Our Initiatives

2021/2022 Stewardship Activity Focus Topics(2) Transition Pathway Analysis
Comparison of the expected pathway for greenhouse gas emissions by all assets managed by SMTAM and emission budgets foreach climate change scenario*7 *8 *9Passive Investment Strategy
120%
100%
80%
60%
40%

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

2027

2026

2025

2024

2023

2022

20%

Active Investment Strategy
120%
100%
80%
60%
40%

Portfolio

2027

2026

2025

2024

2023

2022

20%

Sustainable Development Scenario (SDS)

Announced Pledges Scenario (APS)

Stated Policy Scenario (STEPS)

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. Specifically, evaluation will be based on the three scenarios of theInternational Energy Agency (IEA), which are the SDS: Sustainable Development Scenario,

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

This time, we decided to disclose the analysis according to the Passive Investment Strategy and Active Investment Strategy. This confirms that the emissions of all
assets we manage (all domestic shares, domestic bonds, foreign shares and foreign bonds) are likely to reach the SDS-allowed emissions by 2035 with the Passive
Investment Strategy, and by 2039 with the Active Investment Strategy. Last year, it was confirmed that SDS-allowed emissions for all assets under management (Active
Investment Strategy + Passive Investment Strategy) will likely be achieved by around 2032, which indicates that improvements were made during that time. It isbelieved that the reason why the Passive Investment Strategy is relatively subordinated is that the composition ratio of held shares and bonds from the public sectors
and the raw materials sectors in Japan and overseas (especially Asia) became higher compared to the Active Investment Strategy.
To summarize these analysis results, we believe that in order to effectively reduce greenhouse gases emitted by assets under management, for domestic shares andforeign shares sorted by asset, as well as for investment with assets across the raw material, public interest, and energy sectors, it is important to encourage thepromotion of initiatives for addressing climate change through engagement and the exercise of voting rights, and important to discover investment opportunities byconsidering climate-change-related risks and opportunities, and then provide these to clients.

71

Features

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Survey on climate-related targets
Domestic
assetsApproved SBT

ForeignassetsWe recognize that, last year, there are many investee companies inour portfolio of managed assets that are not aggressively
addressing climate change issues. We consider increasing thenumber of investee companies that can set ambitious goals,
commit to SBT, and obtain certification * 1 0 to be an importantmeasure, and we will actively work with investee companies.

Committed SBT

According to the survey results this time, the configuration ratio ofcompanies receiving an SBT Certification increased from 18% lastyear to 30% for domestic assents, and from 23% to 32% for foreign

Ambitious Target

assets. On the other hand, the configuration ratio of No Target
decreased from 37% last year to 30% for domestic assets, and from
27% to 19% for foreign assets, which was recognized as aNon- Ambitious Target

considerable achievement. We will continue to make such efforts
so that this trend continues in the future.

No Target

0％

10％

20％

30％

40％
(Portfolio weight)*3 ISS (Institutional Shareholder Services)*4 Based on Scope 1+2+3*5 Based on Scope 1+2*6 Benchmarks are:
Domestic shares: Tokyo Stock Price Index (TOPIX)
Domestic bonds: NOMURA-BPI Overall (Corporate bonds only)
Foreign shares: MSCI-ACWI (ex Japan)
Foreign bonds: Bloomberg Global Overall(excluding Japan) (Corporate bonds only)*7 Calculated based on the SMTAM holdings for the adjusted
corporate value of each asset.
*8 All industries except the fossil fuel production industry: Scope 1+2,
Fossil fuel production industry: Scope 3, Electric power: Scope 1*9 SDS (Sustainable Development Scenario): A scenario aimed at global sustainable
development
Scenario in harmony with initiatives to keep the temperature below +2 degrees and +1.5
degrees as stipulated in the Paris Agreement.
STEPS (Stated Policy Scenario): Scenario for achieving policy statements.
Scenario for achieving the goals stated by governments (end of this century +2.6 degrees).
APS (Announced Pledges Scenario)
Scenario where ambitious targets set by each government are met (end of this century +2.1).
*10 SBT (Science Based Targets): Targets for reducing greenhouse gas emissions set by companies with atarget year of 5 to 15 years in the future in harmony with the standards stipulated in the Paris
Agreement .Numerical values must be aligned with the latest indicators from meteorological science.
These are implemented as WMB (We Mean Business) initiatives, and are established and carried out
by WMB constituent organizations such as the World Resources Institute (WRI) and CDP.

SBT certiﬁcation: Indicates that goals are certiﬁed based on the above. Even after beingcertiﬁed, it is necessary to disclose emission amounts, the progress of measures every year,
and to regularly conﬁrm the validity of targets.
SBT commitment: Declaration that SBTs will be set within 2 years.

