Responsible Investment Report 2023

omura-am.co.jp/

Nomura Asset Managemental.nhttps://glob

Responsible
Investment
ReportWe create economic
and social value
through the asset
management businessThis is the philosophy of Nomura Asset Management

About
NOMURA ASSET MANAGEMENT (NAM)

Engagement

Proxy Voting

03 Our Strengths in Responsible Investment

59 Basic stance on engagement

77 The Unique Aspects of Our Proxy Voting

05 Cooperation with Our Overseas Offices

61 Measuring the Effects of Engagement Activities

07 CEO Message

62 Engagement on SBT

78

09 NAM’s vision for the Investment Chain

63

10 NAM’s materiality
11 ESG Statement
17 NAM’s initiatives on PRI
19 Basic Policy For RESPONSIBLE INVESTMENT

65 Engagement Targeting Increased Board Effectiveness66 Fixed Income Engagement
Aiming to Improve the Capital Efficiency of JapaneseCompanies

67

25 Utilizing Human Capital

68 Engagement Activities Targeting the Automobile Industry

31 Initiatives on Human Rights
37 TCFD & NET ZERO GOAL BY 2050
53 Our Product Governance Initiatives

Responsible Investment Report 2023

64 Engagement Initiatives

23 Towards Realizing a Monitoring Board

43 NATURE & BIODIVERSITY

01

Engagement Activities Targeting Human Rights Risk
Management, Utilization of Human Capital

70 Review of Priority Topics
71 Global Equity Engagement
74 Engagement by Sustainalytics
75 Cooperation with Global ESG Initiatives

79
80
81
83

The Outline of Proxy Voting / System toManage Conflicts of Interest
Proxy Voting Process for Japanese andGlobal Equities
Changes in Results of Exercise of Voting
Rights for Japanese Companies
Overview of Proxy Voting Standards forJapanese Companies
Changes to Proxy Voting Standards forJapanese Companies

ESG Integration
89 Features of Integration
90 Equity Integration
91 Efforts to Advance ESG Integration
93 Impact Investing
99 ESG Scores for Japanese Equities
101 Green Bonds and Sustainable Bonds
103

NAM’s Systematic Approach to Sustainable Fixed
Income Investment

Disclosure of Proxy Voting Results

85 (Reasons for voting For or Against
proposals)

87 Proxy Voting FAQ

107 Messages from the Responsible Investment Council
111 Results of Self-Evaluation of 2023 Stewardship Activities
113 NAM’s ESG Communication Activities
114 Review of 2023, 2024 and Beyond

02

Our Strengths in Responsible Investment

1
History of
Responsible Investment

Long-term commitment to responsible investment
Our company’s first strength is our long history of engaging in responsible
investment. The roots of the current Responsible Investment Committee
lie in the Proxy Voting Committee established in 2001. Subsequently, the
ESG Committee was established in 2011. The ESG Committee became
the Responsible Investment Committee as part of a reorganization and an
integration from 2014 to 2015. Based on many discussions over the years, andalways remaining conscious of our mandate from clients, we have fostered aculture that is supportive of responsible investment, respects diverse opinionsfrom a large number of professionals, and values lively discussion.

03

2022

2021

2020

Corporate
Sustainability Report
2023 publishedSustainability
Development
Department and
Net Zero Strategy
Department establishedEstablished NAM’smateriality Joined Net
Zero Asset Managers
initiative (NZAM)

Established AssetManagement

Revised ESG Statement

Formulated our ESG
Statement

3

2018

2004

2010

2011

2014

2015

2016

2017

Management of SRI
Index Fund commenced

UK Stewardship CodeadoptedESG Committee(now the Responsible
Investment Committee)
establishedJapanese version of the
Stewardship Code adopted

Responsible Investment
Group and ESG
specialists established

Responsible Investment
Department established

Proxy voting results
disclosed individually

Conflict of Interest Management
Policy formulated and Responsible
Investment Council established
Stewardship Codes in Singapore,
Hong Kong and Taiwan adopted

Malaysian Stewardship
Code adopted

ESG Committee
reorganized into
Responsible Investment
Committee
Proxy Voting Committee
reorganized into
Stewardship Committee

Systematic and Continuous ESG-related Initiatives
Our company’s second strength is our systematic and ongoing effort to address
ESG-related issues in anticipation of the needs and dynamics of the times.
Examples of our efforts include the establishment of the Responsible Investment
Committee as the highest decision-making body for responsible investment
and the Responsible Investment Council which supervises the Committee,
the establishment of policies including the ESG Statement, engagement andproxy voting in order to realize ideal form of business management of investee
companies, as well as providing information to stakeholders through disclosurematerials such as the Responsible Investment Report and the TCFD Report.
Furthermore, we have established a Sustainability Development Department
to accelerate our business operations with an emphasis on sustainability, andin 2023 we newly issued a Corporate Sustainability Report. We are also working
to strengthen our organizational structure with respect to ESG, including
establishing an Engagement Department to bolster our engagement with portfolio
companies and a Net Zero Strategy Department that is working to enhance ourefforts to address climate change.

Responsible Investment Report 2023

Support for TCFD.
Strengthening ourcompany-wide efforts totackle climate change.

Revised ESG Statement

2001

United Nationssupported Principles
for Responsible
Investment (UN PRI)
signed2019

Research Institute topromote ESG

Proxy Voting Committee
establishedManagement ofgovernance fundcommenced

2

2023

Stewardship Committee
integrated into
Responsible Investment
Committee

Self-evaluation
disclosed

UK Office acquired Tier1 evaluationfrom UK FRC*

Organizational Structure for Responsible Investment
Responsible Investment Council
Oversight,
verification,
advice, etc.

Main activities
Dialogue withportfolio companies(engagement)

Proxy Voting

Responsible Investment Committee
Secretariat:
Responsible Investment Department

Forming policies,
oversight of initiatives,
etc.

Reports on
activities, defineissues, etc.

Investment and research division

Integration into
investment decisions(ESG integration)
Collaborative/
public activities

Global Approach and Diversity
Our company’s third strength is our global and highlydiverse investment and research framework. Based on
our global platform for responsible investment, we havebuilt an ESG investment and research framework madeup of portfolio managers, corporate analysts and country
specialists who manage ESG products in our overseas
offices. Our team includes a large number of portfolio
managers, ESG investment managers, corporate analysts,
credit analysts and ESG specialists working in one of thelargest active management institutions in Japan, all ofwhom are committed to applying their analytical abilities
and insights to responsible investment.

LondonFrankfurt

Dubai

Shanghai
New York
Hong Kong
Malaysia

TaiwanSingapore

4

Inclusive Discussions based on
a Strong Organizational Platform
Our company’s fourth strength is our emphasis on having “exhaustive
discussions” that incorporate diverse opinions under a strong organizational
platform. The Responsible Investment Council was established as a bodyto oversee discussions of the Responsible Investment Committee in realtime. The majority of the Council is consists of highly independent outside
directors and outside experts in order to manage conflict of interest. It
manages conflicts of interest with highly-independent outside directors
and outside experts accounting for a majority of its members. In addition,
the Responsible Investment Committee comprises members possessing
abundant investment and research experience. The Committee held a totalof 14 meetings in 2023. The discussion at the Commitee often heats up overthe decision on proxy voting and ESG related issues. The members of theCouncil observes the Committee meetings not only to monitor the conflictsof interest but also to actively join the discussion.

Tokyo

SydneyResponsible Investment Committee Meetings

January – December 2023

14

7

times

Responsible Investment
Committee

times

Regular

4 times

Regular

4 times

Ad hoc10 times

Ad hoc3 times

Responsible Investment
Council

04

A
N

UK/EU

E
SG

P
M

E

LondonP
M

SG

AG E M E N
GNT

Sep. 2016

MALAYSIA

Dec. 2016

Apr. 2017

Portfolio Manager

Singapore

AN

P

A

AT I O N

GR
TE
G

ES

G

IN

A
N

PM

E

A

SG

ASIA

P

N

In terms of integration, climate change analysis
tools are used to evaluate the climate changerisks and opportunities for portfolio companies
and for each fund (refer to Pages 29-39), andin addition to sharing our ESG scores among
all offices, ESG data from external sourcesand other data are incorporated and used tomake investment decisions. The details of
engagement with companies whose stocks ourfunds hold are shared with portfolio managers
and utilized in discussions about whether tocontinue holding the stocks in question (refer toPages 89-106).

M* In March 2022, Nomura Asset Management UK was approved by the Financial Reporting Council(FRC) as a signatory to the UK Stewardship Code 2020.

For proxy voting (excluding Japaneseequities), we generally decide to votein favor of or opposition to an issue inaccordance with our Global Basic Policyon Proxy Voting. However, if the portfolio
managers and analysts possessing a
deep understanding of local conditions
determine it to be necessary, we may,upon deliberation, make a decision thatdiffers from the basic policy on proxyvoting. The final decision is then sharedwith all offices, and proxy voting is thencarried out uniformly on a global basis(refer to Page 79).

N

TAIWAN

Sep. 2016

ESG INTEGRATIONM

SINGAPORE

PROXY VOTINGIN

T

HONG KONG

Responsible
Investment Global
PlatformVOJAPAN
May 2014

We engage in constructive dialogue with companies about important financial and nonfinancial risks and opportunities in accordance with our basic policy for engagement (refer
to Pages 59-70). Specifically, our ESG specialists, ESG investment manager, engagement
managers, company analysts and country specialists based in Japan and overseas offices
collaborate to engage with portfolio companies.
We monitor the details of the engagement of managers in each country with target
companies using common milestone management tools, which allows information to be easily
shared among our offices. With respect to climate change, which is one of our key engagement
themes, we urge portfolio companies to receive SBT approval, and by monitoring the status ofthese efforts on a global level we are able to check how much progress companies are making.
Furthermore, ESG officers in overseas offices can now easily hold discussions with our ESG
specialists in Tokyo about engagement details. (Refer to Pages 71-76)

P R OX Y

UK*
Dec. 2010

Responsible Investment Report 2023

N

At Nomura Asset Management, we work globally to strengthen our ESG initiatives
based on our global platform for responsible investment.
By utilizing this common platform, we are not only able to promote ESG
initiatives at each office, but offices can also share detailed information with one
another.
Our ESG Statement is shared globally, and allows for a common understandingof the goals behind our ESG-related activities as well as ESG-related issues (refer
to Pages 11-16).

05

Frankfurt
E

ENGAGEMENT

Cooperation With Overseas Offices

Nomura Asset Management
Stewardship CodeSigning Status

TOKYO

A

M

Cooperation with
Our Overseas Offices

Tokyo
P

Hong Kong/Malaysia/Shanghai

Research professional (company analyst, credit analyst) Quantanalyst (quant analyst, financial engineer)

New York

ESG

USA

ESG specialist, ESG investment manager,
Engagement manager

06

The global turmoil caused by the COVID-19 pandemic
has now subsided, and people are finally able toreturn to their normal daily lives. After experiencing
the unusual circumstances of the past few years, I
think it is important that we remember to appreciate
the peaceful times we have, and approach all of
our efforts with an extra sense of focus. Currently,
in addition to the emergence of new geopoliticalrisks, various climate change-related disasters are
occurring in Japan and other parts of the world. At
the beginning of this year, the World MeteorologicalOrganization (WMO) announced that the global
average temperature in 2023 was the highest
on record. Local, national and global issues are
becoming increasingly serious and complex, whichmakes now the time to consider and implement
actions to address the many social issues we face.

Disruptions caused by geopolitical risks are causing
significant volatility in energy prices. The pricefluctuations remind us of the challenges of dependence
on fossil fuels and worsen uncertainty around the futurebalance of energy supply and demand. This also affects
companies’ actual capital investment plans, leading
to increased business uncertainty. Furthermore, theoccurrence of disasters due to rising temperaturesposes the question of how to build a sustainable
society. For example, worsening climate change
could result in a vicious cycle, where water and foodshortages lead to an increase in involuntary migration,
which could then spark new geopolitical risks. Issues
that need to be addressed on a global scale, such as
climate change, are also closely related to human rights
and other social issues raised in the SDGs. In this way,
we believe we must view climate change not as a single

issue, but as a multifaceted problem related to a variety
of other issues.
As a responsible investor, we aim to realizeboth social and economic value through our asset
management business. The core idea to solving
these social issues is the investment chain (virtuous
cycle of investment). Companies that generate
economic profits are fully capable of contributing toa sustainable and prosperous society. As an asset
management firm, we play an important role increating a virtuous cycle of investment and realizing
a sustainable and prosperous society by connecting
investors and companies through investment. Thisis the core of our investment chain philosophy. In
order to support this virtuous cycle, engagement(constructive dialogue) between asset management
firms and investee companies is essential. Basedon this kind of dialogue, we want to help companies
realize what we view as desirable management andenhance their corporate value, as well as encouragethem to undertake ESG/SDGs-related initiatives.
In conclusion, I would like to emphasize that
Nomura Asset Management will continue to embracechange, provide the best ESG products, enhance
corporate value and build a sustainable society,not just as a responsible institutional investor, butalso as an asset management firm that strives tomake the world a better place. The essence of theasset management business is to provide productsthat meet customers’ needs as well as the best
performance and services. I also firmly believe that in
the process of providing such products and services,
it is our responsibility to create both economic value
and social value.

Hiroyasu Koike
CEO Message

President & CEO

Striving to be
an asset management firm thatmakes the world a better place07

Responsible Investment Report 2023

Using our expertise and foresight to stay ahead of change, we pursue
exceptional performance and create cutting-edge solutions to exceed
all expectations.

08

NAM’s materiality targeting
the realization of the investment chain Key issues

NAM’s vision for

We aim realize a sustainable, prosperous society through our asset management business.

the Investment Chain
Virtuous cycle of investment
to realize a sustainable and prosperous society

For clients

We seek to realize a sustainable, prosperous society in which the richnatural environment is preserved, diverse human capital is utilized,

In order to enhanceclients’ investment
returns

economy development is driven by technological innovation, human

NAM’s vision

Continue to provide the highest value-added and be the asset
management firm of choice

Provide excellent products
and services that help clients build wealthIn order to createa society in which clientscan enjoy abundance

Execution of fiduciary duty

rights are respected, and well-being is promoted. It is a society inwhich ESG issues are addressed and the SDGs are achieved.

NAM’s vision

Togetherwith portfolio
companies

Economic growthHigh Priority ESG issues

Environment

Governance09

Natural Capital

Responsible Investment Report 2023

Human Rights

Value Creation to
Realize Well-Being
Within Society

Diversity Equity
Inclusion & Belonging(DEI&B)

Corporate
Governance

Fiduciary duty

Enhance corporate value by practicing desirable management
and contribute to sustainable economic growth
Realize a decarbonized society, protect natural capital andbiodiversity, and achieve a circular economy
Respect human rights, Promote human capital management

SocialClimate Change

Through dialogue, we strive to both improve thecorporate value of portfolio companies and create
economic value, as well as solve ESG issues and otherissues at portfolio companies to create social value,
while NAM itself also works to create similar value.

Realize effective corporate governanceFor society

NAM’s vision

Widely contribute to advances in society throughthe asset management business

Promote financial and economics education

In order to familiarize people with wealth building, promote financial and economics
education and work to widen the breadth of investors
Support regional revitalization

Work with regional financial institutions to create momentum for regional
revitalization originating from regional financial institutions
Partner and collaborate with various stakeholders

As an asset management firm, partner and collaborate with various stakeholders towork to solve social issues

A duty to manage our business activities in the best interest of our clients.

 iduciary duty is a concept expressing the responsibility of an investment company that gives top priority toFcustomer interests.
In order to fulfill their fiduciary duty, financial institutions must properly develop, manage, and sell products so thatthey truly benefit investors.

Please refer to the following link for NAM’s materiality
https://global.nomura-am.co.jp/special/sustainability/

10

High Priority ESG issues
While the importance of each ESG issue differs depending on the specific characteristics of the businessin question, we identify the following 6 issues as common ESG issues that are particularly important
across many businesses. We also partner with a variety of initiatives to work to solve each issue.

Statement

Statement
We seek to realize a sustainable, prosperous society in which the rich natural environment is preserved, diverse human capital is utilized,
economy development is driven by technological innovation, human rights are respected, and well-being is promoted.
It is a society in which ESG issues are addressed and the SDGs are achieved.
(Excerpt from NAM’s ESG Statement)

11

Responsible Investment Report 2023

In March 2019, Nomura Asset Management
announced our “ESG Statement”. In this statement,
we expressed the future direction of our ESG
activities and how we will respond to environmental(E) and social (S) risks. Also, by sharing the detailsof our plans with stakeholders, we aim to realize asustainable and prosperous society.
Nomura Asset Management seeks to realize asustainable, prosperous society in which the richnatural environment is preserved, human capitalpossessing diverse values are utilized, economic
development is driven by technological innovation,
human rights are respected, and well-being is
promoted. It is a society in which ESG issues are
addressed and the SDGs are achieved. In addition,
we recognize that efforts to solve ESG issues inorder to realize this kind of society are important for
supporting a virtuous cycle in the investment chain.
We believe that a critical factor for both sustainablecorporate value improvement and higher investment
returns is for a company to appropriately manage
risks related to ESG issues, view solutions to ESG
issues as new business opportunities, and properly
incorporate them into management strategies.
Furthermore, as a responsible investor, we
encourage our portfolio companies to practice what
we view as desirable management, while we ourselves
will also continue to operate with a focus on ESG.

E

E

Climate Change

S

Natural Capital

S

S

Value Creation to
Realize Well-Being
Within Society

Diversity Equity
Inclusion &Belonging (DEI&B)

Human Rights

G

Corporate
governanceCore ESG Initiatives
PRI (Principles for Responsible Investment) are a set of principles
formulated in April 2006 that require investors to incorporate ESG into
actual investment analysis and decision-making processes.
Principles for
Responsible
Investment PRI
Signature Timing
March 2011

PRI Japan Advisory
Committee member

Support for educating the public about and energizing PRI’s activities inJapan (became committee member in 2023)

PRI Advance Signatory
Advisory Committee
memberCollaborative engagement for human rights (started in 2022)

PRI Spring Signatory
Advisory Committee
memberCollaborative engagement for nature and bio diversity (started in 2023)

12

Environment
N

N

Signed as Nomura Group

Signed as Nomura Group

Climate Change

Natural Capital

Human Rights

The Paris Agreement, which was concluded in 2015, stipulates that efforts shall be madeto limit the increase in the global average temperature to 1.5˚C since before the Industrial
Revolution based on scientific evidence. To achieve this goal, it is necessary to reach net
zero global greenhouse gas emissions by 2050. We believe that companies must address
climate change issues from the perspective of both risk management and the pursuit ofbusiness opportunities in order to achieve sustainable improvement of corporate value.

Companies benefit from biodiversity through the utilization of forests, water sources,and other natural capital in their business activities. In 2021, the Taskforce on Naturerelated Financial Disclosures (“TNFD”), an international organization that builds
frameworks for appropriately assessing and disclosing risks and opportunities related
to natural capital and biodiversity, was launched. In September 2023, the TNFD issued
its final recommendations regarding the disclosure framework, and a foundation is
being formed to create a nature-positive flow of funds. In order to respond to suchchanges in the environment surrounding natural capital, we believe that companies
must exercise proper risk management in relation to activities that could negatively
impact natural capital and biodiversity, as well as pursue business opportunities that
address social issues, such as the preservation of natural capital and biodiversity.

Corporate business activities involve a large number ofpeople including employees and local residents, whichis even broader when the supply chain is considered.
Companies are expected to exercise proper risk
management to ensure that their activities do not
infringe upon human rights. We believe that companies
must exercise human rights due diligence and otherforms of proper human rights risk management in orderto achieve sustainable improvement of corporate value.

TCFD

CDP

(Task Force on Climate - Related
Financial Disclosures)

Signature Timing: June 2015 N
Signature Timing: November 2021
Established in 2000. This is a
global project in which institutional
investors around the world
encourage companies to disclose
their strategies to combat climatechange as well as their specificgreenhouse gas emissions. Current
areas of focus include climatechange, water and forests.

CA100+

Signature Timing: March 2019

Signature Timing: December 2019

A private-sector led task force
launched in December 2015 by the
Financial Stability Board (FSB) thatencourages enhanced information
disclosure related to climate change.

An investor initiative in which
institutional investors collaborate(group engagement) to encourage
the world’s largest corporate
greenhouse gas emitters to disclose
information related to climatechange and respond accordingly.

PCAF

NZAM

(Net Zero Asset Managers initiative)

Signature Timing:g: August 2021
Signature Timing: March 2022 N

Signature Timing: August 2021

Responsible Investment Report 2023

FAIRR

(Farm Animal Investment Risk and Return)(Partnership for Carbon Accounting Financials)

An international initiative established in the Netherlands
in 2015 to create a standard method for measuring
and disclosing greenhouse gas emissions. The PCAF
Japan Coalition was established in November 2021, andNomura Asset Management has been a member since
its establishment.

13

Social

A global initiative established in December 2020 comprisingasset managers which aim for net-zero emissions ofgreenhouse gases (GHGs) from portfolio companies by
2050, in line with the goals of the Paris Agreement.

TNFD Forum

Signature Timing: June 2019

Signature Timing: July 2023

A livestock industry-related institutional investor initiative
launched in 2015 by Jeremy Coller, the founder of Coller
Capital (U.K.). The initiative educates people about
livestock industry risks, including the impact on theenvironment, as well as food safety (antibiotics) issues.

As a collection of stakeholders supporting the TNFD debate,
the TNFD Forum enables discussion of the TNFD framework
and raising awareness of the risks and opportunities
associated with natural capital and biodiversity.

UNGC(The United Nations Global
Compact)

Signature Timing: June 2015 N

Non-binding action principles advocatedby then UN Secretary-General, Kofi Annan,
at the Davos Forum in 1999. It encourages
businesses and groups worldwide to takeactions in the areas of human rights, labor, theenvironment and preventing corruption.

In order to realize sustainable improvement in corporate value, we believe that it is necessary
for companies’ human capital to be comprised of people with diverse values without regard tofactors such as gender, nationality, race or age, and for companies to create a corporate culturethat provides equal opportunities to employees and that welcomes diversity and inclusion. In
addition, we feel that it is critical for companies to foster a sense of unity under which senior
management and employees share a sense of purpose to sustainably improve corporate value.

(Investor Group)

Well-being refers to a state in which all people can seek happiness and live healthy
lives. Well-being in society is realized by solving social issues in a variety of fields.
Specific examples include health and safety, education and intelligence, and regional
revitalization. In our view, the development and provision of products and services that
contribute to addressing these social issues represent important business opportunities
for companies, and could lead to sustainable improvement of corporate value.

Access to
Medicine Index(Access to Medicine
Foundation)

Diversity Equity Inclusion &Belonging (DEI&B)

30% Club Japan

Well-Being

Access to Nutrition
Initiative

Signature Timing: July 2019

Signature Timing: May 2021

Founded in 2003 by Dutch entrepreneur Wim
Leereveld. The organization encourages thepharmaceutical industry to do more to help low- andmiddle-income countries who have limited access to
medicine. Signatories support the foundation’s index.

Founded in 2013 by Dutch businesswoman Inge
Kauer. Using proprietary analytical tools, the Initiativeevaluates the level of response by the food andbeverage industry to the two global nutritional issuesof overnutrition and undernutrition, and urges thefood and beverage industry to improve the dietary
habits of adults and children around the world.

Triple I for GH(Impact Investment Initiative
for Global Health)

Women in ETFs

Signature Timing: September 2023
Signature Timing: December 2019

Signature Timing: April 2022

A group of asset owners and asset managers that engages
in constructive dialogue with the boards of directors andsenior management of portfolio companies, with the aim ofhighlighting the importance of gender diversity within senior
management and realizing such gender diversity.

“Women in ETFs” advocates for the goal of bringing
together people from the ETF industry around the world
to actively promote equality, diversity and inclusiveness.
Its mission is to develop and sponsor human resources,
recognize women’s achievements in the ETF industry, andadvance and grow the ETF community.

The aim of this initiative is to promote the flow of public
and private funds towards the field of global health andcontribute to achieving universal health coverage* andthe SDGs, primarily in developing countries. An additional
goal is to contribute to solving international social issues
by sharing impact reporting and good practices in the
global health field.
©Triple I for Global Health* A state in which all people can receive
appropriate health care services such as
prevention, treatment, and rehabilitation, at anaffordable cost.

14GovernanceN

Our Activities

Signed as Nomura Group

Other ESG Related Initiatives

Corporate governanceCorporate governance is a structure for transparent, fair, timely and decisive decisionmaking by companies. From this perspective, the board of directors is responsible for thesupervision of management, while nominations, compensation, and audits are the means
to ensure the board fulfills its role. We believe that companies must strengthen corporate
governance so that their management can properly manage various risks including the ESG
issues mentioned above, while pursuing business opportunities to achieve sustainableimprovement of corporate value.

ICGN

15

ACGA

JSI

(The International Corporate
Governance Network)(The Asian Corporate Governance
Association)(Japan Stewardship Initiative)

Signature Timing: December 2018

Signature Timing: December 2018

Signature Timing: November 2019

Established in 1995 to promote
effective corporate governancestandards and foster responsible
investment to advance efficient
markets and sustainableeconomies worldwide.

Established in 1999 to engage in
research and provide corporate
support and education related tocorporate governance in order topromote corporate governancein Asia.

Aims to identify practical issues
between asset owners and asset
managers and to support efficienttransmission of information aimed
at advancing and deepening
stewardship activities.

Responsible Investment Report 2023

GRESB

Principles for Financial
Action for the 21stCentury

Signature Timing: March 2021

Signature Timing: January 2012

Measures the environmental, social, andgovernance (ESG) of individual companies
and investment funds in the real estate
sector. GRESB was launched in 2009,
mainly by European pension funds, as asource of information to use when selecting
investments and during dialogue withportfolio companies and investment funds.

Formulated in October 2011 basedon a proposal by the Ministry of theEnvironment’s Central Environmental
Council as action guidelines for financial
institutions that wish to fulfill their
responsibilities and roles as required forthe formation of a sustainable society.

GRESB® and the related logo aretrademarks owned by GRESB BV and areused with permission

Environment
Programme –FinanceInitiative UNEP FI

ICMA Principles
Membership

Signature Timing: January 2019 N

Signature Timing: June 2023

UNEP FI is a partnership establishedbetween the United Nations Environment
Program (UNEP) and financial institutions
worldwide.
Since its establishment in 1992, UNEP
FI has been cooperating with financial
institutions and regulatory authorities topromote a shift to a financial system that
integrates economic development with
ESG considerations.

An international initiative that establishes
standards, including the Green Bond
Principles, the Social Bond Principles, andthe Sustainability-Linked Bond Principles.
The initiative aims to promote the healthy
development of the global bond market by
ensuring market transparency and throughinformation disclosure and reporting.

Stewardship Activities

Investment Decisions

Through our activities, including proxy voting andconstructive dialogue (engagement), we encourage
the management of portfolio companies tomanage risks and pursue business opportunities
that are associated with ESG issues and also todisclose information in accordance with relevant
global initiatives.

We assess our portfolio companies’ initiatives toaddress ESG issues based on our own standards
from the perspectives of both risks and opportunities
and incorporate the results in our investment
decisions. If we assess a company’s initiatives as
insufficient, or if we determine that the issues cannot
be solved through engagement, it may result indivestment or exclusion from our investment universe.

Our Business Activities

Business Opportunities

We recognize that business activities that take into
account social value creation are important elements
for realizing a sustainable and prosperous society.
We strive to contribute to asset formation by offering
investment products and services that help toaddress ESG issues and through efforts to expand
the investment base through measures such as
financial education. (For details, please refer to Pages
9-12 of our Sustainability report 2023.)

We place particular focus on the realization ofwell-being within society when viewing business
opportunities associated with ESG issues. We
encourage portfolio companies to properly
incorporate the realization of well-being withinsociety into their management strategies and toquantify outcomes and disclose them along withthe relevant targets.

Monitoring

Initiatives

We conduct monitoring based on global initiatives,
including the Task Force on Climate-related
Financial Disclosures (TCFD), in order to ascertain
the status of ESG issues in our investment
portfolio. Specifically, we monitor greenhouse gas
emissions and other factors.

We participate in international initiatives andactively embrace accepted standards and norms.
Through these initiatives, we conduct engagement
jointly with other institutional investors and share
best practices by actively cooperating with a wide
range of stakeholders.

Reference

Governance andDisclosure to
Promote ESG
At Nomura Asset Management,
important decisions on management
execution including this Statement
are made by the Executive
Management Committee, which
consists of senior executives, towhom the proper authority has
been delegated by the board of
directors. We have established theInvestment Policy Committee and the
Responsible Investment Committee
as the highest decision-making
bodies in investment decisions andresponsible investment to address
ESG issues within a proactive
framework. We have also established
the Conflict of Interest Management
Policy as well as a Responsible
Investment Council and a FundBusiness Operation Council, whichhave oversight for our responsible
investment activities and products
to ensure their appropriatenessand validity. In addition, in order toproperly fulfill our accountability,
we will actively work on information
disclosure regarding the abovementioned “our activities”.

https://www.nomura-am.co.jp/special/sustainability/pdf/sustainability_report2023_e.pdf

16

NAM’s initiatives on PRIThe PRI (Principles for Responsible Investment) is a set of investment principles
proposed by UN Secretary-General Kofi Annan in 2006 and designed to reflect
environmental, social and governance (ESG) in investment analysis and thedecision-making processes. NAM and other institutional investors have the duty to
act in the best long-term interest of beneficiaries. Believing that advancing initiatives
in line with the investment principles espoused in the PRI is important in terms offulfilling our fiduciary duty, NAM signed PRI in March 2011 and is strengthening
its activities related to responsible investment. We also participate in PRI’s annual
evaluation, which helps us to improve our responsible investment activities. As of
December 31, 2023, there are 5,372 signatories globally.
NAM has been proactively contributing to PRI’s activities. In 2023, NAM wasappointed as a member of the PRI Japan Advisory Committee, as well as “Spring”,
which is PRI’s stewardship initiative for nature. In Advance, the PRI’s collaborative
initiative on human rights and social issues which has been active since 2022, NAM
is leading engagement with specific companies as a lead investor.

NAM and PRI Jointly Hosted Side Event at PRI in Person 2023

Results of the 2023 PRI Assessment
NAM received the highest rating of “Five Stars” in six Modules in the 2023 PRI
Assessment. This assessment involved NAM’s initiatives in 2022 spanning a total of
10 modules.
The PRI secretariat assesses the implementation status of responsible investment
on a five-star scale for each module based on reports that PRI signatories submit.
The scores for 8 modules out of 10 modules greatly exceeded the respective medianvalues. Among them, NAM received the highest rating of “Five Stars” in Policy
Governance and Strategy, three modules for Direct Listed Equity, and two modules
for Direct Fixed Income.

2023 PRI Assessment results

PRI AdvanceNAM became a member of the Advisory
Committee for “Advance” and “Spring”, the
PRI’s collaborative initiatives, and we havetaken a leading role in both building thecollaborative engagement framework and incarrying out dialogue with companies.

Collaborative initiative for human rights and social
issues Started in 2022

PRI Spring

Collaborative initiative for natural capital andbiodiversity Started in 2023

PRI SSIMRG Member

PRI’s new initiative for investment managers
Started in 2023

PRI Nature Reference Group
MemberStar score

59

100

65

<10%

Active fundamental

100

71

<10%

Passive

100

42

SSA

95

59

Corporate

97

68

<10%

Hedge funds

Long/short credit

0

40

<10%

Listed equity

Active

82

57

<10%

Fixed income

Active

88

57

<10%

60

80

Listed equity

DirectDiscuss issues related to responsible
investment and sustainable financial systems.

Support signatory awareness of natural
capital and building investor capacity toaddress biodiversity loss and other naturerelated risks.

AUM
coverage98

Main activities related to PRISupport for PRI promotion activities in Japan(Appointed in 2023).

ModulemedianActive quantitative

Policy Governance and Strategy

PRI Japan Advisory Committee
MemberModulescore

Fixed income>=10 and<=50%>=10 and<=50%

NAM became a member of the PRI Japan Advisory Committee in May 2023. Together
with members of other companies, we have worked to expand the number of signatoryorganizations and raise awareness of PRI in Japan. There was a demand for dialogue
with companies at PRI in Person 2023, which was held for the first time in Japan. NAM
collaborated with the PRI to hold an official side event, titled “Investor-Company Forum”.
The side event took place on October 3, 2023. The first session of the forum, wasmoderated by Yuichi Murao, Senior Corporate Managing Director, Chief Investment
Officer at NAM. The session involved discussion of issues related to communication gaps
between companies and investors, while introducing trends related to the disclosureof non-financial information. Three panelists from leading Japanese companies - Ricoh
Company, Ltd., Sumitomo Forestry Co., Ltd. and Mitsubishi Corporation, took the stage todiscuss sustainability initiatives and information disclosure, focusing on climate change,
biodiversity and human rights issues.
In the second part of the session, a total of eight companies – including Nomura
Holdings, Inc. – engaged in direct dialogue with investors. The companies responded
earnestly to numerous questions such as “How did you decide the various KPIs towhich executive compensation is linked?” “Do you have any plans in relation to avoided
GHG emissions?”
Foreign investors were impressed with the candor of some of the Japanese companies
when explaining the sustainability challenges they faced and how they were addressing
them, and commented that it was a good chance to hear directly from the participatingcompanies. We received positive feedback both from investors and companies. “I ampleased that NAM has been able to provide a forum to connect overseas investors withJapanese companies in collaboration with PRI, at the world’s largest ESG conference,”commented Yuichi Murao, CIO, NAM.

Participated in panel discussions about natural capital and humanrights at PRI in Person 2023
We participated in panel discussions on natural capital and human rights at PRI in Person 2023
held in Tokyo, and took part in lively discussions with other investors.
At the panel on natural capital stewardship, the discussion centered on where the added
value exists in joining multiple nature-related initiatives, amid the growing debate about
appropriate assessments and disclosure of risks and opportunities related to natural capital,
as well as system design. We pointed out that the greatest added value lies in being “mutuallycomplementary.” Natural capital is a relatively new topic in the investment community.
Therefore, we told the audience that joining multiple initiatives enables us form networks andshare knowledge with a wide range of professionals.
During the panel discussion on human rights issues in the value chain, the participants
talked about how investors should carry out human rights due diligence as regulations
regarding forced labor and human rights due diligence become stricter, and also discussed
case studies. In Japan, further improvements are expected based on conducting on-site
inspections of business partners and disclosing human rights due diligence. While introducing
NAM’s human rights risk monitoring process and positive examples of engagement, wepointed out the importance of raising the overall standard of human rights risk management
and collaborative engagement.

Left: Wakaba Kawai, Senior ESG Specialist at NAM, attending a panel discussion about human rights.
Right, left in the picture: Dai Yamawaki, ESG investment manager at NAM, attending a panel
discussion about natural capital.

Right: Yuichi Murao, CIO at NAM, moderating the first session of the side event.

IndirectConfidence building measures*In the PRI Assessment Report, Nomura Asset Management was assessed on a total of 10 modules. Pleaserefer to the reports listed below for more information on all assessments, including indirect modules.

Reference materials

Reference

PRI Assessment Report 2023
https://www.nomura-am.co.jp/news/Assessment_Report_2023.pdf

PRI Public Transparency Report 2023
https://www.nomura-am.co.jp/news/Public_Transparency_Report_2023.pdf

17

Responsible Investment Report 2023

18

Basic Policy For

RESPONSIBLE
INVESTMENT
Basic policy for responsible investment

On November 1, 2023, the Responsible Investment Committee revised items related to“ 1 Proper Efforts on Environmental and Social Issues”, “ 3 Adequate Performance of Corporate

Governance” and “ 4 Adequate information disclosure and a dialogue with investors” of the “Basic
Policy for Responsible Investment.”
Regarding “ 4 ”, we added the specific initiatives that we believe to be particularly important.
The basic policy for responsible investment defines our philosophy and specific approaches to

Basic Policy On

RESPONSIBLE
INVESTMENT
Ideal Form of Business Management of
Investee Companies

1

Proper Efforts on
Environmental andSocial Issues

We believe that making proper efforts on global environmental and social issues from the perspectives of risk management andthe pursuit of business opportunities will lead to increase in corporate value and sustainable growth. We also see such efforts as aprerequisite for a company to be accepted as a member of the society. Examples of issues that we consider particularly importantand efforts that portfolio companies need to make are shown on the right.

