Responsible Investment
Report 2020

Nomura Asset Management Co., Ltd.

01

Responsible Investment Report 2020

About Nomura Asset Management

We create economic andsocial value through the asset
management businessResponsible Investment Report 2020
About Nomura Asset Management

Proxy Voting

03 Introducing Nomura Asset Management

49 Proxy Voting Process

05 Responsible Investment Strengths

51

07 Framework for Collaboration with Overseas Offices
09 CEO Message
11 Investment Chain
13 Materiality
15

ESG Statement and Related Initiatives to which
NAM is a Signatory

Proxy Voting Process for Japanese and Global
Companies

53 Proxy Voting Standards for Japanese Companies
55 Summary of Revisions to Proxy Voting Standards
57 Proxy Voting FAQ

ESG Integration

19 TCFD61 Equity Integration

29 Human Rights

65 ESG Scores for Japanese Equity

Engagement35

Our Idea of Constructive Dialogue with Portfolio
Companies

37 Engagement Process
38 Milestone Management
39

Examples of Engagement and Milestone
Management

43 Global Equity Engagement

69 Impact Investing
71 GSE (Global Sustainable Equity Strategy)
73 JSE (Japan Sustainable Equity Strategy)
75 Global Investment Grade Corporate Bond Strategy
77 Japan Credit Strategy
79

Environmental Leaders Bond Strategy (Green Income
Fund)

81 Messages from the Responsible Investment Council
Results of Self-Evaluation of 2020 Stewardship
Activities

46 Engagement by Sustainalytics

83

47 Cooperation with Initiatives

85 Review of 2020, 2021 and Beyond

About photos in this report
Photos for this report were taken with the room doors open and adequate ventilation, and the size of the photographycrews was limited to avoid over-crowding.

Engagement

Proxy Voting

ESG Integration

02

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Responsible Investment Report 2020

About Nomura Asset Management

Nomura AssetManagement
Established in December 1959, Nomura Asset Management is a global asset management firm with business
operations in Japan, North America, Latin America, Asia, and Europe. We meet the asset management needs of adiverse range of clients, from individual investors to institutional clients including large pension funds and institutional
investors. As a responsible investor entrusted with our clients’ assets, in addition to providing investment returns,
we proactively work to create medium-to long-term sustainability, including for ESG (environmental, social, andgovernance) issues.
It’s all about the client.
Based on this philosophy, our offices collaborate to meet the expectations of our clients around the world.
Ratio of AUM by Asset Class
Institutional Investors

EquityAlternative

26%

9%

55%

Multi-Asset/
Balanced

2%

Assets Under
Management(overall)

MMF, MRF, Other

Equity16%

63%

Alternative

Institutional
Investors

11%

Multi-Asset/
Balanced

Individual
Investors

3%
Individual Investors

74%

Fixed Income

Fixed Income

34%

Assets under management

7%

1987
AUM reach¥10 trillion

1974
AUM reach¥1 trillion

1960

1960s
December 1960 Investment trust
Launched the Company’s first openend
stock investment trust (“Open No. 1”)

1970

1980

1970s

1980s

February 1972 Investment trust
Launched Japan’s first foreign securities
investment fund following the abolishment of
the 50% limit on foreign securities holdings

January 1961 Investment trust
Launched a bond investment trust

1976
Opened New York Representative Office

September 1969 Investment trust
Launched Nomura Capital Fund of Japan
Began US pension fund management(Japanese stock investment products in the US)

January 1980 Investment trust
Launched the Medium-Term Japanese
Government Bond Fund, the first of its kindin JapanAugust 1980 Investment trust
Began management of Japan’s first index fund1984
Established London branch office

March 1986 Investment trust
Launched the Long-Term Government Bond
Fund (Nickname: “Top”)

1988
Opening/establishment of overseas office
NAM product

Established Singapore branch office
Established Hong Kong branch officeEngagement

Proxy Voting

NAM’s Strengths by the Numbers(As of December 2020)

Assets under management

Established(Asset Management Division)

1959

¥

World’s 5th largest ETF AUM
Domestic market share *1

45.0%

04

ESG Integration

61.2trillio

1,404

employees

Market share in the ¥139 trillion
domestic publicly-offeredinvestment trust market * 2

28.3%

Employees in head office/branch offices

Average years of experience among
employees involved in investment
and research-related operations

12.8

No. 1

*3

2020
2017

AUM reach¥60 trillion

AUM reach¥50 trillion

2015
2007

2000

AUM reach¥30 trillion

AUM reach¥20 trillion

1990

1990s
May 1992 Investment trust
Launched MMF

AUM reach¥40 trillion

2000

2000s
June/July 2001 ETF
Launched and listed the Nikkei 225 ETF and
the TOPIX index ETF

April 1995 ETF
Launched the Nikkei 300 Stock Index Listed
Fund, the first ETF in Japan

1986

October 2005 Investment trust
Launched the Nomura Global 6 Assets
Diversified Fund, a balanced fund soldthrough Japan Post

Established Sydney branch office

August 2007 ETF
April 1998 Investment trust
Launched MRF

2020

2010

Launched and listed the Gold-Price-Linked
ETF, Japan’s first ETF using index-linked
bonds

March 2008 ETF<NEXTFUNDS> Launched and listed 17
TOPIX-17 ETF series ETFs

September 2008 ETF
Launched and listed the Tokyo Stock
Exchange REIT Index ETF

2010s
2011
Opened Shanghai representative office

May 2011 Investment trust
Launched the East Japan Revival Support Bond
Fund (redeemed in May 2016)2014
Opened Taiwan office through a joint venture

2015
Formed business partnership with American
Century Investments (ACI)May 2018 ETF
Launched and Listed the Japan Empowering
Women ETF
October 2018 Investment trust
Launched the ACI Advanced Medical
Impact Fund

November 2019 Investment trust
Announced Japan’s first fund merger

05

Responsible Investment Report 2020

About Nomura Asset Management

Nomura Asset Management

Our Strengths in Responsible Investment

1Long-term commitment to responsible investment
The first strength is our long history of engaging in responsible investment. The roots of thecurrent 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 to2015. Based on many discussions over the years, and always remaining conscious of our mandate
from clients, we have fostered a culture that is supportive of responsible investment, respects
diverse opinions from a large number of professionals, and values lively discussion.

History of Responsible Investment
2010
UK Stewardship Codeadopted2001
Proxy Voting Committee
established

2004
Management of SRI Index
Fund commenced
Management ofgovernance fundcommenced

2014

2019

Japanese version of the Stewardship Code adopted

Support for TCFD. Strengthening
our company-wide efforts to tackle
climate change.

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

Formulated our ESG Statement

2011

2017

2020

ESG Committee (now the
Responsible Investment
Committee) established

Proxy voting results disclosed individually
Malaysian Stewardship Code adopted

Established
Asset Management
Research Instituteto promote ESG

United Nationssupported Principles for
Responsible Investment(UN PRI) signed

2015

Responsible Investment Group and ESG specialists established
Stewardship Committee integrated into Responsible Investment Committee

2016
Responsible Investment Department established
Conflict of Interest Management Policy formulated and Responsible
Investment Council established
Stewardship Codes in Singapore, Hong Kong and Taiwan adopted
UK Office acquired Tier1 evaluation from UK FRC*

2018
Self-evaluation disclosed

2001

2004

2

2010

2011

2014

2015

2016

2017

2018

2019

2020

*UK FRC: Abbreviation for the Financial Reporting Council in the United Kingdom

Building a strong responsible investment platform
The second strength is our robust responsible investment platform. Our systems, processes
and organization have undergone continuous reform to reflect and respond to the changing needsof investors and wider society. One example is the Responsible Investment Council, which wasestablished in 2016 as an oversight body of the Responsible Investment Committee.
Independent outside directors and Outside Expert make up the majority of the Council, thus
enhancing the management of conflicts of interest. Having the Council monitor Committee
discussions in real time is an unprecedented initiative in the industry.
Please refer to Page 52 for more information on conflict of interest management, and Pages
81-82 for a message from the Responsible Investment Council.
Organizational
Structure for
Responsible
Investment

Supervision/verification/
recommendations, etc.

Formulation of policies,
supervision initiatives, etc.

Reports on activities,
proposals of issues, etc.

Responsible
Investment Council
Main activities

Dialogue with portfolio
companies (engagement)

Responsible Investment Committee
Secretariat: Responsible Investment Department

Proxy voting

Integration into
investment decisions(ESG integration)

Investment andresearch division
Collaborative/public
activities

Engagement

3

Proxy Voting

06

ESG Integration

Global, diverse personnel and research capabilities
with respect to responsible investment
The third strength is our global and diverse personnel and their research capabilities. A large
number of portfolio managers, analysts and ESG specialists working in one of the largest active
management institutions in Japan are committed to applying their analytical abilities and insights
to responsible investment.

London
New York
Seoul

Frankfurt
ShanghaiTokyo
TaiwanHong Kong
Dubai
Malaysia

Singapore

Sydney4

Emphasis on responsible investment discussion
and debate
The fourth strength is the emphasis we place on exhaustive discussions.
In 2020, the Responsible Investment Committee held discussions about agenda proposals fromshareholders such as director elections and M&A-related issues, and also discussed the response to
the newly-revised Japan Stewardship Code and amendments of the firm’s proxy voting guidelines. On
many occasions there were splits in opinion, or the Secretariat’s plans were overturned. The membersof the Responsible Investment Council were also present at Committee meetings and actively
participated in discussions, without limiting themselves to monitoring conflicts of interest.
We believe that such rigorous monitoring structure and interactive discussions bring productive
results, and consider this to be one of our key strengths.
Responsible Investment Committee Meetings January – December 2020
Responsible Investment
Committee

19

times

Regular 4 times Ad hoc

15 times

Responsible Investment
Council8

times

Regular 4 times Ad hoc

4 times

07

Responsible Investment Report 2020

About Nomura Asset Management

Responsible Investment
Global Platform
USA

Engagement

ESG Integration
Proxy Voting

Basicp
eng a olicy fo
r
gem
ent
Coop
er at
initia ion witht i ve s

ESG Statement
I n te g
Proxy voting guidelines

Unified exercise of voting rights

r atioS
ing E
Shar oresscnG

ESG Analytical Tools

EuropeEngagement

Asia
Engagement

ESG Integration

Proxy Voting

ESG Integration

Proxy Voting

Nomura Asset Management
Global Platform andCoordination on Responsible

Engagement

Proxy Voting

ESG Integration

Cooperation With Overseas Offices
At Nomura Asset Management, we work globally tostrengthen 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 canalso share detailed information with one another.
Our ESG Statement is shared globally, and allows for acommon understanding of the goals behind our ESGrelated activities as well as ESG-related issues (refer toPage 15).

EngagementJapan

ESG Integration

Engagement

We engage in constructive dialogue with companies
about important financial and non-financial risks
and opportunities in accordance with our basic
policy for engagement (refer to Page 35).
Specifically, our ESG specialists, ESG investment
manager, 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, whichallows information to be easily shared among ouroffices (refer to Pages 38, 44). For example, ESG
specialists in Tokyo discuss the details of
engagements with Japan-based pharmaceuticalcompanies in which portfolio managers in the UK
office participate, as well as the details of portfolio
company engagements conducted by ESG
investment professionals in Singapore and portfolio
managers in Hong Kong (refer to Pages 45-48).

Proxy Voting

Proxy Voting
For proxy voting (excluding Japanese equities), we
generally decide to agree or oppose an issue inaccordance with our Global Basic Policy on Proxy
Voting. However, if the portfolio managers andanalysts possessing a deep understanding of local
conditions determine it to be necessary, we may, upondeliberation, make a decision that differs from thebasic policy on proxy voting. The final decision is thenshared with all offices, and proxy voting is then carriedout uniformly on a global basis (refer to Page 51).

ESG Integration

Investment

In terms of integration, climate change analysis
tools are used to evaluate the climate change risks
and opportunities for each fund (refer to Pages
22-26), and in addition to sharing our ESG scoresamong all offices, ESG data from external sourcesand other data are incorporated and used to makeinvestment decisions. The details of engagementwith companies whose stocks our funds hold areshared with portfolio managers and utilized in
discussions about whether to continue holding thestocks in question (refer to Pages 62-65).

08

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Responsible Investment Report 2020

About Nomura Asset Management

CEO Message

We create economic and social value
through the asset management businessAs a responsible institutional investor
In 2020, the COVID-19 pandemic created an
extremely challenging situation for us. Even now, in
2021, there are no clear signs of the pandemic coming

backdrop of heightened awareness of human rights,
including work styles and the working environment insupply chains.
In our ESG Statement, we identified issues including

to an end. However, medical professionals, along withthe climate change and issues related to social

many other people and companies, are doing all they

responsibility as key issues (materiality), and we have

can to combat the pandemic, and this has convinced

been working to solve such problems. In equity

me that we will soon be able to overcome this crisis.

investment, we are using impact investing to advance

Meanwhile, social changes that are transforming ourefforts to address climate change, health issues andlifestyles, such as the diversification of work styles

human rights problems, while in fixed income

symbolized by the growth in remote work and advances

investment we are expanding our offerings which use

in digital transformation, are occurring in a variety of

ESG investment methods.

fields. As an asset management firm, we will continue tosupport initiatives aimed at addressing and overcoming
problems through the virtuous cycle of investment(investment chain).
We believe it is important to not only create economic

Contribution to the advancement of society
through asset management
The essence of the asset management business liesin fulfilling our fiduciary responsibilities and solving

value by helping clients build wealth through our asset

social issues through the provision of high quality

management business, but also to support the creation

products, excellent performance and exceptionalof social value through our portfolio companies. We feel

service that meet clients’ expectations. To fulfill thisthat this will enable sustainable economic growth andmission, we will continue to work to realize a virtuous

the realization of a prosperous society, which will

cycle of investment (investment chain).

ultimately lead to more affluent lives for our clients.

In January 2021, in line with our ESG Statement, weannounced our materiality, the key issues that we will

Climate Change, Health and Human Rights
Initiatives

address over the medium to long term, based on our
corporate principles and our medium-term management

In 2020, the world once again witnessed the risks

strategy. Proactively addressing these issues is alignedthat ESG issues can bring. In terms of the environment,with the United Nations Sustainable Development Goals

there were massive forest fires overseas, and various(SDGs), which aim to create social value by addressing

parts of Japan experienced large-scale flooding due tothe issues that exist among various stakeholders

the prolonged stationary nature of the seasonal rainthrough business activities, in addition to pursuing

front.

economic value through those business activities.

In October 2020, the Japanese government set a goal

Nomura Asset Management aims to be the Japaneseof reducing greenhouse gas emissions to net zero byasset management firm of choice for clients around the2050. This and other initiatives are expected to trigger

world. Anchored by our corporate principles ofan acceleration in action by companies to combat“Maximizing Value,” “Advanced Expertise,” andclimate change. In terms of society, not only has the“Confidence and Responsibility,” we will continue to

COVID-19 pandemic significantly changed people’s

push forward with our responsible investment initiatives

awareness with respect to health, but also various types

to enhance the corporate value of our portfolioof action are starting to be called for, against thecompanies and realize a sustainable society.

Engagement

Proxy Voting

ESG Integration

Hiroyasu Koike
President & CEO
Nomura Asset Management Co., Ltd.

Corporate Princi

Maximizing Value
Advanced Expertise
Confidence and Responsibility

Corporate Slogan

10

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Responsible Investment Report 2020

About Nomura Asset Management

Investment Chain
Nomura Asset Management’s investment chain and materiality

Four
Strengthening the Investment Chain
Provision of excellent products and services that help
clients build wealth.
Promotion of responsible investment
Enhancement of investment capabilities and client
convenience through digitalization
Promotion of financial literacy education
Support for regional revitalization

Corporate Value Improvement throughGovernance
Sufficient display of corporate governance functions
Enhancement of internal control system
Strengthen and enhance the system for managing
conflicts of interest

Engagement

Proxy Voting& Materiality

ESG Integration

Nomura Asset Management aims to be the Japanese asset management firm of choice for clients around the world. In
accordance with our corporate principles, we will continue to proactively work to solve key issues (materiality) in order torealize a virtuous cycle of investment (investment chain).

Goals
Realizing a Healthy Global Environment
Achieving a decarbonized society
Preservation of natural capital

Realization of a Society in which Human
Rights are Respected
Promotion of diversity and inclusion
Creation of environments in which employees are
excited to work
Realization of a healthy and long-lived society

12

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Responsible Investment Report 2020

About Nomura Asset Management

Materiality
Strengthening the Investment Chain
Important issue

Goal

Key initiatives

Provision of
excellent products
and services that
help clients build
wealth.

We will respond to clients’various asset management
needs, and provide excellent
investment performance.

In addition to traditional assets, expand investment inareas such as ESG and alternative investments, andfurther improve asset allocation capabilities

Promotion of
responsible
investment

Through stewardship
activities, we will continue tosupport portfolio companies’
corporate value enhancement
and social value creation

Enhancementof investment
capabilities andclient conveniencethrough
digitalization

We will utilize cutting-edge
technologies to the maximum
extent possible and provide
clients with even moreinvestment opportunities andadded value

Promotion offinancial literacy
education

In order to get clients familiar
with investment trusts, we will
promote financial literacy
education and work to
broaden the range of investors

Support forregional
revitalization

We will work with regional
financial institutions to createstrong movement for regional
revitalization originating fromregional financial institutions

Main related SDGs

Enhancement of ESG integration to incorporate
non-financial information into the investment process
Proactive promotion of ESG engagement based on
ESG perspectives and important topics

Enhancement of UI/UX for digital content andutilization of DX to cultivate new business domains
Development of investment methods utilizing AI,
alternative data, and other means

Enhancement of education/training that will lead to thepromotion of wealth-building

Partner with regional financial institutions to launchdonation schemes utilizing the corporate version of
the hometown tax system
Holding ESG forums with regional financial institutions
to discuss regional revitalization and consider ESG

Realizing a Healthy Global Environment
Important issue

Goal

Achieving adecarbonizedsociety

Targeting the shift to asustainable decarbonizedsociety, we will use
engagement and othermeans to encourage portfolio
companies to combat climatechange, and aim to achievecarbon neutrality for Nomura
Asset Management as well

Preservation of
Natural Capital

We will demand that portfolio
companies have management
strategies that take thesustainability of natural capital
into account, and promote
initiatives within Nomura AssetManagement to preserve
natural capital

Key initiatives
Enhancement of the level of investment with respect toclimate change risks and opportunities
Use of engagement with portfolio companies to havethem incorporate climate change initiatives into their
management strategies

Reduction of Nomura Asset Management’s CO 2
emissions, with the aim of achieving carbon neutrality

Use of engagement with portfolio companies to havethem incorporate initiatives aimed at the coexistenceof natural capital and their business into their
management strategies

Utilization of environmentally-friendly and sociallyfriendly products

Main related SDGs

Engagement

Proxy Voting

ESG Integration

As an institutional investor

As an operating company

Realization of a Society in Which Human Rights are Respected
Important issue

Goal

Promotion ofdiversity andinclusion

We will promote diversity andinclusion in portfolio
companies as well as within
Nomura Asset Management,in order to continuously create
added value by allowing
diverse human resources todisplay their abilities andindividuality

Creation ofenvironments inwhich employees
are excited to work

Our portfolio companies aswell as Nomura AssetManagement itself will
improve productivity andcreate high value-added
services by creating ahigh-quality work
environment.

Key initiatives

Main related SDGs

Promotion of diversity and inclusion throughengagement with portfolio companies
Establishment and management of Japan Empowering
Women Select Index ETF
Introduction of job-grade personnel system
Development and appointment of diverse professional
human resources
Support for balancing work and raising children
Developing and managing investment strategies that
focus on the performance of companies that are goodplaces to work.
Realization of decent work through engagement withportfolio companies
Correction of long working hours
Strengthen communication with management topromote flexible work styles and increase employee
engagement (willingness to contribute to the company)
Contribution to medical research through the creationand provision of investment funds in collaboration withstrategic partner ACI

Realization of ahealthy and longlived society

In advance of the era of
100-year lifespans, we aim not
only to help clients extend thelongevity of their assets, butalso realize a society in whichpeople live long, healthy lives

Joint engagement with initiatives aiming to improveaccess to healthcare
Education targeting improvements in health literacy
Understanding employees’ health status and conductmental health checks
Implementation of measures to prevent communicablediseases

Corporate Value Improvement through GovernanceImportant issue

Goal

Sufficient displayof corporate
governancefunctions

We will promote the sufficient
functioning of corporate
governance in order for
portfolio companies, as well
as Nomura AssetManagement itself, to achieve
the corporate philosophiesand management targets
established by each

Key initiatives
Engagement with portfolio companies with the aim ofenhancing corporate governanceDisciplined proxy voting in accordance with the proxyvoting guidelines
Adoption of a monitoring model as a Company with
Audit & Supervisory Committee
Appointments of independent outside directors
possessing expertise in specialized fields
Creation of various committees
Construction of an internal control system based on
three lines of defense

Enhancement ofinternal control
systemStrengthen andenhance thesystem for
managing conflictsof interest

We will work to strengthen
and enhance our internal
control system and conflict ofinterest management
framework in order to protect
our clients’ assets and earn
their unwavering trust

Monitoring of market risk, credit risk, operational risk,
etc., by various committees
Enhancement of the conduct risk management system
Construction of a robust crisis management system
Creation of the Fund Management Council and the
Responsible Investment Council, and appointment of
independent outside experts as members of bothcouncils
Ensure independence of decision-making andpersonnel in investing and research

Main related SDGs

14

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Responsible Investment Report 2020

About Nomura Asset Management

ESG Statement

Related Initiatives to which
Nomura Asset Management is a signatory

ESG Statement

We formulated our ESG
Statement in March 2019. This
statement shares with our
stakeholders the direction of
our ESG-related activities andhow we will respond toenvironmental and social risks,
while the statement also aims
to show how we will strive torealize a sustainable
environment and society. We
recognize that efforts to solve
ESG issues are important inorder to support a virtuous
cycle in the investment chain.
As a responsible investor, we
encourage our portfolio
companies to operate with anemphasis on good ESG
practices, and we ourselves
will also conduct operations
with a focus on ESG.

E

Climate Change
Environment

Decarbonation

Palliation and Adaptation

Innovation

We will request portfolio companies that operate inbusinesses that could have a negative climate change
impact to properly manage transitional and physicalrisks related to greenhouse gas emissions, etc. andincorporate their response to climate change in their
management strategy.
At the same time, we will hold continued dialogue withthe companies in our portfolios to encourage thetransition of industrial structures towards a
decarbonized society, so that problems can beaddressed through technological innovation.

CDP

Signature Timing
June 2015

Established in 2000. This is a global project inwhich institutional investors around the world
encourage companies to disclose theirstrategies to combat climate change as well as
their specific greenhouse gas emissions.
Current areas of focus include climate change,
water and forests.

Farm Animal Investment Risk
and Return FAIRR

Signature Timing
March 2019

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

Climate Action100+

Signature Timing
December 2019

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 climate change. The initiative wasestablished in December 2017, and the action
period was set at five years.

Engagement

Proxy Voting

ESG Integration

Signed as Nomura GroupE

Natural Resources
Environment

Water and Forest

Biodiversity

Livestock and Aquaculture

We will hold ongoing dialogue with portfolio
companies engaged in business activities that havepotential to negatively impact natural capital andbiodiversity, and we will encourage them to establish
and implement measures to limit their impact on theenvironment, as well as appropriately incorporate
their responses to business issues into their
management strategies.