Indicators and goals
After considering matters such as strategies, risk management, and issues related to access to various data mentioned above,
we perform fixed point analysis and transition pathway analysis of domestic shares, domestic bonds, foreign shares, and foreign
bonds that we manage individually and collectively. As a responsible institutional investor, in order to achieve the global
sustainability agreed upon under the Paris Agreement, we will continue to hold the increase in the global average temperature
to well below 2 degrees above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5 degrees above
pre-industrial levels, in order to ensure sustainability, and to continue our determination to limit the rise in the global averagetemperature to 1.5 degrees as stated at COP26.

Plans for the future
Under the supervision of the Board of Directors, we will continue our efforts and disclosures on climate change issues. We
reduce greenhouse gas emissions generated by investee companies through collaboration with stakeholders such as
engagement, exercise of voting rights, and policy advocacy activities, provision of investment strategies and investment products
in relation to climate change issues, and the optimal allocation of resources with the aim of maximizing customer returns on
investments and contributing to climate change issues in cooperation with investee companies. We are committed to continuing
our efforts to achieve this goal.

72

Message from the CEO

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

2021/2022 Stewardship Activity Focus Topics

Corporate Profile

Balance of assets under management
Approx.
83.7 trillion yen

As of the end of June 2022

Investment advisor business: Approx. 69.5 trillion yen
Investment trust business: Approx. 14.1 trillion yen
By client type (Unit: Trillion yen)

By asset class (Unit: Trillion yen)
Other
Foreign
fixedincomes

Domestic
stocks9.0

Investment
trust
Other

83.7

Domestic
fixed
incomes

14.1

22.3
14.5

16.9

6.5
2.7

Government
fund

21.0
Foreignstocks・ Shar e s and b onds mak e up mor e than 50% and 30%,

Publicpension

83.7

14.1

Corporate
pension

46.3

69.5
Institutional
investor・ We are trusted with a large amount of long-term funds forrespectively, of the balance of assets under management, andsavings, including pension funds and investment trusts. We

we are actively promoting engagement activities for ourbelieve that ESG investment from a long-term perspective

investee companies. We are also working on ESG integration

meets the needs of many customers.
・ Most of our customers are in Japan, but foreign customers in thefor both shares and bonds.

Middle East and Europe have been increasing in recent years.

Companies exercising voting rights

As of the end of June 2022

Number of Japanese companies

Approx. 2,600

Investment balanceApprox. 22 trillion yen

Number of foreign companies

Approx. 2,700

Investment balanceApprox. 21 trillion yen

Stewardship activities [Number of meetings per year] From July 2021 to June 2022
Number of engagement meetings
Domestic Number of engaged companies

Approx. 1,200
Approx. 500 companies

Number of contacts with companies (Overall*) Approx. 7,600
Number of engagement meetings

Approx. 320

Number of engaged companies

Approx. 260 companies

Overseas* Total number of contacts including general interviews, company briefing sessions,factory tours, and telephone conferences as well as engagements

73

Features

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

Initiative

Self-assessment

We re-endorsed the revised Principles for Responsible

・ We think our response at present is appropriate, but we

Institutional Investors <<Japan's Stewardship Code>>,will review our response from time to time when we

which was published on March 24, 2020. Sumitomo Mitsui

deem it necessary.

Trust Asset Management has formulated and published a
Policy for Addressing the Principles of the Japan s
Stewardship Code.

Principle 2
Conflict of interest
management

・ As the investment managing company of the Sumitomo

・ We think our response at present is appropriate, but we

Mitsui Trust Group, we have put in place an essential

will continue to review it at correct times as

conﬂict of interest management system.

environmental changes and other factors warrant.

・We have disclosed summaries as needed of thedeliberations of the Stewardship Activities Advisory
Committee, which is an independent committee.

Principle 3
Accurate
understanding・ Engagement activities were promoted by means of a・ We received the Best ESG Engagement Initiative award by

top-down approach based on our ESG12 topics, a market

the Asia Asset Management as well as other highcap approach that focuses on the scale of the market

evaluations for our activities including having our activities

price, and a risk approach targeting companies with a low

being listed as the only good example from Japan of anROE.

evaluation framework for ICAPs (Investor Climate Action・ Engagement activities were carried out through trilateralPrinciple 4
Dialoguewith companies

cooperation among our Tokyo, London, and New Yorkbases.

Exercise of
Voting Rights

・ Corporate action in harmony with our expressed opinions
tends to continue increasing.