1

2

Basic Policy stablishment of a basic policy regarding theEcompany’s efforts on ESG issues
e stablishment of a system to promote andoversee those efforts;

Key issues(materiality)I dentification of key issues; by the management,
r esponses to and disclosure of risks that are
identified as key issues (e.g., data security,
product liability, etc., as well as those listed in 3
through 7),
d isclosure of business opportunities that are
identified as key issues;

Climate change erification of business portfolio and promotionVof technological innovation to respond to theclimate change issue,
information disclosure based on the final reportpublished by the Task Force on Climate-related
Financial Disclosures (TCFD), which is consistent
with the Paris Agreement,
s etting of a net zero target for medium- to longterm greenhouse gas (GHG) emissions,a pproval of or commitment to science basedtargets (SBTs)
m easurement of GHG emissions and absorption
including Scope3 under the international
standards for the accounting and reporting of
GHG emissions
a nd introduction of internal carbon pricing;

responsible investment, and includes details regarding the “management practices expected forinvestee companies” and the engagement and proxy voting to achieve this.

BASIC
POLICY FORRESPONSIBLE
INVESTMENT
Concrete
Actions

19

Responsible Investment Report 2023

1

Understanding
Investee Companies

2

Approach to Investee
Companies

3

Reflection in
investment decisions

4

Control Conflicts ofInterests

5

Collaboration andOutside Activities

6

Information Disclosureand Accountability

7

Organization and Actions

In order for investee companies to enhance corporate value and achieve sustainablegrowth, stipulate the3“Ideal Form of Business Management of Investee Companies” *and encourage investee companies to realize it. Stipulate “Basic Principles ofEngagement” and “Global Proxy Voting Policy” and give encouragement to investee
companies from a fair and consistent posture. Reflect the status of engagement inproxy voting.
*Ideal Form of Business Management of Investee Companies P. 20-22

B asic Principles of Engagement/ Global Proxy Voting Policy
https://global.nomura-am.co.jp/responsibility-investment/pdf/basic_policy.pdf

4Natural capital evelopment of measures and goals for prevention
Dof deforestation, marine pollution, or air pollution,
sustainable use of water resources, timber, or marine
products,
setting countermeasures and goals for reducing
waste, improving recycling, etc;

Human rights

 evelopment of a policy on human rights atDinvestee companies that is consistent withinternational norms,
h uman rights due diligence and audits including
supply chain,c orrective action and relief mechanism
a nd disclosure of due diligence results;

6

Human CapitalWith Diverse
Values trategy for developing and maximizing humanS
capital value
S etting a medium- to long-term target for thepercentage of women among board members,senior executives, or managers,A human resources system that enhances diversity,
fairness, inclusion, and a sense of belonging(Measures to prevent job separation due to life
events, fair opportunities providing meetings,
implementing employee engagement, etc.)
creation of a corporate culture that embraces
diversity and inclusion;

7

Society that
promotes wellbeing

 management plan (including R&D andA
marketing strategies) that turns the resolutionof social issues, such as health and safety,
education and intelligence, and regional
revitalization, into business opportunities
m easurement and disclosure of progress toward
the resolution of social issues, and8

Cooperation with stakeholders, such as participation ininitiatives that are related to the issues listed above.

5

20

Basic Policy On

Basic Policy On

RESPONSIBLE
INVESTMENTRESPONSIBLE
INVESTMENT

Ideal Form of Business Management of
Investee Companies

2

Value Creation
through
Capital Efficiency

21

Responsible Investment Report 2023

Ideal Form of Business Management of
Investee Companies

NAM believes that in order for investee companies toenhance corporate value and achieve sustainable growth, it
is necessary for investees to create value that exceeds thecost of capital over the medium to long term by utilizing capitalefficiently under proper risk management and constructing
a business portfolio that has a high growth potential and isefficient. To this end, we consider that the following efforts are
particularly important:1

To formulate a growth strategy and an investment plan to create value thatexceeds the cost of capital and to conduct proper progress management;

2

To verify the business portfolio against the growth strategy and replacebusinesses in the portfolio as necessary;

3

To sell assets that do not contribute to the creation of value that exceeds
the cost of capital and, in particular, to reduce cross-shareholdings;

4

To implement group governance to enable the optimal allocation ofmanagement resources, etc.;
If there is a listed company within the group, to regularly verify thereasonableness of maintaining a listed company within the group; toproperly manage the conflict of interest with general shareholders; and tosupport the listed company’s efforts to strengthen corporate governance;

5

To properly manage the risks associated with businesses, etc.;

6

To implement a capital structure and shareholder returns that reflect 1
through 5 above; and7

To properly disclose information about 1 through 6 above.

3

Adequate
Performanceof Corporate
GovernanceFunction

4

Adequate information
disclosure anda dialogue withinvestors

We believe that it is necessary for a company to have sufficiently functioning corporate governance as a prerequisite for value
creation through the efficient utilization of capital and proper efforts on environmental and social issues. We believe that thefollowing components should be covered to realise appropriate corporate governance systems.

1

The board consists of an adequate number of qualified and diverse
members who have the ability and experience, including business
management, finance and ESG, to supervise the execution of management
and any conflict of interest with the management, controlling shareholder, or
any other parties on behalf of shareholders and functions effectively.

2

The audit committee, audit and supervisory committee or the boardof auditors consists of qualified members who are capable of auditing
directors’ operations on behalf of shareholders and functions effectively.

3

Committees relating to nomination and compensation have been
established, each of which consists of qualified and independent members
and adequately fulfills the necessary roles and responsibilities in 4 and 5
below.

4

Standards and processes to determine whether the replacement of senior
executives is required have been established, and a succession plan in caseof such replacement has been formulated.

5Compensation of senior executives is appropriate as their incentive andcommitment for value creation through the efficient utilization of capital andproper efforts on environmental and social issues.

6

The board makes appropriate judgment in the best interest of minority
shareholders on any transaction involving a conflict of interest or fight forcontrol of the company.
In our view, as anti-takeover measures limit the rights of shareholders to buy
and sell shares freely, they are unnecessary unless there is a risk that such atransaction or fight will significantly impair corporate value and the common
interest of shareholders.

7

The board of directors monitors environmental and social issues andbusiness and other risks and oversees initiatives by senior executives, andcorporate governance systems are in place to ensure sufficient internal
control in terms of compliance and internal auditing.

8

Comply with laws and regulations, and properly respond to the Corporate
Governance CodeWe believes that it is important for companies to fulfill their accountability for the matters stated in 1 . through 3 . To this end, we
consider that the following efforts are particularly important.

1

2

To disclose information in a timely and appropriate manner in accordancewith appropriate standards based on the trends of regulatory authorities
in each country and international initiatives. In particular, a company is
expected to obtain third-party audits and assurances as much as possible,
especially for quantitative information.

3

If a company is found to have engaged in any activity that is materiallyharmful to corporate value, it is important for the company to provide
sufficient disclosure and explanations on investigations of cause,clarification of where responsibility lies, and the formulation anddissemination of effective recurrence countermeasures.

To actively hold dialogue with each investor in order to appropriately reflect
investors’ opinions in corporate management.

22

Nomura Asset Management supports
the transition to a monitoring board
Advisory board

Towards Realizing a
Monitoring Board

Management board
Main roles andresponsibilities

Member composition

Management
decision-making

Centered on insidedirectors(management team)

We expectcompanies totransit to thisMain roles andresponsibilities

Member composition

Management
decision-making,advice to
management teamCentered on insidedirectors (managementteam), but there are also aminority of outside directors

Handling of proxy voting standards

In order to support a voluntary transition to a monitoring board, not merely a transition as a formality, our proxy voting
standards include the following.

Show the requirements for determining whether or not a board falls under the category of a monitoring board (“Monitoring Board Requirements” below).
We will not oppose company proposals on the reasoning that the company’s board does not fall under the category of a monitoring board, but it will be easier to support a
company proposal if it does.
The above requirements will be shifted to conditions for opposing in stages (after changing the threshold, etc. as needed)In addition to carrying out engagement aimed at transitioning to an effective monitoring board, if outside directors failed to fully fulfill their expected roles, we will vote against
the reelection of outside directors.
Revised in Nov 2023
Monitoring board standards

Monitoring board
Main roles andresponsibilities

Member composition

Supervision ofmanagement teamCentered onoutside directors

Monitoring board requirements*1

1

Number of directors

Voting result

Standards to oppose company proposals
Requirements to oppose company
proposals

NEW

NEW

More than 5. fewer than 20

under 5 or more than 20

Proposals to vote against
Election of directors

About Corporate Governance“Corporate governance” means a structure
for transparent, fair, timely and decisivedecision-making by companies, with due
attention to the needs and perspectivesof shareholders and also customers,
employees and local communities.
(From Japan’s Corporate Governance Code)In response to corporate governance reforms,
boards of directors of Japanese companies arebeing asked to move away from their traditionalrole as management boards. Although there is amovement towards advisory boards that emphasize
the advice of outside directors, we are supporting
the transition to monitoring boards in order torealize a “structure for transparent, fair, prompt,and decisive decision-making” as advocated by the
Corporate Governance Code. Please refer to Page
23 of the Responsible Investment Report 2022 formore on our underlying philosophy.
Reference23

https://global.nomura-am.co.jp/responsibility-investment/pdf/
ri_report_2022.pdf

Responsible Investment Report 2023

Falls below the minimum level:

Desirable monitoring board and undesirable monitoring board
Desirable umber of outsideN
directors Majority

Majority

 omination andNcompensationcommittee

Establish a nomination and compensationcommittee in which outside directors
comprise a majority and the committee
chair is an outside director

4

Diversity

The ratio of women directors is at least
10%5Takeover defense plan

No takeover defense plans

6Strategic
shareholdings Does
not hold in excess

Does not hold in excess(for financial institutions: less than 25% of
net assets; for non-financial companies:
less than 10% of invested capital)7 irector’ term inDofficeIf the company is a company with a boardof corporate auditors, one year8

 he chair of the board
Tof directors

2Supervision

Independent
outside director(nomination/compensation)

Chairperson
and PresidentManagement
decision-making

Management’s
PDCA cycle functions

 ebate with management team about management strategy, etc. (management team is accountable)
DEvaluate management team based on management strategy, etc., and reflect in nominations
and compensation. Also, provide feedback on evaluation details to management team.
Nomination: Establish standards and process for periodically determining the necessity for replacing members of senior
management, formulate a successor plan to prepare for such replacements.
Compensation: M anagement team incentives/commitments aimed at enhancing corporate value

3

Provide advice to management team as needed during the supervision process.

Undesirable

1

AdviceIndependent
outside director

Undesirable

Advisory board

Supervision
does notfunction2

Independent
outside director+
Chairperson+
President

Chairperson,
CEO,executive officer

Management
decision-making

Biased advice

Cannot break away from a management board

Supervision

Executive officer,
department headManagement
decision-making

Independent
outside directors
participate indecision-making
Supervision ofchairperson andpresident does not
functionIf there are controlling shareholders,outside director

If a board satisfies all of
the requirements on theleft, we determine it to
be a monitoring board
We will ease therequirements for voting
in favor of company
proposals related todirector appointments(business performancestandards* 2) or executive
compensation.
We will not oppose
company proposals
on the reasoning thatthe company’s board
does not fall under the
category of a monitoringboard.

Under 1/3. For companies with acontrolling shareholder, a majority.
From November 2024

Minimum level is a majority. However,
1/3 if a company has no controllingshareholder and has nomination
governance in place*3

Expand the scope of application

Compensation governance is not inplace*3

Election of directors

Executive compensation/Executive
retirement benefits

No women directors

Election of directors

Has a takeover defense plan

Takeover defense plan or election of
directors

Hold in excess(for financial institutions: more than 50%
of net assets; for non-financial companies:
more than 20% of invested capital)

Election of directors

NEW

If the company is a company with aboard of corporate auditors, two years

Election of directors--*1 We view the above requirements as the bare minimum for being a monitoring board. *2 Standard to vote in opposition of re-appointment of chairperson and president, etc. who have been in the position for the most recent
three or more consecutive fiscal years, if return on equity (ROE) has been in question and efforts for management improvement have not been demonstrated. *3 A case in which nomination and compensation governance isin place refers to the case where statutory or voluntary nomination and compensation committees have been established, the committee members include two or more outside directors, and the number of internal directors
among the committee members is fewer than the number of outside directors.

24

Utilizing Human Capital
The Importance of Human Capital Management andNAM’s Initiatives
In recent years, the importance of non-financial capital in corporate value has
increased dramatically, and the sources of a company’s competitiveness haveshifted from traditional machinery and equipment to intangible assets. Over the past
few years in particular, product cycles have shortened due to the growth of the IT
industry and the progress made in the 4th Industrial Revolution driven by AI, robots,and IoT. With this, innovation and innovative business models that are more than mereextensions of conventional ways of doing things have become increasingly important.
The labor market is also undergoing major changes. Recruit Works Institutepredicts that the shortfall in Japan’s working population will be 3.41 million people
in 2030 and 11 million people in 2040, as the labor shortage is expected to become
increasingly severe over time. Furthermore, as more women advance in society,companies need to shift from single, homogeneous working styles to diverseand flexible working styles. As people’s values become more diverse, workers,
especially young workers, are increasingly changing jobs, making it much moredifficult to secure and retain human resources than before.
As the environment surrounding companies changes significantly and becomes
ever more complex, the type of human resources that companies need is alsochanging. In order to continuously increase corporate value, it is essential forcompanies to secure and develop sufficient human resources to generate innovationin line with management strategies.

Under these circumstances, human capital management, in which human resources
are treated as human capital (a target of investment) rather than as human resources(a target of cost control) and investment in human resources is made as a means toincrease corporate value, is increasing in importance Figure 1 .
At Nomura Asset Management, we consider “human capital possessing diverse
values” to be one of the most important issues in the “desirable management style”
in our Basic Policy for Responsible Investment, and therefore we have positioned
this as a priority area of our engagement with portfolio companies.
When a company has a strategy of developing and maximizing the value of its
human capital, improves the skills of its employees and places them in the rightpositions, it leads to improved productivity. In addition, developing human resources
systems that enhance diversity, fairness, inclusion and a sense of belonging, andcreating a corporate culture that promotes diversity and inclusion both enhance
employee engagement, promote innovation, and bolster resilience through risk
management based on diverse viewpoints. From this perspective, we believe thatcompanies that engage in human capital management can improve their corporate
value, and we engage with portfolio companies on this theme.

Figure 1

Difference Between Human Resources and Human Capital
Human Resources

Human Capital

Resources are the targetof consumption

Capital is the target
of investment

Suppress costs
spent on human resources
as much as possible

Necessaryfor the organization’s
growth strategy

Source: Prepared by Nomura Asset Management from various materials

25

Responsible Investment Report 2023

Philosophy on
Corporate Value andHuman Capital Management
Here, we discuss a study performed by NAM’s Innovation Lab Department using
stock prices to examine the extent to which corporate management with an emphasison human capital leads to improvement in corporate value. The sources of stock
investment returns can be divided into two main types: growth in fundamentals such asaccounting profits; and changes in stock price valuation that occur when factoring in
non-financial information such as human capital that does not appear in accounting.
This analysis examined the relationship between human capital and stock priceby quantitatively evaluating the ability of companies to utilize human resources.
Specifically, the researchers divided stock returns into a category that can beevaluated financially and a category that can be evaluated non-financially, and for thelatter, the researchers focused their evaluation on information related to companies’
human capital. In order to evaluate human capital, the researchers selected metrics
focusing on three aspects: incentives (employee motivation); resilience (organizational
resilience); and diversity. They then added external evaluations to score companies,
divided stocks into quartiles based on the final score, and calculated returns with equal
weighting, thereby examining the relationship with stock prices Figure 2 .
The analysis showed that for the period from January 2006 to March 2023, theannualized returns for the highest-scoring group was 5.9%, and the annualized returns
for the lowest-scoring group was 1.5%, representing a large difference Figure 3 .
In other words, the higher the ability of a company to utilize human resources, thehigher the return on investment. This analysis was based on the 2017 Securities Analyst
Journal Prize-winning paper “Employee Satisfaction and Firm Performance” (publishedin the November 2017 issue of Securities Analyst Journal). This paper focused on acompany’s stance towards its employees and found a positive relationship there.
There are various hypotheses as to why a satisfying work environment leads to highperformance. One such hypothesis, introduced at the beginning of the paper, is that thesource of a company’s competitiveness has shifted from tangible assets to intangible
assets. Although the competitiveness of a company generated by its intangible assets,
including its investments in human resources, is difficult to see from the outside and istherefore underestimated by the market, it is believed that the competitiveness generated
by such intangible assets will eventually lead to high future returns. This analysis has since
been updated and improved, and is being utilized in actual investment fund management.

26

In recent years, in the wake of work style reform and the Ito Report on Human
Capital Management, there has been rapid progress in reviewing the working
environment and productivity in Japan, and companies have been increasingly
disclosing their human capital information. The disclosure of human capital
information in securities reports has become mandatory, and going forward it is

Figure 2

believed that companies will be required to disclose an even higher level of humancapital information. It is thought that initiatives on human capital and the disclosed
details will make a difference in how investors value companies, and determining
how companies are best able to convey value to investors will be the real work of
information disclosure.

Figure 3

Stock Return Model Using Human Capital Information

Human Resources Utilization Score
and Performance
Period: January 2006 – March 2023

Return (Annualized)

Stock return

Fundamentals growth

Change in valuation(growth seen in accounting data)(change in corporate value not seenin accounting data)

Human capital evaluation

Third-party evaluations
related to a company’s
utilization of human capitaland employee satisfaction

Incentives

Evaluations that are closely-related
to employee incentives, such as
productivity and efficiency

1

External assessment

8.0

4.5%
4.0

3.3%

Human capital evaluation
5

Financial evaluation
Evaluations related to financial
information regarding the utilizationof human capital, and the quality as atarget of investment

2

Employeefriendliness
Score

Resilience
2.0

Evaluations that are closelyrelated to the “fundamental
strength” of employees, such as
quality of the working environment

Human capital evaluation
4

3

Diversity

Evaluations that are closely-related to employee
diversity, such as the active participation by awide range of human resources
Source: Prepared by Nomura Asset Management

27

5.9%

6.0

Responsible Investment Report 2023

1.5%

0

Q1
Score (Bottom)

Q2

Q3

Q4
Score (Top)* Every month, returns are calculated with stocks divided into quartiles
based on quantitative scores calculated by Nomura Asset Management(approximately the top 1,000 Japanese stocks by market capitalization,equally weighted).
Source: Prepared by Nomura Asset Management

The Trend of Enhanced
Disclosure of Human Capital
Information
In recent years, in response to growing interest in corporate human capital
information, countries and territories have been strengthening their rules forcorporate human capital information disclosure. In Europe, since 2014 the NonFinancial Reporting Directive (“NFRD”) has required companies with sales
exceeding a certain level to disclose non-financial information, including abouthuman capital. Subsequently, the Corporate Sustainability Reporting Directive(“CSRD”), which stipulates more detailed disclosure rules, was issued, and thescope of its use has gradually expanded. Additionally, in the Securities andExchange Commission (“SEC”) revised its rules regarding non-financial informationin 2020, requiring listed companies to disclose information on human capital. In
September 2023, the SEC’s Investor Advisory Committee, comprising institutional
investors and other members, asked the SEC to consider requiring companies toseparately disclose labor costs required for current business activities and thehuman capital investments that will lead to value creation. As such, there have beendevelopments like this to explore more in-depth disclosure of human capital.
In Japan, interest in human capital management has increased with the publicationof the Ministry of Economy, Trade and Industry’s “Ito Report on Human CapitalManagement (2020)” and “Ito Report on Human Capital Management 2.0 (2022),” andthere is now more focus on human capital information as a valuable metric for corporate
valuation. Under these circumstances, following the inclusion of human capital-related
disclosure in the Corporate Governance Code revised in 2021, human capital disclosure
has become mandatory starting with securities reports for the FY2022 Figure 4 .
In addition, in response to growing interest in corporate social (S) initiatives,
there is starting to be movement on formulating international standards for social(S) disclosure. The International Sustainability Standards Board (“ISSB”), whichis under the IFRS Foundation and develops international accounting standards, isconsidering developing standards for the disclosure of sustainability information
following climate change, and human capital has been brought up as one of the
ISSB’s high-priority projects. If the ISSB were to formulate standards related tohuman capital, it is expected that a Japanese version of the standards would becreated domestically based on the ISSB’s standards, and that companies would be
required to provide disclosure (as of April 2024).

Figure 4

Human Capital Information Disclosure Trends in Countries
and Territories

Japan

U.S.

Europe

2021

2020

2018

The revised Corporate
Governance Code stipulates thedisclosure of information related
to human capital(Supplementary Principles 2-4 1 ,Supplementary Principles 3-1 3 ,Supplementary Principles 4-2 2 )The U.S. Securities andExchange Commission (“SEC”)
amended Regulation S-K under
the U.S. Securities Act. It
requires that listed companies
provide descriptions of their
human capital

The European Union enforced
the Non-Financial Reporting
Directive (NFRD), requiring
companies above a certain
size to disclose information
on environmental and social
initiatives

2023

2021

2024

“The Cabinet Office Ordinanceon Disclosure of Corporate
Content, etc.” was revised.
Disclosure of information
regarding sustainability,
diversity, and corporate
governance was added to theitems to be included in annual
securities reports for FY2022

The Workforce Investment
Disclosure Act passed the U.S.
House of Representatives.
It requires companies todisclose information about
their human capital

The NFRD was revised into
the Corporate Sustainability
Reporting Directive (“CSRD”),
and its application will be
gradually expanded

Source: Prepared by Nomura Asset Management from various materials

Amid the trend of companies increasingly disclosing their human capital
information, human capital management is moving from the “information
gathering” stage to the “putting into practice” stage. Going forward, along with theenhancements in information disclosure, it will be important to create and communicate
to stakeholders a “value creation” story about how a company will increase corporate
value through means such as the linking of management strategy and human resources
strategy, quantitative understanding of the gap between the vision and the current
situation, and embedding it into corporate culture, which are key issues for humancapital management laid out in the Ito Report on Human Capital Management.

28

Nomura Asset Management’s Views on Human CapitalManagement
Given this trend, we want to encourage our portfolio companies to strengthen theirinitiatives related to human capital management. In order to ensure that Japanesecompanies’ human capital management leads to improved corporate value, it isfirst necessary to sort out the mechanisms and ideas that are the prerequisites
for utilizing human capital. At Nomura Asset Management, our view on this is asfollows.
Corporate value is defined in finance theory as the present value of future
cash flows. These future cash flows are generated by a “management relay” that
includes not only the current management team but also future management teams.
What makes this management relay possible is a future-oriented system design
centered on nomination and compensation, which are essential elements of boardof directors-centered governance. By properly linking KPI based on materiality
to the system design, the two wheels of the management vehicle, execution andsupervision, can function.
The materiality of each company is determined by that company’s management
strategy and its underlying business model. However, the environment surrounding
companies is currently undergoing major changes and uncertainty is increasing.
With this, the management strategies and business models that will generate
future cash flows are also being forced to change in light of the future businessenvironment and other factors. For this reason, companies need update their current
management strategies and business models to those that will generate future cash
flows. This requires transformation.
A company is only able to execute its management strategy and business model if
it has human resources capable of putting them into action. No matter how grand abusiness strategy is, it is merely a fantasy if it cannot be put into practice. A company
needs to verify that it has sufficient human capital to execute the management strategy
and business model to generate future cash flow. If it does not, it must add humancapital. Human capital management holds the key to this transformation.
Just as the current business model and management strategy differ from futurebusiness models and management strategies, the human capital supporting eachwill also be different. Only by recognizing this gap can the necessary human capital
investment and management be realized. In other words, human capital management
by a company is not possible without building the framework shown in Figure 5. Ultimately, through an analysis of the gap between the present and the future
based on an “As-Is/To-Be” analysis, a company must redefine its purpose, which

29

Responsible Investment Report 2023

Dialogue on Human Capitalis its reason for existing as a company, and its vision, which is what it aspires tobe in order to realize its purpose. This is also critical for improving the employee
engagement index, which is considered an important KPI for companies these days.
A company’s ESG initiatives and human capital management cannot be effective
without this series of frameworks for creating corporate value. We always approach ourengagement with companies from this perspective, and strive to understand the actual
situation in the company by confirming the links between each item in this framework.

Figure 5

Positioning of the Frameworks and Human Capital
Investment Leading to Higher Corporate Value
Current

Gap analysis

as is

Futureto be

Purpose: Redefine the company’s purpose
Vision: What the company aims to be in order to realize its purpose

Current
human
capitalCurrent business modelBusiness model in order to embody the vision

Transformation

Current management
strategyManagement strategy to execute the business model

Requiredhuman
capitalMateriality (priority issues for management)
Human capital investment to fill the gap

KPI
Governance centered on board of directors
Current
management
team

Linked Management relay(System design based on
nomination and compensation)

Futuremanagement
teamsFree cash flow generation
Corporate value
Source: Prepared by Nomura Asset Management

Through dialogue, we aim to improve the value of portfolio companies and raise
the level of the Japanese market as a whole, and based on this we are focusing on
engagement activities related to human capital with portfolio companies. Although
information disclosure on human capital has just begun, the two standards issued
by ISSB in June 2023, the General Requirements for Disclosure of Sustainabilityrelated Financial Information (S1) and Climate-related Disclosures (S2), both require
disclosure under the same framework as the TCFD and TNFD, which includes
governance, strategy, risk management, and metrics and targets. In the future, thisframework is expected to be recognized as the standard for the disclosure of humancapital information, and companies will be required to develop internal systems that
acknowledge these four elements.
Based on the above, we have summarized the responses and information
disclosures we expect of our portfolio companies as an investor with respect togovernance, strategy, risk management, and indicators and targets for humancapital in Figure 6 . For example, in terms of governance, we are expecting
boards of directors to bolster their commitment related to human capital by theboard of directors’ supervision of and involvement in human capital strategy, theclarification of management’s role regarding human capital and linkage to executive
compensation, and the confirmation of the impact that the board’s consideration ofhuman capital has on strategic decision-making.
However, the majority of Japanese companies are considered to be at the stage
where they will seriously work on human capital management from this point on,
and it will likely be difficult for them to satisfy all the requirements at once. For thisreason, we plan to encourage portfolio companies to improve their human capitalmanagement through a feedback loop in which we start a dialogue on human capital
the portfolio company sorts out and discloses its own human capital and humanresources strategy we provide feedback during dialogue the portfolio company
revises its human capital strategy and implements its human capital investments
we incorporate the company’s actions in our assessment of the company’s
corporate value (visualization) Figure 7 .

Figure 6

Human Capital Engagement Framework
Investors’ expectations

Response and information disclosure
demanded of company

Governanceandmanagement

 trengthening of commitment
Sby board of directors(Consideration, evaluation andmonitoring of human capital)

 isclosure of board oversight of and involvement inDhuman capital
Clarification of the role of senior managers withrespect to human capital and linkage with executive
compensation
Description of the impact that the board’s considerationof human capital has on strategic decision-making

Businessmodel andstrategy larify the relationship betweenChuman capital and the businessmodel
Human resources as strategic
capital and implementationof necessary human capital
investment
Maximize value of humancapitalIdentification and clarification of the scope of acompany’s human capitalDescription about methodology and implementation ofstrategic human capital investments
Description of the value creation process with human capitalDescription of human capital in business model andcorporate strategy
Description of the impacts of risks and opportunities
related to human capital on corporate management

Risk
management

 larification of risks andCopportunities arising from humancapital and the company’s
response to these escription of processes for identifying, assessing andDmanaging human capital-related risks and opportunities
Explanation of risks and opportunities related to humancapital that have the greatest impact

Metrics andtargets

 anagement of humanM
capital information that
impacts corporate value andmanagement of targets

Management and disclosure of the following types of metrics
and targets
Metrics and targets for establishing a desirable corporate
cultureEmployee engagement metrics and targets
Metrics and targets related to incentive design, training/skill development, and promotions
Other metrics and targets necessary to improve corporate
value, such as diversity
Source: Prepared by Nomura Asset Management

Figure 7

Human Capital Dialogue Feedback Loop

Investor

Start of dialogue

Feedback

Company valuation(visualization)

Company(Re-) organize company’s
own human capital andhuman resources strategy

Disclosure

Revise human resources
strategy and execute
human capital investment

Source: Prepared by Nomura Asset Management

30

HUMANRIGHTS

Nomura Asset Management’s
Human Rights Risk Monitoring Process

Initiatives on Human Rights
As legal and regulatory frameworks related to humanrights become more robust in countries around theworld, human rights issues have become an importantfactor in investment activity. The European Union (EU)is expected to adopt the Corporate Sustainability
Due Diligence Directive (CSDDD) in 2024, which will
require large companies to conduct environmental
and human rights due diligence (as of March 2024).
In Japan, in 2022 the Ministry of Economy, Tradeand Industry formulated guidelines for companies torespect human rights, and in 2023 the government
announced a policy to give preferential treatment inpublic tenders to companies that take human rights
into consideration. As such, there is a growing trend
in efforts by companies to respect human rights, andthis trend is expected to become even stronger.
A company’s business activities involve procuring,producing, and transporting supplies and products,
and providing them to users and end consumers.
Various human rights risks lurk within the value
chain, but especially when crossing national borders,differences in the economic strength, legal systems,
and customs of each country affect people working
on the frontlines, and there is a risk of humanrights issues arising that are difficult to see fromthe surface. Once a human rights issue arises, it
adversely affects the community, the company’s
employees, and business partners, and leads to aloss of trust from its customers. In addition, if the31

Responsible Investment Report 2023

problem remains unresolved over a long period oftime, the adverse impact on the company’s corporate
value itself will grow.
Our mission is to protect the assets our clients
entrust with us from risks related to human rights
issues by raising awareness of such human rights
issues among our portfolio companies and having
them proactively advance relevant initiatives.
Nomura Group, including Nomura AssetManagement, stipulates respect for human rights in
the Nomura Group Code of Conduct and establishedthe Nomura Group Human Rights Policy in May
2023. We respect the Universal Declaration of
Human Rights, the OECD Guidelines for Multinational
Enterprises, the ILO International Labour Standards
and the U.N. Guiding Principles on Business andHuman Rights (“Ruggie Principles”). Additionally,in 2015, we signed the U.N. Global Compact, andremain committed to respecting human rights as
a company. Nomura Asset Management positions
human rights issues as important issues in our
ESG Statement and, as an institutional investor,
we promote initiatives to ensure respect for humanrights by our portfolio companies. We carefully assess
human rights risks for our portfolio companies
and use human rights risk assessments in our
engagement and in ESG integration to fulfill ourrole as a responsible investor engaging in broad
investment activity on a global basis.

Negative Screening
Nomura Asset Management broadly and continuously
monitors the human rights risks of companies in
our investment universe, as we seek to reduce therisk of human rights infringements at the investment
portfolio level. Figure 1 First, we screen companies in
our investment universe for violations of international
norms such as the Universal Declaration of Human
Rights, the OECD Guidelines for Multinational
Enterprises, the ILO International Labour Standards,
and the Ruggie Principles, referencing data from ESG
research organizations. Based on that screening, we
engage with companies found to be in violation, and if
there is no outlook for improvement, these companies
become the subject of escalation, such as reflecting
such violations in our proxy voting or even divestment
from the company.

Figure 1

Human rights risk monitoring of companies

Human rights risk
monitoring of companies(based on individual companies)H uman rights-related policies( child labor, forced labor, wages,
safety, etc.)
C heck the status of compliance withinternational norms
H uman rights risk management
systems( monitoring, grievance mechanisms,
self-assessment, etc.)
Investigations of misconduct related tohuman rights violations

Engagement

Integration into investment(stocks with high human rights risk)(investment decision-making) ormulation of human rights
F
policiesImplementation and disclosure ofhuman rights due diligence
Creation of grievance mechanisms
Action towards improvement

Buy
Sell
Continuous hold

Human Rights Due Diligence and its results for companies in our investment universe
In order to ascertain the potential human rights risk
level for companies in our investment universe, our
ESG specialists perform human rights due diligencebased on data including corporate disclosures, NGO
reports and media information.
The detailed method is as follows. Sectors withcomplex supply chains and sectors that produce
products in production areas and raw material
procurement points with historically high human rights
risks are designated as human rights high risk sectors
Figure 2 , and we conduct focused investigations of
the human rights management systems of companies
belonging to these sectors. The evaluation items
comprise the following seven points: (1) Whether thecompany has a human rights policy that conforms

to international norms; (2) Whether the company
commits to respecting workers’ rights; (3) Whether thecompany is performing human rights due diligence;(4) Whether the company makes evaluations after
identifying human rights risks and their impacts;(5) Whether the company takes corrective actions
based on the evaluation results; (6) Whether there aregrievance mechanisms for workers; (7) Whether there
are grievance mechanisms for external individuals/
communities.
In 2023, we expanded our research from largecap stocks to mid-cap stocks. As a result, we found
the following Figure 3 .The majority of Japanesecompanies we evaluated had already formulated
human rights policies conforming to international

norms and also had committed to respecting therights of workers. Also, approximately 70% ofcompanies have grievance mechanisms in place forworkers in the company and conduct human rights
due diligence. On the other hand, only about halfof companies evaluate human rights risks and aretaking action based on the evaluation results, andonly about 30% of companies have establishedgrievance mechanisms for external individuals andcommunities. We expect companies to make further
improvements in these areas.
For those companies lagging behind in theirefforts, Nomura Asset Management will continue toactively engage with them with respect to building
human rights risk management systems.

32

Nomura Asset Management’s
Human Rights Risk Monitoring Process

Sectors with high risk of human rights issues

Figure 2

Food/agriculture products
Major industries/products

Food, Daily goods, Food retails

Figure 3

Nomura Asset Management’s
Human Rights Risk Monitoring Process

Automobiles

ICT

ApparelResource related

Major industries/products

Major industries/products

Major industries/products

Major industries/products

Finished cars, Automobile
parts, Tires

Electric products, Electronic
components, Semiconductor
manufacturing equipment

Textiles, Shoes, Clothing retail

Mining/Petroleum, Steel,
Trading companies

Human Rights Due Diligence and its results for companies in our investment universe

No

No

15%

No

15%

44%

Commitment torespecting workers’
rights

Implementation of
Human Rights Due
Diligence

Assessment of
human rights risk

Yes

Yes

Yes

Yes

85

%

74

%

No

No

53%
Action based on
evaluation results
Yes

47

%

Responsible Investment Report 2023

56

%

No

26%

67%
Grievancemechanisms forworkers
Yes

74

Grievance mechanisms
for outside individuals
and community
Yes%

If, after performing human rights due diligence on
the companies in our investment universe, we findthat we hold the stock of a company that has been
determined to have high human rights risks, we willproceed with engagement. The corporate analyst
responsible for that stock, ESG specialists, and ESG
engagement managers hold discussions with thecompany about risk factors (such as an inadequate
management system or insufficient disclosure of
information), and discuss an action plan to make
improvements. For companies that are consideredhigh risk in terms of human rights but are continuing

to work on solving problems, we monitor the progressof their efforts through periodic engagement.
Also, after a certain period of engagement, thosecompanies for which we can expect improvement will
be unflagged as human rights high-risk companies,
and will be subject to normal monitoring.
In recent years, human rights risk assessment has
generally become demanded as a part of corporate
activities. Companies that have put in place humanrights risk management processes are able to reduce
human rights risk not only in transactions with existingcustomers but also in transactions with new customer

companies. In addition, these companies are
expected to see an increase in business opportunities
based on the fact that the products and services
they provide will be evaluated higher. We believe thatby repeating this human rights management at theportfolio level, we can gain a deep understanding ofsocial risk carried by companies in our investment
universe and reflect this in our investment decisions.
We feel that this will also advance our ESG integration
related to human rights risk.

rights due diligence, it also noted that only a portion ofsuch companies are able to carry out effective humanrights due diligence. It also pointed out issues such as
the fact that responsibility for respecting human rights
has not been elevated to the board level.
Human rights issues can be managed to someextent by establishing a management system, but due
to their nature, risks cannot be completely eliminated.
Industries and companies with complex supply chains,
and operations in regions with unstable politicalsituations and human rights policies, can pose
unexpected risks to companies. The first thing that a
portfolio company needs to do is establish an effective
human rights management system. It is important toperform a risk assessment, understand which risks

are of high importance, prioritize them, and takeaction. Because it takes time to build an effective
management system, it is necessary to repeat the
PDCA cycle, make improvements every year, andevolve step by step.
By widening disparities and causing social divisions,human rights violations are serious and significant
risks that threaten the foundations of sustainableeconomic activity and affect long-term investment
returns. We seek to reduce human rights risks byunderstanding the structures that cause human rights
violations and working with portfolio companies todevelop solutions to rectify them.