Signature Timing
June 2019S

Social Responsibility
SocialHuman Rights

Medical Access

If a portfolio company has a potential negative effecton human rights, including society, child labor andforced labor, in addition to applicable laws andregulations, we encourage the portfolio company torespect international human rights standards such as
the UN OHCHR’s “Guiding Principles on Business andHuman Rights.” We also encourage portfolio
companies to appropriately disclose information sothat their policies are available externally.

Farm Animal Investment Risk
and Return FAIRR

Access to Medicine Foundation/
Access to Medicine Index

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 livestockindustry risks, including the impact on theenvironment, as well as food safety (antibiotics)
issues.

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

Signature Timing
June 2019

30% Club Japan(Investor Group)

Sustainable Blue Economy
Finance Principles
SBEFP

Signature Timing
June 2019

Hiversity

These are financial principles for realizing asustainable marine economy formulated by
the European Commission in March 2018.
The principles promote investment activities
to protect marine ecosystems and solve
marine problems such as marine plastics.

Signature Timing
December 2019

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

Nomura Asset Management ESG Statement

http://www.nomura-am.co.jp/corporate/service/pdf/esgstatement.pdf

16

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Responsible Investment Report 2020

About Nomura Asset Management

Signed as Nomura Group

G

SDGs

Governance

Sustainable Development Goals

GovernanceIndependent Director

Officer’s compensation

SDGs

succession planningWe urge our investees to establish appropriate
corporate governance structures, so they are able toaddress ESG issues that may lead to enhancing theircorporate values in a sustainable manner.

The International Corporate
Governance Network
ICGN
Signature Timing
December 2018

Established in 1995 to promote effective
corporate governance standards and foster
responsible investment to advance efficient
markets and sustainable economies
worldwide.

The Asian Corporate
Governance Association
ACGA

Signature Timing
December 2018

Signature Timing
November 2019

Solutions to the various ESG issues presented in the
SDGs can be viewed positively as new business
opportunities, and may encourage portfolio
companies to appropriately reflect these in their
management strategies. We also request appropriate
information disclosure so that companies’ policies
and activities are clearly understood by external
parties.

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

As the successor to the Millennium Development Goals (MDGs)
established in 2001, the Sustainable Development Goals (SDGs) are
international goals that aim for a sustainable and better world by 2030,
and are part of the “2030 Agenda for Sustainable Development” which
was adopted at the UN Summit in September 2015. There are 169
targets for the 17 goals, and the SDGs pledge to “Leave No One Behind.”
The SDGs are universal and do not apply only to developing countries.
Japan is also proactively working towards these goals.

Japan Stewardship Initiative
JSI

Nomura Asset Management supports the Sustainable Development
Goals (SDGs)

Aims to identify practical issues between
asset owners and asset managers and tosupport efficient transmission of information
aimed at advancing and deepening
stewardship activities.

Other Related Initiatives that Nomura Asset Management has Joined

Signature Timing June 2015

The United Nations Global
Compact
UNGC
Non-binding action principles
advocated by then UN SecretaryGeneral, Kofi Annan, at the Davos
Forum in 1999. It encourages
businesses and groups worldwide
to take actions in the areas ofhuman rights, labor, theenvironment and preventing
corruption.

Signature Timing January 2012

Signature Timing March 2011

The financial principles
toward the formation of asustainable society

Principles for
Responsible Investment
PRI

Principles for Financial( Actionfor the 21st Century )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 for the formation of asustainable society.

The UN PRI (United Nations’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.

Signature Timing January 2019

The United Nations
Environment Programme –Finance Initiative
UNEP FI
UNEP FI is a partnership establishedbetween the United Nations
Environment Program (UNEP) andfinancial institutions worldwide.
Since its establishment in 1992,
UNEP FI has been cooperating withfinancial institutions and regulatory
authorities to promote a shift to afinancial system that integrates
economic development with ESG
considerations.

Engagement

Proxy Voting

ESG Integration

NomuraAsset Management

Role asan institutional investor
Impact on economic cycle asinstitutional investor
Create a virtuous cycle ofinvestment funds, and realize
sustainable economic growth anda prosperous society

Investment Chain

P11 - P12

ESG Statement

Nomura Asset Management’s Rolein ESG Issues

18

Solving ESG issues
Creating social impact

Role asan operating company
Directly impact society
as an operating company

Signature Timing March 2021

GRESB
Measures the environmental, social,and governance (ESG) of individualcompanies and investment funds inthe real estate sector. GRESB was
launched in 2009, mainly by
European pension funds, as a sourceof information to use when selecting
investments and during dialogue
with portfolio companies andinvestment funds.
GRESB® and the related logo are trademarks
owned by GRESB BV and are used with permission

Solve social issues through asset
formation(

poverty, health and welfare,active participation of women,
education

Materiality

P13 - P14)

19

Responsible Investment Report 2020

About Nomura Asset Management

NAM’s Initiatives on Climate
Change and Climate-Related
Risks and Opportunities(Disclosure based on the TCFD Recommendations)
In June 1990, prior to the United Nations Conference
on Environment and Development (Earth Summit) heldin Rio De Janeiro in June 1992, NAM became anindustry pioneer by establishing the “Global
Environment Fund.” Since establishing this fund, NAM
has been proactively investing in companies that help
protect the environment around the world and combat
climate change. With respect to the environment, we
believe that climate change is the most important ESG
issue in terms of impact on corporate value of portfolio
companies, and our ESG Statement positions climatechange as one of the most important ESG issues. Basedon this stance, in March 2019 we became a signatory of
the TCFD (Task Force on Climate-related Financial
Disclosures), and in our Responsible Investment Reportand other reports we disclose the details of ourinitiatives on climate change and the climate changerelated risks and opportunities of portfolio companies,
based on the TCFD Recommendations.

Enhancing our ESG integration with analysis and evaluation of climate-relatedrisks and opportunities
Incorporating climate change countermeasures into the management
strategies through constructive engagement with portfolio companies
Climate change is one of the most important ESG issues in the management strategies of portfolio
companies. Through our TCFD initiatives, we are enhancing the level of our investment management withrespect to climate-related risks and opportunities, and contributing to the realization of a carbon-freesociety by engaging with portfolio companies and encouraging them to include efforts to combat climatechange in their business strategies.

TCFD

Engagement

Proxy Voting

ESG Integration

increase if business opportunities accompanying climate

As climate change increasingly impacts corporatechange result in higher profits or cash flow in the future.

management, government policies, consumer preferences,

In October 2020, the Government of Japan declared thatnature, weather, and other aspects of society, climaterelated risks and opportunities are some of the mostJapan will become carbon neutral by 2050, and inimportant factors that determine the corporate value ofDecember 2020 the government formulated the “Green

portfolio companies. Corporate value is the discounted

Growth Strategy Through Achieving Carbon Neutrality inpresent value of financial metrics such as future free cash

2050”. Overseas, aiming to create a sustainable

flow, and the business assets that generate such metrics

decarbonized society, many countries and territories,

include not only tangible assets such as production

including the EU, have made declarations of carbon

equipment, but also human capital, natural capital, social

neutrality, established rules on taxonomy, introduced

capital, and other “non-financial capital” which is not foundcarbon pricing (carbon tax, emissions trading, etc.), andin a company’s financial statements. In order to analyze howhave made mandatory the disclosure of climate changethese types of non-financial capital will impact the futuredata based on the TCFD Recommendations and othermanagement, sustainable growth, and financial data of anon-financial data. With these actions, climate-related risks

company, we believe it is extremely important to analyze

and opportunities are expected to increasingly impact the

non-financial data (data on non-financial capital) as a part ofcorporate value of our portfolio companies going forward.
We are carrying out ESG integration that incorporates

managing the assets our clients have entrusted to us.

analysis and assessments of these climate-related risks

Climate-related risks include transition risks
accompanying the shift to a carbon-free society, andand opportunities into our investment process, and we havephysical risks which include the impacts of natural disasters

built a system enabling comprehensive ESG integration notand other events (refer to table below). A company’s

only for our company-wide portfolios but for individual

corporate value will decline if, due to climate change, it has

funds. In addition to the TCFD Recommendations, wenatural disaster-related costs, incurs a carbon tax, hasperform advanced analyses and evaluations of climate-costs to acquire carbon credits, must pay litigation costs or

related risks and opportunities in our proprietary ESG

insurance premium payments accompanying a disaster, orscores, and we work to enhance both the corporate value of

incurs asset impairment losses. On the other hand, climate-portfolio companies and the performance of the funds werelated opportunities include resource efficiency, energy

manage by encouraging portfolio companies throughsources, products and services, markets, and resiliency,

engagement and proxy voting, as well as by collaborating

among other possibilities. A company’s corporate value willwith various stakeholders on climate-related initiatives.

Climate Change Risks and Opportunities
transitionrisks

 olicy and legal risks accompanying carbon pricing, mandatoryPemissions reporting, and regulations/litigation surrounding
products/services

opportunities

 eplacement of existing products/services with carbon-freeR
options, failed investments in new technologies, and costs totransition to carbon-free technologies, as well as technologicalrisks accompanying each arket risks accompanying changes in consumer behavior,M
uncertainty in market signals, and soaring raw materials costs
 eputation risk in conjunction with changes in consumerR
preferences, growing negative impressions of the industry, and anincrease in stakeholder concerns as well as negative feedback
from stakeholders

physicalrisks

 cute physical risks accompanying intensifying abnormal weatherA
events like strong typhoons and flooding
 ong-term physical risks due to changing rainfall patterns,
L
increased volatility in weather patterns, rising averagetemperatures, and sea level rise

Task Force on
Climate-related
Financial
Disclosures

Resource Efficiency: Use of more efficient means oftransportation, use of more efficient means of production/transport, recycling, transitioning to more efficient buildings,
reducing water use/consumption
Energy Sources: Use of carbon-free energy sources, use of
support from policy initiatives, use of new technologies,
participation in carbon markets, transitioning to diversified
energy sources
Products/Services: Development and expansion of carbon-free
products/services, adaptation to climate change and use of
insurance to address risks, development of new products/
services through R&D and innovation, ability of businesses todiversify, changes in consumer preferences
Market: Access to new markets, use of public sector incentives,
access to new assets and locations requiring insurance coverage
Resilience: Participation in renewable energy programs andimprovements in energy efficiency, replacement anddiversification of resources

20

21

Responsible Investment Report 2020

About Nomura Asset Management

Climate-related Financial Disclosure based on the TCFD
Recommendations
Governance

Our Board of Directors and Executive Management Committee both recognize that climate-related risks
and opportunities have important impacts on our business and our medium-to long-term managementtargets, and we have therefore built an appropriate governance system and also carry out monitoring.
The Responsible Investment Department, which acts as the TCFD Secretariat, shares the analytical
data it compiles, such as greenhouse gas emissions, ESG scores and scenario analyses, with portfolio
managers and analysts. These data are then utilized in company analyses, engagement, and investment
decision-making.
These data are also regularly reported to the Responsible Investment Committee, which comprises
officers in the Investment and Research division, and they are used to evaluate a portfolio’s climaterelated risks and opportunities. Following this, the chair of the Responsible Investment Committee
reports the evaluation outcomes to the Executive Management Committee, which allows members ofsenior management to monitor climate-related risks and opportunities and make management decisions.
The details are then ultimately reported to the Board of Directors via the Executive Management
Committee.

Strategy

As detailed on Page 20, we recognize a wide range of short-, medium- and long-term climate-relatedrisks and opportunities. In terms of transition risks, we are closely watching carbon pricing, the strandingof 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 arepaying close attention to products and services related to renewable energy and energy efficiency andconservation, electricity storage, hydrogen, ammonia, CCUS (Carbon dioxide Capture, Utilization andStorage), carbon recycling, as well as disaster prevention and mitigation.
We analyze the impacts that climate-related risks and opportunities do and will have on our businesses,
strategies, financial plans, and portfolios. For example, we perform financial analysis and transition risk
analysis using both Institutional Shareholder Services’ (ISS) analysis methods and our own carbon
pricing in our ESG score.
In principle, we do not divest from (and thereby lose the chance for engagement with) portfolio
companies with high levels of greenhouse emissions. Instead, by continuing to hold such companies,
we use engagement as a means to encourage these portfolio companies to take measures to combat
climate change.
Please refer to Page 23 for information on the scenario analysis we performed for our four-asset
integrated portfolio.

RiskManagement

We manage portfolio risk using ISS’s analysis methods for transition risk and physical risk. In addition,
we identify and manage portfolio companies’ transition risks and physical risks using our own corporate
analysis and ESG scores, as well as through engagement.
We feel it is important to analyze GHG emissions throughout the entire life cycle of a company’s products
and services, and on a supplementary basis we use emissions throughout the global supply chain andavoided emissions as disclosed by companies.
Such risk management analysis outcomes are shared within the Investment and Research division,and are reported to both the Executive Management Committee and the Board of Directors after being
monitored by the Responsible Investment Committee.

Metrics andTargets

In order to evaluate climate-related risks and opportunities in accordance with our own strategies
and risk management process, we measure four metrics recommended by the TCFD (total carbon
emissions, carbon footprint, carbon intensity, weighted average carbon intensity) and perform scenario
analyses as well as a transition risk analysis and physical risk analysis for each portfolio.
While the total carbon emissions of our entire Japanese equities portfolio is below the benchmark, thetotal carbon emissions of our global equities portfolio exceeds the benchmark.
In December 2018, Nomura Group formulated medium- and long-term CO2 emissions reduction targets
for the entire Group on a global basis. The global targets include reducing CO2 emissions (total) 32% by
FY2030 (medium-term) and 65% by FY2050 (long-term) compared to FY2012 emissions.

Engagement

Proxy Voting

22

ESG Integration

Analysis of Carbon Footprinting and Exposure Metrics
measure the following four metrics recommended by the

In order to evaluate the climate-related risks andopportunities of portfolio companies in accordance with

TCFD for each of our portfolios.

our own strategy and risk management process, we
Total Carbon Emissions

Carbon Footprint

Absolute GHG emissions associated with a portfolio
Unit: tCO 2e(CO 2 equivalent)current value ofinvestment

Total carbon emissions for a portfolio normalized by the market
value of the portfolio
Unit: tCO 2e/US$ million (investment amount)
Total Carbon Emissions

issuer’s Scope 1 andScope 2 GHG emissions

issuer’s market
capitalization

market capitalization of portfolio

Carbon Intensity

Weighted Average Carbon Intensity

Volume of carbon emissions per million dollars of revenue(carbon efficiency of aportfolio)
Unit: tCO 2e/US$ million (revenues)

Portfolio’s exposure to carbon-intensive companies and metricrecommended byTCFD
Unit: tCO 2e/US$ million (revenues)

Total Carbon Emissions
current value of investment

the revenues of
portfolio companies

issuer’s market capitalization

We analyze climate-related risks and opportunities for

current value ofinvestment

issuer’s Scope 1 andScope 2 GHG emissions

market capitalizationof portfolio

the revenues of portfolio companies

equities, total carbon emissions likely exceeded that of thefour portfolios we manage: Japanese equities; global

benchmark due to the fact that the weightings of high-equities; Japanese bonds; and global bonds. In ouremitting companies in sectors such as Energy, Materials

analysis, we use data and analysis methods from ISS. For

and Utilities in emerging countries including India, China,

equities benchmarks, we used TOPIX for Japaneseand Russia are higher than the weightings in theequities and MSCI ACWI ex-Japan for global equities.

benchmark. In terms of the ratio of total carbon emissions

Bonds only included corporate bonds, and did not include

accounted for by each industry, there is a high ratio fromgovernment or other public bonds.

both Materials and Utilities, as well as relatively high ratios

The analysis revealed that the total carbon emissions offrom Energy and Industrials. The same trend is seen in the

our Japanese equities portfolio and global equities

industry ratios for weighted average carbon intensity.

portfolio are less than, and greater than, respectively, theGoing forward, through engagement as well as cooperation

total carbon emissions of portfolios which have the samewith climate change-related initiatives, we will continue tomonetary amount as each portfolio and comprise the same

encourage portfolio companies to undertake initiatives

stocks and weightings as the benchmarks. For global

targeting a carbon-free society.

Total Carbon Emissions(Million tCO2e)

Scope 1

Scope 2

(Million tCO2e)

Scope 3

Scope 1

Scope 2

Scope 3

12

200

172.5
150

153.0

9

6.9
100

6

50

3

16.1

13.7
0

0
NAM’s Japanese Japanese equities NAM’s global
equities portfolio
benchmarkequities portfolio

Global equities
benchmark0.6
NAM’s Japanese bonds
portfolio

NAM’s global
bonds portfolio*F or equities, total carbon emissions have been calculated using NAM’s ownership stake versus total market capitalization. For bonds, total carbon emissions
have been calculated using Adjusted Enterprise Value (total market capitalization + total debt).

23

Responsible Investment Report 2020

About Nomura Asset Management

Consumer Discretionary

Ratio of Total Carbon Emissions by Industry
EnergyConsumer Staples

Materials

NAM’s Japaneseequities portfolio

Industrials

Information Technology

Utilities

NAM’s global
equities portfolio
NAM’s Japanesebonds portfolio
NAM’s global
bonds portfolio

Other
80%
100%
Communication Services*Industries whose composition ratio of the Global Industry Classification Standard (GICS) is less than 1% are not included in industry classifications.
0%

20%

40%

Financials

60%

Weighted Average Carbon Intensity and Ratio by Industry
NAM’s Japaneseequities portfolio
Japanese equities
benchmark
NAM’s global
equities portfolio
Global equities
benchmark

78
82
206
166
0

50
EnergyMaterials

Financials

100

150

Consumer Discretionary

Consumer Staples

Industrials

Information Technology

Communication Services

Utilities

200
Health Care

Real Estate

250(tCO 2 e/US$ million)

Other

NAM’s Japanesebonds portfolio
NAM’s global bonds
portfolio

238
232
0

50

150

100

200

250
(tCO 2 e/US$ million)

Scenario Analysis
For total carbon emissions of our four-asset integrated

scenario analyses, in light of the specific characteristics

portfolio, we used data from ISS, and performed scenario

of transition risk in each sector, we used only Scope 1

analyses based on the three scenarios in the Worldemissions for the utility companies, only Scope 3

Energy Outlook 2019 issued by the International Energy

emissions for fossil fuel producing companies, and both

Agency (IEA). For the total carbon emissions used in our

Scope 1 and Scope 2 emissions for all other companies.

1 Sustainable Development Scenario(SDS): The 1.5°C scenario aligned with the target of the Paris Agreement, whichis to work to limit global warming to well below 2°C, preferably to 1.5°C, compared to pre-industrial levels.
2 Stated Policies Scenario (STEPS): A scenario which assumes that governments carry out policy initiatives they havealready announced, on the assumption that countries will execute existing policy frameworks and ambitions. Under this
scenario, the earth’s temperature is projected to rise approximately 2.7°C by the end of this century.
3 Current Policies Scenario (CPS): A scenario under which countries continue, but make no changes to, their current
policies. Under this scenario, the earth’s temperature is projected to rise approximately 3.2°C by the end of this century.

The scenario analysis confirmed that our four-asset

the Energy, Materials, and Utilities sectors, centered on

integrated portfolio is likely to reach the total carbon

emerging countries and developing countries, whereemissions permitted in the Sustainable Development

GHG emissions are high in conjunction with economic

Scenario around 2035. We feel that the portfolio’s

growth. Our analysis also hints at the importance ofemissions were greatly impacted by the fact that ourcalling for measures to address climate change acrossglobal equities and bonds portfolios include

the market, as our investment portfolios include many

comparatively high weightings of stocks and bonds inpassive investments.

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

120

SDS

STEPS

CPS

Portfolio

100
80
60
40
20
0
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050

*On the graph’s y-axis, the 2020 carbon budget for SDS is set at 100%.

(year)

Engagement

Proxy Voting

ESG Integration

Transition Risk Analysis
It is important to analyze in detail climate-relatedusing ISS data to analyze the power generation exposuretransition risk due to the fact that this risk is highly

and future GHG emissions (risk of stranded assets ) on an

dependent on GHG emissions which have a relatively

energy generation basis in the portfolio, and the ratio ofhigh correlation with both stock price performance andproblematic resource development (shale oil/gas

corporate valuation. We feel it is key to analyze GHG

development and fracking, crude oil or gas drilling in theemissions throughout the entire life cycle of a

arctic, oil sands development, etc.), along with using thecompany’s products and services, and on acarbon risk rating, which is ISS’s proprietary transition

supplementary basis we use emissions throughout therisk assessment. Furthermore, the environment scoreglobal supply chain and avoided emissions as disclosed

within our proprietary ESG score includes evaluations ofby companies.

climate-related transition risk, and we use carbon pricing
to analyze its financial impact.

The specific transition risk analysis method involves

Power Generation Exposure Analysis (Portfolio, Benchmark, SDS)
almost the same as the benchmarks, and the ratio of

The graph below compares the power generation
exposure of our portfolios, the benchmarks, and thefossil fuels is higher in comparison to the power

SDS on a power generation volume basis. The SDS,

generation exposure in 2030 and 2050 under the SDS.

based on IEA forecasts, shows the power generation

By increasing the ratio of renewable energy in our

exposure that is likely to limit the temperature increase

portfolios through engagement with portfolio companies,

in 2030 and 2050 to less than 1.5°C above pre-industrial

we will strive to reduce the transition risk from fossil

levels. The power generation exposure of both ourfuels, as well as reduce the total carbon emissions anddomestic equities and global equities portfolios areweighted average carbon intensities of our portfolios.

(%)
100

Fossil Fuels

80

12

12

9
79

9
79

60

16
21

Nuclear17
21

Renewables
13

21

67

28

75
63

48

13

62
11

50

40

41
12

20

21
0
NAM’s Japanese Japanese equities
equities portfolio
benchmarkColumnNAM’s global Global equities
equities portfolio
benchmark

NAM’s Japanese NAM’s global
bonds portfolio bonds portfolio

2°C scenario
in 2030

2°C scenario
in 2050

Using Carbon Pricing to Analyze Financial Impact

Transition risk analyses are generally based on the

addition, the carbon price used to replace GHG

amount of GHG emissions, but we use carbon pricing

emissions with economic value is periodically reviewed

to analyze financial impact in the evaluation of climate-referencing the market price (EUA in EU ETS, etc.),

related transition risk in the environment score withininternal carbon pricing levels in portfolio companies,

our ESG score. For example, if a carbon tax or

and reports from international organizations such as

emissions trading scheme is introduced, a portfolio

the World Bank.

company’s GHG emissions become a cost. From thestandpoint of the impact on corporate value, a moreaccurate transition risk analysis can be performed if
the ratio of this cost to shareholders’ equity or cash

GHG Emissions
Scope 1
Scope 2
Scope 3

Reflect in climate-relatedtransition risk assessment in
Shareholders’ equity
environment score within
Cash flow
ESG score

flow is analyzed.

Economic
Comparison
value of GHG
emissions

For GHG emissions, we used data disclosed bycompanies for Scope 1 and Scope 2 emissions, andfor Scope 3 emissions we used ISS’s estimates. In

Carbon price

Cost

24

25

Responsible Investment Report 2020

About Nomura Asset Management

Physical Risk Analysis
In recent years, hurricanes, cyclones, heavy rains,

negative impact of physical risk on the value of a portfolio)

floods, heat waves, forest fires, and droughts, which arecalculated as the potential value lost through 2050 due tothought to be impacted by climate change, are frequently

damage incurred by the business assets owned byoccurring around the world. The impact of these events

portfolio companies from abnormal weather stemmingon the businesses and assets held by portfolio companies

from climate change. For Japanese companies, if

can no longer be ignored, and analyzing physical risks isnecessary, we use disclosure materials and company

becoming increasingly important. In analyzing thewebsites to research the regions of offices, factories, andphysical risks of portfolio companies, in addition to ISS’s

important owned assets, and we also check hazard maps

risk analysis and physical risk score by industry andand other materials published by local governments inregion, we utilize the portfolio’s Value at Risk (potential

order to supplement our analysis of physical risk.