・ We promoted collective engagement activities in Japan・Through the IICEF, as the lead manager of the

as a member of the Institutional Investor Collective

parent-subsidiary listing issue agenda, we held

Engagement Forum (IICEF).

collaborative talks with six companies.

・ We disclosed our voting records on all proposals for all

・ We think our response at present is appropriate, but webrands we hold (in October 2021 and January, April, andwill work to maintain and enhance the transparency ofJuly 2022).

Principle 5

Plans)*.

・ We disclosed our reasons for voting on each of the
proposals which need explanation in light of theguidelines for exercise of voting rights. We disclosed
details on voting activity in the Stewardship Report.
・ Standards for responding to climate change and gender
diversity were added based on revisions to the Guideline

our exercise of voting rights going forward.
・ In order to increase the value of investee companies
through the sophistication of corporate governance andthe addressing of environmental and social issues, as aminimum standard, we will continue revising theguidelines for exercising Guideline on the Exercise of
Voting Rights in a timely and appropriate manner.

on the Exercise of Voting Rights (January 2022).
・ We are providing explanations about our stewardship

Principle 6
Reporting to clientsand beneficiaries

・ We think our response at present is appropriate.

activities to asset owners periodically or non-periodically.

considering our direct reporting to asset owners, our・ We found opportunities at external seminars andhosting of seminars, the release of our Stewardshipworkshops for explaining our Stewardship Activities.
・ We released our 2021/2022 Stewardship Report inNovember 2021.

Report, and the enhancement of information disclosed on
our website.
・ Moving forward, we will endeavor to report in a timely
and appropriate manner and also improve and expand thecontent of our activity reports.

Principle 7
Development of skills

・ We acquired, shared, and deepened new knowledge

・ While pursuing achievements such as through Global

through activities such as various global initiatives andInitiative activities for addressing ESG issues, we will

workshops.

improve our stewardship activities by accumulating skills

・ We also utilized engagement targeting government
oﬃces, institutions, and academic institutes for gaining
new knowledge
・ We utilized an external organization (PRI Academy) andthrough these activities.
・ We will continue having engagement with outside parties,
and utilize the knowledge acquired in our Stewardship
Activities.

in-house e-learning to strengthen ESG knowledge.
* See page 9.

74

Message from the CEO

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

2021/2022 Stewardship Activity Focus Topics

Collaboration with various initiatives (as of the end of July 2022)
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

Global initiatives

activities in keeping with our signatory commitments.

Initiatives related to the United Nations and climate change
Principles for responsible investment which requires institutional investors to incorporate ESG factors
into investment decision-making processes.

PRI

Climate Action
100+

United Nations GC(Global Compact)

Serve on the PRI Japan Network Advisory Committee. We have participated in PRI Palm Oil working
group, and in IPDD (Investor Policy Dialogue in Deforestation) to engage with policy makers in Brazil
and Indonesia.

Collaborative engagement initiative to engage with companies with high GHG emissions to disclose
information based on TCFD framework.

● Signed in May 2006

● Signed in December

We are the only Japanese investment manager who participates in the Global Steering Committee,
and are a lead manager of Asian/Japanese companies.

2017(Responsible for the
Asia-Pacific region)

It is action principles on human rights, labor, environment and anti-corruption, whose signatories are
required to align with principles.

● Sumitomo Mitsui TrustEngagement is based on action principles on human rights, labor, environment, and anti-corruption
concerning ESG materiality.

Group was the firstJapanese bank which
signed the initiative inJuly 2005

International NGO to address environmental issues such as climate change (forerunner of the Carbon
Disclosure Project).

CDP

Participated in webinars concerning Dialogue between investors and companies held in Indonesia,
and introduced our concepts on transitioning sustainable palm oil supply chain.

● Signed in April 2014

Initiatives related to speciﬁc topics
An engagement body focusing on the fishery and livestock industries.

FAIRR

We were a lead manager for collaborative engagement for phase 2 collaborative engagement withthe livestock supply chain in Brazil, concerning human rights and work environment.

● Signed in October 2018

An initiative established by the Zoological Society of London (ZSL) to support sustainable commodity
products.

SPOTT

30% Coalition,
30% Club

Access to
Medicine

Investor Action
on AMR

Participated as a member of TAG (Technical Advisory Group) for SPOTT. Conducted new engagement
project engaging with natural rubber producers.

● Signed in February 2020

An investor network that promotes greater diversity on the boards of directors at investee
companies.
Utilizing knowledge gained from bases in Europe and the United States related to diversity especiallyabout engagement on gender in Japan. In October 2021, became a signatory of a letter to companies
in the UK requesting that race be addressed.