No

26%

Commitment torespecting
human rights

85

33

Human Rights Engagement and Integration

33

%

%

Required Elements ofa Human Rights Management System
Human rights issues are an important theme forengagement, regardless of the company’s countryof origin, and one of our responsibilities as an asset
management company is to engage in dialogue abouthuman rights issues with portfolio companies andencourage them to make improvements for any issues
that exist.
In 2021, 10 years after the adoption of the Ruggie
Principles, which are the basis of various internationalrules and policies regarding human rights, the U.N.
published “UNGPs 10+: A Roadmap for the Next
Decade of Business and Human Rights.” While
this report recognized the significant increase in
the number of companies that are committed torespecting human rights and that carry out human34

Example of Engagement(Japanese Equity)

Human Rights
Due Diligence
Implementation
and Outcome
Disclosure
Milestone progress:2
Company sharesa recognition of the issues

21months3interviews
1224

Background

Nomura AssetManagement
Japanese Electrical
Equipment
Company

36

Transactions with theautomobile industry, where
human rights risks tend
to attract attention, areincreasing, and although
the company explained thatthe reason for holding large
amounts of financial assets
is to prepare for risks,
we determined that thecompany is insufficiently
addressing human rights
risks. We urged thecompany to achieve thegoals listed on the left.

Period of Engagement

Although the domainof human rights is
attracting increasing
attention in theautomobile industr y,
human rights initiatives
seem to be lagging
behind.

Although we have notprovided disclosure about
this, we are consideringobtaining external
certification at eachsite and are considering
initiatives in the supply
chain as well.

Example of Engagement(Global Equity)
Human rights risks arepoorly described overall.

We are engaged in
discussions about humanrights. We will disclose theresults of our human rights
due diligence after the startof the new year.

We confirmed that thecompany is engaged
in human rights due
diligence, and we decided
to wait on the company todisclose the results.
Subsequently, we concluded
the engagement after thecompany disclosed theresults of its human rights
risk assessment online.

Adoption ofStrategy to
Effectively Dealwith Human Rights
Risk Issues
Milestone progress:4
Company implements
countermeasures

Nomura AssetManagement/
Sustainalytics

33

24

36

Period of Engagement

Human Rights Risk Issues(Japanese Equity)

Milestone progress:5
Conclusion

37

months4interviews
12

24

36

Period of Engagement35

Responsible Investment Report 2023

What is theaverage numberof complaints
received by eachfactory?

Efforts must be made tohave responsible purchasing
practices and pay workers aliving wage. It is also necessary
to introduce effective audit
programs and legitimate labor
standards, including in the
supply chain, and to operategrievance handling mechanisms
in accordance with the U.N.
Guiding Principles.

Internally, we conductcomparative analyses of wages
stipulated in collective labor
agreements and living wages,
and we have confirmed that
there is a gap between the
two. We will discuss internallywhether we can provide
disclosure about collective
labor agreements and thereby
enhance transparency.

We feel that the analysis method
used in that report is not accurate.
We are a member of the ACT (Action,
Collaboration, Transformation)
initiative, and are committed to fairprocurement. Prices were agreed tobefore the COVID-19 pandemic, andwe have not used the pandemic as an
excuse to change agreed upon prices.

Because the numbers vary
by factory and country, we
do not publish averages. We
are currently employing a
consultant to examine whether
our suppliers’ grievancehandling mechanisms arein compliance with the U.N.
Guiding Principles on Businessand Human Rights.

We will examine whether our
suppliers’ grievance handlingsystems comply with the U.N.
Guiding Principles on Businessand Human Rights, and weplan to disclose information
related to that.

Human Rights Risk Issues

Example of Engagement

Understanding
Human Rights
Risk based on
Leadership fromTop Management

A report was released which stated thatin Bangladesh there was unfair pricing
pressure on suppliers by global apparelbrands during the COVID-19 pandemic
period. We want you to explain how
you are responding to such allegations.
Even if prices are negotiated separate
from labor costs, isn’t there a risk thatworkers will not be paid fair wages if the
supplier’s profit margin is too small?

Swedish Specialty
Retailermonths7
interviews
12

It is important to manage human rights risks
because the company has manufacturing
facilities globally, both in-house facilities andfacilities through subcontractors, and has alarge number of workers. You have disclosedthat 34% of your primary suppliers havecollective labor agreements, but we would
like you to disclose the differences between
the wages stipulated in the collective labor
agreements and living wages. Regarding
suppliers’ collective labor agreements,
transparency needs to be enhanced, suchas by providing disclosure on a factory-byfactory basis.

Background

Nomura AssetManagement
Japanese
Machinery
Company

This company was lagging
behind in responding tohuman rights risks. Whilethe company has somestrengths in terms ofvoluntary efforts of eachsite, we determined that
there was a lot of room tostrengthen cross-divisional
efforts under the leadershipof the senior management
team, so we urged thecompany to achieve thegoals listed on the left.

There is little information given
about risks, and in particular
it is difficult to understandthe involvement by top
management. In other industries
that are expanding globally,
even Japanese companies
are beginning start having
evaluations of addressing
human rights.

Senior ESG specialist

Takashi Miyao

Does top management
have an understanding of
the risks across the entire
company?

Activities with PRI AdvanceWe determined that thegoal had been achieved,and concluded theengagement.

The trends among othercompanies are very
helpful. We will takeyour opinions home andstudy them.

We disclose the results of humanrights due diligence in our
integrated report. Starting with
Southeast Asia, we looked into
whether there are any risks weshould pay attention to.

Senior ESG specialist

Senior ESG specialist

Senior ESG specialist

Madoka Minagoshi

Fuyumi Takeuchi

Wakaba Kawai(Advance: a collaborative initiative on human rights and social issues)

We are a member of the Advisory Committee of Advance, PRI’s
human rights and social issues collaborative initiative, whichstarted in 2022, and we are playing a leading role in building aframework for collaborative engagement and in dialogue with target
companies. Companies targeted for collaborative engagement
are selected globally from the metals and mining sector, andrenewable energy sector. We are a co-lead investor in collaborative
engagement with Japanese company and continually engage withthe company. Over this time, we have seen progress at the target
company, including the establishment of human rights policies.

36

BY 2050
Initiatives in 2023 Aimed at Achieving NAM’s Net Zero Goal
In 2023, we once again made steady progress on our initiatives towards achieving
our Net Zero goal and realizing a decarbonized society. In 2023, we worked on thefollowing three main areas.
First, we worked on expanding the scope of asset classes for which we measureand disclose investment portfolio emissions (“Financed Emissions”). In December
2022, the Partnership for Carbon Accounting Financials (“PCAF”), with which wehave been affiliated, released standards related to the measurement and disclosureof financed emissions for sovereign debt. Based on these standards, in April 2023
we announced the results of our analysis of financed emissions and carbon metrics
for our sovereign bond portfolio.
Second, in order to accelerate the provision of funds and transition financetowards realizing a decarbonized society, we focused on avoided emissions as
an appropriate evaluation metric for climate-related opportunities and worked
to popularize and expand the use of avoided emissions. This was based on theincreasing attention globally on avoided emissions. For example, in March 2023 theWorld Business Council for Sustainable Development (“WBCSD”), the organizationthat formulates the GHG Protocol (global carbon accounting rules), announced its
Guidance on Avoided Emissions. In addition, the communiqué issued at the G7
Ministers’ Meeting on Climate, Energy and the Environment held in Sapporo in April
2023 stated that there is also value in acknowledging avoided emissions. Nomura
Holdings was appointed as the chair of the GX Business Working Group as part of
the GX League*, and NAM also participated as a key member. This working group
has developed the “Basic Guidelines for Disclosure and Evaluation of Climaterelated Opportunities” (issued in March 2023) and released “Leveraging Avoided
Emissions: Financial Institution Case Studies (published in December 2023),
thereby contributing to the effort to have more companies use avoided emissions.
Third, we partnered with climate-related initiatives and public institutions. Within
the PCAF Japan Coalition, which aims to promote the measurement and disclosureof sovereign bond financed emissions and to popularize and expand the use of
avoided emissions, in FY2023 we played a central role in two subcommittees
related to the measurement and disclosure of sovereign bond financed emissions
and avoided emissions, where we shared knowledge. In addition, we participated

as a committee member and advanced discussions in both the “Japan Public andPrivate Working Group on Financed Emissions to Promote Transition Finance”
launched by the Financial Services Agency, the Ministry of Economy, Tradeand Industry, and the Ministry of the Environment, as well as the Ministry of theEnvironment’s “Working Group on the Green List,” both of which aim to growtransition finance and green finance. At COP28 held in Dubai, United Arab Emirates(UAE) at the end of 2023, we took the stage as a panelist in the panel discussion forthe seminar titled “Appropriate Evaluation of Avoided Emissions Towards Net Zero
Society” held at the Japan Pavilion. In addition to introducing our methodology
for assessing avoided emissions, we actively discussed the future use of avoided
emissions by financial institutions.
Going forward, we plan to not only deepen our analysis of climate-related risks
and opportunities related to our portfolio, but also advance our engagement withportfolio companies.

TCFD 2022 summary
We plan to release a summary of our 2023 TCFD-related initiatives during the April – June 2024
period. As a result, Pages 37-42 contain a summary of the Responsible Investment Report 2022.

*T he GX League aims to achieve Japan’s 2050 carbon neutrality goal and further contribute to achieving carbon neutrality worldwide. In the challenge of quickly transitioning to carbon neutrality, a transformation of the entire
economic and social system (GX: Green Transformation) is required. To this end, the GX League is a venue for a group of companies actively working on GX, together with government, academic, and financial players who aretaking on the challenge of GX, to work together to discuss the transformation of the entire economic and social system and the creation of new markets.

37

Responsible Investment Report 2023

Please refer to the link below for 2022 TCFD&Net Zero by 2050:
Referencehttps://global.nomura-am.co.jp/responsibility-investment/pdf/ri_report_2022.pdf

38

BY 2050

Disclosure Based on the TCFD Recommendations

2022 Summary

GovernanceWerecognize that climate-related risks and opportunities have important impacts on our business and our medium- to long-term management targets, and wehave therefore established an appropriate governance. The data compiled by the Responsible Investment Department, which acts as the TCFD Secretariat,
including carbon metrics, scenario analyses, ESG scores and other climate-related risks and opportunities, are ultimately reported to the Board of Directors via
the Executive Management Committee. The Board of Directors is then able to appropriately monitor our climate-related risks and opportunities.
The
analytical data related to climate-related risks and opportunities compiled by the TCFD Secretariat are shared with portfolio managers and analysts. These
data are then utilized in company analysis, engagement, and investment decision-making. These data are also regularly reported to the Responsible Investment
Committee, which comprises officers in the Investment and Research Unit, where they are used to evaluate a portfolio’s climate-related risks and opportunities.
For example, at the Responsible Investment Committee meeting in March every year, the analytical data from the portfolio at end of the previous year arereported, and in July the important themes for climate change-related engagement are decided. Additionally, the chair of the Responsible Investment Committee
reports the evaluation results to the Executive Management Committee, which allows members of senior management to utilize these reported details to makemanagement decisions.

Strategy e recognize a wide range of short-, medium- and long-term climate-related risks and opportunities. In terms of transition risks, we are closely watching carbon
W
pricing, the stranding of assets, and changes in consumer behavior and preferences. For physical risks, we are focusing on abnormal weather, which is increasing
in recent years. Meanwhile, with respect to opportunities, we are paying close attention to products and services related to renewable energy and energy
efficiency and conservation, electricity storage, hydrogen, ammonia, CCUS, carbon recycling, as well as disaster prevention and mitigation. In addition, in line with
our long-term strategy aiming to realize a decarbonized society, we are focusing on transition finance to support companies that are working to reduce GHG
emissions. In principle, we do not divest from (and thereby lose the chance for engagement with) portfolio companies with high levels of GHG emissions. Instead,by continuing to hold on to such companies, we use engagement as a means to encourage these portfolio companies to take measures to combat climate change.
 addition to Institutional Shareholder Services’ (ISS) analysis methodology for climate-related risk and opportunities, we are carefully analyzing the impact thatIn
climate-related risks and opportunities have on our business, strategy, financial plans, and portfolio. This includes our financial analysis and transition risk analysis
using internal carbon price in our ESG scores for Japanese equities.
Please refer to Page 41 for information on the scenario analysis we performed for our four-asset integrated portfolios.

Risk
Management

 hen it comes to a portfolio company’s climate-related risks, instead of looking only at carbon metrics for the company alone, we believe it is important to discernW
and analyze carbon metrics throughout the entire life cycle of a company’s products and services as well as throughout the supply chain. Furthermore, we refer to
GHG removal and avoided emissions, etc. in our analysis of climate-related risks.
 e manage portfolio risk using ISS’s analysis methods for transition risk and physical risk. In addition, we identify and manage portfolio companies’ transitionW
risks and physical risks using our own corporate analysis and ESG scores, as well as through engagement.


Metrics andTargets

39

Responsible Investment Report 2023

 uch risk management analysis outcomes are integrated into the comprehensive risk management process. As such, they are shared within the Investment andS
Research Unit, and are reported to both the Executive Management Committee and the Board of Directors after being monitored by the Responsible Investment
Committee.

Analysis of Carbon Metrics in Investment Portfolios
In this section, we analyze climate-related risks and opportunities for the four companywide portfolios we manage: Japanese equities; global equities; Japanese bonds andglobal bonds. We perform analyses in accordance with assessment and disclosure
methods including those set forth in The Global GHG Accounting and ReportingStandard for the Financial Industry published by the PCAF which we are a member of,as well as data and analysis methods from ISS.
For equities benchmarks, we used TOPIX for Japanese equities and MSCI ACWI
ex-Japan for global equities. For domestic bonds, we used NOMURA-BPI (overall)(only corporate bonds), while for global bonds we used the Bloomberg Barclays Global
Aggregate Index (only corporate bonds). Bonds only included corporate bonds, and did
not include sovereign or other public bonds.
Please refer to our website “Climate-related analysis of our portfolio” for the results of
our analysis of our sovereign bond portfolio emissions (financed emissions).
The analysis revealed that the total carbon emissions (Scope 1 and Scope 2) of ourJapanese equities portfolio are less than the total carbon emissions of portfolios ofthe same monetary amount and comprising the same stocks and weightings as thebenchmarks.
Also, for global equities, domestic bonds and global bonds, the emissions of ourportfolios and the benchmarks were roughly the same.
In terms of the ratio of total carbon emissions accounted for by each industry, there
is a high ratio from Energy, Materials and Utilities, as well as relatively high ratiosfrom Industrials depending on the asset class, and the same trend is seen in theindustry ratios for weighted average carbon intensity. Through engagement as wellas cooperation with climate change-related initiatives, we will continue to encourage
portfolio companies to undertake initiatives targeting a decarbonized society.

Carbon Footprint o analyze total carbon emissions, we use Scope 1 and Scope 2 emissions disclosed by companies (if a company does not provide disclosure, we use ISS’sTestimates) as well as ISS estimates for Scope 3 emissions. Meanwhile, for carbon footprint, carbon intensity and weighted average carbon intensity, we use only
Scope 1 and Scope 2 emissions.
 e have established a 2050 Net Zero Goal as well as a 2030 Interim Target. Under the 2050 Net Zero Goal, we will work to achieve net-zero GHG emissions bothW
from our own business operations as well as for assets under management (our investment portfolio). Under the 2030 Interim Target, we will work to ensure that,by 2030, 55% of our investment portfolio assets are being approved by SBTi. We will verify and report on our track record with regard to these targets inaccordance with the methodology recognized and endorsed by NZAM.

Total Carbon Emissions(Million tCO 2e)

18.1
15

5.1
4.9

10

5

11.0

13.0

1.9
0

NAM’s
portfolio

Scope 3
(Million tCO 2 e)

Total of
Scope 1, 2, and 3(Million tCO 2 e)Japanese
equities

184.0

1.9

0.3
1.6

NAM’s
Japanese NAM’s global
Japanese equities equities
equities
portfolio
benchmarkportfolio

0.3
1.6

0.70.10.7

0.80.10.7

1.00.1

0.9

1.1

0.1
1.1

GlobalNAM’sJapanese
NAM’s
Globalequities Japanese bonds bonds BM
Japanesebonds BMbenchmarkportfoliobonds portfolio
BM

194.3

NAM’s
portfolioBM% of BM

95%

Japanese
bonds

1.8

2.3

80%

4.9

3.0

162%

% of BM

Globalequities

12.4

13.9

89%

Globalbonds

Japanese
equities

199.9

212.4

94%

Japanese
bonds

2.6

3.1

82%

90%

Global
bonds

5.9

4.2

142%

Globalequities

14.3

15.8

Ratio of Total Carbon Emissions by Industry

385.4
NAM’s Japaneseequities portfolio

200

NAM’s global
equities portfolio

75.5

Scope 2

15.9

300

100

Scope 1

20

EnergyMaterials
Industrials
Consumer Discretionary
Consumer Staples
Health Care
Financials
Information Technology
Communication Services
Utilities
Real Estate
Other(tCO 2e/US$ million)
400
337.0

In order to evaluate climate-related risks and opportunities in accordance with our own strategies and risk management process, we measure four carbon metrics
recommended by the TCFD (total carbon emissions, carbon footprint, carbon intensity, and weighted average carbon intensity) and perform scenario analyses aswell as transition risk analysis and physical risk analysis for equities and corporate bonds portfolios.

2022 Summary

111.8

85.9
59.7

126.9

59.4

NAM’s global
bonds portfolio

0
NAM’s
JapaneseJapanese equities equities
portfolio
benchmark

NAM’s global
equities
portfolio

GlobalNAM’sequities
Japanese bonds
benchmarkportfolio

NAM’s Japanesebonds portfolio

Japanesebonds BM

NAM’s
Japanesebonds portfolio

Globalbonds BM

0%

20%

40%

60%

80%

100%

40

BY 2050

Scenario Analysis

2022 Summary

1

Sustainable Development Scenario

2Announced Pledges Scenario

3

(SDS)

Scenario aligned with the goal of the Paris Agreement
adopted at COP21 held in December 2015, which is
to limit global warming to well below 2°C compared
to pre-industrial levels and pursue efforts to limit
warming to 1.5°C. Under this scenario, the earth’s
temperature is projected to rise approximately 1.5°C
by the end of this century.

(APS)

A scenario which assumes that countries carry out
the pledges they have made, including their Nationally
Determined Contributions (“NDCs”) submitted under
Article 4 of the Paris Agreement and their long-term
net zero goals, both fully and on time. Under this
scenario, the earth’s temperature is projected to riseapproximately 2.1°C by the end of this century.

For total carbon emissions of our four asset integrated portfolio, we used data from
ISS, and performed scenario analyses based on the three scenarios in the World
Energy Outlook 2021 issued by the International Energy Agency (IEA). For the total
carbon emissions used in our scenario analyses, in light of the specific characteristicsof transition risk in each sector, we used only Scope 1 emissions for the utilities
companies, only Scope 3 emissions for fossil fuel-producing companies, and both
Scope 1 and Scope 2 emissions for all other companies.
The scenario analysis confirmed that our four-asset integrated portfolio is likely toreach the total carbon emissions permitted in the SDS around 2043. This is evidenceof the improvement in the investment portfolio since the end of 2021, when we foundthat the portfolio was likely to reach the total carbon emissions permitted in the
Sustainable Development Scenario around 2040.
We feel that the portfolio’s emissions were greatly impacted by the fact that our
global equities and global bonds portfolios include comparatively high weightings ofstocks and bonds in the Energy, Materials, and Utilities sectors, centered on emerging
countries and developing countries, where GHG emissions are high in conjunction
with economic growth. Our analysis also hints at the importance of continuing tocall for measures to address climate change across the market, as our investment
portfolios include many passive investments, mainly in Japanese equities.

Comparison of NAM’s four-asset integrated portfolio’s total carbon
emissions and carbon budget under each scenario
(%)
120

SDS

APS

STEPS

Portfolio

As one of the methodologies for checking the progress made on the 2050 Net
Zero Goal and the 2030 Interim Target for portfolio assets, NZAM, of which weare a signatory, recommends the Science Based Targets initiative for Financial
Institutions (also referred to as “SBTi for FI”). Under the SBTi for FI, financial
institutions will monitor the ratio of portfolio companies whose targets have been
approved by SBTi (SBT portfolio coverage ratio) as well as the temperature ratings
developed by the CDP and the WWF. We are utilizing ISS’s analytical tools tomonitor GHG reduction targets of portfolio companies in the investment portfolio(including SBT approval).
As of the end of 2022, the SBT portfolio coverage ratio for our four-asset
integrated portfolio was 36.4%, which was higher than 27.0% in 2021.
SBT commitments and SBT approvals of portfolio companies show that they
have set GHG reduction targets based on scientific grounds, and this is objective
proof of our investment portfolio’s move to decarbonize and an important steppingstone towards realizing a decarbonized society. Therefore, through engagement
and other means, we will encourage portfolio companies to proactively commit to
SBTs and obtain approval.

Status of Portfolio Companies’ GHG Reduction Targets in Four-Asset
Integrated Portfolio

36.4% Approved SBT

No Target

18.0%

100

Stated Policies Scenario(STEPS)

A scenario which assumes that countries carry out
policy initiatives their governments have alreadyannounced, on the assumption that countries willkeep ambitions and goals of the policies they are
currently implementing. Under this scenario, theearth’s temperature is expected to rise approximately
2.6°C by the end of this century.

80
60

Non-Ambitious Target

20.1%

40

10.8% Committed SBT

20

Ambitious Target

0
2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

*On the graph’s y-axis, the 2022 carbon budget for SDS is set at 100%.

41

Status of GHG Reductions by Portfolio
Companie 2022 Summary

Responsible Investment Report 2023

2042

2044

2046

2048

14.7%

Risk Analysis

2022 Summary

Transition Risk
It is important to analyze climate-related transition risk in detail due to the factthat this risk is highly dependent on GHG emissions which have a relatively highcorrelation with both stock price performance and enterprise value. We feel itis key to analyze GHG emissions throughout the entire life cycle of a company’s
products and services, and on a supplementary basis we use GHG emissions
throughout the global supply chain as well as GHG absorption as disclosed bycompanies.
The specific transition risk analysis method involves using ISS data to analyze
the power generation exposure and future GHG emissions (risk of stranded
assets) on an energy generation basis in the portfolio, and the ratio of problematic
resource development (shale oil/gas development and fracking, crude oil or gas
drilling in the arctic, oil sands development, etc.), along with using the carbon
risk rating, which is ISS’s proprietary transition risk assessment. Furthermore,
the environment score within our proprietary ESG score includes evaluations ofclimate-related transition risk, and we use internal carbon price to analyze its
financial impact by transition and GHG emissions.

Physical Risk
In recent years, hurricanes, cyclones, heavy rains, floods, heat waves, forest
fires, and droughts, which are thought to be impacted by climate change,
are frequently occurring around the world. The impact of these events on thebusinesses and assets held by portfolio companies can no longer be ignored,
and analyzing physical risks is becoming increasingly important. In analyzing
the physical risks of portfolio companies, in addition to ISS’s risk analysis andphysical risk score by industry and region, we utilize the portfolio’s Value at Risk
(potential negative impact of physical risk on the value of a portfolio) calculated
as the potential value lost through 2050 due to damage incurred by the businessassets owned by portfolio companies from abnormal weather stemming fromclimate change. For Japanese companies, if necessary, we use disclosurematerials and company websites to research the regions of offices, factories,
and important owned assets, and we also check hazard maps and othermaterials published by local governments in order to supplement our analysis ofphysical risk.

2050(year)

42

NATURE&BIODIVERSITY
Actions to Protect Natural CapitalAt the United Nations Biodiversity Conference (COP15) held in Montreal in December
2022, the global community adopted the Kunming-Montreal Global Biodiversity
Framework, a new set of global biodiversity goals for achievement by 2030.
This Global Biodiversity Framework features 23 action targets to be completed by2030 in order to achieve the shared vision of living in harmony with nature by 2050.
These targets include: effective conservation and management of at least 30%of the world’s lands and oceans (30 by 30); reducing the risk posed by both excess
nutrients lost to the environment as well as pesticides and chemicals; and ensuring
the sustainable management of areas used for agriculture, aquaculture, fisheries

and forestry. COP15 also included an agreement on financial support to beprovided by developed countries to developing countries.
Healthy biodiversity is essential for the advancement of society, and there
are high expectations on financial institutions for playing a role in preventing
biodiversity loss and in preserving and restoring natural capital.
Nomura Asset Management participates in international initiatives as both an
institutional investor and a company itself, and collaborates with other asset
managers to promote initiatives aimed at protecting natural capital.
At COP15, together with PRI signatories, we endorsed an investor statement callingon governments to adopt the Global Biodiversity Framework and work together toaddress climate change and biodiversity protection and restoration.
In September 2023, the Task Force on Nature-related Financial Disclosures(“TNFD”) announced its final recommendations on a framework for appropriately
assessing and disclosing risks and opportunities related to natural capital Figure 1 .
The TNFD recommended disclosures comprise: (1) Governance; (2) Strategy, (3) Risk
and impact management, and (4) Metrics and targets. In addition to these four pillars,
many of the 14 recommended disclosure items are also common to the TCFD.
Similar to the TCFD, companies need to first improve their governance and beginbuilding a system, centered on the board of directors, for effectively discussing

Figure 1

and supervising important management issues related to their natural capitalissues. For example, in the final recommendations, the content provided under“Risk and impact management” in the previous draft version have been moved
to “Governance”. In addition to risks and opportunities related to natural capitalfor the company, its responses targeting affected stakeholders have also beenchanged from the on-site level to being the responsibility of the board of directors,
further emphasizing the importance of governance. Considering that information
disclosure related to climate change and natural capital will become increasingly
integrated going forward, one of the key points in evaluation will be whether or not acompany’s efforts in governance are adequate.

TNFD Final Recommendation

14 recommended disclosures (Final recommendation)

Governance

Strategy

Disclose the organization’s
governance of nature-related
dependencies, impacts, risks
and opportunities.

Disclose the effects of nature-related
dependencies, impacts, risks andopportunities on the organization’s businessmodel, strategy and financial planningwhere such information is material.

A D escribe the board’s oversight ofnature-related dependencies, impacts,
risks and opportunities.
B Describe management’s role in assessing
and managing nature-related dependencies,
impacts, risks and opportunities.
C D escribe the organization’s humanrights policies and engagement
activities, and oversight by the board
and management, with respect
to Indigenous Peoples, Local
Communities, affected and otherstakeholders, in the organization’s
assessment of, and response to, naturerelated dependencies, impacts, risks
and opportunities.

Risk and impact
management

Metrics and targets

Describe the process used by theorganization to identify, assess,prioritize and monitor nature-related
dependencies, impacts, risk andopportunities.

Disclose the metrics and targets used
to assess and manage material naturerelated dependencies, impacts, risks
and opportunities.

A Describe the nature-related dependencies,
impacts, risks and opportunities theorganization has identified over the short,medium and long term.

A i 	Describe the organization’s processes
for identifying, assessing and prioritizing
nature-related dependencies, impacts,
risks and opportunities in its direct
operations.

A Disclose the metrics used by the organization
to assess and manage material naturerelated risks and opportunities in line with its
strategy and risk management process.

B Describe the effect nature-related
dependencies, impacts, risks andopportunities have had on the organization’s
business model, value chain, strategy andfinancial planning, as well as any transition
plans or analysis in place.

A ii 	Describe the organization’s processes
for identifying, assessing and prioritizing
nature-related dependencies, impacts,
risks and opportunities in its upstream
and downstream value chain(s).

B Disclose the metrics used by theorganization to assess and manage
dependencies and impacts on nature.

C Describe the resilience of the organization’s
strategy to nature-related risks andopportunities, taking into considerationdifferent scenarios.

Describe the organization’s processes forB	
monitoring nature-related dependencies,
impacts, risks and opportunities.

D Disclose the locations of assets and/or activities in the organization’s direct
operations and, where possible, upstream
and downstream value chain(s) that meetthe criteria for priority locations.

C D escribe the targets and goals usedby the organization to manage naturerelated dependencies, impacts, risks
and opportunities and its performanceagainst these.

Describe how processes for identifying,C	assessing, prioritizing and monitoring
nature-related risks are integrated into
and inform the organization’s overall risk
management processes.

Source: Prepared by Nomura Asset Management based on TNFD website

43

Responsible Investment Report 2023

44

Meanwhile, there are also recommendations unique to the TNFD, which incorporate
issues and perspectives specific to natural capital. In particular, in the field of
natural capital, there is no single yardstick, and regional characteristics are strongly
reflected, so measurement requires a more multi-sided perspective. To this end,
the TNFD advocates for the LEAP approach Figure 2 as a method for a company tocomprehensively assess its nature-related risks and opportunities. Based on thisapproach, it has been pointed out that it is important for companies to locate theirinterface with nature (Locate), evaluate dependencies and impacts (Evaluate), assess
risks and opportunities (Assess), and prepare to respond and report (Prepare).
When responding to TNFD, it is important to understand the similarities anddifferences with the TCFD, and undertake internal initiatives, improve disclosure, andFigure 2

LEAP Approach: an integrated approach for the assessment of nature-related opportunities and risks

LocateEvaluate

The interface with nature

L1

Span of the business model and value chain
What are our organization’s activities by sector andvalue chain? Where are our direct operations?

Which of these sectors, value chains and direct
operations are associated with potentially moderate
and high dependencies and impacts on nature?

E1

E2

L3

L4

What are the sectors, business processes or activities to beanalyzed? What environmental assets, ecosystem services
and impact drivers are associated with these sectors,
business processes, activities and assessment locations?

Identification of dependencies
and impacts

A1

A2

Dependency and impact measurement

E3Interface with sensitive locations
Which of our organization’s activities in moderate andhigh dependency and impact value chains and sectors arelocated in ecologically sensitive locations? And which ofour direct operations are in these sensitive locations?

Identification of environmental assets,
ecosystem services and impact drivers

E4

What is the scale and scope of our dependencies
on nature? What is the severity of our negative
impacts on nature? What is the scale and scope ofour positive impacts on nature?

Impact materiality assessment
Which of our impacts are material?

PrepareRisks and opportunities

What are our dependencies and impacts on nature?

Interface with nature
Where are the sectors, value chains and direct operations
with potentially moderate and high dependencies andimpacts located? Which biomes and specific ecosystems do
our direct operations, and moderate and high dependency
and impact value chains and sectors, interface with?

AssessDependencies & impacts

Dependency and impact screening

L2

show investors what the company is doing. Sector-specific guidance is scheduled to be
published in 2024, and more companies and financial institutions are expected to makeprogress in addressing natural capital and with related disclosure.
In July 2023, Nomura Asset Management joined the TNFD Forum, a stakeholder
group that aims to support discussions on TNFD, and we are collecting the latest
information regarding TNFD in a timely and appropriate manner and participatingin technical review work. In addition, we are actively speaking at external events on
the topic of natural capital and biodiversity. In October 2023, we participated as apanelist in a session on natural capital at PRI in Person 2023, the world’s largest global
conference on ESG and responsible investing (Please refer to the sidebar on Page 18).

A3

A4

Risk and opportunity identification
What are the corresponding risks and opportunities forour organization?

Adjustment of existing risk mitigation and risk
and opportunity management
What existing risk mitigation and risk and opportunity management
processes and elements are we already applying? How can risk andopportunity management processes and associated elements (e.g.
risk taxonomy, risk inventory, risk tolerance criteria) be adapted?

Risk and opportunity measurement
and Prioritization

To respond and report

P1

P2

P3

Strategy and resource
allocation plans
What risk management, strategy andresource allocation decisions should bemade as a result of this analysis?

Target setting and performance
management
How will we set targets and define andmeasure progress?

Reporting

Which risks and opportunities should be prioritized?

What will we disclose in line with the
TNFD recommended disclosures?

Risk and opportunity materiality assessment

Presentation

Which risks and opportunities are material andtherefore should be disclosed in line with the TNFD
recommended disclosures?

P4

Where and how do we present our
nature-related disclosures?

Partnerships to Protect Natural CapitalThrough both individual and collaborative engagement activities, Nomura AssetManagement urges portfolio companies to address the loss of natural capital andbiodiversity.
In terms of other global initiatives, we leverage our collaboration with Farm Animal
Investment Risk and Return (FAIRR) to engage with food-related companies, and weengage with palm oil companies and the companies in their supply chains throughinitiatives to end deforestation (refer to Page75). We encourage companies to takeaction to protect and restore biodiversity, and we share insights and best practices
regarding engagement targeting biodiversity protection. Furthermore, in responseto the fact that seafood-related assets and revenues are exposed to risks such as
overfishing, natural destruction, and damage from fish diseases, we joined the joint
engagement program “Seafood Traceability” that FAIRR launched in October 2023,
and we are lead investor targeting two Japanese seafood companies.
In our collaborative engagement with Sustainalytics (Page74), we carry out
engagement on many individual topics related to biodiversity. We encouragecompanies from a wide range of sectors in the agricultural value chain, including
financial institutions, retailers, food companies and chemicals companies, to manage
the risks of biodiversity-related impacts, dependencies and opportunities, and ask
them to combat the loss of biodiversity.
In addition, for clean technology companies related to electric vehicles and solar
or wind power generation facilities, we will continue to support the promotion of acircular economy through the procurement of sustainable raw materials (including by
suppliers), increasing the rate of recycling, and keeping waste out of landfills.
Furthermore, in October 2023, we joined Spring, a new collaborative initiative of
institutional investors aimed at resolving the loss of natural capital and biodiversity,
launched by the Principles for Responsible Investment (PRI). With 131 institutional
investors representing total assets under management of approximately $9.5 trillion
announcing their participation in the initiative, Spring is one of the world’s largest
natural capital-related collaborative engagement frameworks. We also serve on anadvisory committee whose purpose is to advise PRI on its strategy and execution in
the natural capital domain (see right).
Spring’s activities have been in full swing since the beginning of 2024, initially
focusing on forest loss and land degradation, the main drivers of biodiversity loss,
and selecting 40 major companies to target for engagement. This may extend toother drivers of biodiversity loss in the future, and we are therefore committed toencouraging portfolio companies’ efforts on risk and opportunities related to natural
capital and biodiversity through collaborative engagement and participation in andcontributing to technical discussions. In addition, we will further advance efforts tomaintain and improve medium- to long-term corporate value and the sustainability ofsociety as a whole.

Appointment as Advisory
Committee member of Spring,
PRI’s collaborative initiative on
natural capital and biodiversity
In 2023, we became a member of the Advisory Committee of PRI’s
collaborative initiative on natural capital and biodiversity (Spring),
and we are playing a leading role in building the framework forcollaborative engagement and dialogue with target companies. The
companies targeted for collaborative engagement under the Spring
initiative comprise 40 large companies that can have an impact
in areas where forest loss and land degradation, which are major
causes of biodiversity loss, are a concern. As the area of natural
capital and biodiversity is a relatively new domain for the investmentcommunity, investors believe that collaborative engagement, timely
and appropriate information gathering, and continuous peer learning,are all essential.

ESG Investment Manager

Dai Yamawaki

Source: Prepared by Nomura Asset Management based on TNFD website

45

Responsible Investment Report 2023

46

Information Disclosure based on the TNFD Recommendations

47

Responsible Investment Report 2023

In line with our long-term strategy to become nature positive, we use a variety of metrics tounderstand the status of efforts by portfolio companies that are dependent on and have a large
impact on natural capital. (See also <Risk and impact management>). Also, through engagement,
we urge portfolio companies to recognize such risks and opportunities, and to respond anddisclose information in a timely and appropriate manner. We ultimately reflect such information in
our investment decisions, by evaluating both risks and opportunities.

In order to support the long-term improvement of corporate value of investee companies, we
continuously monitors natural capital risk in a wide range of investment target stocks, aiming
to reduce natural capital risk at the portfolio level. We also regularly investigate natural
capital-related and waste-related information in investment target stocks by utilizing corporate
disclosure information, media reports, external databases, and other information. Survey
items include disclosures on water usage, waste volume, forest and soil resource
conservation, river and marine resource conservation, and associations with commodities
with high biodiversity risk.
 e use the ISS analytical methods to manage portfolio risk. We also identify and manageWnatural-related risks at investee companies through our unique corporate analysis, ESG score,and engagement activities.
 utputs of these risk management are shared within our Investment Research Unit, monitoredOby our Responsible Investment Committee, and then integrated into the overall risk
management process, including reporting to our Management Committee and Board of
Directors.

Metrics and Targets

Nomura Asset Management took the stage at Tokyo Sustainable Seafood Summit (TSSS) 2023, one ofAsia’s largest sustainable seafood events. TSSS is a global flagship event originating from Japan, and oneof the largest in Asia, which brings together diverse stakeholders working to turn the seafood industry intoa growth industry, with the aim of pursuing sustainability in marine food systems and becoming naturepositive. This marked the ninth time the TSSS was held. In the panel session “Seafood Blue Finance:
Investor-Led Engagement in the Seafood Sector,” we discussed our approach as an investor towards theseafood industry, which faces various risks such as overfishing, worker human rights violations, and thedestruction of biodiversity, as well as introduced some actual examples of our own engagement activities

 e recognize a variety of nature-related risks and opportunities in the short, medium and longW
term. In terms of transition risk, we are paying close attention to increased production costs andstranded assets due to stricter regulations, and fluctuations in demand due to changes in
consumer behavior and preferences. With respect to physical risks, we are focusing on damage tonatural capital due to forest fires, floods, droughts, and outbreaks of pests and diseases. We also
recognize the interconnectedness between these risks and the systemic risks of ecosystem andfinancial stability. Meanwhile, with respect to opportunities, we are focusing on technologies,
products and services that create positive impacts on nature or abate negative impacts.