Physical Risk Analysis by Region and Sector
portfolios. The higher the ratio, the greater the potential

We utilize ISS data to analyze physical risks byindustry and region. The graph below shows thenegative impact of physical risk on the value ofpercentage of Value at Risk related to physical risk incompanies in that industry. We calculate the Value ateach sector through 2050 for our Japanese equities,

Risk of each portfolio, but it is used internally and not

global equities, Japanese bonds, and global bonds

disclosed in this report.

Value at Risk by Sector
NAM’s Japaneseequities portfolio
NAM’s global
equities portfolio
NAM’s Japanesebonds portfolio
NAM’s global
bonds portfolio

020
EnergyMaterials

Financials

Industrials

40

60

Consumer Discretionary

Consumer Staples

Information Technology

The map below shows the physical risk by region forCommunication Services

80
Utilities

Health Care

100
(%)

Real Estatereference when considering industry and regional

our Japanese equities and global equities portfolios.

allocations. These analyses enable us to identify sectors

Along with the ratio by industry, we use this map as aand regions with relatively high physical risk.

The Physical Risk By Region
No risk
Light risk
Moderate risk
High risk
Highest risk

Engagement

Proxy Voting

26

ESG Integration

Analysis of Individual Funds
Up to this point, we have explained our methods forfollowing analyses of individual funds using data fromanalyzing climate-related risks and opportunities for our

ISS and other ESG evaluation firms, as well as our own

portfolios as a whole. However, we also perform the

ESG scores, and we compare them to benchmarks.

The four metrics recommended by the TCFD (total carbon
emissions, carbon footprint, carbon intensity, weighted
average carbon intensity)
Analyze the ratio of contribution from each sector and fromindividual companies to the fund’s total carbon emissions andweighted average carbon intensity, and compare with othersectors and industry peers
Scenario analysis based on the scenarios (SDS, STEPS, CPS)
noted in the IEA’s World Energy Outlook 2019

Analysis of transition risk and physical risk
Total weight of applicable companies vis-à-vis overall portfoliowith respect to support for TCFD, establishment of short-,
medium- and long-term GHG emissions reduction targets,measurement of Scope 3 and avoided emissions, introductionof internal carbon pricing (ICP), incorporation of climatechange countermeasures into KPI for executive
compensation, participation in climate change initiatives(CDP, SBT, RE100, etc.)

scores compared to the benchmarks, we check the

The analysis results are shared with portfolio
managers, and referred to in the investment decision-

contributions from the fund’s constituent sectors andmaking process. In addition, these results are regularlycompanies, promote awareness about climate-related

reported to the Executive Management Committee andrisks and opportunities during engagement with

the Board of Directors via the Responsible Investment

portfolio companies, and discuss their efforts to

Committee. If there is room for improvement in GHG

improve GHG emissions or other metrics.

emissions-related metrics, scenario analyses, or risk

Example of Analysis of Individual Fund (US$100mn)
Nomura Asset Management ESG score

Total carbon emissions versus benchmark /sector contribution to emissions(Score)100(tCO2e)80,00080
60

Portfolio

74.0 68.4 74.3

68.1

Benchmark78.6

72.3 74.9 70.4 68.2

Scope 1
Scope 2
Scope 360,00062.7

40,00040

Energy7%

Utilities

Materials

43 %

32%

20,0002%

00Consumer Staples

Total Environment Social Governance SDGs

Portfolio

9%Consumer Discretionary

2%

Benchmark

Sectors to emission attribution exposure versus benchmark

5%Physical risk VaR by Sector
Issuer Selection
EffectReal Estate

SectorPortfolio
WeightSector Allocation
BenchmarkDifference
EffectWeightEnergy

0.64%

0.58%

0.06%

Materials

4.82%

6.28%

-1.46%

8.94%

Industrials

20.20%

22.39%-2.18%

1.39%

Consumer Discretionary

17.76%

17.86%-0.10%

0.03%

Consumer Staples

8.43%

8.31%

0.12%

-0.04%

0.76%

17%

Health Care

11.82%

10.21%

1.61%-0.06%

0.07%

Information Technology

Financials

8.92%

8.49%

0.43%

0.01%

10 %

Information Technology

12.64%

13.24%-0.60%

0.67%

Financials

Communication Services

9.59%

9.07%

0.52%

-0.03%

Utilities

1.60%

1.32%

0.28%

-6.38%

Real Estate

3.57%

2.25%

1.31%

-0.19%

Cumulative Higher (-) and Lower (+) Emission Exposure vs.
BenchmarkIndustrials

Information Technology

20-0.54%-0.49%-0.52%
4.11%-0.02%

3.20%

EnergyUtilities

3%

1%
Materials

Communication Services

0.58%

0.12%

1%

0.04%
-3.26%
0.09%
2.07%

2%

7%
VaR:
3.4 US$
millionHealth Care

Industrials

26 %Consumer
Discretionary

22%

4%Consumer Staples

5.27%

9%

Total carbon emissions of portfolio and benchmark, carbon budget comparison in each scenario (scenario analysis)
(%)

SDS

STEPS

CPS

Portfolio

BenchmarkBenchmark SDS

Benchmark STEPSBenchmark CPS

120
100
80
60
40
20
0
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 2048 2049 2050

(year)

27

Responsible Investment Report 2020

About Nomura Asset Management

Climate Change-Related Engagement with Portfolio Companies
Through engagement with portfolio companies, weare pursuing the following initiatives in order to reduceclimate-related risk in our portfolios and promote
investment in climate-related opportunities.

Active involvement in climate change countermeasures through climate-related initiatives we havejoined, such as PRI, TCFD, and Climate Action 100+, cooperation with other investors, share bestpractices
Further raise the level of TCFD disclosure and climate change-related ESG integration
NAM

Develop climate change-related financial products
Develop financial analysis/valuation methods using carbon pricing
Support for TCFD, climate-related financial data disclosure based on the TCFD
Recommendations, including scenario analysis and GHG reduction targets
Incorporate climate change countermeasures into KPI for executive compensation
Obtain approval of science-based targets and commit to them
Provide information to CDP, join RE100/EP100/EV100, etc.
Introduce internal carbon pricing (ICP)

Portfolio Companies

Disclose Scope 3 and avoided emissions that enable GHG emissions to be assessed in the life
cycle of products and services and throughout the supply chain

Examples of Climate-Change Related Engagement
Company/
SectorCompanyA
Chemicals

Company initiatives andpost-engagement response
Considering support of the TCFD at time ofengagement meeting
In executive compensation, some directors have
ESG-related metrics in their personal KPIWorking to reduce non-energy source CO2 arisingin the process of producing key products, but thedevelopment of new technologies takes time
Supported the TCFD after the meeting, enhanced
climate-related disclosure

Details communicatedfrom NAM to company during engagement
We told the company that by supporting the TCFD,
the company will show the commitment of senior
management to combatting climate change, and we
said that we would like the company to enhance its
climate-related disclosure
While the sales target for products and businesses
that contribute to the environment is a good initiative,
it is also important to have more detailed long-term
reduction targets for GHG emissions and carbon
intensity, as well as to include climate change
countermeasure items in the KPI for executive
compensation
While we expressed our understanding that it isdifficult to reduce non-energy source CO2 emitted
in the manufacturing process, we discussed
encouraging more innovation

Company
B
Electronics

In TCFD disclosure, the company discloses
detailed scenario analyses, and specific financial
impacts of risks and opportunities
Has established medium- and long-term
environmental targets, and has linked executive
compensation to these targets
Participating in climate-related initiatives andproactive in obtaining certifications

CompanyC
Steel

Includes detailed scenario analyses in TCFD
disclosure
Has established medium- and long-term GHG
reduction targets
Discloses avoided emissions from using highperformance steel, renewable energy, etc.

We told the company that we take a very positive
view on its advanced initiatives, including establishingmedium- and long-term environmental targets andlinking executive compensation to these targets
We told the company that more and more companies
have recently started using ICP in internal investment
decision-making and other areas, and we asked
them to consider introducing ICP. We said that
introducing ICP will also likely increase awareness ofrisks and opportunities related to non-financial data
within the company
The company asked a question about our method
for assessing avoided emissions, so we answeredthat in our ESG score we evaluate whether or not acompany discloses avoided emissions
Currently, in the disclosure rules there are no clear
rules for calculating avoided emissions, but we
discussed how they should be assessed along with
GHG emissions in the future should data become
more reliableEngagement

Proxy Voting

ESG Integration

Cooperation with Climate Change Initiatives
In March 2019, we pledged our support for the TCFD.

and opportunities into their management strategies.

Starting with our Responsible Investment Report 2019

Furthermore, in December 2019, we joined Climate

we have been providing disclosure in line with the TCFD

Action100+, and through this initiative we collaborate

Recommendations, and also offering detailed disclosure

with other institutional investors to encourage portfolio

and reports on GHG emissions monitoring for individualcompanies to take action to combat climate change.

funds, covering our company-wide Japanese equities,

In June 2015, Nomura Holdings, representing all ofglobal equities, Japanese bonds, and global bonds

Nomura Group, became a signatory of the CDP. With

portfolios. In addition, we have been a member of thethis, Nomura Asset Management is one of the CDP’s

TCFD Consortium since its establishment in May 2019,

investor signatories. We are responsible for theand we are a member of the GIG Supporters, a group of

responses to questions for the asset management firm

investors that utilize the Green Investment Guidanceon Nomura Holdings’ CDP questionnaire. Nomura

formulated by the TCFD Consortium in October 2019.

Holdings was selected as a member of the CDP’s

While leveraging the Green Investment Guidance, we“Climate Change A List 2020,” which recognizes

engage with portfolio companies and actively

Nomura Holdings as a globally excellent company withencourage them to support the TCFD, disclose climate-respect to initiatives to combat climate change and for

related financial data, and integrate climate-related risks

its disclosure of related data.

28

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Responsible Investment Report 2020

About Nomura Asset Management

HUMAN
RIGHTS
Nomura Asset Management’s

Initiatives on
Human Rights

employee representatives. If the objectives are notbeing achieved, the Mission Committee will encourage
improvements.
As symbolized by this action by Danone, companies
are now being asked to act responsibly in addition to
pursuing profits. Amid the growing impact on society bycorporate activities in the process of economic
development, a wide range of ESG issues areWith the support of 99% of its shareholders, at its

materializing, and the importance of companies playing

annual general meeting of shareholders in June 2020,a responsible role is becoming better recognized.

French food giant Danone became the first publicly-

Among many ESG issues, one that has received

traded company to adopt the “Entreprise à Mission”

particular attention along with climate change is human(mission-fulfilling company) model. This is a new legal

rights. As companies’ business activities expand

framework established by France in 2019, and a new

globally, the global supply chains that companies are acompany model under which a company bears thepart of are also expanding. A large number of people

responsibility to achieve a purpose other than profits.

are involved in these long, enormous supply chains, andDanone has included four new objectives in its articles

as a result many different kinds of human rights

of incorporation: 1) Improve health through products; 2)

problems arise on a daily basis. However, companies

Preserve the planet’s resources; 3) Entrust Danone’s

face difficulties to monitor such issues in these supply

people to create new futures; and 4) Foster inclusive

chains because they are so massive.

growth. Going forward, Danone’s Board of Directors will

The issue of human rights has been a global topic ofbe responsible for progress on these objectives. The

discussion for a number of years, and during this time

Board of Directors will be overseen by a 10-person

many principles and guidelines have been developed. In

Mission Committee comprising outside experts and1976, the Organisation for Economic Co-operation andEngagement

Proxy Voting

ESG Integration“I even have had to pay them money at the end of themonth instead of getting money”. These are the words of
Batsa, a 25 year-old Nepalese worker in an electronics
factory in Malaysia. For 18 months, he had approximately
half of his monthly salary (approximately US$1,800) takenfrom his paycheck, with the reason given that the money
was needed to obtain a new work permit.
- From Know the Chain(2020 ICT Benchmark Overview; June 2020)

Development (OECD) issued the OECD Guidelines for

Human Rights” proposed by Harvard University

Multinational Enterprises, a set of recommendations forProfessor John Ruggie (the “Ruggie Principles”). These

multinational enterprises of adhering countries reflecting

Principles comprise three main pillars for the relationshipthe expectation to companies on how to voluntarily act

between companies and human rights: jjthe duty of

responsibly. The following year, in 1977, the Tripartite

states to protect against human rights abuses by third

Declaration of Principles Concerning Multinational

parties, including business enterprises; the corporate

Enterprises and Social Policy was established by the

responsibility to respect human rights; and the need forInternational Labour Organization (ILO). This document

greater access by victims to effective remedy. The

provides direct guidance to enterprises on social policy

Ruggie Principles make clear the “obligations of states”

and inclusive, responsible and sustainable workplace

and the “responsibilities of companies” concerning thepractices.

impact of corporate activities on human rights, and also

In 1999, the UN Global Compact was advocated as a

stress the importance of mechanisms for victims tovoluntary initiative for companies and otheraccess effective relief, and lay out specific fields andorganizations to act as good citizens of society andexamples of fulfilling each obligation or responsibility byrealize sustainable growth. The Global Compact

each actor. Based on the Ruggie Principles, states andcomprises 10 principles in four areas that businesses arecompanies are currently bolstering their initiatives

asked to put into practice. Of these, six principles andrelated to human rights. For example, in October 2020

two areas are related to human rights and labor rights.

the Japanese government formulated the “National

Subsequently, in 2011, the UN Human Rights Council

Action Plan on Business and Human Rights (2020-

endorsed the “Guiding Principles on Business and2025).”Key Basic Principles and Guidelines on Human Rights
OECD Guidelines for Multinational
Enterprises (1976)

Guidelines for multinational enterprises in OECD-adhering countries that provide
voluntary principles and standards for responsible business conduct

International Labour Organization(ILO)Tripartite Declaration of
Principles Concerning Multinational
Enterprises and Social Policy (1977)

A document about corporate activities established to provide direct guidance to enterprises onsocial policy and inclusive, responsible and sustainable workplace practices.

UN Global Compact (1999)

Advocated as a voluntary initiative for companies and other organizations to act as good
citizens of society and realize sustainable growth
Of the 10 principles across four areas that businesses are asked to put into practice, two areas(six principles) are related to human rights and labor rights

Guiding Principles on Business andHuman Rights: Implementation of the
UN “Protect, Respect and Remedy”
framework (2011)

In 2005, the 69th session of the UN Human Rights Committee appointed Harvard University’s
Kennedy School of Government professor John Ruggie as the UN Secretary-General’s Special
Representative on Human Rights and Transnational Corporations. In 2008, he submitted the“Protect, Respect and Remedy” framework to the 8th session of the UN Human Rights Council
This framework comprises three core pillars: 1) the State duty to protect against human rights
abuses by third parties, including business enterprises; 2) the corporate responsibility torespect human rights; and 3) access to remedies
In 2011, the Guiding Principles were formulated and unanimously endorsed at the 17th sessionof the UN Human Rights Council

30

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Responsible Investment Report 2020

About Nomura Asset Management

Guiding Principles on Business and Human Rights (3 Pillars / 33 Principles)
Principle

Principle

Principle

1~10

11~24

25~33

The State Duty to Protect
Human Rights

The Corporate Responsibility
to Respect Human Rights

The duty to protect against humanrights abuses through effective
policies, legislation, regulations andadjudication

Business enterprises have the duty
to conduct due diligence, avoid
infringing on human rights, andaddress adverse human rights
impacts with which they are involved

Principle

16

Commitment

Access to Effective Remedy
States must establish, throughjudicial or non-judicial means,measures (judicial means or measuresby business enterprises) for
people impacted by human rights
infringements related to businessenterprises to have access to remedy.

Operational
principles

Expression of commitment, policy formulation

Principle

17

Due diligence
In order to explain how they identify, prevent, mitigate and account for their adverse human rights impacts,business enterprises should carry out human rights due diligence

Communication

Principle

Principle

21

18

Principle

Principle

20

19Communication by business enterprises withexternal parties regarding adverse human rights
impacts and the status of addressing such impacts

Monitoring
Communication by business enterprises withexternal parties regarding adverse human rights
impacts and the status of addressing such impacts

Assessment
Identify and assess any actual or potential humanrights risks

Integration
In order to prevent and mitigate risks identified in
the human rights assessment, business enterprises
should integrate the risks across internal functions
and processes, and take appropriate action

Source: Prepared by Nomura Asset Management using various sources of information

The Movement to Make Human Rights Due Diligence Mandatory
In response to growing awareness of human rights, the

Human Rights, the UN Conventions protecting vulnerable

movement to introduce legal frameworks, primarily inpersons, the Core ILO Conventions, and other ILO treaties;

Western countries, requiring companies to respect human2) Environmental risks (including climate change, naturalrights including in their supply chains, is gaining traction.

resources and biodiversity); and 3) Governance risksThis movement is especially strong in Europe, and(including the OECD’s Anti-Corruption Guidelines). The

countries are enacting laws that mandate human rights due

main due diligence requirements are shown on the table atdiligence. Such laws have already been introduced and put

the bottom of the next page. The requirements include

into force in France and the Netherlands, while legislative

expressing how the due diligence strategy relates tobills have been drafted in countries including Norway,business strategy. In other words, the EU has been

Switzerland, and Germany (as of December 2020). At theformulating this draft legislation based on the understanding

EU level as well, preparations are underway to introducethat human rights are inseparably linked to corporate value.

uniform legislation mandating due diligence, and a draft

Nomura Asset Management positions human rights,

report was published in September 2020.

along with climate change, as an important ESG issue

This draft legislation would apply to all businesses,that impacts corporate value. As such, along withregardless of size, that are headquartered or engage inengaging portfolio companies on human rights issues

business activities in the EU, and covers a very broad range

based on our monitoring of investment portfolios, weof ESG-related issues, including: 1) Human rights risks,proactively integrate such human rights risk information

understood as being those defined in the International Bill of

into our investment research.

Engagement

Proxy Voting

32

ESG Integration

Status of Legislative Frameworks in European Countries(as of May 2020)
Policy statements / Public discussions / CSOs* campaign
Government’s commitment

Finland

Legislative process / motion
Adopted law*CSO...Civil Society Organization

NorwaySwedenSpecific Examples of Legislation
EnactedFranceDuty of Vigilance Law

Netherlands Child Labour Due Diligence Act
Drafting oflegislation

NorwayEthics Information Committee
draft act

Switzerland

Draft legislation mandating
human rights due diligence

Germany

Draft legislation for corporate due
diligence on human rights and theenvironment in supply chains

Denmark

United Kingdom

Netherlands
Germany

Belgium
Luxembourg

Source : European Coalition for Corporate Justice (ECCJ)
Austria
FranceSwitzerland

Italy
Spain

Key content of the EU’s draft legislation mandating due diligence (“Draft Report”) (September 2020)
Companies covered Companies headquartered in the EU and companies not headquartered in the EU but which engage inbusiness activities in the EU

Items covered by
the law

Human rights defined in the International Bill of Human Rights, the UN Conventions protecting
vulnerable persons, the Core ILO Conventions, and other ILO treaties
Environmental risks (including climate change, natural resources and biodiversity)
Governance risk (including the OECD Anti-Corruption Guidelines)

Main Due Diligence
Requirements

Continuous due diligence in the entire direct and indirect value chain accompanying a company’sbusiness activities
Disclosure of statement on the implementation of risk assessments (if risks are not identified)
Conduct due diligence, stop, prevent, or mitigate risks, information disclosure (if risks are identified)Engage in consultations with stakeholders and labor unions regarding effective and appropriate due
diligence strategy (minimum of once per year)
Set up grievance mechanisms
Disclosure regarding how the due diligence strategy relates to the business strategy, the details of codesof conduct and policy agreements with business partners, and status of periodic audits of suppliers

Future Schedule
2021 1H

European Commission submits official legislative proposal

2021 2H - 2023

Once the European Commission has submitted its legislative proposal, it will be considered and voted
on by the EU Parliament and the European Council. If the directive is adopted, EU member states will
be required to incorporate the law into their own national laws.
Source : Prepared by Nomura Asset Management using various sources of information

33

Responsible Investment Report 2020

About Nomura Asset Management

Nomura Asset Management’s Human Rights Monitoring Process
Nomura Asset Management broadly and continuously

Ruggie Principles. The basic survey is conducted once a

monitors the human rights risks of companies in ouryear by our ESG specialists and company analysts using

investment universe, as we seek to reduce the risk of

information voluntarily disclosed by companies, NGOs

human rights infringements at the investment portfoliothat monitor human rights, and media reports as sources

level. Managing human rights risk is not a factor thatof information. The survey covers items including theresults in the generation of cash flows over the short

disclosure of the status of becoming a signatory andterm. However, if human rights problems materialize, notendorsing the international norms supported by Nomura

only in a portfolio company, but also in the supply chain

Asset Management, the disclosure of policies forconnected to that company, the company will be subject

respecting human rights, the establishment of systems

to a higher reputation risk, such as a worsening of theto manage human rights violations and the level ofcompany’s image in society, and the company may haveprogress of such systems (auditing, grievance systems,

to pay a large cost (cost and time to restore its

self-assessment, etc.), and the status of occurrence ofreputation) to resolve its human rights issues. In

human rights-related misconduct.

addition, if the problem cannot be solved over a

In addition, for companies in industries that we define

prolonged period of time, the adverse impact on theas having particular human rights risks, we checkcompany’s corporate value itself will grow.

whether the company is carrying out human rights

In order to avoid unexpected costs related to humanmonitoring, including for parts suppliers of the company.

rights issues and fulfill our social responsibilities as an

It is important for a company to check whether there areasset management firm, we research the efforts ofany human rights violation risks across the entire supply

companies in our investment universe with respect tochain, such as in the manufacturing process of raw

human rights, including if they have formulated programs

materials and procured parts, in addition to theto address human rights and the implementation statuscompany’s own manufacturing process. This is becauseof such programs, as well as research any possible

if human rights violation risks are neglected in thesemisconduct and the details of such misconduct if it

sectors and problems arise, business opportunities may

exists. Our research centers on items related to human

be lost, such as an increase in the reputation risk of final

rights respect and compliance as set forth inproducts and difficulty in procuring parts, and this willinternational norms related to human rights, such as thehave a significant impact on corporate value.

OECD Guidelines for Multinational Enterprises and theSectorIndustries
Focused With
Human Rights
Risks

Foods
Agricultural
products(Especially palmoil, cocoa, fruits,
tobacco)ICT

Automobiles

ApparelMining

Tradingcompanies

Electronicequipment
components

Automobile
parts
Tires

(cotton and wool)

TextilesPrecious metals
Non-precious
metalsAll related items
noted to the left

Garment

Engagement

Proxy Voting

ESG Integration

Human Rights Risk Management at the Portfolio Level
ESG investment manager examines human rights risks

rights high-risk companies but continue to work on(the survey items mentioned in the human rights

solving problems, we will monitor the progress of theirmonitoring process) at the portfolio level throughout theefforts through periodic engagement. Also, after ayear, based on the human rights risk monitoring data forcertain period of engagement, those companies foreach stock researched annually. We share ourwhich we can expect improvement will be unflagged asunderstanding of issues through continuous

human rights high-risk companies, and will be subject

engagement with companies that are aware of human

to normal monitoring.
In corporate business for which human rights risk

rights issues in their business activities and are actively
working to address them. For these companies, we

assessment has become the norm, we believe thatcarry out engagement while continuing to hold thecompanies that have established strong processes forcompany as an investment target. In addition, we treat

human rights risk management will see a reduction incompanies that have newly experienced serious human

human rights risk not only in business with existingrights-related misconduct or for which improvement incustomers, but also in business with new corporate

human rights risk management is insufficient as humancustomers, and we also believe that this will result inrights high-risk companies, and manage them as

more positive evaluations of the products and services

important engagement target companies. Engagement

the company offers and an increase in businessfor the purpose of human rights risk management is

opportunities.
Our holding a large number of companies withcarried out as a collaborative effort by portfolio
managers, ESG specialists, company analysts and ESG

excellent human rights track records in our portfolios

investment manager.

not only helps us avoid risk, but also leads toopportunities for higher returns.