● Signed in April 2017

A collaborative initiative in which major asset managers and owners in the United States and Europe
seek to improve access to medicine.
Led the initiative of engagement as a lead manager with major pharmaceutical companies in Japan,
and encouraged to ensure platform to improve access to medicine.

● Signed in April 2018

An initiative which provide collaborative engagement and recommendations to pharmaceutical andagricultural supply chain companies related to the issue of bacteria resistance.
Participated in the NIKKEI FT Communicable Diseases Conference as the only investment manager
from Japan, and introduced our views and specific initiatives on AMR (antimicrobial resistance).

● Signed in November 2020

A working group that handles engagement and makes recommendations on the disclosure of natural
capital information.

TNFD

75

Participated in the TNFD Forum (Stakeholder organization for supporting discussions and framework
construction). Held TNFD-related workshops and lectures.

● Signed in September 2020

Global initiatives

Features

Stewardship Activity Initiatives

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Investor group related
NGO that promotes corporate initiatives on environmental issues such as global warming.
In October 2021, signed an investor letter for the UN Biodiversity Conference. Also participated in an
engagement program (Food Emissions 50) related to the reduction of greenhouse gases in agricultural
supply chains.

Ceres

A non-profit organization that shares information and views on corporate governance, shareholder
rights, and so on.

CIＩ

Participated in the CII Fall Conference in September 2021. Collected information on corporate
governance, financial markets and regulations, accounting/auditing, and diversity.

● Signed in April 2017

● Signed in June 2018

An Asian investor association on climate change.
As an only investment manager from Japan, led collaborative engagement as a lead manager withpower companies in Asia in the Asian Utilities Engagement Program.

AIGCC● Signed in

December 2017

An investor network that provides support and advice for implementing excellent corporate governance practices.

ICGN

Appointed as a board of Governors from Japanese investment manager. Presented recommendations
to policy-making agencies such as the Financial Services Agency and international organizations withthe view to improve governance.

● Signed in

September 2017

An institutional investor initiative for promoting low carbon economy acting on climate change.

The Investor Agenda

Net Zero Asset Managers

Domestic initiatives

Initiative

Signatory of the Global Investor Statement to Governments on the Climate Crisis for COP27 in
November 2022.

Initiative by global asset management companies with the goal of achieving net zero greenhouse gas
emissions from managed assets by 2050.
Appointed as only investment manager from Japan to be an Advisory Group Member. Engaged ininitiatives for addressing climate change issues as a representative from Japan and Asia.

● Signed in June 2019

● Signed in July 2021

Related to climate change
TCFD

Consortium

Signatory organization for public/private collaborative efforts to promote climate information
disclosure under the framework of the TCFD.
Proactively exchanged opinions and presented recommendations at a roundtable discussion (small
group for exchanging opinions between investors and business firms).

● Signed in May 2019

Initiatives related to speciﬁc topics
ESG Information

Disclosure StudyGroup

30% Club Japan
Investor Group

General incorporated association that conducts research on ESG information disclosure incollaboration with listed companies and investors.
Listed companies, major audit corporations, and institutional investors, etc., collaborate to promoteresearch activities on ESG information disclosure. Published two-year activity report in June 2022.

An investor network that promotes greater diversity on the boards of directors at Japanese investee
companies.
Our President serves as the Investor Group chair. Promotion of activities for raising awareness ongender diversity through sharing of best practices and creation of annual reports.

● Signed in June 2020

● Signed in May 2019

Investor group related
General incorporated association whose purpose is supporting collaborative engagement between
institutional investors and companies.

Institutional Investors Collective
Engagement Forum

Japan Sustainable

Investment Forum (JSIF)
Japan Stewardship

Initiative

Promotion of collaborative engagement with seven institutional investors in Japan. Took role as leadmanager for engagement with agendas related to parent-subsidiary listing issues.

● Signed in

October 2017

NPO whose goal is to promote sound development of sustainable investment and financing in Japan.
Our officers serve as directors. Participated in subcommittee with the role of collecting opinions fromthe perspective of investors for Guidelines on Respecting Human Rights in Responsible Supply
Chains being formulated by the Ministry of Economy, Trade and Industry.

Organization that manages and revises reporting formats between asset owners and investment
institutions, while collecting and sharing information on related best practices.
Contributed as a member company to the spread of smart formats, which are a common platform forreporting stewardship activities to asset owners.