Risk and impact
management

Spoke at Tokyo Sustainable Seafood Summit (TSSS) 2023

 e have positioned nature-related risks and opportunities as elements that have importantW
impacts on our business and medium- to long-term management goals, and we have built an
appropriate governance system. The data about nature-related risks and opportunities and thestatus of engagement and other initiatives compiled by the Responsible Investment Department
which is the secretariat for the Responsible Investment Committee, is ultimately reported to theBoard of Directors through the Executive Management Committee, which allows the Board of
Directors to appropriately monitor our nature-related risks and opportunities.
 nalytical data on nature-related risks and opportunities compiled by the Responsible Investment
A
Department and the status of engagement on related efforts are shared within the Investment andResearch Unit in a timely and appropriate manner, and are utilized in company analyses andinvestment decisions. These analytical data are regularly reported to the Responsible Investment
Committee, comprised of members of the Investment and Research Unit, which then evaluates thenature-related risks and opportunities of our portfolios. For example, the Responsible Investment
Committee receives reports on portfolio analysis data from the end of the previous year, and in
July the Committee plans to decide the priority themes for nature-related engagement.
In addition, the Chair of the Responsible Investment Committee reports the results of evaluations
to the Executive Management Committee, and the senior management team uses the content ofthese reports to make management decisions.

Strategy

particularly important, and we have articulated this clearly in our ESG Statement
since 2019. In addition to regularly monitoring natural capital-related data
and regulatory developments with respect to portfolio companies, throughengagement we evaluate both risks and opportunities with a focus on the natural
capital domain. We incorporate these evaluations into our investment decisions,as we advance efforts to preserve natural capital both as an institutional investor
and as a company ourselves.
In addition, unlike climate change, there is not a single, common yardstick fornatural capital on a global basis, and since this is a relatively new area in theinvestment industry, we collect the appropriate information in a timely mannerand continuously engage in peer learning so that we do not have opinions thatare not based on facts. To this end, we have joined multiple initiatives in order toacquire comprehensive knowledge and we are actively building our networks withprofessionals possessing technical expertise in a wide range of fields.
After participating in the TNFD Forum in July 2023, we registered ourselves asa TNFD adopter in January 2024, indicating our intention to provide disclosure in
FY2024 based on the TNFD recommendations. Given the timing of our registration,
we were announced as a TNFD early adopter at the World Economic Forum’s Annual
Meeting in Davos, which was held that same month. We are currently preparing todisclose information based on more comprehensive TNFD recommendations.

Governance

The loss of natural capital, including biodiversity, has a huge negative impact not only
on the environment, but also on the economy and human health. Meanwhile, in theworld of economics and finance, natural capital has long been considered as a given
input in the production function. However, as the finiteness of natural capital has grown
to be widely recognized, there is a need for the sustainable use of natural capital andinformation disclosure about natural capital, and this has accelerated in recent years,
including with regard to the development of related systems.
In order for companies to become more sustainable, they need work to protect
and sustainably utilize natural capital. This includes understanding the extent
to which they rely on nature for the continuity of their business operations andgrasping the impact that their business and its supply chain have on nature. If
issues related to biodiversity emerge, either from a company’s own operations or in
the supply chain connected to that company, the company’s corporate value may
be greatly impacted through increased costs to procure raw materials or due toreputational risk such as damage to the company’s image. In this way, we believethat companies that are able to manage risks related to natural capital and make theprotection of natural capital part of their business strategy will likely enjoy a positive
reputation for the products and services they provide, and this will lead to themcontinuing to increase their corporate value over the long term.
Nomura Asset Management recognizes issues related to natural capital as

Disclosure in alignment with TNFD

 e evaluate the nature-related risks and opportunities in our portfolios of equities and bondsWin line with our strategy and risk management processes. In particular, we focus on the
Potentially Disappeared Fraction (“PDF”), the metric that quantitatively expresses the potential
loss of endemic species within a geographical range that due to environmental pressures, andwe perform comparative analyses against benchmarks using ISS’s data and analysis
methodology. Please refer to Page 49 for the results of the analyses we performed on ourequities and bonds portfolios, as well as our four-asset integrated portfolio.
 e have established environmental fields such as climate change and natural capital as
Wpriority themes in our engagement. Through regular dialogue, we urge portfolio companies to
identify opportunities and risks related to climate change and natural capital, and toproactively address these risks and opportunities as well as disclose information about them.
We then monitor the status of companies’ progress on doing so. Also, in addition to managing
engagement milestones, we tally up the number of engagement cases by engagement topic.

In addition to the analytical methods of Institutional Shareholder Services (ISS) regarding
nature-related risks and opportunities, we qualitatively and quantitatively analyze the status of
overall natural capital initiatives of our portfolio companies. Through this, we perform detailed
analyses of the impacts on our business, strategy, financial planning, and portfolios.

PDF
Potentially
Disappeared
Fraction

Potential Disappeared Fractionof species in a given area overa specific period of time
Example: 100 PDF km2.yr= 100% loss of
biodiversity in 1 year over 100km2

Weighted
Average PDF
Intensity
Weighted
Average
PDF
Intensity

PDF per unit of sales for eachcompany in the portfolio, weighted
by each company’s weight
Unit: PDF km2.yr/ mil. EUR

Weighted Average=
PDF Intensity

market value of theinvestment
market value of theportfolio

absolute PDF value of theinvestee company
sales of investee
companies

48

Investment Portfolios’ Impact and Dependence on Natural Capital
Nomura Asset Management evaluates natural capital-related risks for four portfolios
we manage: Japanese equities; global equities; Japanese bonds and global bonds.
We focus in particular on the potentially disappeared fraction (“PDF”), a metric thatquantitatively expresses the potential loss of endemic species due to environmentalpressures. PDF is referred to in Life Cycle Assessment (LCA) models which are methods
to quantitatively evaluate the environmental stress in the entire lifecycle of products
and services, and widely used as a coefficient that indicates the amount of damage on
affected domains (endpoints). The larger the PDF, the greater the impact on biodiversity.
We use ISS’s data and analysis methods to analyze our portfolios against
benchmarks. As benchmarks, for Japanese equities we used TOPIX, and for global
equities we used MSCI ACWI ex-Japan. For Japanese bonds, we used NOMURABPI (overall) (only corporate bonds), while for global bonds we used the Bloomberg
Barclays Global Aggregate Index (only corporate bonds).
The analysis revealed that the PDF Figure 3 of our portfolios were lower than thebenchmark in the case of Japanese equities, global equities, and Japanese bonds.
On the other hand, for global bonds, the analysis suggested that our PDF was higher
than the benchmark as a result of being overweight (versus the benchmark) in theenergy sector. These characteristics can also be confirmed in the makeup of eachsector in terms of the weighted average PDF intensity Figure 4 .

Figure 4

Weighted Average PDF Intensity
by Industry(Japanese equities and bonds)

Weighted Average PDF
Intensity by Industry(Global equities and bonds)

EnergyMaterials
Industrials
Consumer Discretionary
Consumer Staples
Health Care
Financials
Information Technology
Communication Services
Utilities
Real Estates(PDF km2. yr /Mil. EUR)

50

(PDF km2. yr /Mil. EUR)

2,500

2,456.8

41.4
40

Figure 6-1

30

300

20

Freshwater
Acidification
0.30%

250.9

200

202.3

15
10
9.0

0.1

0

49

Japanese
equities
benchmark

NAM’s global
Globalequities
equities
portfolio
benchmarkResponsible Investment Report 2023

NAM’s
Japanesebonds
portfolio

0.8JapanesebondsbenchmarkFreshwater
Ecotoxicity
0.09%

Provisioning

Regulation & Maintenance

Cultural

NAM’s Japaneseequities portfolio

23.0

70.0

7.0

NAM’s global
equities portfolio

20.0

73.0

7.0

NAM’s Japanesebonds portfolio

23.0

70.0

7.0

NAM’s Global
bonds portfolio

25.0

68.0

7.0

Land
Occupation
0.01%

Regulation & Maintenance

CulturalFigure 5-2

Benchmark comparison
Provisioning

Breakdown of Impact
per Biodiversity Drivers
NAM’s four-asset
integrated portfolio’s

5.3

4.2

NAM’s
Japanese
equities
portfolio

100

111.4

9.9

5

MarineEutrophication
0.24%

MarineAcidification
23.7%(Million km .yr)
17.5

10

Ecosystem Services Dependencies

Climate Change
Marine Acidification
Terrestrial Acidification
Marine Eutrophication
Freshwater Ecotoxicity
Land Occupation

Terrestrial
Acidification
2.70%

2

20

Breakdown of Impact per Biodiversity Drivers(NAM’s four-asset integrated portfolio’s)

Land Transformation
Freshwater Acidification

23.6

Absolute Biodiversity Impact

Figure 5-1

400

39.3

28.8

Figure 3

At the same time, in order to measure our portfolios’ dependence on nature, we
examined the extent to which our portfolio companies’ activities are dependent on thethree major categories of ecosystem services: provisioning services (groundwater/
surface water, animal vitality, textiles and other materials, etc.); regulating services(water quality and water circulation, soil maintenance, protection from disasters,
pest control, etc.); and cultural services (ecotourism, recreation, etc.). We found thatin all areas (domestic equities, global equities, domestic bonds, and global bonds)
our portfolios Figure 5-1 were highly- dependent on regulating services, while notas dependent on cultural services as others. We also found that for global bonds
Figure 5-2 we were more dependent than the benchmark on provisioning services,while for other assets there was not much of a gap between our portfolios and thebenchmarks.

Land
Transformation
44.9%

NAM’s Japaneseequities portfolio

3.0

0.0

−3.0

NAM’s global
equities portfolio

−1.0

0.0

1.0

NAM’s Japanesebonds portfolio

2.0

−1.0

−1.0

−13.0

3.0

2.1
0
NAM’s
GlobalGlobal bonds
bonds
portfolio
benchmark

0
NAM’s
Japanese
equities
portfolio

Japanese
equities
benchmark

NAM’sJapanesebonds
portfolio

Japanesebondsbenchmark

NAM’s global
GlobalNAM’s
Globalequities
equities Global bonds
bonds
portfolio
benchmarkportfolio
benchmark

Climate Change
28.0%

NAM’s Global
bonds portfolio

10.0

50

We also assess the natural capital-related risks of our four-asset integrated portfolio.
From the analytical perspective that environmental burden manifests itself as theamount of damage to the endpoint through the impact area (midpoint), we examined
the impact that our four-asset integrated portfolio has on the impact area, and we
found that there is a risk of affecting the ecosystem mainly through the channels ofland transformation, climate change, and ocean and terrestrial acidification Figure 6-1 .
Furthermore, Japan, Mexico, China, and Southeast Asian countries were identified asregions where the impacts could be significant Figure 6-2 .

Breakdown of Impact per Region(NAM’s four-asset integrated portfolio’s)

Figure 6-2

Example of Engagement(Japanese company)

Conservationof forests andbiodiversity
Status of milestone
management

Japanese foodcompanyFirstinterviewMin

interview
1 timeMax

12

Figure 7

Number and percentage of engagement themes fordomestic equity (environment)(Number)Number of engagement themes (environment)

500

24

36

Engagement period

Quantitative Understanding of Environmental Engagement
We check whether or not companies are undertaking initiatives towards sustainableproduction and procurement, especially companies where sales are highly dependent
on commodities that have a significant impact on biodiversity, such as companies in
the consumer staples, consumer discretionary, and materials sectors. For example,
we look at the status of procurement of commodities that have been certified by third
parties, including the Roundtable on Sustainable Palm Oil (RSPO) and the Forest
Stewardship Council (FSC). Based on such monitoring data, portfolio managers,
ESG specialists, company analysts, and ESG investment managers work together toengage with portfolio companies with the objective of managing nature-related risk.
We recently compiled the number of domestic equities engagement themes inthe environmental field, such as climate change and natural capital, over time. The
number of engagement themes has tripled over the past six years (2018: 101; 2023:329), accounting for approximately 16% of the total number of domestic equities
engagement themes (2,424 themes) Figure 7 .
NAM will promote the efforts of investee companies (recognition of nature risk,
its response, information disclosure, etc.) through our qualitative and quantitative
analysis as well as engagement activities, and contribute to the enhancement of longterm corporate value and sustainability of the society.

Our procurement volume of palm
oil is one of the largest among
Japanese companies. The ratioof certified palm oil in our total
procurement has been increasing
year by year, and is currently over
30%. However, it is not easy as
the types of certification required
vary by country.

After repeated discussions within
the company, we established palm
oil as one of our priority areas. We
have conducted human rights due
diligence in accordance with the
Guiding Principles on Business andHuman Rights (Ruggie Principles)
established by the United Nations
Human Rights Council.

We believe that our response
will depend on the regulatoryenvironment in each country. For
example, in Japan, incineration
is an option, but in the U.S. thereis the option to bury packaging
material in the soil, while in Europe
it is composted. It is importantfor us to stockpile different
technologies.

Please explain whether thegrievance handling system has
been improved by bringing inthird-party partners.

Please explain yourprogress toward sustainableprocurement of coffee
beans and your regenerative
agriculture initiatives.

Example of Engagement
16%

16%
15%

16

15%
329
12

300
271
11%

8

200

100

101

Supply chain
deforestation
problem
Status of milestone
management

interviews
5 times

4
12

24

2018

2019

2020

2021

2022

Nomura AssetManagement
Switzerland
consumer staple
company

28

129

0

Please explain the situation
regarding deforestation
incidents reported by satellite
imager y reports in the second
half of 2022.

(Global company)

month

117

We will continue to increase
the ratio of certified palm
oil we procure and strive forsustainable procurement.

20

19% 470400

We will continue to monitor
your efforts to both protect
forests and biodiversity,
as well as to procuresustainable palm oil.

(%)

Percentage of total

Engagement period

Responsible Investment Report 2023

Human rights issues suchas child labor at palm
oil production sites arealso attracting attention.
What is the status of yourimplementation of humanrights due diligence?

Natural Capital Risk Issues

051

Nomura AssetManagement

Polyethylene has replaced
polystyrene as the mainstream
packaging material, and a shift toenvironmentally-friendly packaging
material such as biomass is
expected to occur. The use of
biodegradable packaging is
progressing in Europe and the U.S.,
but how will you address this?

As demand for palm oil increases
worldwide, problems such as
the deforestation of tropicalforests and peat swamp forests
and the loss of biodiversity haveemerged. What is the status ofyour procurement of certified
palm oil?

36

We removed one
company from our
supplier list that
we believe has thepotential to be doing
business with our
supply chain.

Regarding supplier traceability,
we are updating our own
system to the latest data. We
are upgrading our complainthandling system with our thirdparty partners.

Solid progress is being made towards achieving 100%
deforestation-free procurement of coffee and cocoa
by 2025. As a leader in the company and the industry,
our coffee division collaborates with a Cornell
University research institute to systematically collectdata on beehives necessary for pollination, fertilizers,
and pesticides using IT tools. We are developing
coffee beans that are resistant to dryness and arehighly productive.

It is necessary to respond to
deforestation events in a timely
manner and to disclose upto-date complaint tracking
information. Efforts to handle
grievances must be effective
and contribute positively to boththe environment and society.

Our goal is to have 50% of ourcoffee beans sourced fromregenerative agriculture by
2030, and we are promoting
regenerative agriculture
through cooperation with and by
supporting farmers.

2023

52

ProductGovernance

Our ProductGovernance Initiatives

To earn and keep our clients’ trust, we believe we must beable to comply with global ESG regulations and provide
high-quality investment products with accountability. For
that reason, we not only manage ESG investment quality,
but also continuously engage in ESG product governanceinitiatives, including those related to information
disclosure. Our ESG investments are not limited toinvestments we manage internally, but also includes funds
managed by third-party asset managers, and we arebolstering our governance efforts targeting these funds aswell. (Please refer to “Overall ESG Product Governance
System for the Investment Side” on Page 54 for more
information on our overall product structure)
Our ESG Committee is the body responsible for
quality control for ESG investments for which we makeinvestment decisions internally. In addition to checking
the ESG processes of Japan-domiciled funds, when it
comes to overseas-domiciled funds (funds compliant

with the European Commission’s UCITS Directive),
the ESG Committee is responsible for complying with
the European SFDR (Sustainable Finance Disclosure
Regulation) and other overseas regulations including
Taxonomy, sorting out the issues regarding ESG
investment policies to ensure such compliance andidentifying matters to disclose, among other issues.
For our Europe-domiciled funds, we haveestablished a Responsible Investment OversightCommittee (RIOC) in our UK European base tostrengthen supervisory functions in Europe, including
dealing with local regulatory authorities. The year
2023 was a year in which we saw many changes in theregulatory environment in Europe. Additional guidanceon SFDR was published by the European Commission
in the first half of 2023. Subsequently, a consultation
was held regarding proposed changes to the SFDR
regulatory technical standard, and in the second half
Reference

In August 2022 we clarified the above system-related initiatives as well as our definition of ESG funds.

of 2023 a consultation regarding the current status
and future vision of the SFDR was held, resulting in an
uncertain situation regarding the regulations that havealready been applied. Nomura Asset Management’s
UK and European offices provided responses to theconsultation regarding the SFDR. Our offices in the UK
and Europe believe that it is important to bolster our
accountability with regard to ESG investment products
in an environment where regulations are unclear
and fluid, and the RIOC has strengthened qualitative
monitoring focused on ability to explain suchproducts. In addition, the UK’s SDR (Sustainability
Disclosure Requirements and investment labelingsystem) was released in 2023, and the associatedrules are scheduled to be applied in phases starting in
2024. Our offices in the UK and Europe are preparing
to respond, under the assumption that the applicationof anti-greenwashing rules will have an impact inPlease refer to the following link on our website for more information about our
main ESG funds. (Japanese only)
https://www.nomura-am.co.jp/special/esg/strategy/esglineup.html

53

Responsible Investment Report 2023

particular.
The ESG Investment Process Evaluation Meeting,which evaluates ESG investments by third-party
asset managers, regularly monitors and evaluates
the internal structures, engagement policies, ESG
investment processes and other aspects of thesethird-party asset management firms.
In addition, we are revising our prospectuses
and reports to provide more details about our
methodologies for utilizing ESG, and we havebolstered disclosure by describing how ESG
considerations have contributed to the growth of trust
assets and which ESG issues have been assessed
as being of high importance. In individual disclosure
reports, we include information about the investment
philosophy and framework, engagement, ESG officers
and other matters, as we work to make ESG moreaccessible to our customers. In order to fulfill our
fiduciary responsibility, when using a third-party asset
manager we believe we should check and understandthat asset manager’s investment system, investment
strategy, investment performance, and other specifics
in the same way as we do for investments we manageinternally, at an appropriate frequency and level ofdepth. Therefore, in the same way as for inhouse
investments, we are improving the quality of funds
by performing due diligence on, and enhancing
disclosure about, funds managed by third-party asset
managers and funds based on indices provided by
ESG index providers. (Please refer to Pages 55-56 formore information about ESG index providers, and refer
to Pages 57-58 for more information about third-party
asset managers.) ESG investing has evolved to an
era in which investments will be stringently selected.
We will continue to monitor ESG-related regulations
and developments, pursue true ESG investment, andcontinue to enhance our information disclosure to help
investors make investment decisions.

Overall ESG Product Governance System for the Investment Side

Third-party asset managers

Company A

Nomura Asset Management

UK/European
officesCompany B

Tokyo
UCITS / AIF

Unique ESG product governanceEurope-domiciled investment
products managed by third
party asset managers
Agreement andcompliance

Monitoring

Responsible Investment
Oversight Committee

Investment Policy
Committee

Supervision for SFDR
correspondence of our inhouse Europe-domicile
investment products

ESG Committee

Working with regulators
Confirmation of SFDR
compliance status
Sustainable investing definition
Items related to information
disclosure, etc.

Keep alignment
Informationexchange
Compliance/
reportingMonitoring

Domestic andoverseas in-house

ESG product governance for
products managed in-house efinition and affirmation ofD
ESG funds
Follow countries’ regulatory
developments and maintainalignment
Formulate guidelines tocomply with countries’
regulations (formulate
minimum requirements andinvestment exclusion rules,
etc. for SFDR Article 8 and
Article 9 funds, etc.)
Compliance/
reportingInformationexchange

Supervision

In-house managed products (including overseas offices)

Domestic publicly-offeredinvestment trusts (third-party)
Third-party asset
management firms
Unique ESG productgovernance

Provision

Reporting

Advisory FundManagement Department
Domestic thirdparty

NAM third-party
managed productsSupervision/
approval

ESG Investment Process
Evaluation Meeting54

ESG Product Governance for Index Funds

Adopted Benchmarks and Overviews of NAM’s ESG Index Funds

Nomura Asset Management is working to expand ESG investment solutions by providing individual and institutional investors with funds that track
ESG indices. We are also endeavoring to improve the quality of these ESG index funds by reviewing the ESG profiles of the adopted benchmark
indices and bolstering communication with index providers.

FTSE4Good
Developed
100 Index

One of the indices in the FTSE4Good Index series.* This index
excludes tobacco manufacturers and weapons and weapons systemmanufacturers from companies in developed countries around theworld, and is comprised of approximately the top 100 companies bymarket capitalization screened using ESG selection standards.
*T he FTSE4Good Index series is a series of stock indices targeting companies thatmeet globally recognized and accepted ESG selection criteria.

Check ESG index quality

Communication with ESG Index Providers

Main topics of communication

We regularly communicate with ESG index providers regarding matters such as whether their ESG indices
are maintaining methodologies aligned with addressing ESG issues, as well as whether they are appropriatelyreflecting market structural changes in their indices. In addition, in response to consultations about ESG
indices, we communicate our opinions, request improvements, or urge them to enhance index quality, as
needed. Also, Nomura Asset Management participates as an index advisory member for JPX ResearchInstitute and FTSE. We exchange opinions based on our perspective as an asset management company,
aiming to continuously improve overall index quality and governance.

I ndex providers’ ESG researchand ESG index provision system

Compare and study
candidate indices
Check performance/
ESG profile

1

I mportant topics in ESG evaluationand the latest global trends

MSCI Japan
Empowering Women(WIN) Select Index

A stock index developed by MSCI comprising Japanese companies
that aim for and maintain a high level of gender diversity. In selecting
companies, the index uses companies with high ratings in terms ofgender diversity and scandal scores, as well as companies with highgrowth rates in capital investment and sales.

S&P500ESG Index

A stock index that incorporates ESG factors into the selection criteriaof constituent stocks and aims to provide performance comparable
to the S&P 500 and maintain sector weights similar to the S&P 500.
In selecting stocks, constituent stocks are determined based on the
S&P Global ESG Scores (calculated based on the quantified statusof companies’ sustainability initiatives and comprehensive ESG
performance evaluation data).

MSCI Japan Country
ESG Leaders Index

A stock index developed by MSCI comprising Japanese companies
with high ESG ratings compared to industry peers. This index has been
designed to seek high ESG performance using a simple and highly
transparent best-in-class approach based on the parent index, the
MSCI Japan Index.

Solactive Japan ESG
Core Index

An ESG-focused stock index that uses the Solactive GBS Japan Large& Mid Cap Index, which is comprised of large- and mid-cap Japanesestocks, as the parent index. This index includes stocks that conform to
ESG standards stipulated by Solactive from among multiple industries
that are expected to have medium- to long-term growth potential fromthe perspective of development related to Japan’s economic activity
and sustainable growth, as well as stocks from other sectors that haverelatively high ESG scores (low ESG risk ratings). The index focuses on
emissions of CO 2 and other greenhouse gases. The index composition
ratios are determined by taking into account each stock’s ESG scoresand market capitalization.

Enhancementof information
provision to end investors
regarding ESG indices

Check the index provider’s efforts with respect to the ESG index (regular/irregular basis)
Response to consultations concerning ESG index (irregular basis)

Establish/
listing criteria

2

Due Diligence on ESG Index Providers

Main topics of communication

We regularly interview index providers to check on matters including the status of their efforts to ensure index quality and secure thetransparency of ESG evaluations. Based on the results of these interviews, we evaluate index providers in cooperation with the Investment
Department, the Responsible Investment Department and other relevant departments, and report the results to the ESG Committee.
Through the evaluation of ESG providers, we learn about the relative strengths and issues for each provider. Also, we consult with
the index providers and request improvements, as necessary. In 2023, we received responses from all providers of ESG indices that
we use, and we confirmed that all providers, as providers of ESG indices, have frameworks in place to appropriately explain how they
ensure quality, develop specialized personnel, maintain independence, manage conflicts of interest, and ensure transparency.

Status of efforts to secure ESG index quality

Before establishment

55

Due diligence and Evaluation on index provider’s philosophy and efforts with respect to ESG index

Responsible Investment Report 2023

At time of establishment

 tatus of ensuring transparency andS
independence in computing ESG index, andconflict of interest management system fforts for ensuring specialized ESG
E
assessment data as well as initiatives incollecting ESG assessment data
After establishment

56

Governance of Third-Party Asset Managers’ ESG Products
Overview and Qualitative Assessment of Third-Party Funds
At Nomura Asset Management, we collaborate
with third-party asset managers both in Japan andoverseas to provide investors in Japan with third-party
funds in a wide range of asset classes. The Advisory
Fund Management Department and other departments
specializing in third-party investment are responsible
for managing third-party funds. The Advisory FundManagement Department, which primarily handles
traditional assets, collaborates with more than 100
asset management firms to provide third-party funds(net assets totaling approximately ¥7 trillion as ofDecember 31, 2023) to investors. These assets arebroadly diversified in different asset classes, including
equities, fixed income, and FOFs (funds of funds).
When we outsource investments to a third-party
asset manager, we carefully examine the investment
capabilities and operational execution capacity ofthat asset management firm before selecting them. In
addition, in order to ensure the quality of a fund after
we select it, we collaborate with Nomura Fiduciary
Research & Consulting (NFRC) to continuously
monitor the asset management firm, its investment
system, investment processes, performance, andManagement of Third-Party Funds

Qualitative Evaluation of ESG Funds
Nomura AssetManagement

Provideinformation

NFRC
Managementof fund

Advisory FundManagement Dept.
Gatekeeper

Third-party
asset manager

Provision of
investment
products

Product
structuring

Investors
Fund
Disseminate
management information
Sub-contract

Related departments

other matters as a part of an annual third-party fundqualitative assessment. If we identify any serious
issues in a third-party fund’s management, wedemand that the asset manager make improvements

Needs

to its investment operations. This is part of our effort
to maintain and improve the quality of these thirdparty funds.

ESG Evaluations of Third-Party Funds
In 2018, we added questions about ESG (responsible
investment) to our annual qualitative evaluations ofthird-party funds, and began monitoring ESG, including
engagement activities and proxy voting processes.
From 2021 onwards, with the aim of confirming theextent of ESG integration into the investment process,57

Responsible Investment Report 2023

we have added questions about ESG researchsystems, specific investment processes, and otherrelated matters as a part of enhancing assessments.
In addition, based on the importance of ESG
issues as well as our fiduciary duty, in 2021 we beganmonitoring the funds that fall under our definition of“ESG funds” under a framework separate from ourannual qualitative assessments of third-party funds.
We define ESG funds as funds that actively utilize
ESG integration, engagement/proxy voting, and othersustainable strategies. As of December 2023, 12 of thethird-party funds we offer are ESG funds.

We conduct ESG-specific qualitative evaluations of
ESG funds. If an evaluation reveals a serious issue
in the management of an ESG fund, we will ask thethird-party asset management firm to improve its
management in the same way as we would for any
other third-party funds. Qualitative evaluations of
ESG funds are led by the Advisory Fund Management
Department, which is responsible for managing thirdparty funds, and starting from 2022 the Advisory FundManagement Department has been strengthening
collaboration with the Responsible Investment
Department and other ESG-related departments aspart of an effort to build a framework under which awide range of relevant internal parties participate inevaluating third-party funds, as part of our progress
on bolstering our evaluation system.
The evaluations are performed based on the seveninvestment styles identified by the Global Sustainable
Investment Alliance (GSIA). These are corporate
engagement and proxy voting, ESG integration,negative screening, positive screening, norms-based
screening, sustainable-themed investment and impact
investing. From 2022, among the ESG efforts subject
to evaluation, we added third-party asset managers’
response to climate change and other ESG issues aswell as cooperation with various initiatives.
In 2023, rules in countries around the world wereenhanced, including the strengthening of disclosurerules related to ESG investment. Amid this, we
determined it was necessary to further improve ourqualitative evaluation by having it assessed from athird-party perspective, and we consulted with anoutside organization to enhance our evaluations,
including by adding new evaluation items such as

initiatives to address human rights and biodiversity
issues, as well as ESG risks.
With these improvements, we are now able toperform concrete checks, including of detailed
information on ESG investments by third-party asset
managers and the status of initiatives on a wider rangeof ESG issues than before. Our efforts targeting thirdparty-managed funds have been assessed externally,
and in the 2023 annual evaluation by the Principles for
Responsible Investment (PRI), the item (module) score

related to third-party investment improved from theprevious assessment.
Going forward, disclosure rules related to ESG
investment in countries around the world are expected
to become more stringent. We will closely monitor thesituation surrounding ESG investment and incorporate
any necessary assessment items as we maintain andimprove the quality of third-party managed ESG funds.

Qualitative Evaluation Process for ESG Funds
Relateddepartments

Expansion of matters to check/evaluate

Collaboration

Advisory FundManagement
Dept.

Meeting
members

Proposals

ESG
questionnaire

Send

Collect

Discussion

ESG
evaluation

ESG Investment
Process Evaluation
Meeting

Inquiries,
Additional questions

Product
Committee

Requests for
improvement, etc.

Third-party
asset manager

58

Engagement
We engage in constructive dialogue with companies to promote their continued value creationand sustainable growth

Basic stance on engagement

1

Engage in dialogue
with a cordialand constructive
attitude2

Work to understand non-financial
information, including companies’
efforts to address ESG issues, andthe strategies and philosophiesbehind them3

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

4

When a serious scandal or
accident has occurred, promotesound management by hearing
the causes and measures toprevent recurrence

Our Idea of Constructive Dialogue with Portfolio Companies
We have established a basic policy for engagement as
part of our responsible investment policy formulatedby the Responsible Investment Committee, the highest
decision-making body for responsible investment.
We believe that engagement, or constructive

dialogue with portfolio companies, starts with athorough understanding of the target company and its
business environment as well as its future. We also view
engagement as one of the most powerful means to fulfill
our stewardship responsibility.

We carry out our engagement activities based on the
Basic Policy for Responsible Investment Management
established by the Responsible Investment Committee
and the priority engagement topics determined basedon this policy.
As shown in the figure to the right, our priority
engagement topics cover a wide range, from ESG
to business strategy and financial strategy. The
Engagement Department Meeting is the body thatconsiders and establishes engagement activity
policies (engagement goals) that contribute toincreasing the corporate value of each portfolio
company, referencing these priority topics. This
meeting is held approximately biweekly, with over 20
participants, mainly from the Engagement Department,
including portfolio managers, analysts, and ESG
specialists, and they work to refine engagement goals.
In July 2021, we selected approximately 300
Japanese companies to be priority companies forengagement. Subsequently, we have establishedengagement goals for each of these companies, andduring 2023 we mostly completed the goal-setting
for all 300 companies. We held approximately 1,000
engagement meetings, so we are confident that ourengagement system is firmly in place in terms ofengagement volume.
On the other hand, we believe that we are enteringa phase in which the quality of engagement, or its
effectiveness, will be put to the test.
After setting engagement goals, we use milestones
to manage progress towards achieving them. If wedetermine that progress will be difficult under thecurrent method, we either revise the method, suchas requesting a meeting with outside directors, or
consider escalation measures, such as reflection
in investment decisions and proxy voting. On thefollowing pages, we introduce several cases where
engagement progressed through dialogue withoutside directors. We believe that contacting multiple

Breakdown of 2023 year-end engagement
goals (by priority topics)
Category

Topic

Ratio

Business

Business Strategy and
1 Integrate
Sustainability

2.7%

2 Climate Change

14.3%

3 Natural Capital

1.2%

4 Human Rights Risks

4.9%

Human Capital Possessing
5 Utilize
Diverse Values

5.3%

Well-Being within
6 Realizing
Society

1.3%

7 Redefine the Board of Directors

11.6%

Head of Engagement Department

Yosuke Uchida

Environment

SocialGovernance

Financial
Otherscommitment to capital
8 Strengthen
13.6%
efficiency
explanation of financial
9 Rational
strategy

11.6%
33.4%

As of December 2023

2023 Engagement Meetings
stakeholders in this way to encourage change in acompany is important.
The roles that companies are expected to play inareas such as human rights due diligence, supply
chain management, and well-being are becoming
increasingly diverse. Following the Tokyo Stock
Exchange’s request in March 2023, companies’
awareness of capital efficiency has changed. In linewith these social changes, we are also graduallyadding to and updating our engagement goals.

Total numberof engagement
meetings

Governance32%

Responsible Investment Report 2023

911 meetings
Total number ofengagement topics

Financialstrategy

16%

2,086 topics

Social17%

59

Businessstrategy
12%

Proxyvoting-related
8%

Environmental
16%*B reakdown of engagement meetings throughout 2023
(number of topics)

60

Measuring the Effects of Engagement Activities
We are currently promoting measures to measure theeffectiveness of our engagement activities.
The chart on the right shows progress towards
the milestones for 2023. We set engagement goals
in advance, such as “growth strategy formulationand disclosure” and “board of directors’ diversity
enhancement,” and then proceed with engagement
activities. Milestone management measures the progressachieved by these activities. As of the end of 2022,
the status was mostly “2. Shared recognition,” but asof the end of 2023, an increasing number of cases haveprogressed to corporate action such as “4. Implementationof countermeasures” and “5. Completed.”
In addition to checking the progress of individual
engagement activities in this way, our Innovation Lab
Department is also measuring the effectiveness of ourengagement activities as a whole.
Specifically, the Innovation Lab Departmentcompared companies we engaged with from 2016 to2022 to companies we did not engage with, and has
assessed the outcome of engagement by comparing
changes in companies’ business performanceand corporate actions (such as strengthening ESG
initiatives and enhancing dialogue with the stock
market, etc.). The figure below shows the findings ofthe analysis. We found statistically significant trends
among the companies with which we engaged,
including, but not limited to, a decrease in the ratioof cross-shareholdings, the elimination of takeover
defense measures, an increase in the percentage ofshares owned by executives, and an increase in theratio of female and outside directors.
Furthermore, starting in FY2023, this analysis not
only includes whether or not we engaged with acompany, but also how many times we engaged aswell as the specific details of the engagement and theassessments of those engagements. This analysis foundthe trends shown below to be statistically significant.

Engagement on SBT (Science Based Targets)

Status of Milestone Management*
As of December 31, 2022
5 Completion

204

Company implements

4 countermeasures

24

Company formulates

3 countermeasures

126

Company shares a
2 recognition of the issues
Communicate issues to
1 portfolio company

314
266

As of December 31, 2023
5 Completion
Company implements

4 countermeasures

Company formulates

3 countermeasures

Company shares a
2 recognition of the issues
Communicate issues to
1 portfolio company

303
42
138
262
189

*Check the progress of milestones regarding engagement goals that have been set as of the end of December 2022.
Completion: C ountermeasures have been announced via press release, etc., and it is certain that the countermeasures will be implemented (For completions, the cumulative figure is until the end of 2023. The number of completions in
2023 alone was 99)
Company implements countermeasures: Countermeasures have been announced via press release, etc., but it is determined that it is necessary to examine that the company completes implementation of the countermeasures
Company formulates countermeasures: It has been confirmed at a meeting that the company is studying measures to address the issues we identified
Company shares a recognition of the issues: The company shares a recognition of the issues that we identified (the company understands the issues and has begun studying them)Communicate issues to portfolio company: We have communicated to the company the areas that we think are issues to be addressed

Outcome of two-period model
Treatment group

Control group

Outcome variable

Engagement effectChange in control
group
Time

We define the engagement effect as the difference in the change in the outcome
variables between the group of companies we engaged with (treatment group) andthe group of companies we did not engage with (control group).