However, for companies that are considered human
Human rights risk monitoring ofcompanies
Based on individual companies
Check the status of compliance with international norms
Human rights-related policies (child labor, forced labor,
wages, safety, etc.)

Engagement

Integration into investment(human rights high-risk companies)(investment decision-making)Formulation of human rights policies/
programs

Buy

Introduction of human rights monitoring

Continuous hold

Human rights risk management systems (monitoring,
relief systems, self-assessment, etc.)

Implementation and disclosure of self-

Investigations of misconduct related to human rights
violations

Actions aimed at improvement

Sell

assessment

Status of compliance with human rights monitoring
policies of client company of company being researched

Example of Engagement
Human rights
risk issue

NomuraAsset Management

Child labor / Poverty

Asked company to take initiatives on childlabor and problems such as poverty at theroot of child labor

Milestone management

Further promote initiatives aimed at reducing
child labor in the supply chain, improving
children’s access to education, enhancing
farmers’ living income

Engagement
period36months(10 interviews)

Issued statement along with 35 institutional
investors to 40 leading global food companies
about reducing child labor and improving
living wages

Asked further strengthening of efforts
to reduce child labor and improveliving wages

The world’s leading
food company
Issued child labor report, targeting 100%
sustainable cocoa procurement by 2025

Established more than 40 KPI regarding ESG
and the supply chain (confirmed positive
progress for almost all matters)

Applying child labour monitoring andremediation systems. Implementing a strategy
to keep watch on improvements in living wages

Continuing initiatives aimed at reducing
child labor and improving living wages
through initiatives for cocoa farmers,such as promoting school attendanceand high value-added agriculture

34

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Responsible Investment Report 2020

About Nomura Asset Management

ENGAG
We engage in constructive dialogue with companies regarding importantfinancial and non-financial risks and opportunities.

Our Idea of Constructive Dialogue with Portfolio Companies
We have established a basic policy for engagement

corporate value and achieve sustainable growth byas part of our responsible investment policy formulated

operating in desirable ways.” Merely seekingby the Responsible Investment Committee, the highest

improvements from companies with ESG issues is notdecision-making body for responsible investment. Here,engagement. We believe that an important role of

we provide an overview of this policy.

engagement is also to directly communicate our support

We believe that engagement, or constructive dialogue

and approval as an investor to companies that operatewith portfolio companies, starts with a thoroughin desirable ways. We value our basic stance onunderstanding of the target company and its businessengagement (see table on right).

environment as well as its future. We also view

We are convinced that supporting the enhancement

engagement as one of the most powerful means to fulfillof the corporate value and sustainable growth of

our stewardship responsibility.

companies through ongoing engagement activities will

The definition of our engagement is to “exert an
influence on companies based on a deep understandingof them so that they will be able to enhance theircontribute to the medium- to long-term growth of assets
entrusted to us by our clients.

Engagement

Proxy Voting

ESG Integration

EMENT
Basic stance on engagement

1 Engage in dialogue with a cordial and constructive attitude
Work to understand non-financial information, including

2 companies’ efforts to address ESG issues, and the strategies
and philosophies behind them

Listen to the views of portfolio companies on the efficient use

3 of capital, and communicate our thoughts

When a serious scandal or accident has occurred, promote

4 sound management by hearing the causes and measures toprevent recurrence

36

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Responsible Investment Report 2020

About Nomura Asset Management

Engagement Process
In accordance with our responsible investment3

policy, we have divided engagement topics into five

Environmental and social issues; 4 Corporate

governance; and 5 Disclosure and dialogue.

categories: 1 Business strategy; 2 Financial strategy;

Enhancement ofcorporate value

Portfolio companies

Increasing earnings

Business strategy

Seniormanagement

Higher investment
returns

Financial strategy
Initiatives onenvironmental/social
issues (ES)Disclosure/
dialogue

Corporate
governance (G)Directors(Board of Directors) /Auditors

Election

Higher investment returns

Institutional
investors

Engagement Target Companies and Results
With respect to Japanese equities, the approximately

December 31, 2020) are all targets for engagement.

2,400 Japanese companies whose shares we hold (as of

Total number of contacts with portfolio companies
Japanese companies,
January – December 2020

Approximately

Of these, number of 1-on-1
dialogues at company

5,600

Less

Of these, number of dialogues
with executives and above

2,000

Approximately

900

Engagement meetings

Total number of engagement topics(total number of companies)

58 %

9%

27%

2020

1,215topics

29 %(399 companies)

Ratio by topicofRatio Number
topicsBusiness strategy

27%

326

Financial strategy

15%

180

ESG-related meetings

58%

709

11%
10%
29%
9%

129
126
347
107

Environmental

15 %SocialGovernance
Proxy voting-related

10 %

11%

Total

1,215

Engagement

Proxy Voting

ESG Integration

Milestone Management
Milestone management requires setting goals, but

In order to manage our progress on engagement, we
carry out “milestone management,” setting the period

goals cannot be established for all engagement. In

for individual engagement topics at three years. By

particular, 1) business strategy and 2) financial strategy

managing PDCA (Plan, Do, Check, Action) progressare directly linked with corporate value, but in many

using a fixed timeline, we can efficiently formulate acases it is difficult to establish clear goals. Therefore, in

dialogue schedule for subsequent phases and evaluate

addition to setting goals for the discussed topics

the results. To measure results, we check whether athemselves (Pattern 1 below), we also establish goals

company has advanced to the next stage, in otherfor 3) 4) ESG and 5) disclosure and dialogue after

words whether or not the improvement process for an

discussing 1) business strategy and 2) financial strategy

issue is ongoing.

(Pattern 2 below).

PDCA Cycle by Milestone Management

Status of Milestone Management

P

Recognition of topics and issues
Selection of target companies

LAN

D

Engagement ESG evaluation

C

Milestone management

O

HECK

A

In 2020, we carried out engagement across 1,215
topics. Currently, we are managing milestones for a
total of 221 topics (147 companies). Of these, 84
topics are already at “Step 5: Conclusion.”
Communicate issues toportfolio company

Conclusion(Keep records/ progress evaluation)

Performance review Policy
reviewCT(as of December 31, 2020)

Discovery ofsubsequent
topics andissuesMilestone Status(number of companies)

Company shares arecognitionof the issues

Company implements
countermeasures

Company formulates
countermeasures

Pattern 1 (Hold discussions on individual topics and set goals for these same topics)
1 Businessstrategy

2 Financial

strategy

3 Initiatives on environmental and

4 Corporate governance (G)social issues (ES)Discuss with company and share the issue recognition

Set goals for topics discussed

5 Disclosure/

dialogue

Communicate opinions as a shareholder

Progress to milestone management

Pattern 2 (Hold discussions on 1 2 business strategy and financial strategy, and set goals for 3 ~ 5 )1Business strategy

2

Financial strategy

Discuss with company and share the issue recognition

Worried about sustainability

Worried about commitment

Set goals for topics discussed
3

Initiatives on environmental andsocial issues (ES)Communicate opinions as a shareholder

4

Insufficient explanation

Progress to milestone management

Corporate governance (G)5Disclosure/dialogue

38

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Responsible Investment Report 2020

About Nomura Asset Management

Examples of Engagement
Here, we introduce some examples of engagement.
Company A is an example that corresponds to Pattern 2

discussed on the previous page. We set multiple goals,
and took our time to reach “Step 5: Conclusion.”Interview Date : After February 20, 2017

Nomura Asset Management

Root issue
awareness

Company

A

Electronics

Interviewee

Interviewee

Analysts, ESG specialists

Representative Director and SeniorCorporate Managing Director, others

Decreasing capital efficiency. There are multiple
background factors, including financial strategy,
governance, and the stance towards dialogue.

Continuously low ROE. Surplus financial assets (especiallycross-shareholdings) and the vertically-divided organization are
the background causes.
The stance towards dialogue with institutional investors might
be passive or even negative.
Oversight and execution are not separated, and there is no
system in place to select the top management successor(s).

Towards milestone management (right page)
ROE is being pushed down by cross-shareholdings. In addition,
turnover rate and operating margin are somewhat low.
In order to show commitment to shareholders, we want you topublish numerical targets including ROE.
We want you to clearly state that the Nomination Committee is incharge of successor planning.
We want you to clarify the relationship between executive
officers and directors. Outside directors with management
experience are good in terms of overseeing management.
We have a positive view on the course of action forstrengthening corporate governance. Continuous efforts areneeded, including the separation of oversight and execution.

We have not been intentionally building up financial assets. We
plan to focus investment in key divisions.
Since the time that the previous president was in office, we havebeen advancing organizational reforms to cross lines between
business divisions and we have seen some examples of success.
We are going to start creating a structure for successor planning.
We will create a Nomination Committee and Compensation
Committee. We are considering stock compensation.
We understand that there are many directors from inside thecompany, and that there is a demand for one-third of thedirectors to be outside directors. We are considering this.
In May 2019, we announced an ROE target (8%).
In June 2019, an outside director for whom there was concern
about independence retired from office.
We understand that teamwork between departments is weak.
We are focusing on organizational reforms. As a start, weconsolidated the research and development division.
We plan to gradually reduce the number of directors serving
concurrently as executive officers.

We want you to continue to provide meetings with the company
president.

Future Plan
Convey our views as a shareholder, while monitoring
the company’s process towards achieving its
ROE target and initiatives to strengthen corporate
governance.

Strengthened shareholder returns (announced
policy to increase the dividend payout ratio,
return all free cash flow).
Promised ongoing meetings with the company
president.

Engagement

Proxy Voting

40

ESG Integration

Examples of Engagement (Milestone Management)
Company

A

Electronics

Businessstrategies
Financialstrategies

Issue

ROE continues to decline due to surplus
financial assets and the vertically-divided
organization.

ES
Goal

Disclosure of capital efficiency targets

G
Disclosure/
dialogue

Company

A

Electronics

Businessstrategies
Financialstrategies

Interviewee

Issue

ES
Goal
G
Disclosure/
dialogue

Company

B

Pulp & Paper

Businessstrategies
Financialstrategies

Interviewee

Issue

ES

CompanyC
FoodBusinessstrategies
Financialstrategies

D*3

Rubber Products

Financialstrategies

This is a phase when a major reallocation ofmanagement resources, including the possibilityof industry consolidation, is required, and there
is concern about oversight given the absence ofoutside directors with management experience.

Director, Senior Managing
Executive Officer, others

Issue

Goal

Businessstrategies

Representative Director andPresident, others

Interviewee

G

Company

Regularly hold meetings with top
management

Elect outside director(s) withmanagement experience

ES

Disclosure/
dialogue

Amid a continuously low ROE, the stancetowards dialogue with institutional investors
is passive/negative.

Goal
G
Disclosure/
dialogue

Representative Director andPresident, others

Interviewee

Issue

The company is proactively working on ESG,
but the explanation of the relationship withthe business strategy is insufficient, and thecontribution to the enhancement of corporate
value is unclear.
Prepare and publish an integrated reportlinking business strategy and ESG
Representative Director andPresident, others

It’s a business characteristic that is highly
affected by climate change issues, but thecompany does not support the TCFD, andhas not adequately explained its climatechange-related risks and opportunities.

ES
Goal

Progress
Period* 1

27months(4 interviews)

5 *2
3Completion: June 2019

Progress
Period* 1

37months(5 interviews)

5 *2
2Completion: March 2020

Progress
Period* 1

15months(2 interviews)

5 *2
3Completion: June 2020

Progress
Period* 1

36months(4 interviews)

5 *2
3Completion: Dec. 2020

ProgressFirst
interviewSupport TCFD

G
Disclosure/
dialogue

CompanyE*3MachineryBusinessstrategies
Financialstrategies

Interviewee

Issue

ES
Goal
G
Disclosure/
dialogue

General Manager of ESG
department, others

There is little information disclosure
about ESG-related risk management,
and it is especially concerning that senior
management does not adequately grasp
human rights risks.
Senior management grasps humanrights risks (perform due diligence, etc.)

Interviewee ESG department officer, others

Most recent interview
June 2020

1*2

ProgressFirst
interview

Most recent interview
Nov 2020

1*2*1 Three years as a target*2 1: Communicate issues; 2: Share a recognition of the issues; 3: Formulate countermeasures; 4: Implement countermeasures; 5: Conclusion*3 We engage company D and E on Priority Topics for engagement.

41

Responsible Investment Report 2020

About Nomura Asset Management

FY2020 Priority Topics: Background Philosophy
Each year, the Responsible Investment Committeeout the issues for Japanese companies, we decided on

discusses priority topics for engagement. After sorting1

the following nine topics in 2020.

2

3

Rational explanation offinancial strategy

Strengthen commitment tocapital efficiency

Reduction ofcross-shareholdings

Ask companies to explain their useof cash on hand, shareholder return
policy, etc.

Demand commitment to capitalefficiency through executive
compensation

Ask for a reduction in line with the
Corporate Governance CodeFinancial

Governance

Governance4

Become a TCFD signatory, actions
after becoming a signatory

5

6

Business strategy amid new
circumstances

Human resources amid new
circumstances

Business strategy, supply chain
management in age of COVID-19

Work style reform in responseto theage of COVID-19

Reconsider materiality (level ofimportance)

Consideration of human rights andworkers

Environment

Business

Social7

8

9

Diversity

Redefine the Board of Directors

Risk management

Focus on gender. Medium- to longterm increase in women in managerial
positions, etc.

Enhance effectivenessSupport the full-fledged transition to amonitoring board.

Reconsideration of materiality(important management issues)

SocialGovernance

Disclose data in accordance with
TCFD regarding climate change
impact and countermeasures

Disclosure of risk data based onmateriality

Disclosure/dialogue

Engagement

ColumnProxy Voting

ESG Integration

Engagement by the Equity Research Department

Engagement by Analysts
The Equity Research Department has adopted a longterm assignment system, and more than 20 highly
experienced (over 20 years of experience, on average)
sector analysts with expertise in analyzing specific sectors
and companies are directly involved in engagement withportfolio companies.
Engagement (dialogue) undertaken by the Equity
Research Department centers on business strategy andfinancial strategy. The content of engagement is proposals
born from ordinary research work for active investment,that is, industry research, as well as investment decisionmaking based on corporate value calculations and stock
price indicator evaluations in accordance withassessments of competitiveness.
In principle, our engagement aims to share anunderstanding of problems and align a general sense of
direction with companies. Our basic philosophy is tosupport companies as they work to reform themselves on
their own. On top of that, we try as much as possible to
avoid abstract arguments, aiming to make concrete
proposals through discussions.
Our engagement covers a wide range of areas,
including information disclosure methods, businessstructural reforms and establishing financial KPI. There aresometimes discrepancies in the understanding of thetimeline or the approach method, but the uniqueperspective of analysts (including a sense of speed as
viewed by the capital markets, the sector view based on a
medium- to long-term perspective, and the comparison
with sector peers both in Japan and overseas) is essential
in order to continue dialogue.
Engagement Content

Company Y(Chemicals)

Company J(Transportation
Equipment)

We have continuously beencommunicating the idea that inorder to enhance its corporate
value, the company needs topresent its measures to reducegreenhouse gas emissions andreform its business portfolio.

The company plans to allocate morethan half of its cash flow to new
businesses and M&A over the next
10 years, but the explanation about
this was insufficient. In a one-on-one
dialogue, we communicated to thecompany that appropriate information
disclosure would lead to more positive
evaluations from the capital markets.

Head of Equity Research Department

Yosuke Uchida

Progress/Outcome/Future Plans
We feel that we have shared our awareness of theissue with the company.
The company has set out a policy of aiming to reducegreenhouse gas emissions by 80% by 2050. The
company is also working on business portfolio
reforms such as strengthening governance to speed
up decision-making and pursuing alliances with othercompanies.

The company promised to continue to hold regulardialogue and consider holding briefings about new
businesses, among other initiatives. We believethat the company understands the content of ourengagement and has shown a positive stance.
We plan to continue dialogue with the company so that inaddition to information disclosure the company ultimately
allocates cash flow appropriately.

42

43

Responsible Investment Report 2020

About Nomura Asset Management

Global Equity Engagement
We continue to enhance our engagement activities

strategy, financial strategy, and disclosure/dialogue tofor global equities as well. There are many global ESG

previous 3 topics: environment, social and corporate

issues for companies, and collaboration with overseas

governance. The investment managers and analysts ininvestment teams is essential not only for engagement

each office decide the engagement topics and carry out

with overseas companies but also for engagement withengagement with companies.
Our engagement partner overseas is Sustainalytics,

Japanese companies. Because global equities arecharacterized by a large number of target countries andand we either conduct collaborative engagement withcompanies, we are leveraging the expertise of each

Sustainalytics or fully outsource engagement toinvestment team around the globe, as well as utilizing

Sustainalytics (Refer to Page 46). In addition, we also

outside resources, to create a more efficient system.

make use of collaborative initiatives such as the Access

In 2020, our overseas offices conducted engagement

to Medicine Foundation to carry out engagement

on a total of 430 topics (the total number ofalongside other asset management firms on specificengagements was 186). We divide engagement topics

topics (For details, please refer to Pages 47-48).

into a total of six topics: adding 3 new topics: business

Engagements by Overseas Offices
Engagement Topics (Total number)

2020

430topics

Engagement
topic mix

(186 engagements)

Ratio

Numberof topics

Business strategy

4%

18

Financial strategy

0%2

Environmental

34%

145

Social23%

97

Governance

17%

74

Disclosure/dialogue

22%

94

Total number of topics

Engagements by Sustainalytics*(2020)*Target universe: MSCI ACWI ex Japan

ColumnEngagement
region mix

Ratio

Numberof topics

Europe12%

53

North America

22%

93

Asia and Emerging

66%

284

Total by Region

430

346

Introduction of members supporting engagement activities overseas

Portfolio and team assistant at
UK officeGlobal Utilities and ESG
Analyst at UK office

Diana Frattali-Moreno

Daniela Dorelova

Diana and Daniela in the London office collate and manage the engagement data for global equities.
In 2020, milestone tracking for foreign stocks was introduced, so that it can be maintained in aconsistent manner globally430

Engagement

Proxy Voting

ESG Integration

Engagement and Milestone Management
management for Japanese companies, milestones are

Since the middle of 2020, in global equity
engagement we have been sharing our awareness ofdivided into five stages with an engagement period of

ESG issues with companies, setting specific goals, andthree years. By establishing clear goals and having a set

carrying out milestone management until the goals aretimeline, and then evaluating the engagement process,achieved. In addition to the engagement and milestone

we are able to effectively implement PDCA (Plan, Do,

management that we conduct on our own, we also

Check, Act). The ESG issues focused on duringperform milestone management for collaborative

engagement and the goals established vary greatly

engagement with Sustainalytics. As with milestonedepending on the company.

Global Equity Milestone Management
Examples of Milestone Management*1 (Refer to Page 45 )

P

LAN

D

O

C

A

CT

Discovery ofsubsequent
topics andissuesEngagement by
Nomura AssetManagement offices

Engagement ESG
evaluation

Milestone management

HECK

Nomura Asset Management’s Global Equity
Engagement

Recognition of topics
and issues Selectionof target companies(Keep records/ progressevaluation)

Collaborative
engagement by
Nomura AssetManagement andSustainalytics

South Korean
technology
Hong Kong insurance
hardware, storage &company
peripherals company

Engagement
outsourced to
Sustainalytics

US professional
services company

Communicate issues to

1 portfolio company

Company shares a

2 recognition of the issues
Company formulates

Performance review
Policy review

3 plan to address issues
4 Company executes plan
5 Conclusion
Number of meetings
Period *21

1

4First interview

First interview

33months

1: Communicate issues; 2: Share recognition; 3: Formulate countermeasures; 4) Implement
countermeasures; 5) Conclusion
2: Three years as a target

Example of Engagement by Overseas Office
The UK Office felt that it was necessary to address

the supply chain, to tackle the problems in this industry

issues such as child labor in Africa’s cocoa plantations

and achieve sustainable growth. This is not a problem

and among growers, as well as poverty and otherthat can be resolved overnight, but support from the

problems that are the root causes of child labor. In

investor community is essential in order to improve theDecember 2017, we started engaging with companies

situation. Companies are actively implementingthat procure cocoa, a raw ingredient used in chocolate

initiatives targeting improvements, such as reducing

and turn it into products. In addition to our independent

child labor on cocoa plantations and establishing key

engagement, through collaborative engagement withperformance indicators (KPI) to increase farmers’ living

Sustainalytics, we work with many stakeholders toincome. Going forward, we will continue to work withencourage multiple companies, including companies incompanies to solve these and other problems.

44

45

Responsible Investment Report 2020

About Nomura Asset Management

Examples of Global Equity Engagement (Milestone Management)
Swiss food company
ESG issues

Reduction of childlabor, solution topoverty

Engagement overview

Company response

Goals

Reduce child labor,
promote children’s
rights.

Applying child labourmonitoring andremediation systems.

Strengthen efforts
aimed at increasing
living income.

Implementing astrategy to monitor
the improvement inliving income.

Reduce child labor incocoa procurementin Ghana and Côte
d’Ivoire.
Increase wages inthese countries.

Milestone progress

Period* 1

36months(10 interviews)

4

Dialogue timing
Dec. 2020

Progress*2

South Korean technology hardware, storage & peripherals company
ESG issues

Engagement overview

Company response

Formulate measures
to prevent corruption,
ensure diversity
and independenceof directors, andstrengthen theinternal auditing
systemRegarding initiatives
to formulate
measures toprevent corruption
and monitor suchmeasures, to ensure
diversity and the
independence of
directors, and tostrengthen theinternal auditing
systemIn addition toformulating a global
policy to prevent
corruption and bribery,training is provided toall employees every
year.

Goals

Diversity andindependence ofBoard of Directors,
independence ofinternal auditors

Milestone progress

Period* 1

Firstinterview

Ensuring director
diversity andindependence andthe independence
of internal auditors,
as part of efforts tostrengthen governance(1 interviews)

Dialogue timing
September 2020

3

Progress*2

Hong Kong insurance company
ESG issues

Engagement overview

Company response

Goals

Establish and enhance
disclosure of ESG riskrelated KPI, improve
the process fornominating directors,
and strengthen gender
diversity

Improve gender
diversity in the Boardof Directors.

Plans to work on
gender diversity anddisclosure of ESG
risk-related KPI.

Board of Directors
diversity, disclosure of
ESG risk-related KPI

Enhance disclosure of
ESG risk-related KPI.

Milestone progress

Period* 1

Firstinterview(1 interviews)

Dialogue timing
November 2020

3

Progress*2

Malaysian food company
ESG issues

Engagement overview

Company response

Goals

Strengthen
initiatives to prevent
deforestation

Bolster initiatives toprevent deforestationand ensure
traceability, such as
strengthening supply
chain monitoring anda having a support
framework towards
attaining certification

Plantation traceability
has not reached 100%.

Initiatives to prevent
deforestation,
including in the
supply chain

If 100% of producers
obtain Malaysia
Sustainable Palm Oil(MSPO) certification(currently at 88%),
there is a possibility
that total traceability up
to plantations could beachieved.