● Signed in March 2005

● Signed in

November 201976

Message from the CEO

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

2021/2022 Stewardship Activity Focus Topics

Active Involvement in the Principles for Responsible Investment (PRI)
Established with the support of the United Nations, thePrinciples for Responsible Investment (PRI) encourage
institutional investors to incorporate environmental, social

2021*1
Investment & Stewardship Policy*2and governance (ESG) factors into their investment
decision-making processes. There were 100 signatories
when it launched in April 2006, and has increased greatly
to 4,902 by the end of March 2022, which made thepositioning more important. In addition to becoming a

ListedstocksInvestment
process

signatory to the PRI in May 2006, we have drafted policies
initiatives in light of the latest developments.
The PRI evaluates each signatory with respect to their

Active (Fundamental)★★★★★

Active (Quantitative)★★★★★

Passive★★★★

Investment trusts

★★★★★
★★★★

Votingin accordance with the six principles and implemented

Fixed income

commitment to and progress on implementing the six
principles based on their reports. We continued to collectoverall favorable scores as before despite the fact that
evaluation items and contents were renewed and became
more strict starting from 2021.

★★★★★

SSA

★★★★

Corporate★★★★

*1 Similar to evaluation items and contents, the method of displaying
scores was also changed.
(Changed from a six-level ranking of A+ to E (highest to lowest) toa ﬁve-level ranking from 5 stars to 1 star)*2 Including engagement activities.

We will continue with our active involvement in the PRI
going forward and will make every effort to maintain andimprove our ratings.

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

With SMTAM s aim of maximizing medium-to-long-term investment return to our clients (beneﬁciaries) and suppressing downside risk, we
analyze and evaluate non-ﬁnancial information including ESG, and promote initiatives that utilize knowledge acquired from this analysis andevaluation for investment (ESG integration).

Principle 2

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

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.
Principle 4

By proactively promoting Stewardship Activities and educational activities, we help capital market participants to accept and implement thisprinciple.

We will work together to enhance our eﬀectiveness in implementing the Principles.
Principle 5

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 andprogress towards implementing them.

77

Stewardship Activity Initiatives

Features

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

SMTAM s ESG Investment Policy
Ⅰ. Basic Policy
1.

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

2.

Positioning
1) ESG investment refers to general investment activities as an institutional investor with a focus on challenges and investment opportunities related tothe environment (E), society (S), and governance (G).
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 ESG investment methods for portfolio management determined in Ⅲ. ESG Investment Methodology andIn-house ESG Score, and other ESG investment methods including engagement and exercise of voting rights, which are the core of Stewardship
Activities.
4) ESG integration refers to actions including analyzing and evaluating non-ﬁnancial information including ESG, and utilizing knowledge acquired from thisanalysis and evaluation for investment to maximize medium-to-long-term investment return to our clients (beneﬁciaries) and reducing downside risk. In
particular, we use ESG investment methods from 1) to 5) that are directly related to portfolio management as determined in 1. ESG investment
methodology for in-house managed products of Ⅲ. ESG Investment Methodology and In-house ESG Score.
5) ESG products are products that incorporate proper ESG investment methods into the management process and that meet the requirements
determined separately in related Company rules.

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 to our clients (beneﬁciaries)
while carrying our proper monitoring and disclosure.
(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 investment return upside potential.
(3) Reducing investments in companies with ESG issues and correcting ESG-related issues that could damage corporate value will lead to a reductionof downside risks for investment return.
3) In making ESG investments, we take Ⅱ. ESG Materiality into consideration.
4) We manage portfolios for various investment strategies, and are consistent with each client's investment purposes. For ESG investment, we use
properly combined ESG investment methods determined in Ⅲ. ESG Investment Methodology and In-house ESG Score according to characteristics
such as the investment purpose, investment target, and investment strategy.
5) In order to improve the eﬀect of ESG investments, we examine and try to understand the evaluation purpose, method, and restrictions for ESG
evaluation and data used to allow us to perform ESG evaluations and ESG investments for investees, and take necessary measures.

Ⅱ. ESG Materiality
1.

ESG materiality
ESG materiality refers to ESG issues that we view as important for improving the value of the investee and to promote sustainable growth. We consider
ESG materiality when performing ESG investment including ESG evaluation of investees, engagement activities, and decisions for exercise of voting rights.
With ESG, there are various issues and topics from a number of perspectives, and these diﬀer according to each external evaluation agency. Therefore,
we have our own deﬁnition of ESG Materiality, and the following 2. to 4. are the main evaluation items and contents for our ESG investment.

78

Message from the CEO

2.