61

Responsible Investment Report 2023

As part of our climate change engagement, we encourage our portfolio companies to become SBT-certified.
SBTs are GHG emission reduction targets set by companies for the next five to 10 years consistent with the levels required by the Paris Agreement. SBTs
are certified by the SBT Initiative, an international organization established by the CDP, UNGC, WRI, and WWF.
As companies and the overall supply chain are being asked to take steps to reduce GHG emissions, an increasing number of companies are working toobtain SBT certification for a variety of reasons, including boosting their external assessments and complying with demands from business partners.
In 2023, more than 700 Japanese companies had obtained SBT certification, and as of the end of December 2023 the number of Japanese companies thathave obtained SBT certification is the highest in the world.

 ompanies that we have engaged with repeatedly tend to have improved capital efficiency the more weCengaged with themCompanies with which we have conducted governance-related engagement tend to have increased executive
officer shareholding ratios and have introduced performance-linked compensation.
We are confident that the results of this analysis confirm the importance of continuous engagement activities, which issomething we value. Meanwhile something we will continue to analyze from last year is the issue of endogeneity, whereby
effects cannot be said to be the result of our engagement activities alone, and that companies with poor governancesystems are more likely to be the subject of engagement. We will continue to accumulate data and measure effectiveness,
including examining this issue of endogeneity, and will utilize these data to improve future engagement activities. This
analysis and verification was supervised by Professor Yumiko Miwa of Meiji University, who provided beneficial comments
during the process.

Engagement with Kyushu Electric Power Co., Ltd. on obtaining
SBT certification
In April 2021, Kyushu Electric Power Co., Inc.
(“Kyuden”) formulated the “Kyuden Group Carbon
Neutral Vision 2050,” and declared that as afrontrunner in carbon-reduction/decarbonization
efforts, it will aspire to become a corporate groupthat will spearhead Japan’s decarbonization initiatives
from Kyushu. Additionally, Kyuden’s zero-emission/FIT
power supply ratio is 58% (FY2019), which is top-classamong electric power companies in Japan.
The ratio of fossil fuel-based electricity generation in
Japan is generally seen as high, but Kyuden is eager torestart nuclear power plants as soon as possible andto introduce renewable energy. Kyuden’s management
team and IR Department have actively promoted these
efforts through IR briefings and facility tours.
We believe that SBT certification is desirable in order
to both educate investors and other stakeholders
about Kyuden’s low-carbon and decarbonization
efforts, and to increase its corporate value, and since2021 we have been encouraging Kyuden to obtain SBT
certification at IR and ESG meetings.
There were not many cases around the world of
SBT certification being obtained by electric powercompanies, and it was initially believed that obtaining
SBT certification would be very challenging, but inMarch 2023, Kyuden’s GHG emissions reduction target
became the first among a major Japanese energy
company to receive SBT certification.
We think that our encouragement was one of thefactors that led to Kyuden receiving its SBT certification.

Number of SBT-certified companies by country(As of December 2023)

0

200

400

600

800

Japan
U.K.
U.S.
Germany
SwedenFranceDenmark
China
India
Netherlands

62

Engagement Activities Targeting Human Rights Risk
Management, Utilization of Human CapitalWith labor shortages becoming a concern worldwide, companies are being asked to utilize a diverse range of human capital. Expanding human capitalpossessing diversity across gender and nationality is expected to contribute not only to an increase in the quantity of human resources, but also to ahigher level of quality of human resources. On the other hand, it is also important to monitor whether human resources are being treated and evaluatedappropriately. As supply chains become globalized and intersect with different regulations and customs, human rights issues can arise. We closely
monitor the human rights risks of portfolio companies and encourage them to conduct human rights due diligence.
yt
iorit opics
Pr

Utilize Human
CapitalPossessing
DiverseValues4

Target company

Communicate
issues toportfolio
company

Company
shares arecognitionof the issues

Company
Company
implements
formulates
countermeasures countermeasures

Milestone
progress

Period3 year (Most recent interview: June 2023)*

Completion

Engagement
goals

Formulateand executemeasures related
to the active
participation of
women

Overview of engagement
NAM’sconcerns

Engagement
progress

Current
status

As competition for human resources intensifies throughout the semiconductor industry, this company has a
low ratio of female employees, so we have begun engagement with the company, believing that promoting
the active participation of women will help resolve the issue of personnel shortages.
When we urged the company to set targets for promoting the active participation of women and develop
measures to achieve the targets, the company commented that it wanted to take a proactive approach
to doing this. Subsequently, the company announced targets for the ratio of female managers, but thesetargets were a bit conservative compared to its industry peers, so we asked the company to revise its
targets and enhance its measures.
When we checked on the current status of the measures, we learned that roundtable discussions andcompany introduction materials are being expanded with the aim of strengthening the recruitment of female
engineers. The company now has a policy of expanding its measures based on the opinions of outside
directors who have research findings with respect to promoting the active participation of women, and wewill support this policy.

Retail company B

Communicate
issues toportfolio
company

Company
shares arecognitionof the issues

Company
formulates
countermeasures

Company
implements
countermeasures

Completion

Engagement
goals

Milestone
progress
Performing
human rights
due diligence
Period1 year 8 months (Completed: October 2023)

Overview of engagement
NAM’sconcerns

As the retail industry increasingly utilizes foreign workers, issues with the working environment
have been identified. The company in question is a large retailer that operates a chain of
convenience stores both domestically and internationally, but we could not confirm the status of
their consideration of human rights risks in their integrated reports and other disclosures, so webegan engaging with the company.

Engagement
progress

When we asked the company about the status of its management of human rights risks for foreign
workers, we found that while the company has established a foundation that contributes to supporting
the lives of foreign workers in Japan, the company told us that it may not be able to grasp the actual
situation at its overseas franchise stores. We encouraged the company to conduct human rights due
diligence to ascertain human rights risks throughout its supply chain.

Current
statusOverview of initiative

Status of dialogue
ATMF he Access to Medicine Foundation has beenTworking with the pharmaceutical industry for morethan a decade, with a primary goal of improving
access to health care for the billions of people
in low- and middle-income countries who areunderserved by modern medical advances.

Target company

Human rights
risk

Semiconductor company A

We collaborate with numerous international engagement initiatives that address social issues.
One of these engagement initiatives is the Access to Medicine Index (ATMI).
This initiative aims to promote improved access to healthcare in low- and middle-income countries, and we are working as a lead investor in collaborative
engagement with two major Japanese and American pharmaceutical companies, including Daiichi Sankyo Co., Ltd.

 esearch findings published by the Access toR
Medicine Foundation.

ytiorit opics
Pr

5

Engagement Initiatives

We have subsequently had multiple conversations with the company. The company disclosed the results of
its supplier human rights due diligence and risk mitigation policies in its 2023 integrated report.

Nomura Asset Management
We have been appointed by ATMI as the lead investor
to conduct engagement activities with your company.
ATMI’s assessment of your company is not high.
We realize that your company is focusing on accessto medicine, and we think that you can improveyour assessment by making improvements to yourexplanations and disclosures.

It is possible that they do not understand thecircumstances unique to our company. For example,
our company outsources some of our overseas sales
to a UK pharmaceutical company, and it seems that
our efforts to improve access to medicine are notbeing evaluated in this respect.

Regarding this issue, we would like to contact ATFM
as well. Meanwhile, there may be other issues that
could be considered, such as formulating a companywide access plan.

Since each region has different characteristics, wehave so far kept cross-regional rules to a minimum andestablished detailed rules for each region. However,there might be room for us to make improvements withrespect to the content and methods of our explanations,and we will look into this.

Participating companies
 42 institutional investors around the world ($22 trillion
1
in assets under management) refer to ATMI.
 omura Asset Management became an investorsNsignatory in 2019. Representing the investors, we
handle collaborative engagement as lead investor for
two large pharmaceutical companies in Japan and the
US (Among Japanese investors, only two companies,
including our company, act as lead investors.)

We want to reconsider
the evaluation of such
pharmaceuticals.

Our activities as a part of the initiativeIn 2021, we co-signed a statement in support of a fairand equitable response to COVID-19.
In 2022, our UK office was a co-lead investor for alarge UK pharmaceutical company.
In 2023, our UK office became the lead investor for
a US pharmaceutical company, and our Japan officebecame the lead investor for Daiichi Sankyo Co., Ltd.

DaiichiSankyo’scomment

Daiichi Sankyo Co., Ltd.

(Target company of engagement)

We held a meeting with Daiichi Sankyo Co., Ltd. The
company also considers ATMI to be an important index,
and it appears that the company wants to improve its
evaluation. On the other hand, the company appears
to have special circumstances, such as outsourcing
the sale of some pharmaceutical products to a UK
pharmaceutical company. It might be better to make anevaluation based on such individual circumstances?

*Periodic assessment revisions by ATMF are scheduled
to be carried out in 2024.

The Group’s strengths lie in our product portfolio and research and development pipeline for advanced cancer treatment drugs,
most notably ADCs.
In order to deliver products to more patients even more quickly, we are leveraging partnerships with major European and US
companies, and in regions with poor medical infrastructure, we are promoting initiatives to expand access to medical care throughpartnerships with NGOs. Through dialogue with your company, we were able to recognize the importance of further disclosure ofindicators related to access to medicine (such as the number of countries medicines are sold in and patient reach), and it also served
as an opportunity for the ATM Foundation to consider the significance of improving access to medicine through collaboration.

*The period is the number of months from the start of interviews until December 2023

63

Responsible Investment Report 2023

64

Engagement Targeting Increased Board Effectiveness
Enhancing the effectiveness of a company’s board of directors contributes significantly to bolstering corporate governance. We believe that the role andresponsibility of a company’s board of directors is to supervise management, and we encourage portfolio companies to transition to monitoring boards. In
our opinion, there are several requirements for a monitoring board, with the most important being the board members themselves. In addition to external
criteria such as independence, we take the skill matrix into consideration, aiming to support the creation of a board of directors capable of supervising thecompany in question.

ytiorit opics
Pr

7

Target company

Redefining
the board of
directors

Pharmaceutical company D

Communicate
issues toportfolio
company

Company
shares arecognitionof the issues

Company
formulates
countermeasures

Company
implements
countermeasures

Milestone
progress

Period5 years 8 month (Completed: April 2023)

Completion

Engagement
goals

Create effective
Nomination
Committee andCompensation
Committee

Overview of engagement
NAM’sconcerns

The company had an advisory committee that nominated directors and auditors and discussedcompensation, but the committee was chaired by the president, and there were issues with its effectiveness.

Engagement
progress

The role and responsibility of the board of directors of this company is to supervise the senior management
team. When we expressed concern that the company’s president, as the chairman of the board, is leading
the considerations of nominations and compensation, which are the core decisions of the board of directors,
the company’s only comment was that the majority of the board members are outside directors and there
were no problems with the board’s effectiveness.
Subsequently, we held two interviews with outside directors of the company, and expressed concerns
about this structure in which the president self-evaluates nominations and compensation, and we discussed
the importance of the nominating function when formulating a succession plan for the president.

Current
status65

Chief Credit Analyst

Shuichi Gotoyt
iorit opics
Pr

7
Redefining
the board of
directors

Fixed Income Engagement

In April 2023, the company established a new Nomination and Compensation Committee. The Committee
comprises the director in charge of general affairs and five outside directors, with an outside director serving
as the Committee chair.

Responsible Investment Report 2023

Target company

Semiconductor company E

Communicate
issues toportfolio
company

Company
shares arecognitionof the issues

Company
formulates
countermeasures

Company
implements
countermeasures

Dialogue extending beyond
conflicts of interest

In our domestic credit investment engagement
activities, we are focusing our efforts not only
on engagement by credit analysts alone, but on
engagement in collaboration with our equities division.
We hold joint meetings approximately 100 to 150 times
a year, in which equity analysts participate in debt IR
events hosted by the fixed income division, or credit
analysts participate in meetings hosted by the equity
division, and equity analysts and credit analysts work
together to engage in dialogue with portfolio companies.

The interests of fixed income investors and equity
investors are generally thought to be in conflict with
one another, but by having a common value standardof increasing the portfolio company’s corporate value
during engagement, we are able to have constructive
discussions that go beyond the bounds of the conflictof interest between fixed income and equity.
Specifically, in domestic fixed income engagement,
instead of simply asking for a company to maintain or
improve its finances and ratings, there are times when
we ask the company to explain its philosophy on optimal
capital structure if the company has surplus capital.
In addition, we support policies that increase financial
leverage if it is appropriate from the perspective of
increasing corporate value. Even if financial leverageincreases and the spreads widen in the process of
pursuing an optimal capital structure, we believe that
this will be a positive for investment performance from along-term perspective based on higher bond yields.
In domestic fixed income investment, we invest inissues that are resistant to downside risks from a longterm perspective, as we look to “discover trees thatcan withstand storms,” and our engagement is basedon this concept.

Completion

Engagement
goals

Conflicts of interest between equity
and fixed income are decreasing overthe long-term

Milestone
progress
Realizing a diverse
and effective
board of directors
PeriodCharacteristics of fixed income
engagement

2 years 1 month (Completed: June 2023)

Equity Analyst

MakotoImamuraShareholder
value

fixed income
value

Corporate
value

Overview of engagement
NAM’sconcerns

The company is a semiconductor manufacturer that operates globally, but there were issues with thediversity of its board of directors, including the absence of any female directors and only one outside
director. In addition, as the company expands its overseas business going forward, we believe that it needsa director who has expertise in this business, so we began engaging with the company.
We informed the company that we believe there is an issue with the diversity of the board of directors,

Engagement and that as it expands its overseas business going forward, it may need people suited for overseeing thebusiness, such as non-Japanese directors, and the company commented positively that it wants to consider
progress
personnel selection in order to improve diversity and effectiveness.

Current
statusIn 2022, the company appointed a female director and a non-Japanese director with management
experience at a foreign-capital semiconductor manufacturer. The following year, in 2023, the number offemale directors was increased to two, and the diversity and effectiveness of the board of directors has
greatly improved.

short termlong term

Comment from equity analyst Makoto Imamura
Equity analysts and credit analysts have different approaches whenit comes to corporate analysis, investment periods, and financial
leverage. Therefore, if equity analysts and credit analysts engage
separately with portfolio companies, the engagement goals we seek
from them tend to become vague and unclear. We recognize thathaving equity analysts and credit analysts communicate with portfolio
companies based on the common goals of increasing corporate value
and achieving sustainable growth is critical to enabling lively andconstructive discussions.

Examples ofEngagement

Financial institution F

Although the company had achieved its announced shareholders’ equity ratio target, our credit analysts believed that the company was not
yet sufficiently prepared for downside risks. On the other hand, our equity analysts believed that the company was reluctant to return profits toshareholders even though the company had achieved its capital targets.
Under these circumstances, our credit analysts participated in a meeting with the company’s CFO organized by our equity analysts, anda three-way discussion was held regarding the company’s optimal capital structure. Although no conclusion was reached, we believe thathaving this discussion based on different perspectives led to meaningful dialogue for both parties.

66

Aiming to Improve the Capital Efficiency ofJapanese Companies
In March 2023, the Tokyo Stock Exchange requested
that listed companies take “Action to implement
management that is conscious of cost of capital andstock price.” Following this request, companies havebecome much more cognizant of capital efficiency.
According to an announcement by the Tokyo Stock
Exchange in January 2024, approximately 49% ofcompanies listed on the Prime Market had announced
measures to improve capital efficiency by December 2023.
To improve capital efficiency, one of the most common
measures being taken by Japanese companies thesedays is to bolster their shareholder return policies. ManyJapanese companies still hold more cash and deposits
than is appropriate, and reducing surplus cash anddeposits through enhanced shareholder returns is thefirst step toward improving capital efficiency. However,improvements in capital efficiency that rely solely on
balance sheet reforms will eventually reach a limit.

We believe that in order to improve capital efficiency
over the medium to long term, and in turn increase
corporate value, it is necessary for companies to fosterand strengthen growth businesses, reform their businessportfolios, and have a strong commitment to capitalefficiency from senior management. In our dialogue
with portfolio companies, we not only encourage

Average ROE for Japanese companies*

Engagement Activities Targeting theAutomobile Industry

consideration of shareholder return policies, but also
urge a commitment to enhancing capital efficiency overthe medium to long term, including growth investmentsthat utilize surplus cash and deposits and non-businessassets, reviews of low-profit businesses, setting capitalefficiency targets, and utilizing performance-linked
compensation for directors.

*Aggregate value for companies in TOPIXROE (%)

12
9
6
3
0
1980

1990

2000

2010

2020

2024

The automobile industry has been one of the industries
that has attracted attention since March 2023, when
the Tokyo Stock Exchange requested that listedcompanies take “Action to implement management thatis conscious of cost of capital and stock price.” There
are many companies in the automobile industry that
hold large amounts of cash and deposits, and as shownin the lower left chart, there are a number of companies
whose net cash (which is calculated by subtracting
interest-bearing debt from cash and deposits andsecurities held), account for more than 50% of theirmarket capitalization. There are concerns about adecline in capital efficiency due to holding such surplus
funds on the balance sheet, and when we checkedvaluations, which indicate how the stock market
assesses companies, we found many companies withSituation for Japanese automakers and parts suppliers

ytiorit opics
Pr

Company holding shares

Target company

Bolstering thecommitment
to capitalefficiency

Heavy machinery company G

Automaker
A

1.5

Overview of engagement
Company
formulates
countermeasures

Company
implements
countermeasures

Milestone
progress

2 years 11months (Completed: February 2024)

Responsible Investment Report 2023

Completion

Engagement
goals

Announcement ofbusiness portfolio
restructuring andstrategy to improve
capital efficiency
based on ROIC

NAM’sconcerns

Engagement
progress

Current
status

The company is a conglomerate with multiple small businesses. After examining the profitability of thecompany by business line over the past 20 years, we found that capital efficiency has been declining in
multiple businesses, so we began engaging with the company to check on the company’s future plans for
low-profit businesses.

Company whose shares arebeing held

Company
shares arecognitionof the issues

PBR

Communicate
issues toportfolio
company67

In addition, the automobile industry, which
includes the manufacturing of approximately 30,000
components, covers a wide base and includes global
operations, and thus automakers’ social initiatives
are drawing increasing attention. In particular, asawareness regarding compliance and human rights
increases, automakers must now manage compliancewith respect to working environments and humanrights, not only within their own companies, but also
for their business partners. Additionally, with regards
to diversity and inclusion, the low ratio of women in
management positions is an issue. We believe thatcompanies’ efforts to address these social issues
will have a significant impact on brand value, and weare encouraging improvements through proactive
engagement activities.

Status of cross-shareholdings by main companies in large
automobile groups

2.0

8

Perioda PBR of less than 1.0x, which is a market evaluation
lower than a company’s dissolution value.
The sale of cross-shareholdings is attracting
particular attention. In the automobile industry,
relationships between affiliates remain strong,
and there are many cross-shareholdings between
companies that are business partners. As shown in the
diagram on the lower right, not only is there concernthat the interests of minority shareholders will be
neglected due to large cross-shareholdings between
corporate groups, but also that this is causing adecline in capital efficiency in the automobile industry.
As the industry as a whole undergoes major changes
such as the shift to EVs, it is important to consider
how these kinds of non-business assets can be used
to fund promising growth businesses.

1.0

When we asked the company about its plans for its low-profit businesses, the company replied that it was also
aware of this problem. After that, we met with outside directors to confirm the current state of ROIC managementthat the company is advancing, and they shared the problem that although ROIC is being utilized internally by theboard of directors and elsewhere, the external disclosure regarding this is insufficient.

0.5

The company announced its medium-term management plan until FY2026 at its full-year financial results
briefing for FY2023, and as a part of that, it announced its ROIC target values for each business. At thesame time, it announced that it would be suspending new orders and withdrawing from problematic
businesses, thereby making significant progress in reforming its business portfolio.

0.0
-100%

-50%

0%
Net cash/market capitalization

50%

100%

Automaker
A

Parts supplier Parts supplier Parts supplier Parts supplier Parts supplier
B
C
D
E
F

8.8%

3.3%

1.3%

0.0%

0.1%

9.5%

2.1%

0.0%

0.0%

1.7%

0.0%

0.0%

0.0%

0.0%

Parts supplier
B

24.7%

Parts supplier
C

24.2%

9.3%

Parts supplier
D

24.8%

7.7%

4.8%

Parts supplier
E

31.1%

4.2%

5.5%

0.4%

Parts supplier
F

42.8%

0.1%

0.8%

0.5%

0.4%
0.0%

68

Review of Priority Topics

Engagement activities targeting the automobile industry
Analyst engagement Automobile industry
Based on our concern that cross-shareholdings arecontributing to a decline in capital efficiency in theautomobile industry, we have been talking to companies
in the automobile industry about the need to reducecross-shareholdings, which are non-business assets,
and making growth investments based on this.
Companies took a cautious stance initially, perhaps
because they were concerned about a deteriorationin relationships with business partners that might
result from the sale of cross-shareholdings, but basedon our position as a third party, we have persistently
pushed forward with discussions, including seeking
opinions from companies and their business partners.
Our engagement efforts are beginning to pay off.

We have been discussing cross-shareholdings with
Company H, shown below, as well as the growthpotential and strategies for the OHT (off-highway
tire*) business, which is becoming a strength forthe company. We pointed out that the appeal of the
OHT business, which we gained an understanding ofthrough the discussions with the company, had notbeen sufficiently conveyed to the capital markets.
Subsequently, the company became more proactive inits disclosures, so we are confident that our dialogue
with the company has been constructive.
The elimination of cross-shareholdings is taking
place not only by Company H, but throughout the
automobile industry. In the second half of 2023, there

were a series of announcements from Toyota Groupaffiliates of plans to eliminate cross-shareholdings.
While we are pleased with this development, in
addition to selling cross-shareholdings, we willcontinue to talk with companies about how they can
use the proceeds from share sales to invest in growthand enhance corporate value.
*OHT... OHT (off-highway tire) refers to tires used for agricultural
machinery, industrial vehicles, and the like. In the tire industry,tire manufacturers from emerging countries are increasing theirpresence with low price strategies, but OHT products, which
require a higher level of durability than passenger car tires, areexpected to have solid profitability. Company H entered the OHTbusiness in 2016, completed the acquisition of a major company inthe industry in 2023, and is expanding the scale of this business.

Category

Senior Equity Analyst

Yoshinori Eguchi

We asked for an explanation
about the future policy forholding cross-shareholdings aswell as the growth prospects
and strategy for the OHTbusiness, which is a
growth business.

Comment from tire
manufacturer H

69

Responsible Investment Report 2023

Topic

Response from company

Engagement outcomesWe recognize that cross-shareholdings
are an issue to address. While it will taketime to sell shares, we will continue toconsider this. With respect to the OHTbusiness, we will work on proactive
disclosure that will help people
understand the appeal of this business.

In addition to announcing the sale of a large
cross-shareholding, the company also announced thatthe proceeds from the sale will be used to fund strategic
investments aimed at growth in the OHT business andother areas. Regarding the OHT business, the company
is disclosing senior management’s views on the
profitability and growth potential of the business, aswell as holding briefings on this business.

Our stock price has been sluggish for the past few years, and in 2020, our PBR had fallen to 0.4x. At a meeting with NAM
during this period, you pointed out that the stock market may not be fully aware of how attractive the OHT business is orunderstand our thoughts on allocating assets for growth. Following this dialogue, we held OHT business briefings andenhanced our disclosure of financial results briefing materials. At the same time, our top management did interviews andproactively promoted our company’s growth potential and strategies. As a result, our PBR is approaching 1x. We willcontinue to actively carry out IR activities going forward.

topic of “Strengthen commitment to capital efficiency.”
In addition to financial initiatives such as shareholder
returns and effective use of cash, it is aimed atstrengthening senior management’s commitment
centered on reducing cross-shareholdings andbolstering compensation governance. In addition,
we believe that “natural capital,” which relates tobiodiversity and renewable resources, and “humancapital with diverse values,” which links human capitalmanagement to enhancing corporate value, are topics
that will become pursued in earnest from this fiscal
year onward.
We will engage with companies targeting
improvements in corporate value, centered on the ninepriority topics below.

Topic overview

1

Rational explanation of growthstrategy

Encourage rational explanations regarding strategies to achieve growth(including building the business portfolio)

2

Integrate Business Strategy andSustainability

Demand explanations of business strategies that integrate sustainability.
Including disclosure regarding materiality and risks.

3

Climate Change

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

4Natural Capital

Demand efforts to address biodiversity and water risk.

5

Human Rights Risks

Ask companies to formulate human rights policies and perform human rights
due diligence as demanded by the public both in Japan and overseas.

6

Utilize Human Capital Possessing
Diverse Values

Demand that companies utilize human capital in line with a growth strategy,
including gender diversity and employee well-being.

7

Realizing Well-Being within Society

Encourage efforts to link solutions for realizing well-being within society withbusiness opportunities.

Governance

8

Highly-effective Monitoring Board

Encourage the transition to an effective monitoring board

Governance,
Financial

9

Strengthen commitment to capitalefficiency

Commitment = incentives through compensation + accountability.
Aims to achieve capital efficiency that exceeds capital costs, including
reductions of cross-shareholdings.

BusinessEngagement with Tire Manufacturer H
Overview ofengagement

In July 2023, we reorganized our priority engagement
topics. In response to the growing interest of operatingcompanies in capital cost and capital efficiency, we
will bolster our efforts to improve medium- to long-term
return on capital.
First of all, we have established a new priority
topic, “Rational explanation of growth strategy.” We
will ask portfolio companies to formulate strategies
to achieve medium- to long-term growth, including
business portfolio restructuring, and provide rational
explanations of these. We believe this is central to“management that is conscious of cost of capitaland stock price” as requested by the Tokyo Stock
Exchange. Second, we have integrated “Rational
explanation of financial strategy” with the new priority

Environment

SocialOthersEngagement activities related to overall business strategy, disclosure,
dialogue, etc.

CEO Engagement
Since 2022, our NAM President and CEO Hiroyasu Koike has
been encouraging Japanese companies to improve their corporate
value through dialogue with companies and outside experts.
By December 2023, he had the opportunity to engage indialogue with the leaders 21 companies, and as a new initiative
starting in 2023, he has also exchanged information with outsideacademic experts and institutional investors who are engaged insimilar engagement activities as we are, as we work to improveand advance the level of our engagement activities.
The content of these dialogue sessions are posted on our
website.
Referencehttps://global.nomura-am.co.jp/responsibility-investment/investors/ex-engagement.html

DentsuGroup

Pursuing Transformation to
Go Beyond Advertising

Representative Executive Officer,
President & CEO of Dentsu
Group Inc.

President and CEO of
Nomura Asset Management
Co., Ltd.

Hiroshi Igarashi

Hiroyasu Koike

We are engaged in in-depth discussions on the background, aims,
challenges, and potential for the growth strategy of Dentsu Group,
which is working to evolve from being a traditional advertising agency toa corporate group that combines marketing, consulting, and technology.

70Global Equity Engagement

Responsible Investment Report 2023

661
topics(299 meetings)

Engagements by Sustainalytics*

2023

441 topics

Milestone management(Keep records/progress evaluation)k

Performance review
Policy review

C

ec

Engagement
topic mix

EuropeNorth
America
Asia and
Emerging

13%

28%

59%

Total number of topics

Numberof topics
85

184

392

661

Ratio

(as of December 31, 2023)

Conclusion

26

Nomura Asset Management’s Global Equity Engagement

Examples of Milestone
Management*

Numberof topics

Businessstrategy

7%

47

Financialstrategy

4%27

Environmental

36%

236

Social22%

144

Governance

15%

102

Disclosure/
dialogue

16%

105

Total number of topics

Status of Global Equity Milestone Management

Engagement by
Nomura AssetManagement offices(Refer to Page 73)
Switzerland consumer
staple company

Collaborative
engagement by
Nomura AssetManagement andSustainalytics
China energy
company

Company
implements
countermeasures

Engagement
outsourced to
Sustainalytics

Company
formulates
countermeasures

Brazil consumer staple
company

70

issues to
1 Communicate
portfolio company
shares a
2 Company
recognition of the issues

3

Company formulates
countermeasure

4

Company implements
countermeasure

Communicate issues
to portfolio company

24

Discoveryof subsequent
topics andissuesStatus ofMilestone
Management(number of
topics)157

Company shares arecognition of the issues

116

661

5 Conclusion*Target universe: MSCI ACWI ex Japan

From 2H23 onwards we would like to: i) engage
with companies that either did not respond initiallyor ranked poorly compared to peers on this topic; ii)
explore the idea of inter-company collaborations todrive change; and iii) engage with the drug companies(Novo Nordisk and Eli Lilly) on how they view accessstrategies to their anti-obesity medicines, in order toimprove the impact of our portfolio companies.

Number of interviews

5First interview

9Period28 months-

41 months

In 2023, we carried out engagement across 661
topics. As of the end of 2023, we are managing
milestones for a total of 393 topics (284companies).
Of these, 26 topics are already at “Step 5:
Conclusion.”* 1: Communicate issues; 2: Share recognition; 3: Formulate countermeasures;
4: Implement countermeasures; 5: ConclusionoEngagement
ESG evaluation

Recognition of topics and issues
Selection of target companies

an

Ratio

A

P

Engagement
region mix

effectively implement PDCA (Plan, Do, Check, Act).
The ESG issues focused on during engagement andthe goals established vary greatly depending on thecompany.

Target of Global Equity Milestone Management

Ch

2023

D

71

Total number of engagement
topics by overseas offices

D

During 1H23, our UK office began a new ESG projectfocused on reducing obesity within the US workforce.
We believe that cutting obesity in the workforce
can lead to tangible financial benefits to employers
from lower absenteeism due to sickness and lower
healthcare insurance costs. Most importantly,

Engagements with Global Equities

collaborative engagement with Sustainalytics. As
with milestone management for Japanese companies,
milestones are divided into five stages with an
engagement period of three years. By establishingclear goals and having a set timeline, and thenevaluating the engagement process, we are able toct

Example of Engagement at
Overseas Offices

though, we think this is a way for employers to
improve the quality of life for their employees. We
focused on the US because employers are large
stakeholders in the healthcare system. Around 50%of Americans are covered by health insurance cosponsored by their employer.
We contacted 27 of our holdings in our Global
Sustainable Equity (GSE) strategy that have a sizeable
US presence, of which over 80% responded. We
asked them what measures they were taking tocombat obesity in the workforce through a survey.
Our areas of focus included the coverage of antiobesity medicines (AOMs), weight-loss programs,
bariatric surgery, and other initiatives intended topromote fitness and wellbeing. The results indicated awillingness from employers to help tackle obesity. Outof our survey, 100% of respondents indicated that they
cover bariatric surgery for employees. In addition, 85%of respondents at least partially covered weight loss
programs either through their health insurance scheme
or directly by offering discounts to gym classes.
A novel pathway for targeting obesity is throughhighly efficacious drugs. Novo Nordisk (NOVO), a
holding in GSE, has been an early leader in the field.
Now, several other companies are trying to moveinto the space. The high cost of these medicines(US$1,349 per month list price for NOVO’s Wegovy)
and a large addressable population can create costpressure for employers. Despite this, we found that
70% of respondents currently cover anti-obesity
medicines, and we were quite encouraged by this
rapid take up. Out of the 30% who did not offer
coverage, one cited the upcoming cardiovascular
trials as important evidence on whether these
medicines improved health outcomes as well as
weight loss. These trials, if successful, could spur
greater take-up amongst employers.

In our global equity engagement as well, we share ourawareness of ESG issues with companies, set specificgoals, and carry out milestone management until thegoals are achieved. In addition to the engagement
and milestone management that we conduct on ourown, we also perform milestone management forA

We continue to enhance our engagement activities for
global equities as well. Companies are facing many
global ESG issues, and collaboration with overseas
investment teams is essential not only for engagementwith overseas companies but also for engagementwith Japanese companies. Because global equities
encompass a large number of target countries andcompanies, we are leveraging the expertise of ourinvestment teams around the globe, as well as utilizing
outside resources, to optimize our engagement activities.
In 2023 our overseas offices conducted engagement on
a total of 661 topics (the total number of engagements
was 299). We divide engagement topics into a totalof six topics: Business strategy; Financial strategy;
Environmental; Social, Corporate governance; andDisclosure/Dialogue. The investment managers andanalysts in each office decide the engagement topics
and carry out engagement with companies.
Our engagement partner overseas is Sustainalytics,
and we either conduct collaborative engagementwith Sustainalytics or fully outsource engagement to
Sustainalytics (Refer to Page 74). In addition, we also
make use of collaborative initiatives such as the Accessto Medicine Foundation to carry out engagement
alongside other asset management firms on specifictopics (For details, please refer to Pages 75-76).

Global Equity Milestone Management

Pl72

Engagement by Sustainalytics

Examples of Global Equity Engagement (Milestone Management)
ority Topics
Pri

ority Topics
Pri

Protection ofnatural capital,
elimination of
deforestationin the supply
chain

Target company

Treating
unions fairly

Switzerland consumer staple
company A

Communicationof issues tocompany

Company sharesa recognition ofissuesCompany
Company
implements
formulates
countermeasurescountermeasures

Milestone
Progress

Period2 years and 4 months

Conclusion

Engagement
Goal

Respond to
instances ofdeforestation
occurring in the
supply chain,and curb future
deforestation

Target company

Taiwan Semiconductor company B

Communicationof issues tocompany

NAM’s Concerns

Engagement
progress

Current situation

Monitoring system and traceability in the supply chain, initiatives toprevent deforestation

Confirmed response to incidents of deforestation reported throughsatellite imagery reports. The company explained that they havereviewed the four events flagged by the investor group and haveremoved one company from their supplier list as the company could not
be verified. We have confirmed that they are upgrading their supplier
traceability systems and their complaints handling system. We also
discussed progress towards sustainable procurement of coffee beans
and regenerative agriculture initiatives.

By upgrading in-house supplier traceability systems and grievance
management systems, we hope they will strengthen traceability andrespond in a timely manner to corporate deforestation events in the
supply chain.
They are also working to promote regenerative agriculture with the goalof sourcing 50% of coffee beans through regenerative agriculture by
2030.

Company
formulates
countermeasures

Company
implements
countermeasures

Conclusion

Fewer disputes
over fair treatmentof trade unions

Period4 months

Completed : December 2023

Overview of engagement

NAM’s Concerns

When the company set up a factory in the U.S., it received backlashfrom local construction unions who accused it of sending construction
experts from Asia to the U.S. and taking jobs away from Americans.
Since stagnation in negotiations between the two sides would lead todelays in factory construction, we discussed ways to resolve the issue.

Engagement
progress

We engaged with the company to demand fair treatment of the labor
union. The company believes that advanced semiconductor fabrications(fab) require special skill sets but due to a skills shortage in the U.S. thecompany is sending construction experts with experience in state-ofthe-art fab construction to train U.S. workers. These experts will be in
the U.S. temporarily and local employees would be responsible for theoperation of the factory over the long term.

Current situationand outsource engagement to Sustainalytics.
Sustainalytics provides Global Standards
Engagement, in which companies are selected forengagement based on violations of international
norms such as the United Nations’ Global Compact,

Material Risk Engagement covering companies withcritical ESG risks, and Thematic Engagement, which
focuses on solutions to specific topics, such as
biodiversity and natural capital, responsible cleantech
from a global perspective.

Engagement
Goal

Milestone
Progress

Most recent interview/ September 2023*

Overview of engagement

Company sharesa recognition ofissuesIn global equity engagement, Nomura AssetManagement’s overseas offices also actively engage
portfolio companies, but due to the broad scopeof coverage for global equities, we partner with
Sustainalytics to carry out collaborative engagement

In December 2023, the company and union issued a joint statement
pledging that a committee made up of representatives from both sides
would meet quarterly to develop employee training programs, maintaintransparency on safety issues and announced that both sides had
agreed to resolve the dispute.