Milestone progress

Period* 1

Firstinterview(1 interviews)

Dialogue timing
November 2020

*1 Three years as a target*2 1: Communicate issues; 2: Share a recognition of the issues; 3: Formulate countermeasures; 4: Implement countermeasures; 5: Conclusion

3

Progress*2

Engagement

Proxy Voting

46

ESG Integration

Engagement by Sustainalytics
we entered into an agreement with in 2017).

In global equity engagement, Nomura AssetManagement’s overseas offices also actively engage

Sustainalytics provides Global Standards Engagement,

portfolio companies, but due to the broad scope ofin which companies are selected for engagement based

coverage for global equities, we partner withon violations of international norms such as the United

Sustainalytics to carry out collaborative engagement

Nations’ Global Compact, Material Risk Engagementwith as well as outsource engagement to Sustainalytics.

covering companies with critical ESG risks, andThe engagement services provided by Sustainalytics

Thematic Engagement, which focuses on solutions tohave become even more functionally advanced following

specific topics, such as climate change, plastics or thethe integration in 2019 with the former GES (with whom

circular economy from a global vantagepoint.
Engagement Policy

Global Standards
Engagement

Target companies

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

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

Encourages companies with financiallymaterial ESG issues to construct
strategies to handle ESG risks andopportunities with the aim of increasing
long-term corporate value

Companies with particularlyhigh ESG risk in theirindustry

Engagement Policy

Target companies

Engagement related to
Climate Transition

Climate-related activity management incompliance with international disclosure
standards, involvement in transitioning
to 2°C (or lower) scenarios and initiatives
to promote the SDGs

Steel and cement companies
with high carbon emissions
and carbon emission
intensities

Engagement related toChild Labour In Cocoa

Aiming to improve the problem of childlabor on cocoa plantations, encourages
companies to promote access to
education and other children’s rights,
with the aim of solving poverty which isat the root of the child labor problem

Large cocoa and chocolatecompanies, companies inrelated supply chains

Engagement related
to Plastics and the
Circular Economy

Encourages companies to recycle
plastics, to shift their strategic focus
towards redesign and innovation, to
promote the re-usability of products,
and transform the plastics market withthe goal of enhancing sustainability

Companies in theautomotive, electronics,
packaging/consumer goods
sectors

Engagement related to
Sustainable Seafood

Encourages companies to establish
appropriate evaluation and management
systems for marine products-related
sustainability risks

Large companies involved in
the procurement of marine
products

Engagement related toTomorrow’s Board

Encourages companies to have directors
with the appropriate abilities to deal with
important ESG issues and to display thenecessary commitment

Companies in extractives,
financial , and healthcare
sectors which haveespecially large ESG issues
and opportunities

Engagement related
to The Governance of
SDGs

Encourages companies to define
meaningful SDGs strategies that alignwith their business plans. Aims toinfluence these companies to produce
positive outcomes in line with the 2030
SDG agenda.

Consumer goods, financial,
and Information andcommunications technology
companies

Material Risk
Engagement

Thematic Engagement

ESG

E
S
G

E
S
G

ESG

E

S

E

E

G

G

47

Responsible Investment Report 2020

About Nomura Asset Management

Cooperation with Initiatives
Commitment to no-deforestation together with other financial institutions
A coalition of nine financial institutions including

Companies linked to cases of deforestation are being

Nomura Asset Management, representing ¥1.8 trillion(asasked to mitigate the effects of deforestation and takesof October 2020) in assets under management asked

actions to prevent future incidents.

companies to take action to end deforestation in their

The loss of biodiversity due to deforestation is one of

supply chains, as well as to enhance supply chain

the greatest risks to society and the economy. Scrutiny

traceability. Initiated and coordinated by ACTIAM, aof the financial and non-financial material risks, as wellsustainable investment specialist, the collaborative

as recent governmental and regulatory discussions, hasengagement aims to reduce deforestation across ourbrought analysis and risk management of deforestation

investments, in light of climate change and biodiversity

to the forefront of investors’ minds. Thus, traceability

loss, as well as financial risks connected toand transparency of companies’ supply chains are

deforestation.

crucial to investors in order to identify and reduce

With this initiative, we investors reach out tocompanies that provide insufficient information about

deforestation risks in their portfolios.
Companies are expected to meet the investors’

their supplier lists, as well as companies linked torequests in two to three years time. The use of

deforestation cases in the palm oil sector in Malaysia.

innovative tools, such as satellite imagery and data

These cases have been unveiled through analysis ofanalysis will allow investors to independently assess thesatellite imagery and artificial intelligence provided byprogress made by the engaged companies, and whether

Satelligence. We are asking these companies to publicly

their efforts are indeed leading to a reduction of

disclose supplier lists for soft commodities, as thesedeforestation in the monitored regions and suppliers.

products present high risks for deforestation.
Participant Investors, who took
action towards no-deforestation:
ACTIAM N.V.
Achmea Investment Management
Aegon Nederland N.V.
a.s.r. Asset Management
Aviva Investors
Fidelity International
Nomura Asset Management
RobecoZwitserleven

Message

Daniela Dorelova
Global Utilities and ESG Analyst at UK officeThis satellite-based engagement towards no-deforestation aligns well with
our investment philosophy and our Impact Goals. Mitigate Natural Capital
Depletion, along with our main KPI – Global Annual Tree Cover Loss – is oneof the goals that we as investors believe we can have the greatest impact on
through our investments and direct engagements. The initial collaborative
engagement reviews the palm oil sector in Malaysia, however the
methodology used could be expanded and applied to other soft commodities
in the future.

Engagement

Proxy Voting

ESG Integration

Access to Medicine Foundation / Access to Medicine Index:

Commitment to access to medicine
Since 2019, Nomura Asset Management is a signatory toReport published every two years

securing extended market exclusivity through, for

the Access to Medicine Index (ATMI), which is conducted

example, orphan drug designation, should not run

every two years by the Access to Medicine Foundation

counter to the responsibility to respond to Pandemic.

(ATMF: Access to Medicines Foundation), an independent

Following the letter we co-led two individual

non-profit research foundation. As a signatory, we continuecompany engagements to focus on the most relevant

to engage global pharmaceutical companies to responsibly

actions the respective companies should be taking. We

enable and expand access to currently available medicines

engaged with a UK Pharmaceutical that is a world

in low- and middle-income countries.

leader within vaccines but is not currently advanced in

In April 2020, as the coronavirus continued to spread,the race to develop a treatment (As of June 2020). Ourin collaboration with Access to Medicine and a number

conversation was therefore focused around how theof our fellow signatories, we supported the development

company could use its vast resources and footprint toof an open letter to the pharmaceutical industry urging

support peers that are currently more likely to develop a

companies to take a number of actions including:treatment. We also engaged with a US Pharmaceutical

Proactively and innovatively reach out, collaborate andthat was at the very forefront of developing a treatment

share relevant data in a timely manner withfor Covid-19 (As of June 2020). Here we focused on

governments, the health sector, academia and peers

how the company would responsibly price the treatment

Ensure that in the long term research and development

and the actions being taken to ensure access inprocesses sufficiently address infectious diseases

emerging economies through licensing agreements.

Focus on international cooperation to ensure supply

The New Coronavirus pandemic has also brought tochains are up and running Enforcing patents, excessive

light the severity of a lack of adequate access toprice setting, non-disclosure of relevant findings or

medical oxygen within emerging economies given therole this can play in improving outcomes for those that

Proactively and innovatively reach out, collaborate
and share relevant data in a timely manner withgovernments, the health sector, academia and peers
Ensure that in the long term research anddevelopment processes sufficiently address
infectious diseases
Focus on international cooperation to ensure
supply chains are up and running.
Enforcing patents, excessive price setting,non-disclosure of relevant findings or securingextended market exclusivity through, for example,orphan drug designation, should not run counterto the responsibility to respond to Pandemic.

experience severe symptoms. We participated in two
roundtables led by Access to Medicine and the Every
Breath Counts coalition, for companies, NGOs, donors
and investors to openly discuss how stakeholders could
work together to tackle this grave issue. Working
collaboratively across our firm we were also able to use
our influence to support bringing a key player within the
medical oxygen space to the table to participate in theconversation. The initiative remains in the early stages
but the first steps have been taken and highlight theimportant role institutional investors can play insupporting better outcomes.

Alex Rowe
Global Sustainable Equity Fund (GSE) Lead portfolio manager

Alex is the lead portfolio manager of Global Sustainable Equity strategies and plays
a key role in the team's responsible investment activities as well as global industrial
sector research.
At ATMI, he is actively involved in helping companies create impact, including
co-chairing a collaborative engagement with GSK. Alex became a father shortly
after the start of the Covid-19 pandemic and took parental leave. He is now happy tomake the most of the free time he had and is even more passionate about creating amore sustainable future.

48

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Responsible Investment Report 2020

About Nomura Asset Management

PROXY
VOTING
We exercise voting rights with an emphasis on the effectiveness of ouractions through a disciplined and robust decision making process

Proxy Voting Process
In proxy voting, we focus on the corporate governancethe election of auditors (audit). In addition, the appropriationof portfolio companies. The basic structure of corporateof surplus is important when it comes to Japanese

governance is that directors and auditors are elected at acompanies because Japanese companies are often

shareholders’ meeting, and directors (the board ofcriticized for retaining a large amount of cash and deposits

directors) and auditors supervise senior management

and being unwilling to return profits to shareholders throughthrough nominations, compensation matters, and audits.

dividends and share buybacks. Moreover, proposals

Accordingly, the following three aspects are particularly

submitted by shareholders have also been increasing inimportant in proxy voting: the election of directors

recent years. Due to differences in legal systems, it is easier(nomination), executive compensation (compensation) andto make shareholder proposals in Japan than in Europe andBasic Corporate Governance Structure

the United States, and these 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 engagement with

Directors(Board of
Directors) /Auditors

Shareholders’meeting

Seniormanagement

portfolio companies, and we make judgments on proposals
by all portfolio companies in accordance with our own
proxy voting guidelines.

Election

Oversight(nomination,compensation, audit)

Our Proxy Voting Process is characterized by thefollowing four points.

Engagement

Proxy Voting

Characteristics of the Proxy Voting Process
Discipline

Judgments on proposals are madein accordance with the proxy voting
guidelines

Robustness

A robust decision-making process
centered on the Responsible Investment
Committee

Comprehensive
discussions

The Responsible Investment Committee
itself decides to agree with or oppose
proposals, rather than simply ratifying thesecretariat’s proposal

Conflict of interest Real-time monitoring by the Responsible
management
Investment Council
Refer to Page 5~6 for more information about the Responsible Investment Committee

ESG Integration

50

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Responsible Investment Report 2020

About Nomura Asset Management

Proxy Voting Process for Japanese Equities
that do not require qualitative judgment) is different thanThe proxy voting process is as shown in the figure
below. The process for proposals that can be judged in

the process for other proposals (that do require

accordance with the proxy voting guidelines (proposals

qualitative judgment).

Secretariat

Members(as of December 2019)

Role

Responsible Investment
Department

Preparation of proposals

Responsible Investment Committee

Six people involved in decision-making
for investment and research(The Responsible Investment Council
members participate in Responsible
Investment Committee meetings)

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

Responsible Investment Council

One (1) Chief Conflict Officer
Outside directors: 2
Outside experts: 1
Reviews from the perspective of
conflicts of interest Advises the
Executive Management Committee
and/or the Responsible Investment
Committee to make improvements
as required and reports to the Boardof Directors and the Audit andSupervisory Committee

Process of
formulating proxyvoting guidelines

Formulation of
the guidelines
Decidewhether toagree oropposeQualitative
judgment notnecessary

Proposaljudging
process

Qualitative
judgment isnecessary

Decidewhether toagree oropposeNo conflictsof interest

Qualitative
judgment isnecessary*

Decidewhether toagree oropposeThere is a
conflict ofinterest*This includes proposals of group affiliates.

Reference

Opinions from multiple proxy voting advisory firms

Proxy Voting Process for Global Equities
For proxy voting (excluding Japanese equities), we
generally decide to vote for or against a proposal inaccordance with our Global Basic Policy on Proxy
Globally-uniform
proxy voting

Voting. However, if the investment managers andanalysts possessing a deep understanding of local

Share final
decisionconditions determine it to be necessary, we may, upondeliberation, make a decision that differs from the basic
Discuss

policy on proxy voting. The final decision is then sharedwith all offices, and proxy voting is then carried out

Europeuniformly on a global basis.

Share

Asia

Discuss

Considering local
circumstances, makedecision different fromthe policy if necessary

Discuss

Global Basic
Policy for
Proxy Voting

Tokyo

USA
Discuss

Proxy Voting

Engagement

ESG Integration

System to Manage Conflicts of Interest
management. This council monitors stewardship

Members of the Responsible Investment Committee,
the highest decision-making body, include, in principle,

activities, especially proxy voting involving conflicts of

only persons involved in investment and researchinterest, to make sure that decisions are made that dodecision-making, while people in a position with a

not adversely affect the interests of clients as a result ofconflict of interest or people with the possibility ofconflicts of interest.
As required, the Responsible Investment Council

acting on behalf of such persons are excluded. In
addition, under the Audit and Supervisory Committee,

recommends improvements to the Executive Management

we have established a Responsible Investment Council

Committee and/or the Responsible Investment

comprising only the Chief Conflict Officer and persons

Committee, and reports on this to the Board of Directors

in independent positions in our company, including

and the Audit and Supervisory Committee. Furthermore,

independent outside directors. This Responsible

members of the Responsible Investment Council attend

Investment Council monitors the Responsible

Responsible Investment Committee meetings, and are

Investment Committee’s decisions as well as its overall

able to immediately state their opinions.
Responsible Investment Committee

Nomura Asset Management’s System toManage Conflicts of Interest
Responsible Investment Council

Chair

Members

AttendIndependent outside directors and others

CCO*

Secretariat
Responsible Investment
Department*Chief Conflict Officer
Column1Disclosure of Reasons for Voting For or Against Proposals

We disclose the reasons for voting for or against some proposals from April to June 2019, and all proposals from October toDecember 2019, and also provide detailed explanations of our reasons for those proposals we feel require special explanation. In
2020, we explained in detail the reasons for voting for or against 105 proposals from 24 companies (65 were company proposals
and 40 were shareholder proposals). Key proposals are discussed below.

<Proxy Voting Outcomes for Individual Proposals> (October 1, 2019 – December 31, 2019)
The approve/oppose decisions in the table below are based on our guidelines. A “*” mark is to the right of a proposal if the decision based onclient standards differs from our standards.
Can be searched by keyword ([Edit] > click [Simple search] > enter company code and/or company name in displayed box and press Enter)
Companycode

Company
name

GSM type

GSM Date
YYYY/MM/DD

Proposer

Proposal
No.

Candidate
No.

Proposalclassification

For/against and reason

1722

MisawaHomes Co.,Ltd.

Special2019/11/26

Company

1

Parent company Toyota Housing Corporation will make
Misawa Homes Co., Ltd. a wholly-owned subsidiary.
There were concerns about a conflict of interest withminority shareholders, but the measures to protect theOrganizational
restructuring- agree interests of minority shareholders were affirmed, andthe premium compared favorably to similar deals, so
relatedwe voted for the proposal in line with our guidelines.
In this deal, group company Nomura Securities wasinvolved as a third-party valuation entity.

1997

Akatsuki
Eazima Co.,Ltd.

Annual2019/11/22

Company1

Disposition of
surplusagree Voted for proposal in line with our guidelines

Example of Reasons for Voting For or Against Proposals
GSM type

Proposer

Special
GSM

Company
proposalOrdinary
GSM

Shareholder
proposalOrdinary
GSM

Shareholder
proposal

Proposal classification
Introduce/change/
abolishment of takeover
defense plan

Director appointment

Director appointment

Voting result

Reason for the our proxy voting result

Votes against

A proposal seeking approval for the introduction of a takeover defense plan and thetriggering of countermeasures following a public tender offer by a large shareholder.
Triggering countermeasures would limit shareholders’ right to buy and sell shares,
and we decided that there was no reason that justified it, so we voted against it.

Votes against

A proposal calling for the appointment of outside directors because the lack of
information disclosure hinders the enhancement of corporate value. In addition
to the composition of the board of directors, considering the fact that the reason
behind the proposal was not convincing, we determined that the effect on enhancing
shareholder value could not be confirmed, so we voted against the proposal.

Votes forA proposal calling for the appointment of outside directors due to insufficient
independence and diversity of outside directors. Taking into consideration factors
such as the composition of the Board of Directors, the financial situation in which
the company held many strategically-held shares, as well as the valuation situation,
we decided that this proposal would contribute to the enhancement of corporate
governance, so we voted in favor of the proposal.

52

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Responsible Investment Report 2020

About Nomura Asset Management

Proxy Voting for Japanese Companies (January – December 2020)
The results of our proxy voting with respect tovotes against company proposals and the underlying

Japanese companies from January to December 2020

reasons are shown (for shareholders’ proposals, theare as follows. Unless otherwise noted, the ratio ofratio of votes in favor and the reasons are shown).

Election and dismissal of directors

Election and dismissal of auditors

The independence of candidates for outside
director could not be confirmed, poor businessperformance, misconduct, etc.

The independence of candidates for outside
auditor could not be confirmed, etc.

Number of proposals

6%

17,95913%

2,589

Number of proposals

Election and dismissal of
accounting auditor

Executive compensation—

Outside directors and auditors were included among
the people who would receive stock compensation,and the lock-up period was less than three years

Number of proposals

0%

63

826

Number of proposals

Payment of retirement benefits toretiring executives

Appropriation of surplus

Outside directors and auditors were included in thescope of persons who would receive payment, etc

The company is cash rich, and its ROE and theshareholder returns are low.

Number of proposals

165

85%

1%

1,548

Number of proposals

Organizational restructuring-related

Introduction, update and abolition of
takeover defense measures

There were problems in terms of protecting
the interests of minority shareholders, etc.

All proposals related to introduction or update of
takeover defense measures

Number of proposals

8%

38

100%

92

Number of proposals

Proposals on other capital policies

Proposals on articles of incorporation

Capital increase or contribution of treasury
shares when the impact on shareholder value

The roles of chairman of the board and the chief
executive officer (CEO) are not split, etc.

Number of proposals

Total

7%

59

See above
Number of proposals

23,877*530

Number of proposals

Company proposals

Total

8%

Number of proposals

13%

236

(Ratio of votes for)

Reference

Results of Proxy Voting for Global
Companies (January – December 2019)2%

Shareholders’ proposals

We thought it would contributeto an improvement in corporate
governance, etc.

(Ratio of votes
against)*Includes two “other proposals” not included above

24%

Votes forVotes against

Total

Ratio of votes
againstCompany
proposals

18,814

3,330

22,144

15%

Shareholders’proposals

677

225

902

25%

Total

19,491

3,555

23,04615%

Engagement

Proxy Voting

ESG Integration

Overview of Proxy Voting Standards for Japanese Companies
Here, we explain our Proxy Voting Standards for
Proxy Voting Guidelines Structure

Japanese Companies (the “Proxy Voting Standards”).
Please refer to our website for details. Due to theimpacts of the COVID-19 pandemic, for generalshareholders’ meetings held from June 2020 onward,
we have stopped using the standards with a mark below

Global Basic
Policy for
Proxy Voting

Proxy VotingStandards forJapanese companies

Application
to Japanesecompanies(as of December 31, 2020).

Support for the transition to a monitoring board
We indicate the eight requirements, such as having a majority of outside directors, for determining whether a board falls
into the category of a monitoring board.
If it falls into the category of a monitoring board, we ease the requirements for voting for company proposals. In the nearterm, it will apply to guidelines related to executive compensation, but going forward we plan to extend the scope toinclude guidelines for opposing director appointment proposals on the grounds of slumping ROE (currently not applying
this guideline due to the impact of COVID-19).
Even if it does not fall under the category of a monitoring board, for companies that develop compensation governanceas an initiative aimed at a transition to a monitoring board, we will relax some of the requirements for voting in favor of thecompany’s executive compensation proposals.

Proxy Voting Standards and their summaries

In the following cases, we will oppose a company’s proposal

Rigorously judge corporate actions and responsibility
to deliver business results

M&A or other corporate action does not protect the interests of minority
shareholders
An act that could cause significant damage to shareholder value (misconduct,etc.) is discovered
Return on equity (ROE) is stagnant

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

Composition of (Board of) Directors
A certain number of outside directors is necessary tosupervise the management team. Particularly in a company
where there is a controlling shareholder (such as a listed
subsidiary), there are concerns about a conflict of interest
with the controlling shareholder, therefore a higher level ofsupervision is required.

The number of outside directors falls short of the minimum level(refer to Next Page for details)

Independence of outside directors

If the term in office is 12 years or greater

A certain level of independence is required for outside
directors in order to supervise senior management. In orderto prioritize effectiveness,we ensure that the standards forindependence are not too stringent

Notification as an independent executive is not confirmed
An outside director has worked for or has otherwise been part of a company
that is a major shareholder

The attendance rate for board of directors’ meetings is less than 75%

Effectiveness of outside directors
Outside directors must effectively supervise senior
management.

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

It is obvious that the outside director did not fulfill the expected tasks such as
the appointment and dismissal of senior management and the supervisionof conflicts of interest between the company and the management team orcontrolling shareholders

In a company where the outside directors fall short of a majority and an independentcompensation committee has not been established, a proposal for executive
compensation or executive retirement benefits above a certain level is submitted

Appropriate incentives

The stock compensation is designed so as to encourage the management team
to be short-term oriented

Although stock compensation is important as a management
incentive, it can be counterproductive if not properly designed.

The persons to whom the stock compensation is given are not appropriate

Effective utilization of financial assets
It is essential that financial assets are utilized effectively toenhance corporate value.

The stock compensation could lead to excessive dilution

Financial assets are not utilized effectively, and shareholder returns (dividends
and share buybacks) are not appropriate

54

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Responsible Investment Report 2020

About Nomura Asset Management

Summary of Revisions to Proxy Voting Standards (November 2019)
mentions* a majority of the board members as

The main point of these revisions was to clarify ourstance of supporting the transition to a monitoring

independent outside directors and the establishment

board. Please refer to the following page for aand strengthened functions of nomination an

discussion of our thinking behind the revisions.

compensation committees, and is aligned with our ideaof a monitoring board.

Amid the focus on improved effectiveness of board
functions, the revised Corporate Governance Code* Based on materials from the “Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code” (22nd).

Before revision

After revision

Create guidelines todetermine whether or not(New)
it falls under the categoryof a monitoring board

Establishes eight items as requirements for being a monitoringboard, including outside directors as a majority, at least one woman
director, and not holding strategic shareholdings in excess. Refer tobottom-right on next page.

Two for a company with a board ofcorporate auditors and which does nothave controlling shareholders (three if
there are more than 12 directors)
For other companies, 1/3 of the numberof directors

Minimum number ofoutside directors

In principle, either two directors or 1/3 of the number of directors,
whichever is greater
For a company with a board of corporate auditors and which does
not have controlling shareholders, two or 20%, whichever isgreater (until October 2020)

Executive compensation

Refer to below table

Independence of outside
directors/corporate
auditors

Requirements for determining there to be ahigh level of independence
Registration as independent director isconfirmed
Has never belonged to a company that is alarge shareholder

Changes to articles ofincorporation based onshareholder proposal

In principle, approve proposals demanding
disclosure of individual executive compensation

In principle, approve proposals demanding individual disclosure of
executive compensation and compensation of non-director advisors,
consultants, etc.