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

2021/2022 Stewardship Activity Focus Topics

Environment
Overview
While all economic activities depend on the natural environment, the activities by humankind after the Industrial Revolution have placed a signiﬁcantburden 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 the realization of a recycling-oriented society.
1) Climate Change
Global warming, which is attributable to the accumulation of greenhouse gases such as carbon dioxide, and the resulting extreme weather are not athreat in the future, but rather a reality that is in front of us. We consider climate change as the most important issue aﬀecting society and economic
activities as a whole, and reﬂect measures for mitigating and adapting to it in ESG investment decisions by considering matters such as internationalframeworks.
2) Natural Capital
Economic activities depend greatly on natural capital. Misuse of natural capital, which mainly include raw materials, makes it impossible to use such
resources sustainably, and is also a threat to the continuous prosperity of society. Therefore, it is necessary not just to put a stop to the theirdepletion, but to restore natural capital in order to maintain a sustainable society. We especially recognize the importance of conserving forests thatacts as a carbon sink, which helps with biodiversity as the foundation of ecosystem services that support society and the economy, and addressing
climate change. We also understand that such issues can occur anywhere in the supply chain. We will reﬂect the status of biodiversity and thesustainable use of natural capital and resources such as forests, water, minerals, and agriculture, forestry, and ﬁsheries into our ESG investments.
3) Pollution ＆Waste
If various wastes generated as byproducts of economic activity are not properly managed by governments or companies, natural capital will bedamaged by destruction of the environment and by pollution, and scarce resources will be consumed. We reﬂect the status of compliance with laws
and regulations by governments and companies, sustainability of natural capital and resources through waste reduction and resource circulation of
product lifecycles into our ESG investments.
4) Environmental Opportunities
The environmental issues in 1) to 3) above lead to the creation of new markets and business models as represented by renewable energy andresource circulation through the promotion of international initiatives and policy changes at a governmental level and changes in consumerawareness. We view this as an investment opportunity and reﬂect it in our ESG investments in order to support the shift to a sustainable society andachieve growth of client assets.

3.

Society
Overview
As a signatory investment manager for the Principles for Responsible Investment, we must require investees not only to 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. In addition, as the population structure changes and awareness of diversity deepens, thestandards required for companies are increasing daily. In order to realize a sustainable society and ensure medium- to long-term investment return fromclient assets, companies must always seek a high level of eﬀort.
1) Human Rights & Community
We consider compliance by investees with international rules to be a point of emphasis. In supply chains, there are risks related to neglecting thework environment and with misconduct such as human rights infringement with workers. Therefore, we understand the initiatives such as with humanrights due diligence according to international standards on labor and human rights, and reﬂect these to ESG investments from perspectives such as
Just Transition.
2) Human CapitalAs the economy pushes a shift to services, ensuring excellent personnel, human resource development, and engagement with employees are
becoming more important factors that determine investee performance. We consider the eﬀorts made by investees for improving value throughdiversity, inclusion, equality, investment in human resources, and improvement of well-being and motivation, and reﬂect these in our ESG investments.
3) Security & Responsibility
As economic activities become more complex, including globalization of supply chains and the rapid progress of digitization, there is growing risk oftangible and intangible damage to clients and other stakeholders through products and services that are the output of corporate activities. Social
responsibility of governments and companies in regards to labor and safety is increasing. We take into account the vulnerabilities that lead to suchrisks and consider how investees respond to and reﬂect them in our ESG investments.
4) Social Opportunities
Initiatives through international frameworks and government-level policies are implemented for the social issues in the above 1) to 3), so the process
where economy and social disparity are eliminated result in social opportunities. In particular, expansion to communities and people where basic
services necessary for achieving SDGs such as medical services, information communication, and ﬁnance are lacking, will lead to the creation of newmarkets and business models. We view this as an investment opportunity and reﬂect it in our ESG investments in order to support the shift to asustainable society and achieve growth of client assets.

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Stewardship Activity Initiatives

Features

4.

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference

Governance
Overview
Investment return is obtained when the interests of an investment country or investment target company coincide with those of stakeholders
represented by investors, and its goal is achieved. Governance is the most basic system for this purpose, and it is necessary 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.
1) Behavior
Whether a company, etc., conducts management with due consideration to the interests of its stakeholders is evident in its behaviors, etc. We take
into account behaviors such as capital eﬃciency and information disclosure and reﬂect them in our ESG investment decisions. We take care withregard to information disclosure in accordance with all ESG topics because it is the starting point of relevant action.
2) Structure
Governance should be expressed objectively in government laws and regulations and in corporate organizational structure. SMTAM considers theappropriateness of corporate governance based on the composition of the board of directors and the diversity of directors, remuneration systems,
takeover defense measures, and the composition of shareholders along with the characteristics of the industry and country/region, and reﬂect theseto ESG investments.
3) Stability & Justice
For countries and companies, events can occur have a negative impact inside and outside the organization, ranging from deliberate violations of laws
and regulations, to accidents. If way of responding to such an incident or the speed with which it is handled is not suﬃcient, in addition todisadvantages for society, the creditworthiness of the country and corporate value will be greatly impacted. In order to deal with such risks properly,
we consider political stability and fairness, a company s code of conduct, their risk management system including preventive measures, and company
climate regarding compliance, etc., and reﬂect these to our ESG investments.
4) Governance Improvement
Governance is positioned as the core of the social and economic activities by governments and companies. Improvements and advancements withgovernance are what move governments and companies to achieve sustainability and engage in new business opportunities. In other words, these are
expected to raise return on investment. We view this as an investment opportunity and reﬂect it in our ESG investments in order to achieve growthwith client assets.