Global Standards Engagement

Material Risk Engagement

E S G

E S G

Engagement Policy

Engagement Policy

Encourage companies to resolve severe incidents as well as build astrategy aimed at preventing future recurrences and improving ESG
practices

Encourages companies with financiallymaterial ESG issues toconstruct strategies to handle ESG risks and opportunities with theaim of increasing long-term corporate value

Target companies

Target companies

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

Companies with particularly high ESG risk in their industry

Thematic Engagement
E

E

E

E

E S

Engagement
related to
Biodiversity andNatural Capital

Engagement
related to Feeding
the future

Engagement
related to
Climate Change Sustainable Forests
and FinanceEngagement
related to Net Zero
Transition

Engagement
related to
Responsible
CleantechS
Engagement
related to Human
Rights Accelerator

S
Engagement
related to Human
Capital and the
Future of WorkG

GEngagement
related to Taxation

Engagement
related toTomorrow’s Board

S
Engagement
related to Modern
SlaveryG
Engagement
related to The
Governance of
SDGs*The period is the number of months from the start of interviews until December 2023

73

Responsible Investment Report 2023

74

Cooperation with Global ESG Initiatives
Bioacoustic research
efforts for natural
capital protection

1
In the second half of 2022, an investor groupconsisting of Nomura Asset Management, Cardano
and Fidelity International sponsored Green Praxis,
a vegetation management solutions provider, toconduct a study and work on the developmentof biodiversity measurement tools and indices tomeasure the impact of human activities on natural
ecosystems. The project leveraged the use of artificial
intelligence (AI) and machine learning to process
bioacoustics data collected on the ground.
The goal of the study was to lay the initialfoundations for building an affordable, speedy,
reliable and non-invasive (minimal disturbance) tool
for measuring biodiversity richness and abundance ina certain area. The work is important and innovative
as at present, there is no universally accepted tool75

Responsible Investment Report 2023

or metric to do this. Although, we acknowledge that
there is a need for further studies with larger sample
sizes and conducted at different geographies and atdifferent times of the year (to check for seasonality),
the investor group was pleased with the initial setof results received in 2Q23 and believe they arepromising and in-line with previous scientific findings.
Key findings of the study showed a clear difference
between production and conservation areas,
displaying strictly different acoustics landscapes.
Production areas’ acoustic space was dominatedby intense monotonous activity of one particular
type of insect, while to a different degree in bothconservation and control areas a variety of species
were observed, such as birds, frogs and evenprimates (e.g. gibbons). Another interesting finding
was that while both conservation and control plots
clearly demonstrated higher species richness, theconservation areas were lacking in terms of species
abundance compared to the control group.
Overall, the conclusion of the study is thatconservation efforts of corporations can bequite productive in restoring at least partially thebiodiversity richness and abundance in a specificarea, but cannot, of course, replace the protection ofnatural forests.

One of the limitations experienced was the inability
to find a true primary, or otherwise called, pristine
forest adjacent to the plantation to serve as a control
group for the study. To our disappointment, theinvestor group learned that all of those forests in thearea had been cleared in the 1980s. Despite this, we
believe this represents another key finding of thisstudy on its own and will be a continued focus for
future phases of this project to find and test a true
pristine forest. We believe that finding and testing
truly pristine forests will be a continued focus for
future phases of this project.
Next steps: the investor group, along with Green
Praxis, is already in talks with another palm oil
producer for a potential second study to continuebuilding the database and to develop the AI modeland overlay. Furthermore, once sufficient data isgathered and initial findings are confirmed, the results
can be used in our engagements with companies. We
have seen and demonstrated in the past the powerof evidence-based engagement work through ourparticipation in the collaborative engagement towards
zero deforestation and we can potentially in the future
be equipped with proprietary evidence and researchon effects of conservation efforts and impacts on
local biodiversity.

Access to Medicine
Foundation/ Accessto Medicine Index

2

The UK office Equity team co-hosted the launch of
the Access to Medicine (ATM) Foundation’s reporton generics and biosimilar medicine manufacturers.
The Foundation has previously focused primarilyon the developers of the drugs and treatments,
which are ranked in the annual Access to Medicine
Index, however it has expanded to cover the genericmanufactures who also play a very important rolein supporting access and NAM UK was delighted to
be able to support this in some small way throughco-hosting the launch event and participating in
the investor discussion. Generic manufacturers
play a very important role further downstream thanthe R&D focused pharmaceuticals and will often
be the companies that manufacture the treatments
themselves in low and middle income-countries(LMICs) – either off patent treatments or throughagreements wherein a treatment patent has been
donated such that drugs can be manufactured acrossa range of lower income countries by generics.
Benjamin Lacaille, Healthcare Analyst, contributed
to a fascinating panel discussion, which identified
specific opportunities and six key takeaways:

Reference

6 key takeaways:

1

There are meaningful opportunities for investors in thegenerics industry to have a positive impact on accessin low and middle-income countries (LMICs).

2

The analytical framework and company profiles areuseful tools for investors.

3

Investors care about ESG therefore generics will benefit
from stepping up access to medicine in the long term.

4

Investors play a critical role in ensuring theFoundation’s findings can lead to change.

5

There are specific conditions concerning biosimilar
medicine

6

For those investors concerned about antimicrobial
resistance engaging with generic manufacturers is
key given that the vast majority of antibiotics are
manufactured by generics.

From left: Nomura
Asset Management UK
Lead Portfolio Manager
Alex Rowe, Access to
Medicine Foundation
Engagement Manager
Suzi van Es, Nomura
Asset Management UK
ESG Specialist Yoko
Beesley

For further details on the event and the report published by Access to Medicine please visit
https://accesstomedicinefoundation.org/resource/investor-launch-event-for-new-analysis-of-major-generics-companies-meeting-report

Reference

More information on this project at:https://www.nomura-asset.co.uk/download/news/GreenPraxis_research_study_press_release.pdf

Report publishedevery two years

At our Tokyo office, we play the role of a lead investor in engaging with DAIICHI SANKYO COMPANY, LIMITED, which is one of the companies evaluated in
the Access to Medicine Index, and discuss the company’s evaluation in the Access to Medicine Index and drug access plans. Please refer to page 64 fordetails.

76

ProxyVotingPromoting the transition to monitoringboards through disciplined proxy voting

Proxy Voting
The Outline of Proxy Voting

The Unique Aspects of
Our proxy Voting

1

Systematic and ongoing efforts
to influence companies

2

Effective and robust process

3
477

Responsible Investment Report 2023

Along with engagement, we aim to realize
desirable management styles.

Thorough discussions by the Responsible
Investment Committee + real-timemonitoring of conflicts of interest by the
Responsible Investment Council.

High level of accountability
We disclose the reasons for voting infavor of or against all proposals. We givedetailed reasons for proposals requiring
special explanation.

Standards for actions beyond
simple opposition
Introduced standards to not only oppose a
proposal in the case that initiatives are lagging
in progress, but also to encourage averagecompanies to aim for higher standards

In proxy voting, we focus on the corporate governanceof portfolio companies. The basic structure of corporate
governance is that directors and auditors are elected
at a shareholders’ meeting, and directors (the board of
directors) and auditors supervise senior management
through nominations, compensation matters, and audits.
Accordingly, the following three aspects are particularly
important in proxy voting: the election of directors(nomination), executive compensation (compensation)and the election of auditors (audit). In addition, theappropriation of surplus is important when it comes toJapanese companies because Japanese companies
are often criticized for retaining a large amount of cash
and deposits and being unwilling to return profits toshareholders through dividends and share buybacks.
Moreover, proposals submitted by shareholders havealso been increasing in recent years. Due to differences inlegal systems, it is easier to make shareholder proposals
in Japan than in Europe and the United States, andthese proposals can often have a direct impact on the
management of companies. Accordingly, these proposals
must be considered carefully.
We regard proxy voting as part of our engagementwith portfolio companies, and we make judgments on
proposals by all portfolio companies in accordance with
our own proxy voting guidelines.
The four points noted in page 77 are unique aspects ofour proxy voting.

Basic Corporate Governance Structure
Shareholders’ meeting
Election

Directors (Board of Directors) / Auditors
Oversight(nomination, compensation, audit)

Senior management

System to Manage Conflicts of Interest
Members of the Responsible Investment Committee, thehighest decision-making body, include, in principle, only
persons involved in investment and research decision
making, while people in a position with a conflict ofinterest or people with the possibility of acting on behalfof such persons are excluded. In addition, under the
Audit and Supervisory Committee, we have establisheda Responsible Investment Council comprising only
the Chief Conflict Officer and persons in independent
positions in our company, including independent outside
directors. This Responsible Investment Council monitors
the Responsible Investment Committee’s decisions aswell as its overall management. This council monitors
stewardship activities, especially proxy voting involving
conflicts of interest, to make sure that decisions are madethat do not adversely affect the interests of clients as aresult of conflicts of interest.

As required, the Responsible Investment Council
recommends improvements to the Executive Management
Committee and/or the Responsible Investment
Committee, and reports on this to the Board of Directors

Nomura Asset Management’s System toManage Conflicts of Interestand the Audit and Supervisory Committee. Furthermore,members of the Responsible Investment Council attend
Responsible Investment Committee meetings, and areable to immediately state their opinions.
Responsible Investment Committee

Responsible Investment Council
Chair

Members

Secretariat

AttendCCO*

Independent outside directors and others

Responsible Investment
Department*Chief Conflict Officer

78

Proxy Voting Process for Japanese Equities

Proxy Voting Process for
Global Equities

The proxy voting process is as shown in the figure below. The process for proposals that can be judged in accordancewith the proxy voting guidelines (proposals that do not require qualitative judgment) is different than the process forother proposals (that do require qualitative judgment).
As with other portfolio companies, we make decisions about whether to support or oppose proposals for groupaffiliates based on our guidelines. As a proposal with a conflict of interest, the Responsible Investment Committee will
discuss the proposal referencing the opinions of multiple proxy voting advisory firms. Members of the Responsible
Investment Council attend the Responsible Investment Committee meeting and participate in the deliberations. Also,
following the conclusion of the Responsible Investment Committee meeting, the Responsible Investment Council holdsa meeting where it closely examines the issue from the perspective of conflicts of interest.

For proxy voting (excluding Japanese equities), we
generally decide to vote for or against a proposal inaccordance with our Global Basic Policy on Proxy Voting.
However, if investment managers and analysts with adeep understanding of local conditions determine it to benecessary, we may, upon deliberation, make a decisionthat differs from the basic policy on proxy voting. The final
decision is shared with all offices, and proxy voting is thencarried out uniformly on a global basis.

Secretariat

Responsible Investment
Committee

Changes in Resultsof Exercise of Voting
Rights for JapaneseCompanies (calendar year)
Total Company proposals
The ratio of votes against is
shown in the chart below.
See details on the right.

Number of
proposals

Responsible
Investment Council

Members*1
Responsible Investment
Department

Seven people including those
responsible for investment and research(The Responsible Investment Council
members participate in Responsible
Investment Committee meetings)

Preparation of proposals

Global Basic Policy for
Proxy Voting

Chief Conflict Officer Outside: 1
directors: 2
Outside experts: 1

Proposal judging process

79

8.5%

23,87723,89424,70023,653

2020

2021

2022

2023

EuropeQualitative
judgment notnecessary
Qualitative
judgment isnecessary

Decidewhether toagree oropposeQualitative
judgment isnecessary*2

Decidewhether toagree oropposeThere is a conflictof interest

Reference

Number of
proposals

Discuss

Formulationof theguidelines

No conflicts ofinterest

The ratio of votes for isshown in the chart below.
9.8%

19.2%

9.5%

Opinions from multiple
proxy voting advisory firms

Discuss

Considering local
circumstances, makedecision different
from the policy ifnecessary

Asia

Tokyo

Discuss

236

174

315

453

2020

2021

2022

2023

Our ratio of votes supporting proposals increased in
2023. The number of proposals increased, centeredon proposals related to articles of incorporation andthe election and dismissal of directors, and we voted
for proposals in cases where we confirmed that theywould increase shareholder value and/or bolster
governance.

Results of Proxy Voting for Global Companies
January-December 2023
Company
proposals

Discuss

Share final decision

Globally-uniform
proxy voting

Our ratio of votes against proposals increased in 2023. The main reasonsfor this were that in November 2022 we introduced a standard to voteagainst a proposal if there were no female directors as well as a standard
that we would vote against a proposal if the number of cross-shareholdings
was particularly high, and raising the threshold for performance standards.

Election anddismissal of directors

Election anddismissal of auditor

10.1%

12.8% 13.3% 13.3% 11.7%

5.8%

6.8%

8.1%

2020

2021

Main reasonsfor voting in
opposition

2022

Number of 2,589
proposals

1,811

1,539

2,197

2020

2021

2022

2023

2023

Unable to confirm the independence of outside officers
A lack of female directors
Insufficient number of outside directors

The opposition ratio in 2023 has increased. The main reason for thiswas the increase in requirements related to remuneration governance inNovember 2022.

Payment of retirement
benefits to retiring
executives

Executivecompensation*1
24.0% 23.7%

Number of
proposals

85.5% 78.0%

18.8% 20.2%

826

1,087

945

736

2020

2021

2022

2023

Number of
proposals

76.7%

Shareholders’proposals

Total

Votes for16,468419

16,887

Votes against

1,555

251

1,806

Ratio of votes
against

8.6%

37.5%

9.7%

* In addition to the above, in 2023 we voted on 78 proposals
related to the election and dismissal of accounting auditors, andthree other miscellaneous proposals. We voted against 0% forof these proposals.
*1 R evisions of executive compensation amounts, issuance ofstock options, introduction/revision of performancelinked
compensation plans, executive bonuses, etc.
*2 M
 ergers, business transfers/assumptions, shareexchanges, stock transfers, company splits, etc.
*3 Share buybacks, reduction in statutory reserves, capitalincreases via third-party allotment, capital reductions,share mergers, issuance of class shares, etc.

94.5%

165

123

120

73

2020

2021

2022

2023

 ecipients and conditions of stock compensationR
were inappropriate
Compensation governance not in place

Main reasonsfor voting in
opposition

Proposals on capital policies (excluding proposals on articles of incorporation)
In 2023, our opposition ratio increased for dispositions of surplus and decreased for other capital policies. The main reason for the former is that from
November 2022 we raised the ROE level required in our standard for the disposition of surplus. Regarding capital policies, the main factor was that there
were fewer proposals for which we had concerns from the perspective of protecting the interests of minority shareholders. Please also refer to examples ofreasons for our voting for and against proposals on Page 85.

Appropriationof surplus
5.0%

Organizational
restructuringrelated*2

Introduction, update
and abolition of takeover
defense measures

14.0% 14.3%

5.4%

3.3%

7.9%

Other capital policies*3
13.0%

100% 96.5% 100% 100%

9.8%

6.8%

9.0%
1.5%

0.6%

Reference

USA

Proposals on executive compensation(Ratio of votes against, same as below)

Number of 17,959 18,429 17,924 18,337
proposals

Share

Decidewhether toagree oropposeResponsible Investment Report 2023

8.3%

12.7%

Reviews from the perspective of conflictsof interest Advises the Executive
Management Committee and/ or the
Responsible Investment Committee tomake improvements as required andreports to the Board of Directors and the
Audit and Supervisory Committee

Process of
formulating proxyvoting guidelines*1 As of the end of December 2023
*2 This includes proposals of group affiliates.

7.6%

Total Shareholders’ proposals

Role
Holds deliberations and makes
decisions based on the secretariat’s
proposals Makes revisions to thesecretariat’s proposals as required

10.6%

Proposals on company organizational structure

Number of 1,548
proposals

1,500

1,502

1,472

2020

2021

2022

2023

Main reasons forvoting in opposition

Number of
proposals

38

61

43

35

2020

2021

2022

2023

Number of
proposals

92

57

63

82

2020

2021

2022

2023

Cash-rich, low capital efficiency, and insufficient shareholder returns
Introduction/update of takeover defense measures

Number of
proposals

59

100

77

68

2020

2021

2022

2023

Insufficient protection of minority shareholder interests

Proposals on articles of incorporation
3.3%

3.0%
1.7%

Proposals on articles
of incorporation
Number of
proposals

1.0%

Main reasonsfor voting in
opposition

530

630

2,402

572

2020

2021

2022

2023

 oard of directors’ authorization of dividends that doBnot satisfy conditions
Reverse progress on separation of Chairman and CEO

80

Overview of Proxy Voting Standards for Japanese Companies
We have established a Global Basic Policy for Proxy Voting, and, for Japanese companies, we apply the Proxy VotingStandards for Japanese Companies established in accordance with this policy. The outline of this is below, and pleaserefer to our website for details.
Reference

Proxy Voting Guidelines Structure
Global Basic Policy for
Proxy Voting
Proxy Voting Standards forJapanese companies

Application
to Japanesecompanies

The main revisions were: 1 Revision in order to further support the transition to monitoring boards; and 2 Creation of role model standards. Please refer to Page23 for more
information on 1 . Please refer below for more information on 2 . Please refer to Page 83 for information about other revisions.

https://www.nomura-am.co.jp/special/esg/responsibility_investment/vote.html (Japanese only)

Key Point

Escalation*1
Rigorously judge
corporate actions,transactions involving a
conflict of interest, andresponsibility taken foroutcomes

Board of Directors
Composition

Thinking

We may vote against a company proposal in the cases below (Items in bold text were revised in November 2023)

Reflect the results of engagement targeting the realizationof desirable management (refer to Pages 19-22)

If a portfolio company has not made adequate efforts and improvements are not expected despite the fact that during
engagement we pointed out that efforts to realize desirable management were insufficient and urged action.

Judgment made and the responsibility taken to deliver
business results by the management and the board of
directors will be scrutinized and rigorously judged.

If actions that significantly damage shareholder value (misconduct, etc.) are found(New: from November 2024) For companies in the TOPIX100, if initiatives are clearly insufficient (refer to Page 82)
If ROE is slumping. In the case of a monitoring board (please refer to page 24), if ROE is stagnating and there is no effort
being made to improve management (business performance standard)If cross-shareholdings are particularly large
If a financially-sound listed subsidiary with a large amount of net financial assets is lending money to the parent company
If minority shareholders’ interests are not protected in M&A, etc.

In order to oversee the management team, the board of
directors must comprise an appropriate number of people
and possess diversity and independence.

( New) When the number of directors is less than 5 or more than 20
If the number of outside directors falls below the minimum level (below)
Until October 2024: 1/3 for companies without a controlling shareholder. However, for companies with a controllingshareholder, a majority.
From November 2024: A majority. However, 1/3 if a company has no controlling shareholder and has
nomination governance in place*2.
If there are no female directors
In a company with a board of corporate auditors, the term of office for directors is two years

Independence andEffectiveness of Boardof Directors

Highly-independent outside directors are required toeffectively oversee the management team.

If the term of office of an outside director is 12 years or more, if the notification as an independent director is notconfirmed, or if the outside director has worked for a company that is a major shareholder
Attendance at board meetings is less than 75%
When it is clear that they have not fulfilled their expected roles, such as the selection and dismissal of senior
management or the supervision of conflicts of interest between the company and its management, controllingshareholders, etc

Appropriatecompensation
governanceBecause the process for determining executive
compensation must be transparent, there must be
appropriate supervision (compensation governance).

If, for a company that does not have compensation governance in place*2, there is a proposal on the agenda
related to executive compensation or executive retirement benefits (Pre-revision: only applicable to these
proposals above a certain level)

Appropriate incentives

Although stock compensation is important as amanagement incentive, it can be counterproductive if notproperly designed.

Effective utilization offinancial assets

It is essential that financial assets are utilized effectively
to enhance corporate value.

 he stock compensation is designed so as to encourage the management team to be short-term oriented
TThe persons to whom stock compensation is given are not appropriate
The stock compensation could lead to excessive dilution
Financial assets are not utilized effectively, and shareholder returns (dividends and share buybacks) are not appropriate*1 Measures taken to bolster involvement with a portfolio company if engagement is not successful within a specified period*2 A case in which nomination and compensation governance is in place refers to the case where statutory or voluntary nomination and compensation committees have been established, the committee members include two or more
outside directors, and the number of internal directors among the committee members is fewer than the number of outside directors.

81

November 2023 Revisions

Responsible Investment Report 2023

The Aim of the Role Model Standards
In this revision, we have established new standards (rolemodel standards) under which we expect companies thatcompose the TOPIX 100 (TOPIX 100 companies) to serveas role models. Here, we explain the aim behind this.
Ordinary proxy voting standards mainly establish
conditions for opposing company proposals, and while
they are effective in encouraging companies that are
lagging behind in initiatives such as strengthening
corporate governance (Figure 1 below), in reality
they do not function well as a means of encouraging
companies that are currently implementing initiatives
at an average level to aim for a higher level (Figure
2 below). We believe that even average Japanesecompanies have a large gap between their efforts
and what we view to be desirable management, andthat we need to encourage them to aim to reachhigher levels regarding their initiatives. To this end, we
introduced standards (monitoring board standards)
that make it easier to vote in favor of company
proposals if the company satisfies the monitoring

Companies
lagging in theirinitiatives

board requirements.
Like the monitoring board standards, the role model
standards introduced this time around are intended
to encourage TOPIX 100 companies to strive forhigher levels of initiatives, and they communicate our
expectation that we want them to become role models
in order to achieve desirable management practices(Pages 19-22). Although the target group of companies
for the standards is limited to TOPIX 100 companies,
we hope that it will spur other portfolio companies
to work more ambitiously to achieve desirable
management practices. After November 2024, we may
oppose the reappointment of a chairman, president,
or other director depending on the status of efforts
toward some of the management issues ( 1 to 3
on the right) related to our expectations for desirable
management, but our aim is to encourage companies
to strive for higher levels of efforts, so this will belimited to cases where it is determined that thecompany’s efforts are clearly insufficient.

Companies
with average
initiatives

1Companies
with advanced
initiatives

2
Monitoring board standards

Ordinary proxy voting
standards (Conditions(ease requirements for voting in favor),

for voting in opposition)(conditions for voting in opposition)role model standards

Initiatives of particular focus forrole model standards

1
Information Disclosure
Integrating ESG Issues
Disclose information in accordance with internationallyagreed upon standards through appropriate media,
including integrated reports, and obtain third-party
assurances for numerical data to the extent possible.

2
Climate Change
Establish a medium- to long-term net-zero GHG
emissions target and obtain SBT certification, as well
as clarify risks and business opportunities due toclimate change by disclosing information based on the
TCFD final report.

3
Realizedesirable
management

Outside Directors with
Effective Skills
The skills matrix is disclosed in general shareholder
meeting materials, and indicates that the outside
director possesses abilities and experience, including
related to management/finance/ESG.

82

Changes to Proxy Voting Standards for Japanese Companies
Here, we introduce the changes to our Proxy Voting Standards over the years. For information prior to October 2020, please refer to our Responsible Investment Report 2022 (Page 80).
Referencehttps://global.nomura-am.co.jp/responsibility-investment/pdf/ri_report_2022.pdf

Month/Year of
Revision

Proposal Category

Director election
November
2020

Annual Schedule of a Proxy Voting Representative

Key Point

Key Change

Particularly important revisions are highlighted.

Monitoring board requirements

NEW (Established eight requirements to be met, including gender diversity, cross-shareholdings, etc.)
for the transition to monitoring boards

Number of outside directors

Raised the minimum for a company with a board of corporate auditors from two (2) to one-third

Requirements for independence ofoutside directors

Added term in office (12 years)

June, followed by March and May, are the months in which the largest numbers of Japanese companies hold their general shareholders’ meetings. We exercise our voting rights for about
1,600 portfolio companies in June alone, and more than 1,900 portfolio companies in these three months. Below, we discuss the approximate annual schedule for proxy voting, focusing on
this period with a high concentration of shareholders’ meetings.

SupportProxy Voting Annual schedule

Jul.

1

6

NEW (Relaxed requirements related to business performance, etc., if company has a monitoring board)
Executive compensation

June 2021

November
2021

January 2022

November2022

November
2023

Director election/appropriationof surplus

Director election

Director election

Director election

Director election

Executive compensation/
Executive retirement benefits

83

Responsible Investment Report 2023

Aug.

Monitoring board requirements

NEW (Vote in favor of making payment of stock compensation satisfying certain requirements to outside directors, etc., if
company has a monitoring board)

COVID-19

Reinstated the application of some standards related to appropriation of surplus

Escalation

NEW Encourage the realization of desirable management (gender diversity, cross-shareholdings, etc., including
initiatives targeting ESG issues)

Business performance standard
based on ROE

Lowered threshold of comparative value to 25th percentile of industry median value
Take management improvement efforts into consideration only when company has a monitoring board

Number of outside directors

There is a controlling shareholder: Raised minimum from one-third

COVID-19

Reinstated application of business performance standard

Business performance standard
based on ROE

Raised the comparison value threshold from 25th percentile to 33rd percentile in industry.

Diversity of the board of directors

NEW (We will vote against a proposal if there are no female directors

Cross-shareholdings

NEW (We will vote against a proposal if there is a particularly large amount of cross-shareholdings)

Number of outside directors(From November 2024) Raised the minimum number from 2 or 1/3 to a majority. However, it is 1/3 for companies without acontrolling shareholder if nomination governance is in place

Director term of office

NEW (For a company with a board of corporate auditors, will oppose if the term of office for directors is 2 years)

Number of directors

NEW (Will oppose if the number of directors is under 5 or more than 20)

May.

Role model standards

NEW (From November 2024, for companies in the TOPIX100, will oppose if initiatives are determined to be clearly
insufficient)

Jun.

Compensation governance

Expanded the scope of proposals we will oppose to all proposals if compensation governance is not in placeJul.

majority

Sep.
Oct.
Nov.

6
5

2

Dec.
Jan.
Feb.
Mar.
Apr.

6
3

1

Revisions to Proxy Voting
Guidelines

2

Engagement to inform companies about therevisions to our Proxy Voting Guidelines

July – OctoberNovember – January

As soon as the busy season for shareholders’ meetings ends, we start
reviewing our Proxy Voting Guidelines. Taking into consideration theactual conditions of Japanese companies, which we have learned throughengagement and proxy voting, we make revisions to reflect changes in laws
and regulations, such as revisions to the Corporate Governance Code.

We conduct engagement mainly with the portfolio companies that we
think will be significantly impacted by the revisions to our Proxy Voting
Guidelines. We communicate our views and encourage them to strengthen
their corporate governance. In addition to individual meetings with portfolio
companies, we also explain our views at seminars.

3

Engagement in anticipation of thegeneral shareholders’ meeting.

4

Period when most generalshareholders’ meetings are held

February – May

March – June

As the busy season approaches, we ramp up engagementwith an eye towards shareholders’ meetings. This is the time
when companies are finalizing the proposals they will make atshareholders’ meetings (the proposals have already been finalized
in some cases), so portfolio companies tend to be most interested
in the prospects for individual proposals. However, we try to keepthese discussions focused on strengthening corporate governanceover the medium to long term.

This is a period when we need to accurately judge a large number of
proposals. We exercise voting rights for more than 100 companies per
day during the peak period in June, so it also happens to be the period
when we most want companies to provide information disclosures thatare clear and easy to understand.

4
6

5

Engagement to strengthen
corporate governance

6

Disclosure of proxy voting results

All year, particularly November – MarchJanuary/April/July/October

We explain our proxy voting philosophy and let portfolio companies
explain to us how they are working to strengthen their corporate
governance, and we then talk with them about their efforts.

After the end of each quarter, we disclose the results of our proxy voting,and the reasons behind our voting activities, on our corporate website.

84

Disclosure of Proxy Voting Results (Reasons for voting For or Against proposals)
Since the October – December 2019 quarter, we have been disclosing the reasons that we voted for or against all proposals, and we have been providing detailed explanations of
the reasons for those proposals we feel require special explanation. This is an effort to further increase visibility with respect to appropriate proxy voting. Here, we introduce somespecific examples of disclosure with respect to proposals we feel require special explanation.

Climate change-related proposals submitted by shareholders

Proposals we made voting decisions on that differ from our proxy voting
standards
We sometimes make decisions that differ from our proxy voting standards based on
engagement with a company.
GSM Type

Ordinary
GSM

Ordinary
GSM

ProposerCompany

Company

Proposalclassification

Director
election/
dismissal

Director
election/
dismissal

VotingresultReason for proxy voting result

Voted
againstBecause we determined that the directors own the
responsibility for the fact that business results do notmeet our standards. This company’s board of directors
satisfies our standard related to a monitoring board, butthere was an issue with the company’s recognition ofcapital efficiency and there were large concerns related toeffectiveness, so we applied our standards to the company
as if it were not a company with a monitoring board.

Voted for

Although the company does not meet our standards forcross-shareholdings, we voted in favor after taking into
account that the reduction status was confirmed throughengagement.

Proposals we determined to require special accountability
In addition to proposals related to M&A and capital policy, there were proposals asking
companies to increase board diversity.
GSM Type

Proposal
Proposerclassification

Ordinary
Appropriation
ShareholderGSMof surplus

Ordinary
GSM

85

Organizational
Company restructuringrelated

VotingresultReason for proxy voting result

Voted forThis was a proposal seeking additional shareholder
returns. After considering the large amount of financial
assets held relative to the scale of the business, theunclear use of financial assets, and the fact that the impact
on financial soundness is minimal, we determined that
it would contribute to the improvement of shareholder
value, and voted for the proposal in accordance with ourstandards.

Voted
againstResponsible Investment Report 2023

Retail sector Company A (Director election/dismissal: Company proposal/shareholder proposal)
BackgroundA certain shareholder (the “proposer”) took issue with the company’s conglomerate discount and proposed a spinoff of its core business, demanding a reexamination of its business portfolio. Company A indicated a strategy to
pursue synergies and rejected the spin-off.
Although it was difficult for us to say that the spin-off proposal was clearly superior, the performance of non-corebusinesses had been sluggish for a long time, and there was an undeniable impression that the management team
had been slow to respond, and there was a need to reexamine the business portfolio. We decided that we could
agree on the need to reexamine the business portfolio.

Proposal outline and voting result

 proposal to amend the articles of incorporation was submitted to a number of companies asking them toAaddress the issue of climate change. The issue of climate change is an environmental and social issue that we
believe to be particularly important for the sustainable improvement of corporate value, and we decided todeliberate positively on a proposal demanding enhancement of information disclosure.
 his time around, we carefully deliberated the reasons for the proposals, the companies’ climate changeTinitiatives, the impact on business execution, etc., and approved the proposals that we determined would
contribute to sustainable enhancement of corporate value. On the other hand, we voted against proposals thatwere for the purpose of making social or political assertions, proposals related to individual, specific businessexecution, and proposals that we determined that the opinion of the board of directors should be respected,
taking into consideration the reasons for the proposal and the initiatives of the company in question.
In addition, some of the proposing shareholders indicated that they would like the proposal to be judged on asa recommendation to the company, rather than as a change to the articles of incorporation. Our policy is to fully
consider the impact if the proposal were to be passed, and although we will flexibly judge the appropriateness of
specifying a company’s response to environmental and social issues in the articles of incorporation, we do notbelieve it is appropriate to deliberate on this as a recommendation.

Proposals involving the possibility of a conflict of interest
We give detailed explanations for proposals of group affiliates, including our parent
company Nomura Holdings as well as for discussions related to matters involving
group affiliates. Here, we discuss proposals in which Nomura Securities, a groupaffiliate, was involved as the provider of global stock ownership plans, or acquisitions ororganizational restructurings as a financial advisor or and third-party assessor.

GSM Type Proposer

Ordinary
GSM

Company

Proposalclassification

Executivecompensation

VotingresultReason for proxy voting result

Voted
againstThis was a proposal seeking approval for a global stock
ownership plan in the US. Although we recognize thesignificance of advancing employee stock acquisition, we
judged that the number of shares to be issued, etc. was
not disclosed and accountability was not being fulfilled,
so we voted against the proposal in accordance with ourstandards. Nomura Securities, a Nomura Group company,
is involved in this matter as the provider of the global stock
ownership plan.

Voted
againstThis was a proposal regarding a share exchange. The
effort to protect the interests of minority shareholders wasinsufficient, and we determined that the board of directors
had not fulfilled its accountability with respect to theeconomic terms being unfavorable, so we voted against
the proposal in accordance with our standards. Nomura
Securities, a Nomura Group company, was involved in thisdeal as a financial advisor and third-party assessor.

Voted forThis was a proposal to squeeze out shareholders who
did not tender their shares in a tender offer conducted
for a management buyout (MBO). Although there werestrong concerns about a conflict of interest with minority
shareholders, we confirmed that sufficient efforts had been
made to protect the interests of minority shareholders, andconsidering that the economic terms were reasonable, we
voted for the proposal in accordance with our standards.
Nomura Securities, a Nomura Group company, wasinvolved in this deal as a financial advisor and third-party
assessor.

In the company’s proposal there were 15 candidates, while in the shareholder proposal there were 14
candidates, but both parties agreed to 10 of them (4 internal and 6 external candidates, all reappointed), so theselection of the remaining 9 candidates was at issue. Details are shown below.

Reason for proxy voting result

GSM Type Proposer

Company proposals Regarding Candidate C, we could not confirm that the candidate has the necessary
skills to re-examine the business portfolio, and that this candidate may not have fulfilled the role expected as
an outside director, so we voted against the proposal. Regarding Candidates D-E, considering the maximum
number of directors as per the articles of incorporation (15 directors) and the history of the current outside
directors implementing a Group strategy re-evaluation, we determined that the board of directors had not
given a proper explanation for the necessity for electing additional new directors, so we voted against the
proposal. In addition, the proposer was also opposed to the election of candidates A-B, but we determinedthat accountability had not been fulfilled regarding the need to replace the management team before a reexamination and consideration by the highly-independent nomination committee, so we voted for the proposalin accordance with our standards.

Ordinary
Shareholder
GSM

Proposalclassification

Proposal
related to
articles ofincorporation

VotingresultReason for proxy voting result

Voted
againstThis was a proposal to change the articles of incorporation
regarding disclosure of public relations activities for climatechange. Although we could agree with some of the points
raised by the proposer, the proposer itself had highly
evaluated the efforts of the company, and the company
has indicated its intention to take further initiatives, so wedetermined that it was more reasonable to respect the boardof directors’ efforts, and we voted against the proposal inaccordance with our standards.

Voted forThis was a proposal to change the articles of incorporation
regarding disclosure of efforts to address the problem ofclimate change. We determined that the impact on businessexecution would be limited, and considering the importanceof the climate change issue on corporate value over the
medium to long term, we determined that it would contributeto sustainable improvement of corporate value, so we voted
for the proposal in accordance with our standards.

Shareholders’ proposals Because we can agree with the need for re-examination, and considering the
maximum number of directors as per the articles of incorporation as well as the skill and independence level ofthe candidates, we voted in favor of candidates W-Y, and voted against candidate Z.
Inside directors

A proposal related to share exchanges with listed
subsidiaries. Although the dilution ratio of voting rights
was high, considering the fact that the initiatives to protect
minority shareholders were insufficient, we voted against
the proposal in accordance with our standards.

In addition to explaining the reasons for the decisions made on each of the proposals
submitted by shareholders with respect to the issue of climate change, we provided
a comprehensive explanation about the background behind our decisions on climatechange-related proposals as a whole.

Company
proposals

Outside directors (Reappointed)

Shareholders’proposals

Candidate Candidate Candidate Candidate Candidate
Y
A
B
W
X

Voted for

Outside directors (Newly appointed)

Company
proposals

Shareholders’proposals

Candidate Candidate Candidate
C
DE

Voted against

Ordinary
Shareholder
GSM

Proposal
related to
articles ofincorporation

Candidate
Z

ProposalOrdinary
related toShareholder
GSM
articles ofincorporation

Voted
againstThis was a proposal to change the articles of incorporation
regarding disclosure of efforts to address the problem ofclimate change. Although we agree with the importance of theclimate change issue with respect to medium-to long-term
corporate value, we voted against the proposal in accordancewith our standards, determining that the proposal included
content that might add specific restrictions to businessexecution and so it would not be appropriate to add it to thearticles of incorporation.

Special
GSM

Special
GSM

Organizational
Company restructuringrelated

Company

Proposal
related toother capital
policy86

Proxy Voting FAQ

Relationship between engagement and proxy votingA

We have established the following fourstandards related to environmental andsocial initiatives. 2 is proxy voting which
is an extension of engagement. However, withrespect to 1 , 3 and 4 , we carry out engagement
as necessary which leads to effective proxy voting
and we also urge companies to implement effective
measures.

Engagement11

Formulation of proxyvoting standards
Information and opinions obtained
through engagement are valuable
for formulating proxy voting
standards.

Example: We introduced a standard
whereby we will vote against thereappointment of the chairman,
president, etc., and outside directors if,
based on the details of engagement, we
determine that there are major concerns
about the management of conflict ofinterest with respect to parent-subsidiarystock listings, and if a listed subsidiarythat meets certain conditions provides
loans, etc. to the parent company.

2

Escalation
We may vote against director
election proposals if efforts torealize desirable management(including initiatives targeting ESG
issues)* are inadequate.

*R efer to Page 19-22 for information
about desirable management

3

Judgment of
individual proposals
Our decisions may differ fromthe proxy voting standards if we
can identify actions targeting
improvement, or in cases ofcircumstances we did not
anticipate at the time the proxyvoting standards were formulated.
Example: Although the company’s
ROE was struggling and did notmeet our standards, we voted fora proposal after considering thatthe company had suppressed thedeterioration of the company’s
financial indicators such as ROE,
better than industry peers, both
domestically and overseas.

2

If we find a problematic action from the perspective ofaddressing ESG issues, and we determine that the action
would significantly damage shareholder value, we will voteagainst a proposal to elect the person responsible for theaction as a director.
We have established “appropriate efforts to addressenvironmental and social issues” as part of the desirable
management practices of portfolio companies, and we carryout engagement aimed at having these efforts put into practice.
If, based on the situation, we determine it to be necessary to
escalate to proxy voting, we will vote against the reappointmentof the company’s chairman, president, or other directors.