Changes to articles ofincorporation based onshareholder proposal

Indicate types such as those demanding
individual disclosure of executive
compensation, and approve applicableproposals

Even if it is a proposal that falls under the type noted to the left, oppose a
proposal that is made for the purpose of social or political assertions

Requirements for determining there to be a high level of independenceTerm in office is less than 12 years
Registration as independent director is confirmed
Has never belonged to company that is a large shareholder*Content changed in this revision is noted in bold-faced type

Overview of Proxy Voting Guidelines Revisions for Executive Compensation

Falls under category ofmonitoring board

Does not fall under categoryof monitoring board, butcompensation-related
governance has been
established *2

Other

Bonus payments, increase in compensation at companies
with slumping ROE

Votes against

Votes against

Votes against

Executive compensation at or above a certain level

Votes forVotes forVotes against

Payment of bonuses to outside directors, etc.*3

Votes against

Votes against

Votes against

Dilution percentage

Oppose if over 10%

Oppose if over 10%

Oppose if over 5%

Period until stock can be sold

Oppose if less than 2 years

Oppose if less than 2 years

Oppose if less than 3 years

Payment to outside directors, etc.*3

If there are no operating
performancerequirements,vote forpayments other than tocorporate auditors

Votes against

Votes against

Stockcompensation*1 Content changed in this revision is noted in bold-faced type*2 Outside directors comprise a majority, or there is an independent compensation committee*3 Outside directors, directors who are members of the audit committee or audit and supervisory board, corporate auditors

Proxy Voting

Engagement

ESG Integration

Transition to a Monitoring Board: The Thinking Behind It
transition to an advisory board or a monitoring board.

A monitoring board is a board of directors whose
main role and responsibility is to supervise

For publicly-listed companies, the function ofmanagement. Traditionally, the board of directors ofsupervising the management team on behalf of an

Japanese companies have mostly been management

unspecified number of shareholders is absolutely

boards, but today, as the number of boards with outsidenecessary, and the board of directors is responsible fordirectors is increasing, and those with outside directors

this. We expect the board of directors of a Japaneseare adding even more outside directors, this is now acompany to be responsible for the supervisory function

turning point for companies to choose whether to

as a monitoring board.

Advisory board

Management board
Main roles andresponsibilities

Member composition

Management decisionmaking

Centered on insidedirectors (management
team)

Main roles andresponsibilities

Member composition

Management decisionmaking, advice tomanagement teamCentered on insidedirectors (managementteam), but there are alsoa minority of outside
directors

Monitoring board
Main roles andresponsibilities

Member composition

Supervision ofmanagement teamCentered on outside
directors

We expectcompanies totransition to thisSome companies have introduced an executive officer

concurrently as directors. On the other hand, a board ofsystem to separate supervision and execution, but if thedirectors which has transitioned to become a monitoringboard of directors is a management board, the board ofboard oversees the executive bodies, so the hierarchicaldirectors will rank higher than the other executive bodies

relationship with executive bodies no longer exists.

(management committee, executive committee, etc.),

There is also no rank hierarchy between directors andand high-ranking executive officers usually serve

executive officers, as they each play different roles.

Supporting an Effective Transition
The effectiveness of the supervisory function is what is important, and through proxy voting as well as
engagement we encourage companies to increase effectivenessSo as to not encourage merely perfunctory transitions, we do not oppose company proposals on thereasoning that the company has not transitioned to a monitoring board.

Monitoring Board: Judging Standards in Proxy Voting Guidelines
We have newly established standards to decideboard if it satisfies all of the eight requirements below.

whether or not a board is a monitoring board.

We view these requirements are the bare minimum as aSpecifically, we determine a board to be a monitoring

monitoring board.

1 A majority of the directors are outside directors

5 The company has not introduced a takeover defense planHas nomination committee and compensation committee

6 (less than 10% of invested capital)

3 are outside directors

Nomination and compensation committee chairpersons

7 director’s term in office is one year

4 There is at least one woman director

8 directors is an outside director

2 with outside directors comprising a majority

The company does not hold strategic shareholdings in excess
If the company is a company with a board of corporate auditors,
If there are controlling shareholders, the chair of the board of

56

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Responsible Investment Report 2020

About Nomura Asset Management

Proxy Voting FAQ
Q

Can engagement have an impact on proxy voting?

A

Through engagement, we ascertain the status of thecompany and its opinions regarding proxy voting, andthese impact the formulation of the proxy voting guidelines(“guidelines”) and the decisions on individual proposals.
Please refer to the figure below for details.

Relationship between engagement and proxy voting
1

Formulation ofproxy voting
guidelines

Information and opinions attained through engagement are valuable for making judgments.
Example: Because positive impacts were seen in companies with nomination/compensationcommittees, we have established an item in the guidelines to refer to the status of having
nomination/compensation committees.

Judgments on
individual
proposals

Judgments may differ from the guidelines if engagement reveals actions targeting
improvements or a situation that was not expected at the time the guideline was formulated.
Example:For a company conflicting with the guideline related to the disposition of surplus, it
was found that this had been affected by special accounting treatment, so we voted in favor of
the company’s proposal when the guideline called for opposing the proposal.

Engagement

2

Q

It seems that you vote against company proposals a small percentage of the time. Can you comment on that?

A

Taking the continuity of the board of directors into
consideration, we limit our opposition to candidates who
are responsible for individual cases in the election of
directors. This is the reason why our opposition rate looks
relatively low (see diagram below). We opposed 5% of
director appointment proposals (April – June 2020), but we
opposed one or more candidates in the director
appointment proposals for 30% of companies (sameperiod), so we do not view our opposition percentage as
being particularly low.
We aim to combine proxy voting with engagement toappeal to portfolio companies, and encourage them toestablish desirable corporate governance systems andenhance their corporate value. We position proxy voting as
one means of accomplishing this, and we do not feel that
our opposition rate indicates our stance.

*1 Under the Companies Act, a minimum of three directors is necessary in order to hold a Board of Directors meeting.

Guideline for Director
Election Proposals

Persons subject to opposition
All candidates

If proposal we opposed is rejected
Board of Directors meetings cannot be held
due to absence of directors
Opposition ratio will rise
Undermines the ability of the Board of Directors tocontinue functioning

Applicable toreason*2 for
opposition
Judgments on
individual proposals

Board of Directors meetings can be held with other directors
Opposition ratio will decline
Ensures the ability of the Board of Directors tocontinue functioningWe
chose this*2 Shortage of outside directors, low ROE, etc.

Q

What about proxy voting with respect to group affiliates?

A

As with other portfolio companies, we make decisions about
whether to support or oppose proposals for group affiliates
based on our guidelines. As a proposal with a conflict ofinterest, 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

Q

Do you have a message for portfolio companies?

A

In carrying out proxy voting, we refer to documents related
to shareholders’ meetings, including the notice ofconvocation, independent officer registrations, andcorporate governance reports. Recently, documents
related to shareholders’ meetings have become more
informative, and this has allowed us to judge these
proposals more easily. We want portfolio companies tocontinue providing clear and easy to understandmeeting and participate in the deliberations. Also, following
the conclusion of the Responsible Investment Committee
meeting, the Responsible Investment Council holds a
meeting where it closely examines the issue from theperspective of conflict of interest. Please refer to Page 51 fordetails on the proxy voting process and Page 52 for details
on our system for managing conflicts of interest.

information disclosures. We still believe that engagementwith portfolio companies, including explanations ofproposals, is valuable, and we are active with engagement
throughout the year, with the exception of late-May
through mid-June when proxy voting reaches its peak. We
would like for portfolio companies to check the proxyvoting representative’s schedule (see Page 58) andcontact them.

Proxy Voting

Engagement

Column2

Annual Schedule of a Proxy Voting Representative

June, followed by March and May, are the months in which
the largest numbers of Japanese companies hold theirgeneral shareholders’ meetings. We exercise our voting
rights for more than 1,900 portfolio companies in thesethree months. Below, we discuss the approximate annual
schedule for proxy voting, focusing on this period with ahigh concentration of shareholders’ meetings.

1

Revisions to Proxy Voting Guidelines

ESG Integration

Proxy Voting Annual schedule
Jun. Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May Jun. Jul.

1

2

3
4

5
6

2

6

6

6

Engagement to inform companies about therevisions to our Proxy Voting Guidelines

July – OctoberNovember – January

As soon as the busy season for shareholders’ meetings ends, westart reviewing our Proxy Voting Guidelines. Taking into consideration
the actual conditions of Japanese companies, which we havelearned through engagement 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 themto strengthen their corporate governance. In addition to individual
meetings with portfolio companies, we also explain our views at
seminars.

3

Engagement in anticipation of the generalshareholders’ meeting.

4

Period when most general shareholders’meetings are held

February – May

March – June,

As the busy season approaches, we ramp up engagement with aneye towards shareholders’ meetings. This is the time when companies
are finalizing the proposals they will make at shareholders’ 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 keep these discussions focused onstrengthening corporate governance over the medium to long term.

This is a period when we need to accurately judge a large numberof proposals. We exercise voting rights for roughly 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 that are clear and easy to understand.

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. Typically,
the discussions will be about what efforts they should make to enhance
corporate value over the medium to long term, and what kind of
corporate governance they should have as a mechanism for supervisingthose efforts given their particular business and financial situation.

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.

58

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Responsible Investment Report 2020

About Nomura Asset ManagementESG
INTEGR
Integrating ESG factors into the investment process iscritical, as we believe financial performance and ESG
efforts (non-financial information) are closely related andreduce downside risk, but is also an essential
component to improve returns.
ESG assessment is not limited to Japanese

influence one another. At Nomura Asset Management,

companies, as the scope also includes companies in

we utilize proprietary ESG evaluations of portfolio

developed countries in Europe and the Americas, as wellcompanies when making investment decisions. In orderas companies in Asia and emerging countries. In

to effectively incorporate ESG considerations and otheraddition to global themes such as climate change andnon-financial information into the investment process tohuman rights, we extract and assess specific material

supplement the analysis of a company’s fundamentals

ESG considerations for individual industries and(financial information used to evaluate a company), we

companies, and utilize information from multiple external

conduct our own ESG assessment for both equity

sources to create our proprietary ESG scores. These

investing and fixed income investing. This integration of

ratings are made available to all portfolio managers for

ESG factors into the investment process not only helps

integration into the investment decision-making process.

Engagement

Proxy Voting

ESG Integration

Aim to improve the added value of our investments
by integrating ESG factors into the investment process

ATION
Features of Integration

EquityInvesting

When evaluating the ESG characteristics of portfolio companies,
we focus not only on potential risks but also on opportunities togenerate future earnings. Although each equity strategy
integrates ESG considerations into their investment philosophy
and process in different ways, a common ESG evaluation
platform is shared by all strategies.

Fixed
IncomeInvesting

We select and model ESG factors that are material for credit
investment based on a variety of research. In addition to thisESG factor model, qualitative evaluations by credit analysts
are also considered within the ESG integration to improve theportfolio’s risk-adjusted return and sustainability.

ura
Nom t tAsseagemen
Man

60

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Responsible Investment Report 2020

About Nomura Asset Management

Equity Integration Approach
Corporate value is essentially the discounted present
value of future free cash flows. The business assets thatgenerate future free cash flow include not only fixed assets
such as production facilities, but also various types ofintangible 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

EquityIntegration

data, reflecting non-financial data in company evaluations,and making investment decisions based on theseevaluations, is essential in order to increase the added
value of our investments.
There are two aspects to evaluating intangible assetsthat do not appear in a company’s financial information.
The first is evaluating the profits that intangible assets canbring, or a “growth evaluation,” and the other is a “businessrisk evaluation” related to the risks to which a company’s

Investors’ Basic Philosophy
on Corporate Value
Corporate
value

profits are exposed.
For the “growth evaluation”, the impact of climatechange on business, supply chain resilience, intellectual

Accumulation of future earnings /cash flows

property, R&D capabilities and organizational strength,
quality of human resources and diversity are among thesources of competitiveness that help differentiate acompany from its peers. These factors manifest
themselves in the future as financial information such as
corporate profits and growth.

Present

Past
Non-financial
capitalTime

Passageof timePresent
Financialinformation
Non-financial
capitalCorporate
value

FuturePassageof time
Discounted
present value

The “business risk evaluation” aims to ascertain thestability and sustainability of future profits based onwhether 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

Financialinformation

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, the valuation of intangible assets is an“Continuity between financial and non-financial” andthe “Impact on long-term profits/cash flow generation”
are of the upmost importance.

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.

Engagement

Proxy Voting

62

ESG Integration

Equity Investment Process
An in-house proprietary ESG score, which is jointly

change and human rights, we extract and assess specificproduced by sector analysts and ESG specialists, ismaterial ESG considerations for individual industries andutilized for ESG integration into our equity

companies and utilize information from multiple external

investments. In addition to the risks and opportunities

sources to create our proprietary ESG ratings. These

related to environmental, social, and governanceratings are made available to all portfolio managers forfactors, opportunity sets relating to the UN’s

incorporation into the investment decision-making process.

Sustainable Development Goals are also considered

For example, at our Singapore Office, country specialists

when creating a numerical ESG score. These scores(CS) are assigned to cover each country in this diverse

serve as an important piece of information utilized byregion, and the main source of added value is the bottom-

investment decision makers within the investment

up research conducted by meeting with companies (2685

process/platforms for each investment product (seemeetings in 2020). Investment ratings are assigned todiagram below).

individual stocks based on the fundamental research

We have also established ESG evaluation process
globally. In addition to global themes such as climateTeam

carried out by CSs as well as the ESG evaluation. The
portfolio is constructed based on these ratings.

Portfolio

Team

Team

FinancialanalysisESG
evaluations
Nomura AssetManagement

ESG score
Analyst
ESG specialists
Team

Strategy platform

63

Responsible Investment Report 2020

About Nomura Asset Management

ESG Evaluation in the Selection of Japanese Equities
In addition to integrating ESG into the portfolio construction process byleveraging the in-house ESG evaluation to identify companies that are expected
to have sustainable growth in the medium to long term, engaging withcompanies that may be excluded from investment due to ESG risks is also an
important role of ours.
Efforts to reduce greenhouse gas emissions are being made in countries
around the world, but for companies whose profits are highly dependent on coaland crude oil, we evaluate their efforts to address transition risks, and we
encourage companies whose responses we deem inadequate to address theseissues sufficiently. For companies that operate globally, we discuss geopoliticalrisks that may impact supply chains for parts and other materials, as well as
physical risks related to natural disasters, and urge them to address such risks
appropriately. For companies possessing a prime contractor/subcontractor
structure, we pay particular attention to the profitability and working environmentof the subcontractor, and discuss whether the supply chain enables sustainablebusiness continuity. We also have dialogue and urge improvements withcompanies about governance issues, including conflicts of interest with minority

Senior Managing Director
CIO (Equities)

Yuichi Murao

shareholders due to publicly listed parent-child company pairs, as well as issues
related to capital efficiency such as low profitability due to cross-shareholdings.
We believe that these stewardship activities will lead to the realization of both ahealthy and sustainable society as well as efficient and stable capital markets,and allow us to continue to fulfill our role as a responsible investor.

ESG Investment from the Perspective of Active Equity Portfolio Managers
Fifty years have passed since economist Milton Friedman spoke about how
a company’s social mission is to maximize shareholder returns. Since then,the social norms surrounding stock companies have undergone majorchanges, including the collapse of the Internet bubble and the Global Financial
Crisis in this century. How do companies fulfill their non-financial role, as
represented by ESG? And how should we evaluate them? The time has comeChief Senior Portfolio Manager

for the true value of active managers like ourselves to be questioned.

Masaaki Tezuka
With the growing interest in ESG, it seems that the impact of ESG
assessment on corporate valuation has rapidly increased in recent years.
Looking at ESG is also essential when thinking about economic returns.
Through ESG integration, our investment teams closely examine the impact
of non-financial information on long-term corporate value as we work toenhance performance. In addition, we want to contribute to the realization ofa better society through our engagement activities.

Chief Portfolio Manager

Hiromu Asano
As ESG grows in importance, we believe there are many companies
in Japan that will be able to improve their long-term competitive
advantage. Active managers must be able to assess the materiality of
ESG information and incorporate it into their financial analysis. It isalso important to quickly grasp changes made by companies andprovide support. By working with the Equity Research Department andSenior Portfolio Manager

Makoto Yamamoto

the Responsible Investment Department and leveraging each’s
capabilities, we aim to enhance our investment performance andsupport the realization of a sustainable society.

Engagement

Proxy Voting

ESG Integration

Toward More Sophisticated
ESG Integration
ESG Investment Manager

Minako Takaba

Equity Integration Initiatives
The companies we invest in generate profits by carrying

to remove an automobile company from our investmentout business activities within a social and environmental

universe based on the fact that it had gotten off to a lateenvironment, and shareholders receive the results of theirstart developing EVs and therefore was subject to the risk ofinvestments as investment returns. However, somelong-term opportunity loss. On the other hand, we recently

companies may prioritize short-term returns, even when theinitiated a position in a company that addressed internal

natural, social and human capital used in their businesslabor problems reported in the past through labor reforms

activities are exposed to long-term threats in various ways.

and governance reforms, and showed progress on ESG

This makes it difficult for investors to receive the returns they

disclosure. Although the company still requires monitoring,

initially expected over the long term.

the company’s actions allowed us to feel confident that it

My role as an ESG investment manager is to improve thewould continue its corporate reforms.

ESG quality of our portfolios and to link ESG factors to

By repeatedly and continuously assessing ESG

portfolio returns. By consitently asking “Is this a company

quality appropriately, we aim to ensure that the individualthat controls risks and opportunities and can continue tocompanies that make up the portfolio will be better ablegrow five or 10 years down the road?,” we are able toto comply with regulations, be in better position to

examine portfolio companies from a longer-term

acquire sales opportunities in markets that emphasize aperspective. This ultimately leads to investment decisions

sustainable environment, and will also manage laborsuch as buying new stocks, selling stocks, or changing

appropriately, allowing them to acquire diverse andinvestment weightings in the portfolio.

talented human resources that will enhance innovation

For example, as the global shift from gasoline vehicles to
EVs progresses due to a number of factors, including EU

and productivity. We believe that all of these will lead toan improvement in investment results.

taxonomy which has made environmental technology

As an asset manager, our mission is to work on

standards more stringent, as well as Japan’s domestic

behalf of our clients to invest in companies that willpolicy for zero net greenhouse gas emissions andgrow robustly, while also considering sustainability amid

regulations on gasoline vehicle sales, we made the decision

a turbulent social environment.

Portfolio Manager’s ESG Viewpoint
Business risks and opportunities

Current and future segment mix

Geographic risks and opportunities

Status of production and sales in regions with enhanced regulations
Changes in the supply chain structure

Growth of environmental/social solutions
businesses

Profitability of environmental/social solutions businesses
Current customer and market development strategy
Growth targets
Assessment of R&D

Assessment of M&A strategy

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

ESG track record

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

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Responsible Investment Report 2020

About Nomura Asset Management

to, we have introduced the concept of materiality

ESG Scores(important management issues) which allows us to reflect
on the differences in the characteristics of each industry.
Moreover, we have more clearly established theevaluation parameters of risks and opportunities. For
opportunities, we will evaluate items including
management’s vision and commitment with respect to ESG
issues (ability to explain, plan, and execute initiatives, aswell as achievements), along with the future growth

At Nomura Asset Management, our analysts and ESG

potential of companies that contribute to the achievement

specialists collaborate to compute proprietary ESG

of SDGs, as well as the management resourcesscores, which assess Japanese companies’ true ESG

contributing to the above. Meanwhile, for risks, ourabilities. Corporate value is usually expressed as theevaluations will emphasize items that can be quantitatively

discounted present value of future cash flows generated.

analyzed, such as whether or not a company has provided

ESG and other non-financial information are critical in

disclosure and/or obtained certification, as well as the data

predicting such future cash flows. Researching, analyzing,

disclosed and trends for such data.

and then scoring a portfolio company’s non-financial
information makes it possible to measure “corporate
value taking ESG into account,” and we believe doing soleads to increases in the added value of our investments.

ESG Score Content
For “Environment,” we look at whether a company ismanaging transition risks and physical risks related to

ESG Scoring Revision

climate change and incorporating responses to such risks in
its business strategy. We also look at whether the

Each year we review the ESG scores for Japanesecompany’s management team has expressed a commitment

equities. However, ESG-related disclosure has improved

to improving the environment. We evaluate matters including

and companies’ ESG-related initiatives have become

a company’s actions related to the TCFD, internal carbon

more advanced, which has made it difficult topricing, as well as disclosure of avoided emissions.

adequately assess companies using our previous ESG
evaluation framework. To address this, the Investment
Department, Equity Research Department andNew ESG Scoring Framework
Main category

Responsible Investment Department have worked
together to revise the ESG scoring framework, and weEhave been utilizing the new scoring framework in ourEnvironmental

investment operations starting in 2021.

25% of total

An overview of the ESG scoring revision is as follows.
The weight of each evaluation factor (E, S, G, andS

SDGs) in the new scoring system has been set at 25%.

SocialThis will result in evaluations with a greater emphasis on

25% of total

SDGs initiatives.
In addition, there are approximately 100 evaluation itemsGin the new scoring system, with a good balance between

Governancerisks and opportunities. We have added new items that

25% of total

qualitatively assess the efforts of companies and senior
management with respect to the environment and society.
Furthermore, in order to take into consideration the special
characteristics of the industry that each company belongs

SDGs
25% of total

Sub-category

E1:Environmental strategy, senior management’s inE2:climate change
E3:Natural capital, other environmental issues
S1:Social strategy, senior management’s initiatives
S2:Working environment, human capital
S3:Human rights, other social issues

G1:Top management (evaluation of senior managem
G2:Evaluation of board of directors
G3:Other governance items

nitiatives

ment)

Engagement

ESG Integration

Proxy Voting

Specifically, with respect to the TCFD, in addition to the fourand compensation committees have been established.

indicators related to governance, strategy, risk management,

Meanwhile, we also evaluate qualitative issues such as

and metrics and targets , we analyze and evaluate

dialogue with top management and successor planning.

disclosure regarding scenario analyses, transition risk, andThe unique strengths of our analysts, who have been

physical risk based on a company’s integrated report andstudying and analyzing companies extensively for many

the materials posted on its website. With respect toyears, are reflected in our evaluations.
We decided to raise the weighting of the SDGs

evaluating natural capital and other environment
assessments, we evaluate items such as waste

evaluation and proactively evaluate a company’s stancemanagement, conservation of river and marine resources,

vis-à-vis working on future opportunities. We evaluate

and biodiversity (including preventing marine pollution).

whether a company considers solutions to SDG issues asbusiness opportunities and appropriately incorporates
them into its business strategies. In doing so, rather thanFor “Social” factors, our evaluation is divided intolooking at a company’s internal and external risks as well

simply looking at whether or not a company has

as measures to address such risks. The former includes

businesses that enable it to contribute to the achievement

assessments such as those related to employees’ humanof each goal, we conduct extensive research and forecast

rights and the utilization of human capital, while the latter

future sales mixes capable of contributing to SDGs goals,

relates to the issues surrounding the quality of products

and look at whether or not a company has excellent humanand services as well as supply chain management.

and technological resources to differentiate itself from

Recently, much attention around the world has been given

industry peers.
To determine ESG scores, analysts who have frequent

to initiatives on human rights issues. For Japanesecompanies in particular, we emphasize the evaluation ofcontact with companies and know the companies they

supply chain management at business sites both in Japan

cover inside and out collaborate with ESG specialists who

and overseas.

analyze ESG from a cross-industry perspective. They work

For “Governance,” we evaluate multiple items to maketogether, identifying items where one or the other possess

sure that companies have put appropriate structures/

particular expertise. Ultimately, the Responsible Investment

systems in place, such as the composition of the board,

Department are responsible for the final scores, which areoutside director independence, and whether nomination

then shared with the Investment Department.