Ⅲ ESG Investment Methodology and In-house ESG Scores
1.

ESG investment methodology for in-house investment products
The ESG investment method for carrying out ESG investments is deﬁned in the following 1) to 7).
1) ESG negative screening
Under certain criteria, we exclude companies from our investment universe who have signiﬁcant problems from the perspective of ESG, such as thosethat 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 including ESG into processes regarding selecting brands ofeach 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 well as producing economic
investment return.
6) Engagement
We hold constructive dialogues on ESG topics with investee companies as an opportunity to seek best practices from companies and improve theirvalue 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 an agenda item in theexercise of voting rights of investees.

2.

In-house ESG Scores
The in-house ESG score refers to SMTAM s investment evaluation indices based on ESG given from the perspective of investors by analyzing the impactof ESG issues on opportunities and risks for governments and companies, etc., with the aim of maximizing medium- to long-term investment returns forclients (beneﬁciaries) while controlling downside risks.
Using ESG evaluations based on ESG materiality determined by SMTAM, we give an in-house ESG score for investment universe, etc., in order to makecontinuous improvement.
Details related to in-house ESG score are determined separately in SMTAM s regulations, etc.

80

Message from the CEO

Purposes of Stewardship Activities

Evolution of ESG Investments and Our Initiatives

2021/2022 Stewardship Activity Focus Topics

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 themfor 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 MIRAlndex 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 Asset Management Co., Ltd. FactSet UK Limited does not support, warrant, sell, or promote this fund and does not make any
representations regarding the appropriateness of investment in this fund. FactSet UK Limited does not warrant the accuracy and/or integrity of thisindex or data contained therein, and bears no responsibility for any errors, omissions, or suspensions therein.

Notes on the Bloomberg MSCI Global Aggregate Sustainability Indices
BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. MSCI is a trademark and service mark of MSCI Inc. (collectively with its
affiliates, MSCI ), used under license. Bloomberg Finance L.P. and its affiliates (collectively, Bloomberg ), including Bloomberg Index Services
Limited, the index administrator ( BISL ), or Bloomberg s licensors, including MSCI, own all proprietary rights in the Bloomberg MSCI Global
Aggregate Sustainability Index" and its sub-indices including custom indices. Neither Bloomberg nor MSCI is affiliated with Sumitomo Mitsui Trust
Asset Management Co., Ltd., and neither approves, endorses, reviews or recommends Bloomberg MSCI Global Aggregate Sustainability A+
Index-Tracked Strategy (Global Fixed Income). Neither Bloomberg nor MSCI guarantees the timeliness, accurateness or completeness of any data or
information relating to the "Bloomberg MSCI Global Aggregate Sustainability Index" and its sub-indices including custom indices, and neither shall be
liable in any way to the Sumitomo Mitsui Trust Asset Management Co., Ltd., investors in Bloomberg MSCI Global Aggregate Sustainability A+
Index-Tracked Strategy (Global Fixed Income) or other third parties in respect of the use or accuracy of the "Bloomberg MSCI Global Aggregate
Sustainability Index" and its sub-indices including custom indices or any data included therein.

Note on the Decarbonization-related Global Equity Strategic Fund (Asset growth type)/(Expected dividend oﬀer type)■ Fund Overview
Investment is made in the shares of decarbonization-related companies from around the world.
■ Fund investment risk
Because the fund invests in securities with price ﬂuctuations, the base price ﬂuctuates. Therefore, the investment principal is not guaranteed for all investors,
and a drop in the base price could result in loss and it going below the investment principal. All proﬁt and loss incurred in the trust property belongs toinvestors. Investment trusts diﬀer from bank accounts.
Stock price ﬂuctuation risk, foreign exchange ﬂuctuation risk, credit risk, theme-oriented investment risk, country risk, liquidity risk, interest volatility risk
* The above are not the only factors that can impact the net asset value.