3

We expect the companies that compose the TOPIX100 to serveas role models for Japanese companies. From November 2024
onwards, if we determine a company in the TOPIX100 to beclearly insufficient in their disclosure of ESG-related informationor their climate change-related efforts, we will vote against thereappointment of the chairman, president, or other directors.

4

With respect to shareholder proposals demanding changes to thearticles of incorporation regarding basic policies about ESG anddisclosure in accordance with the final report of the Task Forceon Climate-related Financial Disclosures (TCFD), we will vote forsuch proposals, on the condition that they do not include content
related to individual, specific business execution, etc.

Proposals concerning the election of directors
are the most common type of proposal, andtherefore have a large impact on our opposition
ratio. Taking into consideration the continuity of the board of
directors*1, we limit director election proposals we oppose
to candidates holding the responsibility for individual
matters. This is the reason why our opposition ratio looks
relatively low (see chart below). In fact, for general meetingsof shareholders held between April and June 2023, ouropposition ratio for proposals to elect directors was 9.3%,
but the percentage of companies for which we opposed
one or more candidates within a proposal was 47.3%, which
is not a particularly low level. On the other hand, since thenumber of proposals is low, the overall impact is small,but our opposition ratio appears to be relatively high withrespect to proposals related to executive compensation orcapital policy. The effectiveness of corporate governancecomes into question particularly for proposals related to
M&A and financing, so we carefully discuss these issues,
including the impact that a rejection of the proposal would
have, and we vote against the proposal if we decide that it
will not contribute to the interests of minority shareholders.
Furthermore, we aim to achieve desirable corporate
governance and improve corporate value by working on
portfolio companies through a combination of proxy voting
and engagement. We position proxy voting as one of themeans to do this, and we do not believe that our opposition
rate is indicative of our stance.

Que
stio
n

Que
stio
n

A

Q
A

We have established the following threeproxy voting standards. For 2 , we exercise
voting rights as a part of engagement,
while for 1 and 3 , we also implement engagement
as necessary, and along with connecting these toeffective proxy voting we urge companies to carryout effective initiatives.

1

All candidates

If proposal
we opposed is rejected
Board of Directors meetings cannot
be held due to absence of directors

2

Opposition ratio will rise
Undermines the ability of the Board of
Directors to continue functioning

Applicable toreason*2 for
opposition
Judgments on
individual proposals

Board of Directors meetings canbe held with other directors
Opposition ratio will decline
Ensures the ability of the Board of
Directors to continue functioning

We chosethis

We will oppose the reappointment of an outside director
if it becomes clear that he or she has not adequately
performed the roles expected of them. Past cases in which
this standard has been applied include the following: listed subsidiary with a large amount of net financial
A
assets lent funds to the parent company.
A tender offer was made for treasury stock at a price
above the most recent share price, with the aim ofacquiring shares held by a specific shareholder.
D espite the finding of inappropriate related-party
transactions by management, there was insufficientpursuit of responsibility.

Guideline for Director Election Proposals
Persons subject toopposition

Do you have standards toreflect the effectiveness ofoutside directors?

Ans
wer

Ans
wer

A

We carry out engagement and proxy voting so that portfolio companies implement desirable management(P.19-P.22), and to encourage them to improve corporate value and realize sustainable growth. We reflect
the information about portfolio companies obtained through engagement in: 1 Revisions of our proxyvoting standards; 2 Escalation; and 3 Proxy voting decisions on individual proposals.

Q

It seems like you vote against company proposals only a small percentage ofthe time. Can you comment on that?

Ans
wer

Que
stio
n

Q

Do you have standards in orderto realize effective initiatives forenvironmental and social issues?

Ans
wer

Que
stio
n

Q

Can engagement have an impact on proxy voting?

3

We have defined “sufficient exercise of corporate
governance functions” as the desirable form ofmanagement for portfolio companies, and engage withthem to achieve this. If we determine that escalation toproxy voting is necessary based on the situation, we
will oppose the reappointment of directors such as thechairman and president.

We expect TOPIX 100 companies to serve as role models
for Japanese companies. From November 2024 onwards,
if we determine that the skills of the outside directors areclearly insufficient, we will oppose the reappointment of thedirectors such as the chairman and president.

*1 Under the Companies Act, a minimum of three directors is necessary in order to hold a Board of Directors meeting.
*2 Shortage of outside directors, low ROE, etc.

87

Responsible Investment Report 2023

88

Equity Integration

ESG
Integration

Equity Integration Approach
Corporate value is essentially the discounted present value of future free cash
flows. The business assets that generate future free cash flow include not only
fixed assets such as production facilities, but also various types of intangible
assets (capital) not found in financial statements, including human capital, natural
capital and social capital. Evaluating such capital, or business assets including
non-financial information, is necessary in order to analyze corporate value. We
believe that, in addition to financial data, reflecting non-financial data in company
evaluations, and making investment decisions based on these evaluations, isessential in order to increase the added value of our investments.
There are two aspects to evaluating intangible assets that do not appear in acompany’s financial information. The first is evaluating the profits that intangible
assets can bring, or a “growth evaluation,” and the other is a “business risk
evaluation” related to the risks to which a company’s profits are exposed.
For “growth evaluation”, the business impact of climate change, supply
chain resilience, intellectual property, R&D capabilities and organizational
strength, quality of human resources and diversity are among the sources of

Nomura Asset Management recognizes risks and opportunities, andincorporates them into the investment process using different methods
for each strategy based on our own ESG assessments.

Equity Investment Process

Features of Integration
Equity Investment
When evaluating the ESG characteristics of portfolio companies,
we focus not only on potential risks but also on opportunities togenerate future earnings. Although the extent (if any) to which
each equity strategy integrates ESG consideration into its
investment decision-making process varies depends on eachportfolio’s strategy relating to sustainability, ESG research ismade available to all strategies.
Fixed Income Investment
We select and model ESG factors that are material for credit
investment based on a variety of research. In addition to thisESG factor model integration, qualitative evaluations by credit
analysts are also considered within the investment process toimprove the portfolio’s risk-adjusted return and sustainability.

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Responsible Investment Report 2023

Integrating ESG factors into the investment process
is critical, as we believe financial performanceand ESG factors (non-financial information) areclosely related and influence one another. We utilize
proprietary ESG evaluations of portfolio companies
when making investment decisions. In order toeffectively incorporate ESG considerations andother nonfinancial information into the investment
process to supplement the analysis of a company’s
fundamentals (financial information used to evaluate acompany), we conduct our own ESG assessment for
both equity investing and fixed income investing. This
integration of ESG factors into the investment process
not only helps reduce downside risk, but is also an

essential component to improve returns.
ESG assessment is not limited to Japanesecompanies, as the scope also includes companies indeveloped countries in Europe and the Americas, aswell as companies in Asia and emerging countries.
In addition to global themes such as climate change
and human rights, we assess specific material
ESG considerations for individual industries andcompanies, and utilize information from multiple
external sources to create our proprietary ESG
scores. These ratings are made available to all
portfolio managers for integration into the investment
decision-making process.

An in-house proprietary ESG score, which is jointly produced by corporate analysts
and ESG specialists under overall supervision of the ESG investment manager isutilized for ESG integration into our equity investments. The ESG score includes
environmental, social, governance, and SDGs-related considerations, and is aquantified representation of our analysis and evaluation of risks, opportunities,
and other factors. These scores serve as an important piece of information utilized
by investment decision makers within the investment process/platforms for each
investment product (see diagram below). While individual stocks in the portfolio arebought and sold according to their investment ratings, the same score serves as acommon language for discussion among corporate analysts, ESG specialists, andportfolio managers, allowing for more effective ESG integration into operations. If
additional ESG research is deemed necessary, the Engagement Department takes
the lead in conducting the necessary engagement activities in collaboration withcorporate analysts and ESG specialists.
Our ESG evaluation framework is also applied to our global equities investment. In

Investors’ Basic Philosophy on Corporate Value
Corporate
value

Present
Past
Nonfinancial
capitalAccumulation of future earnings /cash flows

Passage of
time

Time
Present
Financialinformation
Nonfinancial
capitalFuturePassage oftime

Financialcompetitiveness that
information
Corporate
help differentiate a
Discounted
value
present value
company from its“Continuity between financial and non-financial” and thepeers. We consider“Impact on long-term profits/cash flow generation” are ofthese factors to be
the upmost importance.
materialized in the future
as financial information such as corporate profits and growth.
“Business risk evaluation” aims to ascertain the stability and sustainabilityof future profits based on whether or not the company is able to accumulate
intangible assets, and to determine whether or not future profits will fluctuate
sharply due to changes in the business environment. In other words, this“business risk evaluation” is looking at how to evaluate the discount rate when
discounting future cash flows to the present value. To put it another way, thevaluation of intangible assets is an important aspect of determining whether
the valuation (relative price metric for the stock price) of the investment target
company is too high or too low.
Corporate analysts
Credit analysts

Financialanalysis

ESG specialists

ESG evaluation
Nomura AssetManagement

ESG score
addition to global themes
Engagement Department
Select target companis/Milestonesuch as climate change
management/Escalationand human rights, we
S t r ateg y plat form
assess specific materialTeam αTeam θ
Team βESG considerations forTeam γPortfolio
individual industries andcompanies and utilize
information from multiple external sources to create our proprietary ESG ratings.
These ratings are made available to all portfolio managers for incorporation into theinvestment decision-making process. For example, at our Singapore Office, country
specialists (CS) are assigned to cover each country in this diverse region, and themain source of added value is the bottom up research conducted by meeting withcompanies (2656 meetings in 2023). Investment ratings are assigned to individual
stocks based on the fundamental research carried out by CSs as well as the ESG
evaluation. The portfolio is constructed based on these ratings.

90

ESG
Investment
ManagerEfforts to Advance ESG Integration
Issues such as climate change, human rights problems, and diversity arecommon issues that need to be addressed globally and over the long term. Allof our main ESG funds published on our website (https://www.nomura-am.co.jp/
special/esg/strategy/esglineup.html) incorporate ESG as an investment method
regardless of whether they are domestic equities funds, overseas equities funds,
or balanced funds. Aiming to improve and enhance this ESG integration is an
important topic for our portfolio management and investment operations.
Our investment teams manage portfolios based on a stock selection processthat takes various ESG factors into consideration (qualitative and quantitativedecisions about ESG). When assessing a company as an investment target,
managers of actively-managed portfolios must consistently ask “Is this acompany that controls ESG risks and opportunities and can continue to grow in
five or 10 years?” and manage the portfolio by examining portfolio companies
from a long term perspective. In our investment process, in addition to ESG
specialists, ESG investment managers and investment teams including portfolio
managers are partially responsible for ESG assessments. When selecting or
trading stocks, our portfolio managers make investment decisions after bothreferencing a variety of ESG data and information within the company as well as
holding internal discussions.
Each investment manager controls the ESG risks and opportunities in theportfolio based on the ESG integration policy of the fund for which they are
responsible. For example, when selecting a stock, we check the carbon
footprint of the company in question and strive to keep the carbon footprint of
the portfolio lower than the benchmark. In fact, there have been cases where
we have chosen to invest in a different company in the same industry withthe same investment grade, if that other company is actively working towards
net zero. Moreover, in addition to improving our ESG governance score, we
also sometimes assess a company’s stance on building an ecosystem aimed
at promoting good health, such as providing sporting goods, and increase
the weighting of that stock in the portfolio. Meanwhile, there were also cases
in which we sold stocks we had invested in, in light of the fact that quality
fraud was discovered, leading to expectations for a delay in the recovery ofbusiness results longer than initially expected. In addition, we make it a point tosystematically and carefully explain these ESG integration methods and specific91

Responsible Investment Report 2023

Portfolio
ManagerDai
YamawakiFeng
YichunSeniorPortfolio
Manager

Yasuhiro
Mimbuta

Portfolio
Manager

Wang
ShanShanSeniorPortfolio
Manager

Shunnosuke
TochimotoPortfolio Manager’s ESG Viewpoint
points related to the evaluation of stocks and bonds to our customers.
Coordination with engagement activities is also an important element of ESG
integration. The reaction of top management during engagement meetings andthe status of milestone achievements are also important signals for managers
evaluating “opportunities.” Therefore, many of our investment managers attend
meetings with top executives, where they discuss ESG issues. By accumulating
more experience and case studies of gathering information to make proper
decisions on ESG-related risks and opportunities, performing ESG evaluationsof individual companies, managing portfolios, and carrying out engagement, weare able to select strong companies that can continuously grow amid the rapidchanges in society for our customers.

Business risks andopportunities

Current and future segment mix

Assessment of M&A strategy

Geographic risks andopportunities

 tatus of production and sales in regions withS
enhanced regulations

Changes in the supply chain structure

Growth of environmental/social solutions businesses

Profitability of environmental/social solutions businesses

Growth targets

Current customer and market development strategy

Assessment of R&D

Environmental performance (CO2 emissions, stranded asset exposure, eco-friendly procurement ratio, etc.)

ESG track record

Social performance (employee turnover rate, diversity, safety indicators, actions on human rights, etc.)
Governance (governance structure, compensation, misconduct/scandals, etc.)

92

IMPACTINVESTING

Returns

NomuraAsset Management

Investment

93

Responsible Investment Report 2023

Portfolio company
Economic returns
Social returns

Returns

Environment/Society =Stakeholders

Pension funds,
etc.

Individual
investors

Clients/business
partners

Employees

Impacts
Outcomes
Outputs
Business activities
Inputs (investment)

Example of impact by investee companies of our impact funds(3 funds)

Mitigate Climate
ChangeContributed to the reductionof CO 2 by selling productswith strong environmental
performance

EliminateCommunicable
DiseaseR&D investment related tocommunicable disease

Mitigate Climate
ChangeSold EV traction motors,
which strongly curb
greenhouse gas emissions

226,000 units

Mitigate Natural
Capital Depletion

Volume handled by recycling
business in the metal field,
such as collecting andprocessing renewable
resources

6.34 million tons

Mitigate Climate
ChangeContributed to the reductionof CO 2 by selling productswith strong environmental
performance

241,000 tons

EliminateCommunicable
DiseaseHealthcare R&D investment

US$

GSE

In Nomura Asset Management’s ESG statement, we aim to share with our
stakeholders the direction of our ESG activities and awareness of environmental
and social issues, as well as our aim for the realization of a sustainable
environment and society. This ESG Statement is the starting point for our approachto impact investing. The statement identifies issues such as climate change, natural
capital, and social responsibility (human rights, diversity, equity, inclusion andbelonging, as well as value creation to realize well-being within society). Throughinternal discussions on the above issues, we have set impact goals, which we aim
to achieve through our impact investment, appropriate to asset class and each
impact investment strategy. These goals include urgent issues facing the world
including mitigate climate change, mitigate natural capital depletion, access tohealthcare, and social responsibility (for example, access to financial services andto drinking water). We then establish indicators (KPI: Key Performance Indicator)
which serve as an indicator at a national and global level to measure the degreeof improvement for each established impact goal. For example, for the impact
goal “Eliminate Communicable Disease,” we can evaluate the global progress bymonitoring indicators such as mortality rates for HIV, tuberculosis, malaria, andother illnesses published by World Health Organization (WHO). Additionally, we
specify further segmented areas of investment linked to these indicators, and thenselect companies in which to invest in that area in order to improve this KPI.
Companies included in the investment universe are linked with the 17 goals of theSDGs, and more detailed CPIs (Company Performance Indicators) are then set foreach individual company. Carrying out detailed and continuous monitoring of theestablished CPIs allows us to not only appraise each company’s impact, but alsomeasure the extent of the improvement of the overall portfolio and the impact itself.
For example, in the case of “climate change issues,” by using CPIs such as GHG
emission reductions and R&D investments to address climate change, it is possible
to more specifically monitor individual companies’ efforts to resolve issues. By
engaging with investee companies based on what we learn from monitoring, we
can advance initiatives aimed at creating impact. By repeating this process, wewill be able to continue to generate impact that addresses social issues while also
pursuing economic returns.
Our impact investment fund is constructed based on the so-called “outside-in”
concept, whereby these kinds of social issues are applied to portfolio companies,
and this concept is shared within our domestic and overseas impact investment
strategies. In addition, we believe that publicly disclosing these initiatives in our
Impact Report and sharing them with our stakeholders is essential in order togenerate impact and address social issues.

JSEG

Impact investment Engagement

Our Impact Investment Process

ASE

At Nomura Asset Management, we believe that impact investing is not limited tosimply having an impact on the environment or society. We feel it is important forour impact to generate earnings and cash flows, which will ultimately be returned
to asset owners and other stakeholders. In carrying out impact investing, we
extensively analyze the impact that a portfolio company has on the environmentand society, as well as the portfolio company’s earnings/cash flows generated. At
the same time, we engage with the portfolio company to help it set CPI and targets
that generate impact, as well as proactively support business activities aimed atachieving them. Impact investment is generally defined as investment that aims tocreate environmental and/or social impact and an economic return on investment
at the same time. As opposed to the conventional two-dimensional evaluation ofrisk and return, impact investment requires the advanced skill of three-dimensional
evaluation covering risk, return and impact. Impact investing is defined as one
category of ESG investment and sustainable investment given the fact that it isexpected to bring about environmental and social improvements. The United
Nations SDGs are often used as a framework for impact investing. Adopted by theUnited Nations in 2015, the SDGs set forth 17 goals and 169 targets. The SDGs
indicate the enormous needs of the global market and effective risk management
methods that lead to returns on investments in portfolio companies, and are viewed
as useful indicators for measuring the impact on the environment and society.

11.74 million tons

US$

22 billion

7.67 billion

94

Our Impact Funds

Our Impact Investment Process

Environment
Climate Change

Natural Capital

Establish impact goals

Mitigate Climate
ChangeKeep global warming to
below 1.5°c

Mitigate Natural
Capital Depletion

Mitigate the Obesity
Epidemic

EliminateCommunicable
DiseaseGlobal Access to
Basic Financial
Service

Global Access to
Clean Drinking Water

Key Performance
Indicators (KPI)

Global Renewable
Energy Output
Atmospheric CO 2
LevelsMaterial Consumption
per Capita
Global Annual Tree
Cover Loss

Mortality rateaccording to WHO
Cardiovasculardisease, cancer,
diabetes, chronic
respiratory disease

Deaths due to HIV,TB and Malaria
according to WHO

Percentage of lowincome householdswith access to banks

Percentage of
Global Population
with Access to Safe
Drinking Water

Identify investment
field

Renewable energy
developers
M anufacturers
possessing
technologies
E V/OEM
manufacturers
H ighly-efficient officebuilding construction
and management

 ustainable raw
Smaterial management
E fficient use of raw
materials

 usiness thatB
provides payment
methods throughfintechL ending business forsocially vulnerable
groups usinesses related toBthe provision of waterand sewage services
B usinesses thatprovide clean
drinking water

SDGs7.3

Double theimprovement in energy
efficiency

CPI for individualcompanies ontribution to GHG
Creduction throughproduct sales
S ales volume of EV
traction motors
P urchase amount of
renewable energy

Engagement withportfolio companies

Responsible Investment Report 2023

SDGs12.2

Achieve the sustainable
management andefficient use of raw
materials

 mount of resourcesA
reused throughrecyclingR eduction in virgin
raw material usage
through recycling

SDGs3.4

Reduce premature
mortality from
non-communicablediseases throughprevention andtreatment umber of patientsNwith heart disease
and diabetes
R esearch anddevelopment
expenses related tothe same field

SDGs3.3

End the epidemics ofAIDS, tuberculosis,
malaria andneglected tropicaldiseases and combat
hepatitis, waterborne diseases andother communicablediseases tatus of development
Sand information
dissemination related tothree major infectious
disease drugs
Development andproduction of new
infectious disease drugs
R esearch anddevelopment
expenses related tothe same field

Ongoing engagement with target companies

Social issues thatshould be solved

Establish impact goals
and Key Performance
Indicators (KPI)

Identify investment field
Select/Define portfolio
companies

Nomura Global
Sustainable Equity
Strategy (GSE)
Lead portfolio manager

Alex Rowe

Global Utilities and
ESG Analyst

Daniela Dorelova

GLOBAL SUSTAINABLE EQUITY STRATEGY

SDGs1.4

Ensure all have equal
rights to economic
resources

SDGs9aPromote sustainable andresilient infrastructuredevelopment in developing
countries throughenhanced support for
finance, technology, andtechnology

 oan amount forLeconomically weak andlow-income peopleN umber of users of
payment services forpeople without bankaccounts

SDGs6.1

Achieve universal andequitable access tosafe and affordable
drinking water for all mount of safeA
drinking waterprovided by water
purifiers andchemicalsA mount of drinking
water filteredand purified bywater purificationequipment

Portfolio construction/management process

Alignment with the UN
SDGs

Increase global
percentage of
renewable energy edicine-related businessesMC ompanies related to the healthcare value chain

Social Responsibility

Nomura Asset Management’s impact investing

Setting issues basedon ESG statements

SDGs7.2

95

Society
Access to Healthcare

GSE

Nomura Asset Management manages impact funds in the UK, Tokyo,
and Singapore based on our impact investment philosophy.

Identify SDGs topics

Establish CPI for
individual companies

Engagement withportfolio companies

UK Office manages Nomura Global Sustainable
Equity Fund based on the concept of impact
investing. This strategy is characterized by a global
equity strategy that aims to not only generate
investment returns but also have a high positive
impact on the environment and society throughinvestment in companies and engagement activities.
In addition, we select investee companies using aunique stock selection process that combines SDGs
(Sustainable Development Goals) analysis, which also
allows us to evaluate their efforts toward SDGs.
We measure impact by setting environmental
and social goals (targets) with clear policies andevaluating progress toward achieving those goals.
The impact investment process sets monitoring

indicators (Key Performance Indicators: KPIs) tomeasure the degree of improvement toward goals,
identifies investee companies that contribute togoal improvement, and sets monitoring indicators(Company Performance Indicators: CPI) to measure
the degree of goal achievement for each company.
In addition to monitoring both KPI and CPI
indicators, we also engage in dialogue (engagement
activities) with companies to contribute to “Impact
Goals” and encourage their efforts to achieve “Impact
Goals.” We regularly create and publish reports
on impact data such as KPIs and CPIs, which aremonitoring indicators, and dialogue with companies(engagement activities).
This strategy not only encourages companies totackle the key challenges facing the world today, butalso imparts social impact on a variety stakeholders
by encouraging them to address the sustainability of
their businesses.

Global Sustainable
Equity Fund Impact
Report 2022

96

JSEG

Portfolio Manager

Senior Portfolio
Manager

Main Portfolio
Manager

Portfolio Manager

Ken Nagano

Jun Takahashi

Kodai Sasaki

TatsuhiraMatsushima

JAPAN SUSTAINABLE EQUITY GROWTH STRATEGY

We began managing this strategy in 2016 basedon the philosophy of companies addressing social
issues through their core businesses. In the 2010s,
a wide range of stakeholders started to becomeaware of the need for sustainability with respect tothe environment and society. While the global turmoil
spurred by the 2020 COVID-19 pandemic is settling
down, other disruptions arising from geopolitical risks
are expected to continue for a prolonged period.
Therefore it is important not only to pay attention
to various social issues caused by such turmoil,
but also to take immediate action to address thosesocial issues. As a part of this, “impact investing”
is attracting attention as an investment method that
addresses the environmental and social problems

97

Responsible Investment Report 2023

that we face. This is an investment method that, inasset management products, in addition to earning
the usual investment returns, seeks to solve issues
in society through the long-term holding of sharesof companies engaged in business activities with aneye towards addressing social issues. Because ESG
issues involve many topics to be addressed over the
medium- to long-term, we believe that investing incompanies on the premise of long-term ownershipwill allow us to make investments that seek bothexcess returns and aim to address ESG issues.
Utilizing NAM’s proprietary ESG scoring for Japaneseequities, this strategy invests in companies that, in
addition to passing our fundamentals evaluation, weview as being able to create social value to contribute

ASE

ASIA SUSTAINABLE EQUITY STRATEGY

to achieving the SDGs.
Furthermore, we believe that it is essential toshare portfolio companies’ outcomes and broad andcumulative impacts through impact reports.

JSEG Impact Report 2022

In April 2022, Singapore office began managing
the Asia Sustainable Equity Strategy based on our
impact investing philosophy. This strategy invests
in companies, primarily those in Asia, that theteam believes to have an overall positive impact.
Approximately one-half of the world’s population
lives in Asia, and Asia is both an important
manufacturing hub as well as an indispensable
region in global supply chains. As ESG investing andimpact investing receive attention globally, focusing
on companies’ activities to solve social problems
in Asia, where growth is expected going forward,
represents an important investment opportunity. In
addition, We believe that focusing on companies
that the team deems to have a positive impact will

Head of ESG Asia

Viresh Mehta

Assistant Portfolio
Manager

Stacy Kuah

Senior Portfolio
Manager

Shigeto Kasahara

help tackle environmental and social challenges.
Given the fact that Asia is a manufacturing hub anda key region in global supply chains, environmentand related social issues are a top priority
sustainability theme for the region.
However, ESG initiatives by companies in Asia
(excluding Japan), including the disclosure of
related information and the details of the initiatives
themselves, are not yet well-established compared tothose in developed countries. Our Singapore office
employs a country-specific approach to portfolio
management using country specialists, enabling
us to conduct detailed and differentiated analysisof ESG factors and portfolio stocks. To incorporate
these stocks into their portfolios, our country

specialists conduct research including ESG issues
and continuous engagement. We believe that by doing
this, we can raise Asian companies’ awareness andresponsibility towards ESG.

98

ESG Scores for Japanese Equities

Main
category

E

S

G

Environmental

SocialGovernance

25% of total

25% of total
S1: S
 ocial strategy, senior
opportunity
management’s initiatives

G1: T op management(evaluation of senior
management)

risk

S2: W
 orking environment,
human capitalrisk

G2: Evaluation of board of
directors

risk

risk

S3: H uman rights, othersocial issues

risk

G3: Other governance items

risk

Subcategory E2: climate change

E3: Natural capital, otherenvironmental issues
Subitems

SDGs

25% of total

E1: E nvironmental strategy,
opportunity
senior management’s
initiatives

25% of total

opportunity
opportunity

Sub-items are individually evaluated in accordance with sub-category themes.
Importance (materiality) is reflected in scores, taking into account the specific characteristics of the industry for each company.
opportunity : Evaluation mainly by analysts

SDGs opportunity

consideration changes in regulations, etc., based on
the current situation of Japanese companies attained
through engagement and proxy voting.

minus

Responsible Investment Report 2023

The following is an overview of ESG scoring. The
assessment comprises four items each with aweighting of 25%. These four items are Environment,
Social, Governance, and SDGs. There are a totalof approximately 100 evaluation items, with agood balance between risks and opportunities. In
terms of opportunities, we evaluate items including
management’s vision and commitment with respect
to ESG issues (ability to explain, plan, and executeinitiatives, as well as past achievements), along with the
future growth potential of companies that contribute to
the achievement of SDGs, as well as the management
resources that contribute to this. Meanwhile, forrisks, our evaluations emphasize items that can bequantitatively analyzed, such as whether or not acompany has provided disclosure and/or obtained
certification, as well as the data disclosed and trends forsuch data. Furthermore, we use materiality (importantmanagement issues) to take into account differences inindustry attributes for each company.
For “Environment,” we look at whether a company
is managing transition risks and physical risks related
to climate change and incorporating such risks into
its business strategy. We also look at whether thecompany’s management has expressed a commitment
to the environment. With respect to matters such as the
TCFD, we analyze and evaluate based on a company’s
integrated report and materials posted on its website.
With respect to evaluating natural capital and otherenvironmental assessments, we evaluate items such as
those related to waste management, conservation ofriver and marine resources, and biodiversity (including
preventing marine pollution).
For “Social” factors, our evaluation is divided intolooking at a company’s internal and external risks as wellas measures to address such risks. The former includes
assessments such as those related to employees’ humanSince our portfolio companies are improving their
ESG-related disclosures and their actual initiatives,
we revise the ESG scores for Japanese equities ona regular basis, thereby raising the effectivenessof company evaluations using ESG scores. In the2021 revisions, we started financial analyses using
carbon pricing, and in the 2022 revision we included
the amount of GHG absorption (the total of GHG
removals, avoided emissions, and offsets using
carbon credits) in the evaluation. Furthermore, inthe 2023 revision, we are taking it a step further by
estimating the economic value of the GHG removals
and avoided emissions, and reflecting this in the
climate change assessment. In the 2024 revision, we
added evaluations of companies’ efforts to respondto the TNFD issued in September 2023. In addition,
we are reviewing some of the other environmental,social, and governance evaluation items, taking into

E Environmental

S Environmental

G Environmental

E1 opportunity

S1 opportunity

G1 opportunity

E Environmental

S Environmental

G Environmental

score

99

ESG Score Content

rights and the utilization of human capital, while the latter
relates to the issues surrounding the quality of products
and services as well as supply chain management.
Recently, much attention around the world has been given
to human rights initiatives. For Japanese companies inparticular, we emphasize the evaluation of supply chain
management at business sites both in Japan and overseas.
In “Governance,” we evaluate multiple items to makesure that companies have put appropriate structures/
systems in place, such as the composition of theboard, outside director independence, and whether
nomination and compensation committees have been
established. Meanwhile, we also evaluate qualitative
issues such as dialogue with top management andsuccessor planning. The unique strengths of ourcorporate analysts, who have been studying andanalyzing companies extensively for many years, arereflected in our evaluations. In “SDGs”, we proactively
evaluate a company’s stance vis-à-vis working on
future opportunities. We evaluate whether a company
considers solutions to SDG issues as business
opportunities and appropriately incorporates them into
its business strategies. In doing so, rather than simply
looking at whether or not a company has businesses
that enable it to contribute to the achievement of eachgoal, we conduct extensive research and forecast
future sales mixes capable of contributing to SDGs
goals, and look at whether or not a company has
excellent human and technological resources todifferentiate itself from industry peers.
Under overall supervision of the ESG investment
manager, corporate analysts who have frequent contact
with companies and possess extensive knowledge of thecompanies they cover collaborate with ESG specialists
who analyze ESG from a cross-industry perspective.
They work together, identifying items where one or theother possess particular expertise and comparativeadvantage. Ultimately, the Responsible Investment
Department is responsible for the final scores, which arethen shared with the related departments.

New ESG Scoring Frameworkplus

Nomura Asset Management computes
proprietary ESG scores which represent
Japanese companies’ true ESG abilities, under
the overall supervision of the ESG investment
manager, in collaboration with our analysts
and ESG specialists. ESG and other nonfinancial information are extremely importantin predicting corporate value based on future
cash flows. Researching, analyzing, and thenscoring a portfolio company’s non-financial
information makes it possible to measurecorporate value while taking ESG into account,
and we believe doing so leads to higher added
value of our investments.

Revision of ESG Score

E2/E3

risk
risk

Utilizing ESG Scores

S2/S3

risk

G2/G3

risk

: Evaluation mainly by ESG specialists

Research division

ESG scores generated by quantification of non-financial information are used not only for investment decisions
and new product development in investment portfolios, but also for client reporting and our ESG investment
management.
Utilizing ESG score data inengagement

Utilizing ESG score data ininvestment activity

Utilizing ESG scores in portfolio
construction and monitoring

ESG scores are determined not only
based on disclosed data but alsousing information on future risks andopportunities. By using this ESG score,
we can compare the strengths andweaknesses of portfolio companies’
ESG efforts, and use the scores inengagement such as discussing future
course of action.

ESG scores are posted on an internal
research-sharing system. The materials
used by investment committees andothers to evaluate investment value forindividual companies contain regularfinancial indicators as well as ESG scoresand ESG comments by the analysts incharge. These scores are actively utilized
in making investment decisions.

When building and reviewing portfolios, we checkscores for individual companies, use them to makecomparisons with industry peers and see how acompany’s score has changed, as well as to check
the ESG quality of the portfolio. Investment managers
can also use the items comprising the ESG scoresof individual companies as a standalone data.
Additionally, by regularly comparing the portfolio’s
overall ESG score to the benchmark, they can use
ESG scores to check ESG risk bias and other factors.

Reflect in corporate value
assessment Discover stocks torecommend

Investment division
Reflect in investments
and decision-making
ESG monitoring of funds
managedInternal information
platform(research information)

Engagement Department
Ressponsible Investment
More
Department
advanced ESG
Identify ESG issues
Use in engagement

integration

100Green Bonds and Sustainable Bonds
NAM’s assessment framework Green andSustainable Bonds

Head of Sustainable
Investment, Fixed Income

Jason Mortimer

101

Responsible Investment Report 2023

Companies, regulators, and markets are increasingly
focused on the question of how to deliver an efficientand orderly Net Zero climate transition. Green andSustainable bonds, which are fixed income securities
that fund projects and assets with positive climate
benefits, are an important way for capital markets tochannel finance for realizing this goal. Companies thatissue Green and Sustainable bonds can accelerate
their Net Zero transition and potentially reduce climate
related-risks to investors.
Nomura Asset Management applies a consistentassessment framework for determining the relative
attractiveness of Green and Sustainable bonds forinvestment in sustainable fixed income portfolios.
The underlying concept for NAM’s evaluation is thatthese bonds must meaningfully contribute to climate
goals and the issuer’s investment attractiveness.
In practice, this means that Green and Sustainablebond use of proceeds should directly relate to theissuer’s core business activity and credit profile, witha particular focus on green projects or assets thatmaterial risks and directly improve the issuer’s market
competitiveness.
The five pillars of Nomura AM’s Green andSustainable Bond qualitative assessment process areshown in the right table. Each pillar contains multiple
sub-categories that are assessed on a Pass/Fail basis.
If a single category is marked “Fail” then the Green or
Sustainable bond framework is deemed ineligible as
an impact investment. This structured and repeatableprocess results in clear and consistent assessments,
which is useful for communicating to issuers for preand post-issuance due-diligence and engagement.

For example, under the Use of Proceeds pillar, only
capital expenditures on asset and projects, researchand development for eligible projects, or operating
expenditures that increase the value or lifetime ofeligible assets are acceptable. Operating expenditures
for the procurement of green raw materials would
be ineligible, because they do not increase the valueof corporate assets. Under Impact Ambition, theallowable rate of use of proceeds for Green Buildings
is capped at 20% for non-Financial and Real Estateissuers and disallowed for Utility sector Green Bonds.
The rationale here is that utility companies shouldhave ready access to higher-impact projects – suchas for Renewable Energy or Clean Grids. Setting strict
standards reduces the number of Green Bonds eligible
for NAM sustainable fixed income portfolios, but canalso contributes to a more high quality and credible
Green bond market place.

Overview of Nomura AssetManagement’s Green and Sustainable
Bond Assessment Framework

Market Standards
Is the framework coherent and aligned tostandards? Is a second party opinion provided?

Use of Proceeds
Are the use of proceeds relevant to the issuer,and for eligible categories? Is the use ofrefinancing reasonable limited?

Impact Ambition
Is the impact investment efficiency (intensity)
rate sufficiently high given the nature andlocation of the projects?

Impact Reporting
Is timely impact reporting available andtransparent? Are the use of proceeds as
described in the offering documents?

Strategic Alignment
Does the issuer have a credible Sustainability
strategy, ambitious Net Zero commitment, andpotential for engagement in case problems arise?

Using “Impact Intensity per Dollar Invested”
to efficiently allocate impact capital
NAM prioritizes investment in green and sustainablebonds based on their level of impact and potential
contribution to environmental and climate objectives.
Inter alia, projects with high assessed positive
impact are likely to be more valued by investors andrepresent lower risk. By allocating scarce capital tothose projects and issuers that are best at generating
sustainable impact, investors can efficiently identify
attractive investment opportunities and contributeto global climate goals. One way of assessing theattractiveness of such sustainable investments is bymeasuring their “impact intensity per dollar invested”.
Focusing only on projects that deliver GHG
emission reductions, it is possible to see significant
differences in impact intensity across projecttypes, industries, and countries where the green
projects are located or developed. For example,
consider equivalent renewable energy develop
projects in Sweden and Japan. Both projects are“green” because they emit zero carbon at the
point of generation. But the Swedish renewableenergy project in this example has a significantly
lower “impact intensity” of GHG reduction due tothe significantly lower baseline carbon intensityof electrical generation in Sweden, where mostelectricity is already generated from low-carbon
sources. Significantly more capital would have to
be invested in the Swedish vs Japanese renewableenergy project to achieve the same absolute levelof GHG emission reduction impact. Sweden has
already substantially decarbonized its electric grid,so the marginal reduction in carbon emissions froma new Renewable Energy generation project would

be relatively low compared to the potential marginal
reduction in Japan
From a climate impact perspective, the implication
for green bond investors would be to prioritize
investment in the Japanese RE project while looking
to finance more high impact project types in Sweden
such as decarbonized transport or energy efficiency.
This approach can help sustainable investors analyze
and prioritize fixed income impact investments byapplying impact data as an investment performanceindicator and lead to greater overall impact.