Sub-items

score

opportunity

opportunity

SDGs
opportunity

risk
risk
opportunity
risk
risk
opportunity
risk:Evaluation mainly by analysts

plus

E

Environmental

Evaluate individual sub-items inline with the theme of the larger
grouping
Reflect importance (materiality)
in score, taking industry
characteristics into account foreach company.

risk

S

G

SocialGovernance

E1

S1

G1

opportunity

opportunity

opportunity

E

S

G

Environmental

SocialGovernance

E2/E3

S2/S3

G2/G3

risk

risk

risk

opportunity
minus
risk

:Evaluation mainly by ESG specialists

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About Nomura Asset Management

Utilizing ESG Score
ESG scores generated by quantification of non-earnings growth potential and return on equity, as wellfinancial information are used not only for investment

as stock price valuations, along with ESG scores anddecisions and new product development in investment

ESG comments by the analysts in charge. ESG scores

portfolios, but also for client reporting and our ESG

are also actively used besides for the investment

investment management.

committee.

Acquiring ESG Score Information

Utilization of ESG scores in portfolio
construction and monitoring

ESG scores are posted on an internal researchsharing system. Portfolio managers can check the ESG

When building and reviewing portfolios from ascores of individual companies to help make final

bottom-up approach, portfolio managers can constantly

investment decisions.

keep track of ESG scores for individual companies andare used to make comparisons with industry peers andUtilizing ESG score information in engagement

to see how a company’s score has changed. ESG
Investment Manager also joins the team and use scores

ESG scores are determined not only based on
disclosed data but also using information on future risks

to check the ESG quality of the portfolio. Meanwhile,and opportunities. By using this ESG score, we canfrom a top-down perspective, the overall portfolio’s ESG

compare the strengths and weaknesses of portfolio

score is periodically compared to the benchmark tocompanies’ ESG efforts, and use the scores foravoid unintentional ESG risk bias.

engagement such as discussing future directionality.

Also, investment managers can use the evaluation
items comprising the ESG scores of individual

Utilizing ESG scores in Investment Committees

companies as standalone data. For example, they can

The materials used by the committee for Japaneseadjust the weights of particular items, or select to use

equity investment to evaluate investment value forthe scores of specific items, to reflect the specificindividual companies include financial data such as

characteristics of the fund they manage.

Research division

Reflect in corporate value
assessment
Discover stocks to recommend

Investment divisionInternal information platform(research information)

Reflect in investments
and decision-making ESG
monitoring of funds managed

Responsible investment

Identify ESG issues
Use in engagementura
Nom t te
Ass agemen
Man
More advanced ESG
integration

Engagement

Proxy Voting

ESG Integration

Reflecting on the 2020 ESG Scoring Revision
With the Project Team’s revisions,
it will now be easier to utilize ESG scoresin the investment decision-making process
With portfolio companies enhancing their provision of non-financial (ESG)
information, investors now need to have ESG scoring frameworks that allow
them to appropriately evaluate this information. In order to respond to suchrapid changing times, we spent approximately six months from the middle of2020 revising our ESG scoring system. We created a Project Team comprisedof representatives from the Investment Department, Equity Research
Department, and Responsible Investment Department, and after sharing ideas
leveraging the expertise of each department, we designed a scoring systemthat allows us to more appropriately evaluate companies’ ESG-related risks
and opportunities, which will also make it easier than before to utilize ESG
Senior ESG Specialist

Teppei Yamaga

scores in the investment decision-making process. Also, in addition to making
the decision-making criteria for evaluators as uniform as possible, in order tomake the scoring work more efficiently, we have created a methodology(manual) and are simplifying the ESG score entry sheet, among other changes.

We expect companies to be able to discuss their ESG
efforts and how such efforts are linked to theirlong-term vision and medium-term management plans
This revision to our scoring framework has clarified the advantages andchallenges for the pharmaceutical and healthcare sector. Solving thechallenges stated in the SDGs is the core business of companies in this
sector. For example, establishing treatment methods for unmet medical
needs achieves the goal of “Good health and well-being” while it alsoenhances corporate value.
Meanwhile, there are differences among management teams in the level ofcommitment to ESG. Companies are getting better with disclosure of nonfinancial information, but only some companies are able to talk about ESG inconnection with their long-term vision and medium-term management plan.
With respect to the environment, the impact on corporate value may be small

Senior Equity Analyst
Healthcarecompared to other sectors, but in our evaluation we emphasize integration

Aya Torii

with management strategy and the resulting effectiveness.

Management teams’ commitment andefforts have a big impact on both opportunity and risk
In the Food and Consumer Staples sector, differences in awarenessamong senior management teams has led to discrepancies in progress on
efforts to address environmental and social issues. Top management’s
commitment to issues and their associated strategic efforts are having an
increasing impact on future business in terms of both opportunity and risk.
As such this was an area of focus during the scoring framework revisions.
In addition, among companies that supply high-quality, low-priced foods anddaily essentials, companies that are actively working to solve the problems ofhunger and health, as well as companies that are trying to fulfill theirEquity Analyst Consumer Staples

Xiang Li

“responsibility to make and responsibility to use” by leading the industry infocusing on recycling products and packaging materials were given high scores,
as we view these as companies that can contribute to achieving the SDGs.

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Responsible Investment Report 2020

About Nomura Asset Management

IMPACT INVESTING
What is impact investing?
At Nomura Asset Management, we believe that impact

covering risk, return and impact. Impact investing isinvesting is not limited to simply having an impact on thedefined as one category of ESG investment andenvironment or society, and we feel it is important for thesustainable investment given the fact that it is expected

impact to generate earnings and cash flows, which will

to bring about environmental and social improvements.
The United Nations SDGs are often used as aultimately be returned to asset owners and otherstakeholders. In carrying out impact investing, we

framework for impact investing. Adopted by the Unitedextensively analyze the impact that a portfolio company

Nations in 2015, the SDGs set forth 17 goals and 169

has on the environment and society, as well as the portfolio

targets. The SDGs indicate the enormous needs of thecompany’s earnings/cash flows generated. At the same

global market and effective risk management methods

time, we engage with the portfolio company to help it set

that lead to returns on investments in portfolio

KPI and targets that generate impact, as well as proactively

companies, and are viewed as useful indicators forsupport business activities aimed at achieving them.

measuring the impacts on the environment and society.
Proactive impact investing and accompanying

Impact investment is generally defined as investmentthat aims to create environmental and/or social impact

engagement activities create outputs and outcomes

and an economic return on investment at the same time.

from the business activities of portfolio companies, as

As opposed to the conventional two-dimensional

well as impact on the environment and society related toevaluation of risk and return, impact investment requires

SDGs, etc., and return both economic value and social

the advanced skill of three-dimensional evaluation

value to asset owners and other stakeholders.
Environment/Society = Stakeholders
Returns

NomuraAsset Management

Returns

Investment

Pension funds, etc.

Impact investment
Engagement

Individual investors
Impacts Outcomes Outputs

Portfolio company

Business activities
Inputs (investment)

Clients/business partners

Economic returns
Socialreturns

Employees

Engagement

ESG Integration

Proxy Voting

Our Impact Investment Process
Our ESG Statement is the starting point for ourthese indicators, and then select companies to invest in

approach to impact investing. The statement identifies

in that area. Companies included in the investment

issues such as climate change, natural capital, anduniverse are linked with the 17 goals of the SDGs, andsocial responsibility as key topics. Through internal

more detailed KPI are then set. Carrying out detailed

discussions on the above, we have set impact goals

and continuous monitoring of the established KPI allows

which we aim to achieve through our impact investment.

us to not only appraise each company’s impact, but also

These goals target urgent issues facing the world

measure the extent of the improvement of the overall

including climate change, natural capital depletion,

portfolio and the impact itself.
Moreover, we are encouraging companies’ efforts toaccess to healthcare, social responsibility (for example,
financial services and access to drinking water). We

solve issues by engaging with portfolio companies basedthen establish indicators to measure the degree ofon what we learn from monitoring. By repeating thisimprovement for each established impact goal. Forprocess for all of our impact investment strategies, we will

example, for the impact goal “Eliminate Communicablebe able to continue to generate impacts that solve social

Disease,” we can evaluate the global progress by

issues while also pursuing economic returns.

monitoring indicators such as mortality rates for HIV,

Our impact investment fund is constructed based on

tuberculosis, malaria, and other illnesses published by

the so-called “outside-in” concept, in which social issues

World Health Organization (WHO). Additionally, we

are applied to portfolio companies, and is shared within

specify further segmented areas of investment linked toour domestic and overseas impact investment strategies.

ExamplesSocial issues
that should be solved

Establish impact goals
and monitoring indicators

Environment

Goal: Mitigate climate change
Indicator: Atmospheric CO 2 level

Society

Goal:Mitigate the Obesity Epidemic/
Eliminate Communicable Disease
Indicator: WHO’s mortality rate for illnesses
and communicable diseases

Renewable energy developers

Identify investment field
Select/Define portfolio
companies

Manufacturers possessing technologies

Medicine-related businesses

EV/OEM manufacturers

 ompanies related to the healthcare
Cvalue chain

 ighly-efficient office buildingH
construction and management

SDGs 7.2

Identify SDGs topics

Increase global percentage of renewable energy
SDGs 7.3

Double the improvement in energy efficiency

Establish KPI
for individual companies

Engagementwith portfolio companies

Secure clean energy
Carbon emissions reductions

Continuous dialogue utilizing monitoring
indicators and KPI

SDGs 3.3
End the epidemics of AIDS, tuberculosis, malaria
and neglected tropical diseases and combat othercommunicable diseases
SDGs 3.4
Reduce premature mortality from non-communicablediseases through prevention and treatment

 tatus of development and widespreadS
use of drugs combatting the three maincommunicable diseases
Increase in R&D spending

Continuous dialogue utilizing monitoring
indicators and KPI

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Responsible Investment Report 2020

About Nomura Asset Management

Global Sustainable Equity Fund(GSE)
Lead portfolio manager

Alex Rowe

GSE
Global Sustainable Equity
Nomura Global Sustainable
Equity Strategy

Nomura Asset Management’s UK Office manages the
Nomura Global Sustainable Equity Fund based on theconcept of impact investing. This fund not only
encourages companies to tackle the key challenges
facing the world today, but also imparts social impact onfund management team participates in an initiative

a variety stakeholders by encouraging them to addresssponsored by the Access to Medicine Foundation aimed

the sustainability of their businesses. The key isat improving access to healthcare for billions of people

establishing impact goals and measuring their impact. By

who would not benefit from modern healthcare

establishing monitorable indicators related to the impact

advances in low and middle income countries. Also igoals, we can measure the degree of improvement in

2020, the team worked to solve the problem througheach country or region (developed or emerging), and at

collaborative engagement with major global

the global level. Also, we measure a variety of social

pharmaceutical manufacturers (Refer to “Collaboration

impacts from the KPI of individual companies linked to thewith Initiatives” on Pages 47-48).

actual portfolio (Refer to “Impact by the GSE Strategy’s

In addition to KPI monitoring, the investment teamengages with companies in a variety of ways, which

Portfolio Companies” on the following page).

allows the team to encourage companies to take actions

In addition to monitoring KPI for individualcompanies, through engagement we support thethat will contribute to progress on the impact goals it

actions of portfolio companies to achieve our impact

has established, as well as solve many of the challenges

goals. For example, our impact goal of “Eliminate

facing society together with multiple other stakeholders.

Communicable Disease” is related to Goal 3 of theIn other words, we will be able to contribute to achieving

SDGs “Good Health and Wellbeing”, and our UK-based

the impact goals.

The GSE’s Impact Goals
Society &Individuals

Privatesmallbusiness

Impact Goals
Impact throughengagement

NGO

Public global
equities

Impact Goals
Impact through operations,investment,
research, human resources,
supply chain pressure

Governments
Multiple otherstakeholders

Mitigate Climate Change
Mitigate Natural Capital
Depletion
Mitigate the Obesity
Epidemic
Eliminate Communicable
DiseaseGlobal Access to Basic
Financial Services
Global Access to Clean
Drinking Water

Engagement72

ESG Integration

Proxy Voting

KPI of GSE
Global Renewable Energy Generation Annual Output
Period: 2000 – 2019

Atmospheric CO2 Levels and Emissions per Capita
Period: 1990 – 2019
Global Emissions Per Capita (RHS)
Atmospheric CO 2 (LHS)(millions GW/h)
8

(ppm)
420

6

400

4.6

4

380

4.2

2

360

3.8

(ton)
5.0

340

0
Source: Prepared by Nomura Asset Management using IEA(International Energy Agency) data

3.4
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19

00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 (year)

Source: NOAA Global Carbon Atlas

GSE individual company’s KPI
Investment Perspective

Renewable energy usage
Period: 2017 – 2020

The increased use of renewable energy and commitment tooffsetting past carbon emissions is not a core goal of thecompany’s business, but we feel that it is very influential(10,000 Mwh)
1,200
1,024

SDGs 7.2

Alignment with SDGs

900

Increase global percentage of

600

874
736

renewable energy

610

300

Individual company’s KPIImpactIncrease the use ofrenewable energy

Approximately 10,240,000 MWh

0
2017

2018

2019

2020

(year)

Impact of the Global Sustainable Equity (GSE) Strategy’s
Portfolio Companies
The Global Sustainable Equity strategy’s portfolio companies

through their business activities (FY2019).

have achieved the following environmental and social impacts

Mitigate Climate Change

Supplied 10.5 GW

Environmentof renewable energy

Mitigate Natural Capital Depletion
Collected 50,000 tonsof clothing in the apparel industry forrecycling and reuse

Eliminate Communicable Disease/Mitigate theObesity Epidemic

Social infrastructure maintenance andproductivity enhancement

Provided obesity-related treatment toProvided 8 billion liters

30 million patients in 2019of clean water through filter-related
products in 2019

Society
Provided vaccines to

2 million people
per day in 2019

Provided health and hygiene programs
to 1.24 billion people

73

Responsible Investment Report 2020

About Nomura Asset Management

From the left hand side
Portfolio Manager

Shintaro Harada
Main Portfolio Manager

Jun Takahashi
Portfolio Manager

Kodai Sasaki

JSE
Japan Sustainable
Equity Strategy
Japan Sustainable
Equity Strategy

These social value-creation companies are highly
compatible with the United Nations’ SDGs. The social
issues for this fund include healthcare issues associatedwith the aging of society, environmental issues

We manage the JSE (Japan Sustainable Equity)

accompanying climate change, improvement of living

Strategy, which invests in Japanese equities based on

environments in emerging countries, and efforts to solve

the concept of ESG investment, and our investments aresocial issues using technology. In addition to evaluatingaligned with the philosophy of “investing in companies

companies’ fundamentals, utilizing our own ESG scoresthat can grow sustainably over the long term byallows us to diligently select companies that create

contributing to solving social issues through their coresocial value capable of achieving the goals of the SDGs.

businesses.” The idea for the concept of this fundImpact investing involves adding a three-dimensional

emerged after the 2008 financial crisis, as various

evaluation of impact creation through solving social

stakeholders began to recognize the need for

issues to a two-dimensional evaluation of risk and“sustainability” with respect to the environment andreturn, as considered in conventional strategies. In thesociety. The increase in societal pressure on companies

JSE Strategy, we evaluate companies that create social

to solve ESG issues has significantly altered thevalue and measure the fund’s impact.

competitive environment, and we recognized that acompany offering solutions to problems is in fact a“company that can grow sustainably by contributing toConcept of “Japan Sustainable Equity Strategy”
investment
Profit growth = Investment return (vertical axis)

solutions for social issues through its core business.”

Large

In addition, because ESG issues involve many topics
companiesthat createsocial value

to the conclusion that investing in companies on thepremise of long-term ownership would allow us to make

Active funds

investments that seek both excess returns and aim tosolve ESG issues, and this is the basic philosophy
behind our management of the Strategy. If this

Large

Small

Strategy’s investment concept is shown in a table with
ESG
investment/
impactinvestment

two axes, with social value on the horizontal axis andprofit growth (= investment return) on the vertical axis,
the aim is to invest in companies in the upper-rightquadrant, which are companies that are strong in bothof the dimensions (see figure on right). This is the basis
for investment in “companies that create social value”.

Small

Impact investment (social value creation) =Solving social issues (horizontal axis)

to be addressed over the medium to long term, we came

Engagement74

ESG Integration

Proxy Voting

Individual Company KPI in JSE
Plastic Reduction

Investment Perspective
Proactive efforts to reduce the environmental burden byproviding eco-friendly products and reducing the usage ofvirgin raw materials through recycling are rated highly

Period: 2016 – 2019 (period since the start of investment)(k tonnes)
120

Reduction due to making things more compact
Reduction due to refilling and replacing

Alignment with SDGs
SDGs 12.2
Achievesustainable management
and efficient use ofnatural resources

90

83.7

60

30.6

30

Individual company’s KPIImpactDevelop and sell eco-friendly
products, and reduce the use ofvirgin materials by using
recycled materials in production

104,000-ton reduction in plastic

92.3
34.8

98.5
39.0

104.4
41.7

53.1

57.5

59.5

62.7

2016

2017

2018

2019

0
(year)

Source: P repared by Nomura Asset Management using
the company’s report

Relationship Between Social Issues and SDGs
Promotion of health
Improve
healthcare quality
Improve employment
rate
Address declining
birthrate/education

Address environment/
transportation
Increase energy efficiency

IoT Improve productivity
Increase efficiency of
urban
infrastructure

Provide inexpensive services
Increase standard of living
Improve sanitation environment

Safe and secure society
Regional revitalization

Impact from JSE Portfolio Companies
JSE portfolio companies have achieved the following
environmental and social impacts through theirbusiness activities (FY2019)

CO 2

Mitigate Climate Change
Contributed to the reduction of

74.58 million tonsof CO2 by selling products with strong
environmental performance

Environment

Collected 6.28 million itemsof clothing no longer needed,
then reused and recycled them(equivalent to approximately 2.6 million Tokyo Domes)

Sold approximately

47,000 EV traction
motors, which strongly curb
greenhouse gas emissions

Eliminate Communicable Disease

Society

Mitigate Natural Capital Depletion

Provided 330 million tablets of
antifilarial medicine for neglected
tropical diseases to

130 million people

Reduced plastic packaging, etc. by

104,000 tons by reusing plastic bottles,
switching away from using plastic bottles,
increasing the concentration of, and using film
containers for, detergents and other products.
Maintaining Social Infrastructure andImproving Productivity
Provided intermediary services to 403
small- and medium- sized enterprises facing
business succession problems due to theaging of executives and other issues, thereby
helping to avoid ¥327.2 billion ineconomic losses.

75

Responsible Investment Report 2020

About Nomura Asset Management

Global Investment Grade
Corporate Bond Strategy(From the left side of the picture)

Senior Portfolio Manager

Genta Yasui

Portfolio Manager

Shono Yamamoto
Senior Portfolio Manager

Kento Okabe
Credit Analyst

Philipp Koerge

ESG Integration Process
ESG evaluation is an essential part of considering the

integrated rating with 16 grades based on a 4x4 matrix.

downside risk for an issuer’s creditworthiness, which is

The 16-grade matrix is broadly classified into four

the cornerstone of global fixed income investment.

categories: core holding, partial holding, ESG focused

Believing that traditional fundamentals assessments

research, and avoid.

and ESG evaluations complement one another, we feel

Issuers with high RV assessments and low ESG riskthat integrating ESG evaluation into the traditional

are the issuers whose bonds are most suitable forinvestment process reinforces our assessments ofholding long term, and they are thus prioritized in theissuers’ creditworthiness, and therefore we integrated

portfolio as core holdings. Conversely, we avoid holding

ESG evaluations into our investment process.

bonds of issuers with low RV assessments and highWe felt that the most important aspect of integration

ESG risk. The bonds of issuers with attractive RV

would be achieving a highly-transparent and highly

assessments but also a high level of ESG risk are bonds

reproducible portfolio-construction process.Thisthat could have long-term investment value if the ESG

resulted in our assigning matrix-based integrated

assessment improves. We can hold these bonds, on theratings, with our relative value (“RV”) assessment based

condition that we conduct focused research on ESG

on an analysis of an issuer’s fundamentals on the y-axis

issues through engagement and other efforts for a fixedand ESG risk on the x-axis.

period of time.

In the past, we measured the appeal of an investment

As described above, we believe that by clearlyusing only a four-grade evaluation based on the RV

integrating ESG risks into the global fixed income

assessment, but we then added a four-grade ESG risk

investment process, we can reduce the downside risk

assessment calculated using a proprietary quantitative

for issuers’ creditworthiness and improve a portfolio’s

model to the x-axis, thereby allowing us to assign an

risk-adjusted return.

Highly appealing from RV perspective, low ESG risk
Bonds most suitable for holding for the long term

Low
1

Neutral Weak
NW
UnderperformU

O-1
RV Assessment

Neutral Strong
NS

High
4

ESG Risk Assessment

Investment managers prioritize in portfolio inclusion
OutperformO

Low to Middle Middle to High
2
3

O-2

Core holding

O-3

ESG focused research

NS-1

NS-2

NS-3

NW-1

NW-2

NW-3

U-2

Highly appealing from RV perspective, low ESG risk
Limited downside risk from an ESG perspective
Investment managers hold some of these bonds in order to diversif y
the por tfolio and adjust risk

NS-4

NW-4

Avoid

Partial holding
U-1

O-4

Highly appealing from RV perspective, buthigh ESG risk
Bonds that could have long-term investment
value if ESG evaluation improves
Investment managers conduct focusedresearch on ESG through engagement andother efforts with a set time limit

U-3

U-4

Limited appeal from RV perspective, high
ESG risk
Bonds not suitable for holding long term
Investment managers avoid adding thesebonds to the portfolio
In principle, if a bond falls into thiscategory, the bond is sold within a certain
period of time

Engagement

Topic

ESG Integration

Proxy Voting

Fixed Income ESG Quantitative Evaluation Model and Performance Review
Investment methods taking social responsibility

integrate such risks into the actual investment

and sustainability into consideration have beenprocess, we backtested under certain

making progress since the 2000s mainly in theassumptions.

equity market, and Europe has been the leader in

The backtesting revealed that in the corporate

this field. In recent years, awareness and interest inbond markets in the US and Europe, the group of

ESG investing has grown rapidly in Japan as well,bonds with high (low) bond ESG integrated scores

mainly among institutional investors, triggered bytended to have high (low) risk-adjusted returns overstronger commitments to ESG investing by major

the long term. This suggests that using an appropriate

public pension funds.

approach to build a portfolio that considers ESG

Meanwhile, many people are skeptical about theeconomic benefits of accounting for ESG factors in
fixed income investing, and some people evenclaim that doing so has a negative impact. In
addition, some ESG investment methods have a“one-size-fits-all” approach, and we feel thesemethods can be difficult for Japanese investors touniformly accept.
In response to these issues, at Nomura Assetfactors makes it possible to achieve superior longterm corporate bond investment returns.
*The details of the aforementioned testing were noted in a special
column in the Fall 2020 issue of Nomura Sustainability Quarterly
published by The Nomura Institute of Capital Markets Research.