[Other notes] ● The provisions of Article 37-6 of the Financial Instruments and Exchange Act (referred to as cooling-oﬀ) do not apply to fundtransactions.
● With funds, if a large application for liquidation is requested and it is necessary to cover the payment for liquidation within a short time,or if the market environment suddenly changes in markets that mainly trade in incorporated assets, there is the risk that trading cannot
be made at the expected price based on market forces due to a temporary decrease in liquidity of incorporated assets, and there is arisk that the trade amount may be limited. This may negatively impact the base price, may suspend or cancel acceptance of requests forliquidation, and payment for liquidation may be delayed.

81

Stewardship Activity Initiatives

Features

ESG Integration

Disclosure of Climate-related Financial Information under TCFD

Reference■ Fund costs▼ Costs directly borne by customers
This is calculated by multiplying the Purchase value by the Commission rate determined by the sales company.
Purchase fee(Upper limit 3.3% (3.0% excluding tax))* It is possible to switch between funds that constitute the Decarbonization-related Global Equity Strategic Fund. However, some sales
companies do not handle switching. Contact your sales company for more details.

Value of assets
retained in the trust

None.

▼ Costs indirectly borne by customers
Annual rate of up to 1.848% of the total net assets (up to 1.74% excluding tax)
Substantial operation
management costs(Trust fee)

This fund invests in other funds. Therefore, substantial operation management costs borne by the customer are calculated by adding
the operation and management costs for the investment target fund of the Fund (annual rate of up to 0.66%) to the fund operationand management costs (annual rate of up to 1.276% (up to 1.16% excluding tax)). However, this value is only a guide and varies
according to the actual involvement status of the target investment fund.

Other expenses/
fees

Audit costs, securities trading/holding, and various costs related to trust administration (audit costs are daily) are borne by the fund.
The rate, maximum amount, etc., cannot be indicated in advance for these costs since these vary according to the operational status.

* The total for the above fees, etc., varies according to factors such as the holding period. Therefore, the maximum amount and other items cannot be indicated in advance.

■ Note on dividends● Unlike interest on bank accounts, dividends are paid from the net assets of the investment trust.
Therefore, when dividends are paid, the net asset value decreases by an equivalent amount.

Diagram of dividends paid by investment trusts● Dividends may be paid in excess of earnings generated during the calculation period (trading
proﬁt including dividend income and valuation proﬁt after deducting expenses). In this case, thenet asset value on the settlement date of the current ﬁscal year will be lower than on thesettlement date of the previous ﬁscal year. In addition, the dividend level does not always
indicate the fund s rate of return during the calculation period.
● Depending on the fund purchase value of the investor, some or all of the dividends may closely

Investment
trust net
asset

Dividends

correspond to a partial refund of the principal. This also applies when the increase in the net
asset value is below the dividend amount due to the operational status after purchasing the fund.

[Notes]● This document was created by Sumitomo Mitsui Trust Asset Management. It is not intended as a disclosure document based on the Financial Instruments
and Exchange Act.
● Be sure to conﬁrm the latest investment trust manual (prospectus for issuance) before making your own decision on applying for a purchase.
● Because investment trusts invest in securities, which have price ﬂuctuations (foreign currency-denominated assets include foreign exchange ﬂuctuationrisk), the base price also ﬂuctuates .Therefore, investment principal and yield are not guaranteed. All proﬁt and loss from fund management belong toinvestors.
● Unlike bank accounts and insurance contracts, investment trusts are not subject to protection by the Deposit Insurance Corporation of Japan and the
Policyholders Protection Corporation. In addition, if a purchase is made from a company that is not a securities company, it is not covered by the Investor
Protection Fund.
● This material was created using various information determined to be reliable. However, its accuracy and/or integrity cannot be guaranteed. In addition, it
may be changed at any time without prior notice.
● The charts, ﬁgures, and other data in this material were created using past data and do not indicate or guarantee future results. In addition, investment
policies may be adjusted due to future changes in the market environment.
● Intellectual property rights including copyrights and all other rights related to the indexes used in this material are the property of the developer or
publisher of each index.

■ Settings and operation

Trade name: Sumitomo Mitsui Trust Asset Management Co., Ltd.
Financial Instruments Business Operators: Director of Kanto Local Finance Bureau (Financial instruments ﬁrms) No.347
Commodity Investment Advisor, License The Minister of Economy, Trade and Industry: #(1) No.25
Member: The Investment Trusts Association, Japan The Japan Investment Advisers Association

Website : https://www.smtam.jp/82

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.