Weighted Average Carbon Intensity ofElectric Generation (2022)
gCO 2 e /kWh (Generation)
500
400
300
200
100

Potential
for marginal
reductionin carbon
emissions fromadding the RE
project

0
Example Renewable Energy Project
SwedenJapan
Source: Carbon intensity of electricity generation, 2022 (ourworldindata.org)

102

Nomura Asset Management’s Systematic Approach to
Sustainable Fixed Income Investment
NAM’s approach to sustainable investment in global fixed income and corporate credit
Innovative approaches to fixed income sustainable investment research andintegration are a key area of focus at Nomura Asset Management. We believe thata systematic and objective assessment of issuer sustainability performance isfundamental to credit analysis and accurate risk pricing, through which mainstream
investors can deliver real-world impact. To implement this sustainable investment

1
Downside
Risk Focus:

We incorporate sustainability risks
to issuer creditworthiness primarily
from a downside perspective. The
integration of ESG data as particularly
relevant for fixed income strategies,
where loss-avoidance and downsiderisk protection are key.

philosophy, we have used a proprietary data-driven approach for evaluating credit
issuer sustainability since 2018. NAM’s approach to sustainable fixed income isdriven by three considerations that reflect our ultimate objective of improving riskadjusted returns through the integration of material extra-financial (ESG) data:

We selectively incorporate forwardlooking, material ESG factors forour proprietary sustainability data
models. The resulting scores areback-tested analyzed against price
Sustainability
returns for real-world effectivenessScoring Models: in a variety of market conditions.

2

3
Investment teamled Approach:103

Responsible Investment Report 2023

A systematic, data-driven model for integrating
sustainability performance is a crucial component
for a consistent and high-quality sustainable fixedincome investment approach. NAM has achieved thisby developing a globally-relevant set of sustainability
performance factors, with data coverage for
substantially all issuers in the global corporate
credit market. The result is a system that is bothcomprehensive and flexible, with objectivity andrelevancy for any investment strategy.
Our corporate credit ESG scoring model integrates
over 50 data factors into 12 “Sustainability
Issues” that comprise 3 ESG risk-scoring pillars(Environmental, Social, and Governance) at the issuer
level. These ESG data factors are carefully selected
and screened based on their materiality to credit

Claim

What Makes NAM’s approach to Sustainable
Fixed Income unique
Most sustainable investment products available in the market seek to deliver
investment out-performance and contribute to real-world sustainability outcomes.
But investors are increasingly scrutinizing these claims, which in some cases may
appear mutually exclusive. Here, NAM’s approach to sustainable investment in
fixed income is unique because our explicit goal is to embed sustainability in theinvestment process with the aim of raising risk-adjusted returns for clients first andforemost. This reflects a belief that markets can most efficiently achieve real-world
sustainable outcomes though better “pricing” of material sustainability risks, and is
the key to NAM’s approach to sustainable fixed income investment.
For an investment strategy to be “sustainable” it must deliver attractive returns
over the investment cycle, reliably and transparently. We aim to achieve this withclarity of purpose and a focus on real-world outcomes.

Portfolio managers and credit
analysts are directly responsible fordriving the integration of sustainability
risk factors in the investment process.
Having this “skin-in-the-game”
encourages meaningful and resultsfocused ESG integration.

Introduction to NAM’s Corporate Credit ESG Scoring Model

Evidence

S, and G varies depending on the business content of
a company, the weight of E, S, and G is determinedfor each industry based on an industry-specificevaluation of the importance of each factor. The more
items judged to be important, the higher the weight.
The model covers over 6000 global names,with monthly updates based on entirely externallyobserved data. These resulting score outputs
are then tailored to each fixed income strategy’s
unique characteristics and investment goals. For
certain strategies, NAM Credit ESG scores areused as a downside risk screening tool basedon long-term market performance back-testing.
Investment strategies that emphasize environmental
factors focus on specific indicators such as the“environmental score” and “climate change risk

Results

Since 2018 NAM has developed proprietary, backtested Credit and Sovereign ESG scoring models,and customized our fixed income ESG integration forinvestment performance

Our quantamental NAM FI ESG funds excluded Wirecard
debt in 2020 and Russian sovereign dollar debt in 2022
based on NAM FI ESG scores

Investors must focus on key issues thatwill drive market pricing

In early 2020 NAM identified “Resiliency Factors”
such as Supply Chains, Cybersecurit y, Geopolitics,
and Energy Securit y as emerging key drivers of
fixed income market risk

Recent global events revealed the importance ofResiliency, which is now at the top of mind for policy
makers, businesses, and investors globally

ESG integration is asset-class andinvestment-style specific

NAM tailors the integration and analysis of sustainability
data with consideration for the unique characteristics ofeach fixed income market and to reflect investor goals

Our FI ESG platform has avoided sector bias anddelivered attractive risk-adjusted returns over theinvestment cycle with a consistent investment philosophy
and customized approach

ESG data is potential source of fixedincome investment alphaSenior Portfolio Manager

Hiroshi Matsumoto

quality and financial performance, plus the clear
potential to manifest as ESG downside to the issuer.
For example, these ESG data factors include“voluntary efforts to reduce greenhouse gases” forE (environment), “human resources development
and training” for S (society), and “board of directors
governance system” for G (governance). “Upside”
ESG factors such as revenue exposure to electricvehicles and renewable energy are stripped out
from this model, reflecting the greater importanceof downside risks to credit investors. The resulting
issuer E, S, and G risk scores are multiplied byindustry-specific E, S and G weights derived from the
proprietary NAM Corporate Credit Materiality Matrix
for internal consistency and analytical objectivity.
Based on the belief that the relative importance of E,

104score” and exclude stocks whose scores fall below acertain level.
In other strategies, NAM Credit ESG scores areused as an input in issuer credit analysis for asustainability-integrated relative value assessments
for investment attractiveness. Ultimately, the goal of
NAM’s system is to support credit analysts and fixedincome portfolio managers to quickly home in on themost material sustainability risks to their portfolios.
This allows for more targeted and efficient researchand engagement, potentially leading to improved
risk-adjusted-returns and sustainability outcomes.

Corporate Credit ESG Scoring Model Framework
NAM Credit ESG
Scoring Model

Sustainability Issue=Negative Externality
Risk“How severe are theenvironmental negative
externalities fromoperations?”

Social=Reputational Risk
“What is the net social
value of the company?”

Portfolio Manager

Portfolio Manager

Kazuki Matsuo

Shuhei Nakano

GHG Emissions

How Carbon intensive is the businessClimate Resilience

How resilient is the company to climate physical risk

Environment

Governance=Governance Risk
“Is the businessmodel sustainable andresilient?”

Why corporate debt markets are key to achieving the Net Zero transition

Measurement of…

Waste Intensity

How waste intensive is the business

Natural Capital

Does the business use natural capital sustainability

Extended Responsibility

Does the business show responsibility for product safety/liability

SDG Contribution

Does the business make a net contribution to society and SDGs

Social License to Operate

Does the business have a social license to operate

Human CapitalManagement

Are labor/workforce policies a reputational risk to the business

Sustainability Strategy

Does the business have a credible climate transition strategy

Corporate Disclosure

Does the business in a transparent and ethical way

Governance Quality

Does the business have well-functioning board oversight and accounting

Regulatory Scrutiny

Is the business at risk from increased regulation or regulatory scrutiny

Corporate bond markets are significantly more
exposed to carbon emissions than equity markets,
representing both risks and opportunities to debt
investors from the Net Zero transition. To understandwhy, consider the relative emissions intensity ofindustrial sectors and exposures to these sectors bydifferent asset classes. Based on the non-overlapping
Scope 1 and 2 carbon emissions data reported by
global listed non-financial corporates, just three outof ten industrial sectors account for approximately
92% of emissions: Utilities, Energy, and Materials
Figure 1 . And based on their relative structural
market composition, corporate debt markets haveapproximately twice the exposure to these high-GHG
emissions sectors than that of equities Figure 2 . The
reason for this is simple: higher growth, asset-lightcompanies such as technology and healthcare tend
to fund themselves by issuing equity, while slower

Figure 1

Share of Total Scope 1 + 2 Emissions
by industry sector

growth asset-heavy industries like utilities tend to
fund themselves by issuing debt. In portfolio terms,
this means that the average weighted Scope 1 and2 emissions of a representative global corporate
debt portfolio is approximately 86% higher than the
representative global equity portfolio Figure 3 .
This leads to two important implications forinvestors: First, carbon transition risks to corporatebond portfolios must be managed carefully due to theasset class’s structural exposure to highly emitting
sectors of the economy. Second, corporate bondinvestors have a unique investment opportunity to leadthe Net Zero transition. Rather than excluding sectors
to achieve portfolio-level decarbonization, corporate
debt investors should look for ways to provide
qualified climate-aligned financing and constructively
engage with corporate issuers central to at therealizing decarbonization in the real-world.

Figure 2

Relative Exposure to High Emissions
Sectors Corporate Debt (outer ring)and Equities (inner ring)

Senior Portfolio Manager

Nanako Iwasaki

Figure 3

Weighted Average Sector Scope 1+2
Corporate Debt vs Equity market

1,800

Utilities
External ESG
data

E

Sustainability
themes that may
materialize as
downside risks tocreditworthinessand financial
condition

E
Materiality
criteria

105

Responsible Investment Report 2023

Categorized database

S
S

G
G

Importance map by industry

Fixedincome
E/S/G databy issuer

FixedincomeE/S/G
weights byindustry

Fixed
incomeE/S/GOverallscore

Utilities

Materials

38%

20%

EnergyMaterials

13%

6%4%

11% 6%
7%

Energy

34%

1,500
224
1,200

600

187

300

341

0
*Outer ring is Corporate Debt market, Inner ring is Equity market
Technology
Communications
Healthcare
Real EstateConsumer Discretionary
Industrials
Consumer Staples
Materials
EnergyUtilities

Materials

900

230
Equity market

553

Energy753

Utilities
Corporate Debt market

Source: Prepared by Nomura Asset Management106to manage conflicts of interest, our reputation has
steadily improved. It re-emphasizes the point that for
asset management firms, trust is paramount.
Professor Miwa and Director Maeda, you both joined
the Council after the discourse and activities of bothbodies had already advanced to a certain point.
Was there a gap between your expectations before
your appointment and what you have observed andexperienced since joining the Council?
Miwa I was appointed to the Council in May 2020.

DISCUSSION

01
Theme

Messages from the Responsible Investment Council

Role of the Responsible
Investment Council /Impressions after being
appointed/Discussions during
Council meetings

Over seven years have passed since the Responsible
Investment Council was established, and the content of
discussions have changed over those years. Director
Kimura*, you have been a member of the Responsible
Investment Council since its establishment. How
do you assess Nomura Asset Management (NAM)’s
responsible investment initiatives?
* D irector Kimura retired on March 31 2024. The interview took placein January 2024.

107

Responsible Investment Report 2023

Both the Responsible Investment Council and the
Responsible Investment Committee have become
more effective in conjunction with the changes inwhat is deliberated upon
Kimura NAM was the first company in the industry
to establish a Responsible Investment Committee(“Committee”) and a Responsible Investment Council(“Council”), and at the beginning we were still finding
our way. That was a time when conflicts of interest
between asset management companies and othercompanies in the same corporate group were being
identified and criticized. The main purpose of theCouncil is to manage conflicts of interest, and theCommittee has been operating appropriately based on
stringent proxy voting standards.
A recent topic of discussion has been the

management of conflicts of interest between
controlling shareholders and minority shareholders
when exercising voting rights regarding corporate
restructuring and M&A. The number of shareholder
proposals is increasing, as are the number of complex
and difficult to judge agenda items. The structureof the Committee has changed along with this, andtwo women in charge of ESG have recently joined theCommittee, enabling progress in terms of diversity.
Also, more appropriate stewardship activities are being
carried out. Both the Committee and the Council were
established from scratch, and I feel that both have become
considerably more effective over the past few years.
The manner in which the Council monitors the Committee
in real time is unique to NAM. As the company continues

When I attended my first Committee meeting, I was
surprised to see how Director Kimura* actively spokeup, and was not just there as an observer. I learned
that the Council actively oversees and commits not
only to managing conflicts of interest, but also to
stewardship activities and proxy voting decisions.
Before I took office, I had the impression that NAM
would not oppose proposals if the parent company
was involved, but once I joined the Council, I found thatconflicts of interest were being appropriately managed.
As a member of the Council, I have told theCommittee members that I would like to see NAM be
more conscious of its role in society and for them tobe leaders in proxy voting standards. I do feel that theCommittee’s decisions have changed, and I believethat NAM has an effective system in place to ensure
responsible investment.
Maeda In March 2014, I stepped down as President
and CEO of a Japanese asset management company
and became Chairman of that company. Despite
being away from executive duties for a few years, I
was appointed as a member of NAM’s Council in June
2021. In the Committee meetings, detailed and lively
discussions took place based on standards, not only
regarding managing potential conflicts of interest
regarding matters involving Nomura Securities, butalso regarding proxy voting decisions. I found it
challenging just listening to the conversations andunderstanding them with respect to making a decisionon whether to approve or oppose specific proposals.

There were also new elements about sustainability and
ESG for me, so I have certainly learned a lot over the
past two and a half years.
It seems that other asset management companies
have similar types of committees, but the committee
members in those companies are mainly from theinvestment divisions, so I doubt they have a two-tiered
structure with an independent committee and council
like we have. NAM is well ahead of the curve, including
with respect to stewardship activities. I think thecompany should actually do more to promote this fact.

02
Theme

The role that institutional
investors play in the capital
markets and society

When you look at global trends, how do you see therole that Japanese institutional investors play in capital
markets and society?
Asset management firms will play a central role inJapan becoming a Leading Asset Management Center
Miwa Looking back at history, since the 1990s,
assets in advanced capitalist countries have been
concentrated among institutional investors such as
asset owners and asset managers. The financial
sector then became larger than the real economy,
and in the 2000s the actions of institutional investors
were believed to be having a negative impact on thereal economy. This is referred to as money manager
capitalism or investor capitalism. To rectify this, in2010 the UK established the Corporate Governance
Code and the Stewardship Code. In response to
the excessive market behavior, debate emerged
about responsible investment, whereby investors takeresponsibility for the environment, social transformation,and corporate change. I think NAM is the leader in Japan
when it comes to responsible investment.
In recent years, Japan has been encouraging

change among various entities in the investment chain,with the aim of turning Japan into a Leading AssetManagement Center. Leading companies in Japan’s
asset management industry are now handling proxyvoting and implementing engagement on a level on parwith firms in Europe and the U.S. Asset managementcompanies are in a position to play a central role inmaking Japan a Leading Asset Management Center,working with individuals, end beneficiaries, and asset
owners to improve and enhance the investment chain.
Maeda I agree that NAM is the leader when it comesto stewardship activities. If we link stewardship
activities with investment operations and can achieve
top-class investment returns in the industry, we will
firmly be number one both in name and reality. At thesame time, it is important for asset owners to accept
and appreciate the initiatives that asset managers
are pursuing. From that point of view, I think asset
ownership reform is a very important topic.
While deliberating on proxy voting proposals, moreemphasis is now being placed on what is important tominority shareholders. Director Maeda, amid thegrowing awareness that economic value is not the only
thing that matters, and with your background working inan asset management firm, how do you view NAM’s role?
We are entering an era in which robust engagement isrequired to be a competitive asset manager
Maeda In recent years, not only has there been
growing awareness of the importance improving
corporate value, but also as PBRs of less than 1 arebeing corrected, engagement has become more
important than ever. I see a lot of potential in the factthat not only financial information, but also non-financial
information, is now a determining factor in improving
corporate value. I firmly believe that we are now in an
era in which asset managers cannot be competitive
unless they have a strong engagement program.
Engagement involves having companies focus
on addressing the environmental and social issues

108suggested by investors, which in turn increases
corporate value. The purpose of engagement is toultimately benefit minority and general shareholders.
We must continue to bolster our engagement platformin line with global trends.
Miwa Overseas, investors proactively conduct socalled policy engagement, whereby they engage not
only with clients and issuers, but also with regulatorsand rule-making organizations. I would like to see
NAM create its own soft policies in order to encouragechange within society, and play an active role increating a better future.
Increasing attention is being focused on ESG
collaborative engagement, in which multiple
investors work together to influence companies.
When Japanese investors act as a bridge between
overseas investors and Japanese companies, thelanguage barrier disappears and some successstories are beginning to emerge.
Miwa Asset managers are able to conduct proxyvoting and engage directly with companies. It is
important to develop collaborative ESG engagement
schemes with universal owners around the world.

03
Theme

The future of responsible
investment

Professor Miwa mentioned that control isconcentrated in the hands of institutional investors.
Director Kimura*, what kind of contributions do you
think NAM has made to the capital markets? And
what are some areas for improvement?
Progressively revise proxy voting standards to makelarge contributions to the market
Kimura Our ultimate beneficiaries are entrusting uswith an enormous number of voting rights. Therefore,
we have the power to raise the corporate value of ourportfolio companies and promote ESG. The reality isthat NAM is practicing responsible investment and, inrecent years, has been carrying out engagement on awide scale. Going forward, if NAM continues to revise
its proxy voting standards in a progressive manner,
it will surely have a positive impact on Japanesecompanies as a whole. NAM makes significant
contributions to the Japanese equity market overall,and I believe it is our responsibility.
In the capital markets, while the traditional type ofstock trading is important, non-financial information

Organizational Structure for Responsible Investment
Board of Directors
Audit and Supervisory
Committee

Responsible Investment
Council

Formulation ofpolicies, supervision
initiatives, etc.

Supervision/verification/recommendations, etc.

Executive
Management
Committee

Main
activities

109

Responsible Investment
Committee
Secretariat: Responsible
Investment Department

Dialogue withportfolio companies
engagement

Proxy voting

Responsible Investment Report 2023

Reports on activities,
proposals of issues,etc.

Membercomposition

Investment
andresearchdivision

Positioning

is becoming increasingly important, and we areentering an era where economic returns are no longer
all that matters. The Committee and the Council must
continue to come to terms with this.
Asset owners, particularly those overseas, are now
looking for asset managers who can outperform
even with ESG constraints. However, it can bedifficult to align the viewpoints of investment
managers and analysts regarding what to ask ofcompanies with respect to share price returns and
ESG-related efforts.
Kimura Japan is entering a very challenging

period. Until recently, if you invested in an ESG
fund, the performance and returns were good, andthe prevailing wisdom has been that if a company
earnestly addresses ESG issues, its financial
performance will improve and its stock price will rise.
However, the global situation been changing overthe past year or so, and there has been a net outflow
of money from ESG funds, making it hard to launch
new funds. However, the importance of ESG remains
clear despite these developments, so NAM must takea long-term perspective and persevere in its efforts
address ESG issues.

The Responsible Investment Council comprises only the Chief Conflict Officer and persons in
independent positions in Nomura Asset Management, including independent outside directors.
Currently, the Responsible Investment Council has four members: one Chief Conflict Officer; twoindependent outside directors; and one outside expert.
The Responsible Investment Council is positioned under the Audit and Supervisory Committee.
As necessary, the Responsible Investment Council recommends improvements to the Executive
Management Committee and/ or the Responsible Investment Committee, and reports such
recommendations to the Board of Directors and the Audit and Supervisory Committee (Refer to“System to Manage Conflicts of Interest” on Page 78).

Meetings held Since its establishment in September 2016, the Responsible Investment Council has met a total of
53 times through December 31, 2023. The Responsible Investment Committee is attended by themembers of the Responsible Investment Council, who promptly provide their opinions.

Integration into
investment decisions Collaborative/public
activities
ESG integration

About theResponsible
Investment
Council

The Responsible Investment Council verifies the appropriateness and validity of stewardship
activities, including the formulation of proxy voting guidelines, proxy voting decisions, theformulation of engagement policies and engagement activities, thereby aiming to prevent adverse
impacts on clients’ interests due to conflicts of interest or other issues.

Maeda If beneficiaries demand that ESG factors

be included in the investment approach even if the
returns are poor, it is the asset manager’s duty toinvest in accordance with that demand. Meanwhile,
I think it is necessary to evaluate fund managers
holistically, including qualitatively evaluating themwhile considering ESG constraints.

Responsible investment is becoming theinvestment business itself
NAM invests in approximately 2,400 Japanesecompanies. We are entering an era in which
overseas companies will no longer invest inJapanese companies if these 2,400 companies do
not promote ESG. There is also a risk that Japan’s
capital markets will go into decline, which would
also mean a downturn in Japan’s asset management
sector. Additionally, ESG regulations are becoming
stricter overseas, making it difficult to engage in
the asset management business overseas withouta strong focus on ESG. For NAM, responsible
investment has become synonymous with the asset
management business itself.

04

Expectations for NAM

Theme

I think Japan must move forward with its plan to
become a Leading Asset Management Center, withthe mindset that if we fail to do it now there will be
no second chance. With this in mind, what are yourhopes and expectations for NAM, especially in the
responsible investment domain?
Determining the future direction of ESG
Kimura NAM was historically not very good atpresenting its efforts to the outside world, and when
I first joined the Council, the company’s website
mainly focused on sales information for funds. This
has improved significantly in recent years, with more
space being devoted to information about responsible
investing. For example, our proxy voting standards
are now clearly presented on the website. I am very
encouraged by the progress being made in hiring andpromoting young people and women, especially in the
Responsible Investment Department. Human capital iscritical. Going forward, I hope to see further progressin appointing women as investment managers andincreasing diversity in general.
Maeda As Japan aims to become a leading asset
management center and is on the cusp of becoming
an inflationary economy, the asset management
industry is at a critical juncture. We should increase
the level of organizational freedom to avoid fallingbehind in the competition with other companies. This
year, we may see shareholder proposals not only
related to ESG, but also regarding capital efficiency
and rectifying PBRs below 1. As a frontrunner in theindustry, I would like NAM to engage in stewardship
activities more actively than ever before. The Council
will support such efforts.
Miwa Recently, there has been a debate about where
ESG is heading. I would like to see NAM vigorously
promote ESG, aiming to chart its future, instead ofsimply observing and reacting.

Miwa I think that statement really hits the mark. I

would like to see NAM pour substantial resourcesin linking investment and research, and focus on
increasing corporate value through systematic
engagement. Overseas, especially in Europe, theapproach to ESG is very proactive, so unless you
systematically create a system, you cannot develop
an effective business model. Another important
point is linking non-financial information to employeecompensation. One concern I have about NAM is
the slow pace of its DX (digital transformation). In
order to avoid falling behind our peers, non-financial
information is an area in which we should use DX tomake advances.

Outside director Akiko Kimura

Outside director Ryoji Maeda

Appointed in 2016

Appointed in 2021

April 1973 Certified as an attorney (Dai-Ichi
Tokyo Bar Association) Joined
Nishimura, Komatsu & Tomotsune(now Anderson Mori & Tomotsune)

April 1977 Joined Sumitomo Life Insurance
Company

January 1977 Partner, Nishimura, Komatsu &Tomotsune
June 1978 Harvard Law School (LL.M.)
January 2011 Of Counsel, Anderson Mori &Tomotsune (current)
June 2015 Outside Director, Nomura AssetManagement Co., Ltd.
March 2024 Retired from Outside Director,
Nomura Asset Management Co., Ltd.

April 2002 Executive Officer, CIO of Investment
Headquarters, Sumitomo Life
Investment Co.,Ltd.
December 2002 Operating officer, Sumitomo Mitsui
Asset Management Co., Ltd.
June 2007 President and CEO, (Chairmanof the company from April 2014),
Sumitomo Mitsui Asset Management
Co., Ltd.

Outside Expert Yumiko Miwa
Appointed in 2020
April 1996 Full-time Assistant, School ofCommerce, Meiji University(Assistant Professor from April 2000)
April 2002 Member, Fund Management
Committee, Pension Fund Association
for Local Government Officials
October 2005 Professor, School of Commerce,
Meiji University (current)
April 2006 Visiting Professor, School ofBusiness, University of Michigan

April 2018 Permanent Audit & Supervisory
Board Member, Allianz Global
Investors Japan Co., Ltd.

April 2020 Member, Fund Management
Committee, National Federationof Mutual Aid Associations for
Municipal Personnel (current)

June 2021 Outside Director, Nomura AssetManagement Co., Ltd. (current)

June 2020 Outside Director, Eisai Co., Ltd.
(current)
March 2022 Outside Director, Pigeon Corporation(current)

110Self-Evaluation Methodology

Results of
Self-Evaluation of2023 Stewardship
Activities

1

We conducted a survey of mainly members of the Responsible Investment
Committee, the highest decision-making body for our stewardship activities, andheld discussions based on the results of the survey. Members of the Responsible
Investment Council, which monitors the Responsible Investment Committee,
particularly with regards to matters related to conflicts of interest, also participatedin the survey and in subsequent discussions.

2

Future Actions

More than 90% of respondents indicated that stewardship activities in ourcompany were appropriate.
The Responsible Investment Committee held discussions based on the
results of the survey and comments received, and the final assessment was wewere generally able to carry out appropriate stewardship activities, including
evaluation of activities in 2023 and our response to the points identified in theprevious year as areas to be strengthened.

The following points were identified as areas that need bolstering to further
enhance the effectiveness of our stewardship activities.
The Responsible Investment Committee will deepen discussions on the points
that need to be enhanced as identified through this self-evaluation, and work tofurther improve stewardship activities.

Particularly outstanding initiatives among 2023
stewardship activities

Survey Overview
TargetWe actively engaged in stewardship activities
in order to encourage portfolio companies toincrease their corporate value and promotesustainable growth, and to increase medium- tolong-term investment returns for clients andbeneficiaries.
To further enhance our activities, we performed
a self-evaluation of our stewardship activities
in 2023 (January to December), the results ofwhich are in this section. This self-evaluation
corresponds to the self-evaluation required by
Guideline 7-4 of the Japan Stewardship Coderevision on March 24, 2020.

The following people responded according to the questions.

Responsible
Investment
Committee
members

7

Comprises 7 members from theinvestment and research functions

Responsible Investment Report 2023

6

Responsible
Investment
Council members

4Comprises one Chief Conflict
Officer, two independent outside
directors and one outside expert

Improved the diversity of the Responsible Investment
Committee and enhanced its materials and operations

Revised the Basic Policy for Responsible Investment andProxy Voting Standards for forward-looking investment

Reviewed priority engagement topics to reflect trends

Survey timing

December
2023

111

Responsible
Investment
Committee
Secretariat
members

Period covered

JanuaryDecember 2023

Response format

Signed Multiple
choiceMade progress in collaborative engagement in accordancewith international initiatives(4 choices)

Wrote comments
freely3

Results of self-assessment (overall)

Enhanced information disclosure

Bolster two-way information sharing and communication between
personnel to enhance synergies between engagement andinvestment decisions
Systematically increase the level of understanding of those incharge with respect to the policies established by the Responsible
Investment Committee in order to improve stewardship activities asan organization
Improve the methods for measuring the effectiveness ofengagement, so as to quantitatively understand the relationshipbetween the policies established by the Responsible Investment
Committee and the results of engagement activities, which will thenlead to process improvements.
Furthermore, considering that more than seven years have passed since theestablishment of the Responsible Investment Council, we will re-examine theCouncil’s structure.

Please refer to the link below for the results of ourself-evaluation of our activities corresponding to eachprinciple in Japan’s Stewardship Code.
https://www.nomura-am.co.jp/special/esg/pdf/self_assessment_2023.pdf(Japanse only)112

Nomura Asset Management’s ESG Communication
Activities
External Activities in 2023

Nomura Asset Management is also focusing
on delivering information related to ESG. NAM
employees give presentations and participate as
panelists at seminars to help people gain a better
understanding of ESG.
Also, we work with initiatives as well as public
institutions to discuss ESG issues.
Furthermore, by participating in efforts toestablish standards for ESG reporting, we convey
our knowledge and insights about ESG to various
stakeholders in an easy-to-understand manner.
Collaboration with initiatives, domestic
and overseas public institutions, etc.
Japan Stewardship Initiative (JSI) Steering Committee member
Member of the Industry Advisory Panel (IAP) and Co-chair of the Working
Group on the ASEAN Taxonomy &Transition established by the ASEAN
regulatory authority
C ommittee member, Constructive Dialogue Promotion Working
Group, Committee on Financial and Capital Markets, Japan Business
Federation (Keidanren)
Committee member, “Impact Investing Roundtable” cohosted by GSG and FSA
Advisory Committee member for “Advance,” the PRI’s collaborative
initiative for human rights and social issues
Advisory Committee member for “Spring,” the PRI’s collaborative initiative
for nature
Member of Ministry of the Environment’s Working Group on the Green List
PRI Japan Advisory Committee member
PRI Sustainable Systems Investment Managers Reference Group(SSIMRG) member
ICGN Global Stewardship Committee member
Ministry of Economy, Trade and Industry: Skills Development andResponsible Business Conduct for Transition – Member of the projectworking group to develop business and human rights materials

Jan.


Deliveredexplanatory video at ICJ about NAM’s Proxy Voting Standards to issuer companies
Delivered explanatory video about NAM’s proxy voting at Listed company board member’s governance forumFeb.

 articipated in panel discussion on “ASEAN+3 Sustainable Finance’s Future Direction” at the 36th ASEAN+3 Bond Market Forum (“ABMF”), a project to consider commonality andPstandardization in Asia’s bond market (held in Manilla, Philippines)
Participated in panel discussion at the Moody’s event “Next-Generation Sustainability and ESG” forumMar.

 poke on the topic of “Investors’ analysis and evaluation perspective on transition finance” at the Nomura Securities/Bloomberg co-sponsored seminar “GX Frontline / Changing
S
Capital Markets Towards Carbon Neutrality (webinar)”Presented a paper on “Why Cybersecurity is the Biggest Hidden ESG Risk” on Nomura Connect
Gave lecture on “ESG Investment Opportunities” at the China-Japan Finance and Economic Forum hosted by CICC
P resented a paper titled “Automated Evaluation of Integrated Reports Considering Interpretability” at the Financial Informatics Study Group of the Japanese Society
for Artificial IntelligenceMay.

 resented at Nikkei SDGs Forum “Non-Financial Information Disclosure and Desirable Human Capital Management as Seen by Institutional Investors”
PParticipated in a discussion with the Ministry of Economy, Trade and Industry regarding the use of GX transition bond proceeds
Presented at an annual meeting for investors about sustainable bonds hosted by Nomura Asset Management Malaysia.
Participated in a panel discussion about “Sustainable Investment in Government Bonds” at the World Bank’s Global Borrowers Forum (Stockholm, Sweden)Jun.

 resented at the “Sustainable Bonds and Net Zero Investment” seminar jointly sponsored by the Central Bank of Indonesia, Indonesia’s Ministry of Finance, the Market SupervisoryP
Authority, and the Asian Development Bank (Jakarta, Indonesia)Aug.

 ave presentations on “Challenges and efforts in human capital investment by Japanese companies” and “Initiatives in which NAM participates and collaborativeG
engagement” at the institutional investor seminar “PROJECT BRIDGE/Invigorate with Japanese Equities”
Spoke at the United Nations Development Program (UNDP) Sustainable Finance Consultation (participated online, Jakarta, Indonesia)
Contributed an article to the Japan Association of Corporate Directors’ August 2023 issue of Corporate Governance on the topic of “Corporate human capital management
expected by institutional investors”

Sep.

 erved as moderator for the PRI webinar “The Big Picture on Sustainability”
SGave lecture on academic research using ESG under the topic of “The Latest in AI/FinTech: ESG Quants Edition” for the Waseda Fund Management CourseOct.

 articipated in a panel discussion and opinion exchange hosted by the Regional Banks Association of Japan
P
Participated in panel discussion (natural capital, human rights) at PRI in Person 2023 (Tokyo)
Participated in panel discussion at the Tokyo Sustainable Seafood Summit
Served as moderator for the PRI in Person 2023 (Tokyo) official side event “Investor-Company Dialogue Forum: Serious Sustainability Management”
Participated in a panel discussion at the 2nd “Putting the TCFD Scenario Analysis into Practice,” a workshop on climate-related financial information disclosure and nature-related
financial information disclosure for businesses, held by the Ministry of the Environment
Participated as a speaker in the panel discussion on the topic of “Corporate problem-solving ability and avoided emissions” at the GGX x TCFD Summit
Participated as a speaker at the PRI in Person 2023 (Tokyo) official side event “Bond Net-Zero Investment Framework”
Presented at the Asian Development Bank’s Consultation on the Development of Blue Bonds in the Asian Market
Released a paper titled “Sustainable Investment Functions and Application to Portfolio Selection” in the October 2023 issue of the Securities Analyst Journal
Presented at the Financial Informatics Study Group of the Japanese Society for Artificial Intelligence with the title “Automated Evaluation of Integrated Reports Considering Interpretability”
Presented at the Financial Informatics Study Group of the Japanese Society for Artificial Intelligence with the title “Automated Generation of Improvement Plans for Environmental
Activities in Companies”

Nov.

 poke in panel discussion about proxy voting at the Osaka Stock Council
SPresented at the Nikkei ESG Management ForumLectured in the Sustainable Investment Course at Sunway University in Malaysia
Participated in a panel discussion on “Using Sustainability Data in Investment Decision-Making” at FISD
Spoke at “Japan’s Energy Issues” presented by the Economist Intelligence Corporate Network

Dec.

 resented at the Japan Academy of Business Administration’s symposium
PParticipated as a panelist in the Blue Bond Seminar hosted by the Asian Development Bank (Philippines) (participated online)
Participated in a panel discussion for the “Appropriate evaluation of avoided emissions toward a net-zero society” seminar hosted by the Ministry of Economy, Trade and Industry
at the COP28 Japan Pavilion
Submitted a paper titled “Stochastic ESG Score and Capital Asset Pricing Model” to SSRN (a global collaborative organization that evaluates and shares research papers)

Internal Seminars in NAM
 iko Oyama of Keidanren gave an internal presentation about “What kindMof global diversity competencies are required of us now? - Key points for
management and changing individuals’ mindsets”
Held a talk session where Professor Masako Egawa, Chancellor of Seikei
Gakuen, and Professor Yumiko Miwa of the School of Commerce, Meiji
University, spoke with employees about what is expected of Nomura AssetManagement as an asset management company
Held workshops for the Investment and Research Unit on “Natural
Capital,” “Corporate Governance and Monitoring Boards,” “Well-Being:
ATM and ATN,” “Human Capital/Human Rights Risks,” and “Sustainability
Governance and Risk Management”
Held workshop for NAM employees about revisions to NAM’s Proxy VotingStandards
Lecture for young employees on ESG investing

113

Responsible Investment Report 2023

20 Review of 2023
23

20 2024 and Beyond
24

In recent years, international collaborative
engagement has become increasingly important.
In particular, there has been a growing trend forJapanese companies to be the target of suchengagement, and the role of Japanese institutional
investors and their responsibilities have also grownin importance. Japanese asset management firms
are becoming indispensable in acting as a bridge
between global investors and Japanese companies,
improving corporate disclosure and solving ESG
issues, leading to increased corporate value.
As a Japanese asset manager, Nomura AssetManagement is an advisory member for two PRI
initiatives: Advance, PRI’s human rights collaborative
engagement; and Spring, PRI’s collaborative
engagement on natural capital just launched in
2023, and we are playing a central role in bothprograms. We also participated in Triple I for GH,
which aims to promote impact investing in the fieldof global health, and we have bolstered international
collaboration, especially in order to solve medical
problems in developing countries. We have worked
to strengthen our initiative-based efforts, because
demonstrating the impact of those initiatives in theinternational community is important to enhancing
our competitiveness as an asset management firm.

Responsible investment is now at the very heartof Nomura Asset Management’s investment
business. In particular, our investment assets havebecome increasingly passive in recent years, andthe sustainable growth of portfolio companies has
become essential to our business. Stewardship
activities targeting portfolio companies are becoming
more and more important. In addition, Nomura AssetManagement operates a global asset managementbusiness, so it is impossible for us to do businesswithout addressing individual countries’ increasingly
stringent ESG-related regulations, as well as thedemands from our customers.
Also, our vantage point has been shifting fromJapan to overseas. In recent years, in response tothese changes in the business environment, wehave focused on enhancing our own ESG productgovernance, expanding the ESG domains we address,
and we have been endeavoring to play a central rolein global ESG initiatives. Responsible investment and
ESG have no national borders, and we are now in an
era where only globally competitive asset management
firms can be successful in Japan. We will continue to
evolve our efforts to become an asset management
firm that is trusted by investors and portfolio
companies around the world.

Head of the Responsible
Investment Department

Toshiyuki Imamura

114