Relationship Between ESG Scores and Corporate Bond Risk/Return
Return(%)
5%Management we have developed a proprietary
1st quartile (topmost)fixed income ESG quantitative evaluation model. In
developing the model, particular focus was placedon ensuring a systematic and highly-transparent
process as well as an emphasis on potential

3rd quartile
2nd quartile
4%
4th quartile(lowermost)downside risk, which is important for credit
investment. We have been utilizing this model ininvestment decision-making since the end of 2018.
To see how ESG risks indicated by the fixedincome ESG quantitative evaluation model impact
risk-adjusted returns in the corporate bond market,
as well as whether it is economically rational to

3%
3%

4%

Source. ICE BofA, Nomura AM calculations
Period Apr 2004 - Apr 2020
Back-test based on ESG Score as of Mar 2020

5%
Risk(%)

76

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Responsible Investment Report 2020

About Nomura Asset Management

Japan Credit Strategy(From the left side of the picture)

Senior Portfolio Manager

Tatsuya Ujita

Senior Portfolio Manager

Norio Kishimoto
Senior Credit Analyst

Shuichi Goto
Portfolio Manager

Kazuki Hanzawa

ESG Integration Process
The most distinguishing feature of the ESG integration

objectiveness and subjectiveness.
In this type of investing, we had traditionallyprocess in Japanese credit investment is that ESG isclearly integrated into the fundamentals assessments foremphasized resilience to changes in the external

individual companies provided by credit analysts.

environment in selecting issues under a bottom-up

Incorporating ESG into fundamentals assessments not

strategy, with the goal of finding bonds capable ofonly allows ESG factors to be concretely reflected inweathering market storms. As such, in the fundamentals

investment behavior, but also allows for ESG investment

assessments of individual bonds, we had been rating

to be executed as a series of investment processes,

bonds from the perspective of credit risk. The newly

from fundamentals analysis to portfolio construction andintroduced ESG integration process considers both thethen engagement with issuers.

traditional ratings and ESG ratings to determine theSpecifically, credit analysts’ evaluations of individual

assessment of potential downside risk involved in thefundamentals of individual companies.

companies’ efforts to tackle ESG issues (qualitative

ESG risks are serious risks in corporate bondevaluations) are added to the ESG scores calculatedusing our proprietary fixed income ESG evaluation model

investment because they have significant impacts when(quantitative evaluations), and ESG ratings are thenthey materialize. However, because they materialize overassigned to all of the bonds we cover.

long periods of time and the probability of occurrence isGiven that there are large disparities in the level oflow, they can be overlooked if the analysis only focuses

ESG data disclosure by companies, along with the fact

on credit risk. By analyzing ESG issues and clearly

that ESG evaluation methods have not been firmly

incorporating this analysis into fundamentals

established among investors, we feel that the optimalassessments, we are able to invest in bonds that areprocess is one that combines a quantitative approach“creditworthy in the truest sense,” which in turn greatly

and a qualitative approach, and thus offers a balance ofcontributes to reducing a portfolio’s downside risk.

Corporate Bonds
Spread13Credit risk

4

Fundamentals

1-1.

Operating performance/
financials scenario prediction

3-1. Internal rating

1-2.

Business/financials risk

3-2. Volatility

Credit Investment
Attractiveness (RV)
4. Ratings of bonds
Relative attractiveness of
individual bonds
Risk-adjusted return2

ESG factors
2-1. ESG trend
2-2. ESG risk

5

Engagement

Engagement

Proxy Voting

ESG Integration

Fixed Income
Investment
Credit Meeting

Cooperation and attendanceshare information

Cooperation and attendance

ESG assestment(Equity · Fixed Income)Engagement results(Equity · Fixed Income)Milestone Management(Equity)

Responsible
Investment
ESG Meeting

Cooperation and attendance

EquityInvestment
Equity Meeting

Enagement
In Japanese credit investment, we engage with issuers

address the ESG issues and we feel that improvement is

as part of the investment process. Encouraging issuers tolikely going forward, we raise the ESG evaluation of theaddress ESG issues can improve a portfolio’s medium- tocompany using a bottom-up approach. As a result, thelong-term risk/return profile, which both leads to good

downside risk evaluation in the fundamentals assessment

investment returns for beneficiaries and is also part of ourwill then be adjusted, the bond will become more attractive

responsible investing behavior as an institutional investor.

as an investment option (higher RV), and this will in turnIn recent years, many issuers have been issuinglead to our increasing the weighting in the portfolio.

corporate bonds on a continual basis as a part of their

Conversely, if we determine that the ESG issues have notfinancing plans, and issuance periods are lengthening

been properly addressed, we will take a cautious view ofamid the low interest rate environment. Given this, wethe potential downside risk, which may result in a decisionbelieve that proactively engaging with issuers as a fixed

to forgo investment or lower the bond’s weighting.

income investor allows us to encourage them to address
ESG issues.
For engagement, we target all companies we invest in

In Japanese credit investment, we engage with issuersin collaboration with the equity investment teams. There isno difference between fixed income and equities when it

and all companies we are considering investing in.

comes to the long-term matter of issuer sustainability, andHowever, in order for our engagement efforts to be

as an institutional investor we believe it is important to haveeffective, we select important target companies based ona single opinion when engaging with issuers.

their corporate bond issuance volume, our ESG

We share information related to issuers’ ESG issues,evaluations, and level of investment appeal, and then

ESG evaluations and progress on engagement with NAM’s

engage with those companies on an ongoing basis.

equity investment teams. Also, when engaging with a

When engaging with a company, we share what we viewcompany for which an ESG issue has come into view,as ESG issues with them and listen to their explanations

company analysts, ESG specialists as well as credit

about the issues. If we see the company as working toanalysts participate in the discussions.

78

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Responsible Investment Report 2020

About Nomura Asset Management

Environmental Leaders
Bond Strategy(Green Income Fund)(From the left side of the picture)

Senior Portfolio Manager

Sohei Koizumi
Product Manager

Mai Sato

Senior Portfolio Manager

Shuhei Fujiki

In NAM’s credit investment, based on a universe of

When selecting bonds, we exclude low-ranking

assets taking ESG into consideration, we provide a widebonds based on our own quantitative scoring of efforts

range of ESG fixed income investment solutions thatto solve environmental problems by the companies andmeet our clients’ ESG needs. We do this by combining

countries in our coverage universe (negative screening).

different investment styles, including active investment

In addition to financial analysis and fundamentals

targeting specific benchmarks, investment assuming

analysis, we invest in bonds issued by companies andassets are held to maturity, investment maintaining thecountries that are highly evaluated in our ESG analysis

remaining life of bonds at a set length, investment with(ESG integration).

an emphasis on income level, and investment with a

By screening investment targets based on theirfocus on a particular ESG topic, such as theefforts to address environmental problems that areenvironment.

important to global sustainability, we aim to achieve

One example of our ESG fixed income investment

sustainable returns while contributing to thesolutions is our Green Income Strategy. This was

improvement of environmental issues. One of ourdeveloped in 2020 as a strategy for investing in bonds

strengths is our ability to develop such distinctive

issued by companies or emerging countries working toinvestment strategies. This strategy is also incorporated

solve environmental problems.

into our Global ESG Balanced Fund.

Investment assets considering
ESG issues

Investment style

Japanese corporate bond

ActiveU.S. corporate
bond

Hold to maturity

European corporate bondIncome-focused

Emerging sovereign

Thematic (Environment etc)

ESG fixed income investment solutions(combinations of assets and investment styles)

Engagement

Topic

ESG Integration

Proxy Voting

Creation of a Scheme to Donate to Regional Revitalization Efforts – Supporting hometowns through investment trusts –As a part of our effort to help revitalize
regional areas in Japan, Nomura AssetManagement has partnered with regional
financial institutions to create a donation
scheme utilizing the corporate version of the
As a part of this movement, regional financial

hometown tax (“Furusato Nozei”) system.
We are proactively engaging in ESG-related

institutions are leveraging their expertise andactivities in order to create a sustainablenetworks to contribute to regional revitalizationsociety and solve social issues, based on theefforts.
Under the donation scheme, we will

“Drive Sustainability” concept that is a point offocus for the entire Nomura Group.
Nomura Asset Management considers
regional revitalization to be an important ESG

contribute a portion of the revenues from our
ESG investment products to SDG-related local
government projects throughout Japan.
We will make donations once a year, based

issue. Currently, regional areas across Japanare working with the national government toon the amount of sales of selected funds atdevelop their own independent initiatives for aeach regional financial institution.
The selected funds are the ESG funds thatsustainable society leveraging their uniquecharacteristics and to solve issues facing

we, in collaboration with regional financial

Japan, such as the rapid decline in population

institutions, have determined to make regional

and the super-aging of society.

revitalization efforts possible.

Outline of donation scheme targeting regional revitalization
Regional Revitalizationclients

InvestRevenues

ESG Invest

Regional financial
institution

ESG fundInvestment
instructions
SDG-related local
government projects

Corporate versionof hometown tax(“Furusato Nouzei”)
systemDonation

InvestRevenues

Management fee

Nomura AssetManagement

Global equities /bonds / REITs

80

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Responsible Investment Report 2020

About Nomura Asset Management

Messages from the Responsible Investment Council
I would like Nomura Asset Management tocontinue to contribute to the enhancementof corporate governanceOutside director

Please continue to lead the asset
management industry andaim even higher

Akiko Kimura

The Responsible Investment Council was established in

Outside director

Rikio Nagahama

Back when I worked in asset management, there

2016, the year after the Corporate Governance Code waswere pollution problems such as those involving exhaust

adopted, and at a time when many listed companies weregases, but environmental measures were not discussed

struggling to secure two outside directors. The Corporate

in a systematic way as important topics in evaluating

Governance Code is slated to be revised again in thecompanies like they are today. Today, carbon taxes andspring of 2021, but the point at issue is not only the number

carbon pricing are being discussed in earnest, andof outside directors, but also improving the quality ofclimate change has become a real risk for companies,

outside directors, establishing nomination andwhile also presenting a great business opportunity forcompensation committees, and otherwise making thecompanies with excellent environmental technology.

board of directors more effective. Things are indeed very

There are many other ESG issues that companies needdifferent now.

to address, such as biodiversity, human rights, supply

In November 2020, through revisions of the proxy voting

chain management and diversity, and each of these canguidelines, Nomura Asset Management made clear its

either present a risk or an opportunity depending on the

stance of supporting the transition from a “managementcompany’s efforts.

board” to a “monitoring board.” As the effectiveness of

Such trends are also a big challenge for investors.

boards of directors is being questioned, these revisions

Nomura Asset Management keeps track of the statusindicate that the role expected of the board of directors isand efforts of portfolio companies through ESG scores,to supervise management, and these revisions weremonitors greenhouse gas emissions of the entirealigned with the new revisions to the Corporate

portfolio, and reports are regularly made to theGovernance Code and also a represented a forward-

Responsible Investment Committee. I also listen tothinking approach in Japan. Members of the Responsible

these reports and participate in discussions, and it isInvestment Council attended Responsible Investment

clear to me that the investment and research teams are

Committee meetings and participated in discussions, but it

aiming higher through repeated trial and error.

took a lot of time and thorough discussions to go from the

ESG initiatives are not simply demanded byconcept of the monitoring board to actually establishingcustomers, but they also contribute to the sustainable

the numerical standards in the proxy voting guidelines. I

growth of both the company and society. Through its

think that the level of discussion was high, even from myinvestment activities, I would like to see Nomura Asset

viewpoint as an attorney.

Management continue to be a leader in the asset

Five and a half years since the introduction of the

management industry and aim even higher in order toCorporate Governance Code, there is still room forcontribute to the sustainable growth of society andimprovement in Japanese companies’ corporatecompanies.

governance. I would like Nomura Asset Management tomaintain its spirit of innovation in this field and continue tocontribute to the improvement of corporate governance.

April 1973

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

January 1977 Partner, Nishimura, Komatsu & Tomotsune
June 1978

Harvard Law School (LL.M.)

January 2011 Of Counsel, Anderson Mori & Tomotsune (present post)
June 2015

Outside Director, Nomura Asset Management Co., Ltd.
(present post)(Biographies as of December 2020)

April 1967

Joined Dai-ichi Mutual Life Insurance

June 2004

Representative Director and President, DLIBJ AssetManagement Co., Ltd.
(Company name changed to DIAM Co., Ltd. in January 2008)

June 2009
June 2010
June 2015

Adviser, DIAM (now Asset Management One)
Board Meeting Chairperson, NPO Triton Arts Network(present post)

Outside Director, Nomura Asset Management Co., Ltd.
(present post)

Engagement

Proxy Voting

ESG Integration

About the Responsible Investment Council
The Responsible Investment Council verifies

I look forward to Nomura AssetManagement’s efforts as a leading
institutional investor in Japan.
Outside Expert

Yumiko Miwa Newly appointed

I became a member of the Responsible Investment

the appropriateness and validity of stewardship
activities, including the formulation of proxy voting
guidelines, proxy voting decisions, the formulationof engagement policies and engagement
activities, thereby aiming to prevent adverse
impacts on clients’ interests due to conflicts ofCouncil in May 2020. When I attended the Responsible

interest or other issues.

Investment Committee meeting, I was a little surprised that

Meetings held

Mr. Nagahama and Mr. Kimura were participating in the

Since its establishment in September 2016, thediscussions with committee members, but it all madeResponsible Investment Council has met a total of

sense when I was told that exhaustive discussions prevent

34 times through December 31, 2020. The

conflicts of interest.

Responsible Investment Committee is attended by

I study the trends for domestic and global institutional

the members of the Responsible Investment

investors as an academic, and in recent years the level ofCouncil, who promptly provide their opinions.

demand for ESG has been increasing. In Europe, the EU

Member composition

taxonomy and Sustainable Finance Disclosure Regulation

The Responsible Investment Council comprises(SFDR) have been introduced, institutional investors who

only the Chief Conflict Officer and persons inhave gotten off to a slow start in ESG initiatives are having

independent positions in Nomura Asseta difficult time receiving funds from clients. I believe thatManagement, including independent outside

the transformation of the traditional economic system isdirectors. Currently, the Responsible Investment

behind these developments. Traditional economic models

Council has four members: one Chief Conflict

were developed in an era when natural resources were

Officer; two independent outside directors; andabundant and there was no need to consider the impact of

one outside expert.

carbon emissions. While mass production and mass

Positioning

consumption were the goals under this competitive

The Responsible Investment Council is

economic system, social problems such as long working

positioned under the Audit and Supervisory

hours, low wages and child labor, as well as environmental

Committee. As necessary, the Responsible

issues like deforestation, water resources, and greenhouse

Investment Council recommends improvements

gases have been overlooked. I believe that social

to the Executive Management Committee and/regulations related to ESG represent a call for a change inor the Responsible Investment Committee, andbehavior aiming towards sustainable development andreports such recommendations to the Board of

economic development as a reaction to the problems

Directors and the Audit and Supervisory

inherent in the conventional economic system.

Committee (Refer to “System to Manage

The Responsible Investment Committee recently
received and discussed a report about responding to such
trends. There is much to be done, and I have high hopes

Conflicts of Interest” on Page 52).
Organizational Structure for Responsible Investment

for what Nomura Asset Management will do as one ofBoard of Directors

Japan’s leading institutional investors.

Supervisory Committee

Executive Management
Committee

Supervision/verification/
recommendations,etc.

Responsible
Investment Committee

Responsible
Investment Council

Secretariat: Responsible
Investment Department

Reports on activities,
proposals of issues,
etc.

Formulation ofpolicies, supervision
initiatives, etc.

Investment andresearch division
April 1996
April 2002

Full-time Assistant, School of Commerce, Meiji University(Assistant Professor from April 2000)

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 of Business, University of Michigan

April 2020

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

June 2020

Outside Director, Eisai Co., Ltd. (current)

Main activities
Dialogue with portfolio
companies(engagement)

Proxy voting

Integration into
investment decisions(ESG integration)

Collaborative/public
activities

82

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Responsible Investment Report 2020

Results of Self-Evaluation of2020 Stewardship Activities

About Nomura Asset Management

1

Self-Evaluation
Methodology

We distributed a questionnaire mainly to members of
the Responsible Investment Committee, the highest
decision-making body for our stewardship activities,

We actively engaged in stewardship activities in orderand held discussions based on the results of theto encourage portfolio companies to increase theirquestionnaire. Members of the Responsible Investment

corporate value and promote sustainable growth, and toCouncil, which monitors the Responsible Investment

increase medium- to long-term investment returns forCommittee, particularly with regards to matters relatedclients and beneficiaries. To further enhance ourto conflicts of interest, also participated in theactivities, we performed a self-evaluation of ourquestionnaire and in subsequent discussions.

stewardship activities in 2020 (January to December),the results of which are in this section. This selfevaluation corresponds to the self-evaluation required
by Guideline 7-4 of the Japan Stewardship Code rerevision on March 24, 2020.

2

Results of self-assessment

More than 90% of respondents indicated thatstewardship activities in our company were appropriate.
The Responsible Investment Committee held
discussions based on the results of the questionnaireand comments received, and the final assessment was
we were generally able to carry out appropriate
stewardship activities, including the our response to thefollowing three points identified in the previous year as
areas to be strengthened.

Continue the efficient and effective managementof the Responsible Investment Committee andstrengthen the PDCA cycle* 3 for engagement
activities as continuous initiatives.
Make proxy voting more effective, including links
to engagement.
Continue working to appropriately allocate andbolster resources to address the expansion of
domains and rising target levels for stewardship
activities such as the Task Force on Climaterelated Financial Information Disclosures (TCFD).

3

Future Actions

The Responsible Investment Committee will continue
to discuss the points that need to be enhanced as
identified through this self-evaluation, and work tofurther bolster our stewardship activities.

Engagement

Proxy Voting

ESG Integration

Questionnaire Overview

Target

The following people responded according to thequestions.
Responsible Investment Committee*1 members – 6
Responsible Investment Committee Secretariat
members – 6
Responsible Investment Council* 2 members – 4

Questionnaire
December 2020
timing
PeriodcoveredJanuary-December 2020

Response
formatSigned (not anonymous)
Multiple choice (4 choices)
Write comments freely

Among our stewardship activities in 2020, the following
were brought up as particularly effective initiatives.

Total of 14 questions: Addressing each of theprinciples of Japan’s Stewardship CodePrinciple 1 (Formulate and publicly disclose policy): 2
questions

Questionnaire

Principle 2 (Manage conflicts of interest): 3 questions
Principle 3 (Monitor portfolio companies): 1 question
Principle 4 (Engagement): 3 questions
Principle 5 (Proxy voting): 3 questions
Principle 6 (Report to clients and beneficiaries): 1
question
Principle 7 (Skills for engagement activities): 1
questionOn the other hand, the following were identified as
points to be improved in order to further enhance theeffectiveness of our stewardship activities.

In addition to increasing the efficiency ofmanaging the proceedings of Responsible
Investment Committee meetings, we were able tohold exhaustive discussions about agenda items
that were very important and for which there wasa split in opinion.
In addition to increasing the number of membersof the Responsible Investment Council which is
responsible for monitoring, we added a proxyvoting advisory firm, thereby bolstering the system
to manage conflicts of interest.
We further promoted a shared awareness andunderstanding of issues among analysts and ESG
specialists, which allowed us to make engagement
more effective.
In order to indicate the directionality of corporate
governance through proxy voting, we introduced
proxy voting guidelines supporting the transition
from a management board*4 to a monitoringboard*4.
We enhanced information disclosure and reporting toclients. This included disclosing the detailed reasonsfor voting in favor of or against proposals related togroup-affiliated companies, and by reporting toclients about climate change-related matters.

Deepen discussions in the Responsible
Investment Committee about the strategy for new
stewardship activities in order to address
diversifying ESG*5 issues and rising demands fromthe marketplace.
Based on the above discussions, work to deepen
the awareness of issues in the Investment andResearch Division, allocate appropriate resources,
and further strengthen stewardship activities.
In order to promote understanding about our
stewardship activities among a wide range ofstakeholders, strive to provide information
disclosure that is even easier to understand.

*1 Comprises members from the investment and research functions*2 Comprises one Chief Conflict Officer, two independent outside directors and one outside expert*3 The PDCA cycle is a method for improving operations by repeating a cycle of Plan, Do, Check and Act.
*4 A management board is a board of directors whose main role and responsibility is to make decisions about a company’s business, while a monitoringboard is a board of directors whose main role and responsibility is to supervise a company’s senior management.
*5 “ ESG” stands for Environment, Social, and (Corporate) Governance. Nomura Asset Management emphasizes ESG issues as issues that companies should
address from the perspectives of social responsibility and sustainability.

84

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Responsible Investment Report 2020

Review of

About Nomura Asset Management

2020

2021 and Beyond

The year 2020 was a turbulent one for both Japan and

Despite the COVID-19 pandemic, addressing ESG

the rest of the world. Due to the COVID-19 pandemic, aissues remains an important factor for a company’s

wide range of activities came to a standstill and new ESG

sustainable growth, and progress on ESG initiatives by

issues arose. Under such circumstances, as an asset

various entities is expected in 2021 and beyond. At

management firm, it was a year in which we were very

Nomura Asset Management, we will also support andconscious of pressing ahead with ESG initiatives without

promote various activities aimed at solving ESG issues.

letting up, in order to encourage our portfolio companies to

In terms of investment and research initiatives,

create sustainable value as well as to improve ourclimate change will continue to be the most importantinvestment returns.

issue. We will strengthen our investment process byFirst, we revised our ESG scoring framework formaking portfolio companies’ efforts to decarbonize

Japanese equities in order to make our ESG integration

visible across all of our investment portfolios. At themore advanced. In the process, in order to bolster oursame time, we will also bolster our efforts with respect

response to climate change, which is one of our top

to human rights issues. In October 2020, the Japanesepriorities, we adopted a carbon pricing method andgovernment announced a national action plan on humanconverted the greenhouse gas emissions of portfolio

rights, but the issue of human rights is now one of thecompanies into monetary amounts, thereby allowing us to

two major ESG topics alongside climate change. We willmore objectively judge the relationship between emissions

continue to encourage our portfolio companies toand corporate value.

bolster their ability to address human rights issues,

In addition, to further support corporate governancereform in Japanese companies, we incorporated thewhich will in turn build a strong value chain and enhancetheir competitive advantage.

concept of the monitoring board into our proxy voting

With respect to impact investing, we will pursue evenguidelines. We established eight requirements, and relaxed

more added value in our investments in the new domain

the guidelines for voting against company proposals forof achieving both economic and social returns. We willcompanies that satisfy all of these requirements. It is ourcontinue to discover portfolio companies that have ahope that this will encourage many Japanese companies toparticularly high level of impact, and we will aim totransition to a monitoring board-type board of directors.

amass outcomes that lead to the resolution of social

Partially due to the COVID-19 pandemic, the level ofissues in Japan and overseas.

interest in impact investing remained high, both in Japanand overseas.

Finally, we want to fulfill our responsibilities as acompany towards solving important ESG issues related

Based on this, we are being strongly urged to address

to the investment chain. We will continue to do ourboth climate change as well as social issues, especially

utmost to ensure that our commitment to responsible

human rights problems. The year 2020 was another year thatinvestment produces results with a “social impact.”

we pushed forward with new initiatives in order to meet thedemands of the ever-evolving ESG investment domain andHead of the Responsible Investment Department

Toshiyuki Imamura

satisfy the high expectations placed on us by our clients.
PRI assessment results

FY2019-2020

PRI
Medianevaluation

Strategy and governanceA+

A

Status of integration into responsible
investment for listed stocks

A+

A

Active ownership

A+

B

Engagement

A+

Proxy voting

A+

SSA

A+

B

Corporate (Non-Financial)

A+

B

Corporate (Financial)

A+

B

Bond investment

Engagement

Proxy Voting

ESG Integration

Responsible Investment Report 2020
Nomura Asset Management Co., Ltd.
2-2-1, Toyosu, Koto-ku, Tokyo 135-0061, Japan
TEL: 81 (0)3-6387-5000 (Main switchboard)

https://global.nomura-am.co.jp/

86www.nomura-am.co.jp