Initiatives in 2023 Aimed at Achieving NAM’s Net Zero Goal
In 2023, we once again made steady progress on our initiatives towards achieving
our Net Zero goal and realizing a decarbonized society. In 2023, we worked on thefollowing three main areas.
First, we worked on expanding the scope of asset classes for which we measureand disclose investment portfolio emissions (“Financed Emissions”). In December
2022, the Partnership for Carbon Accounting Financials (“PCAF”), with which wehave been affiliated, released standards related to the measurement and disclosureof financed emissions for sovereign debt. Based on these standards, in April 2023
we announced the results of our analysis of financed emissions and carbon metrics
for our sovereign bond portfolio.
Second, in order to accelerate the provision of funds and transition financetowards realizing a decarbonized society, we focused on avoided emissions as
an appropriate evaluation metric for climate-related opportunities and worked
to popularize and expand the use of avoided emissions. This was based on theincreasing attention globally on avoided emissions. For example, in March 2023 theWorld Business Council for Sustainable Development (“WBCSD”), the organizationthat formulates the GHG Protocol (global carbon accounting rules), announced its
Guidance on Avoided Emissions. In addition, the communiqué issued at the G7
Ministers’ Meeting on Climate, Energy and the Environment held in Sapporo in April
2023 stated that there is also value in acknowledging avoided emissions. Nomura
Holdings was appointed as the chair of the GX Business Working Group as part of
the GX League*, and NAM also participated as a key member. This working group
has developed the “Basic Guidelines for Disclosure and Evaluation of Climaterelated Opportunities” (issued in March 2023) and released “Leveraging Avoided
Emissions: Financial Institution Case Studies (published in December 2023),
thereby contributing to the effort to have more companies use avoided emissions.
Third, we partnered with climate-related initiatives and public institutions. Within
the PCAF Japan Coalition, which aims to promote the measurement and disclosureof sovereign bond financed emissions and to popularize and expand the use of
avoided emissions, in FY2023 we played a central role in two subcommittees
related to the measurement and disclosure of sovereign bond financed emissions
and avoided emissions, where we shared knowledge. In addition, we participated*T he GX League aims to achieve Japan’s 2050 carbon neutrality goal and further contribute to achieving carbon neutrality worldwide. In the challenge of quickly transitioning to carbon neutrality, a transformation of the entire
economic and social system (GX: Green Transformation) is required. To this end, the GX League is a venue for a group of companies actively working on GX, together with government, academic, and financial players who aretaking on the challenge of GX, to work together to discuss the transformation of the entire economic and social system and the creation of new markets.

37

Responsible Investment Report 2023

BY 2050
as a committee member and advanced discussions in both the “Japan Public andPrivate Working Group on Financed Emissions to Promote Transition Finance”
launched by the Financial Services Agency, the Ministry of Economy, Tradeand Industry, and the Ministry of the Environment, as well as the Ministry of theEnvironment’s “Working Group on the Green List,” both of which aim to growtransition finance and green finance. At COP28 held in Dubai, United Arab Emirates(UAE) at the end of 2023, we took the stage as a panelist in the panel discussion forthe seminar titled “Appropriate Evaluation of Avoided Emissions Towards Net Zero
Society” held at the Japan Pavilion. In addition to introducing our methodology
for assessing avoided emissions, we actively discussed the future use of avoided
emissions by financial institutions.
Going forward, we plan to not only deepen our analysis of climate-related risks
and opportunities related to our portfolio, but also advance our engagement withportfolio companies.

TCFD 2022 summary
We plan to release a summary of our 2023 TCFD-related initiatives during the April – June 2024
period. As a result, Pages 37-42 contain a summary of the Responsible Investment Report 2022.
Please refer to the link below for 2022 TCFD&Net Zero by 2050:
Referencehttps://global.nomura-am.co.jp/responsibility-investment/pdf/ri_report_2022.pdf

38

Disclosure Based on the TCFD Recommendations

2022 Summary

GovernanceWerecognize that climate-related risks and opportunities have important impacts on our business and our medium- to long-term management targets, and wehave therefore established an appropriate governance. The data compiled by the Responsible Investment Department, which acts as the TCFD Secretariat,
including carbon metrics, scenario analyses, ESG scores and other climate-related risks and opportunities, are ultimately reported to the Board of Directors via
the Executive Management Committee. The Board of Directors is then able to appropriately monitor our climate-related risks and opportunities.

Strategy e recognize a wide range of short-, medium- and long-term climate-related risks and opportunities. In terms of transition risks, we are closely watching carbon
W
pricing, the stranding of assets, and changes in consumer behavior and preferences. For physical risks, we are focusing on abnormal weather, which is increasing
in recent years. Meanwhile, with respect to opportunities, we are paying close attention to products and services related to renewable energy and energy
efficiency and conservation, electricity storage, hydrogen, ammonia, CCUS, carbon recycling, as well as disaster prevention and mitigation. In addition, in line with
our long-term strategy aiming to realize a decarbonized society, we are focusing on transition finance to support companies that are working to reduce GHG
emissions. In principle, we do not divest from (and thereby lose the chance for engagement with) portfolio companies with high levels of GHG emissions. Instead,by continuing to hold on to such companies, we use engagement as a means to encourage these portfolio companies to take measures to combat climate change.

The
analytical data related to climate-related risks and opportunities compiled by the TCFD Secretariat are shared with portfolio managers and analysts. These
data are then utilized in company analysis, engagement, and investment decision-making. These data are also regularly reported to the Responsible Investment
Committee, which comprises officers in the Investment and Research Unit, where they are used to evaluate a portfolio’s climate-related risks and opportunities.
For example, at the Responsible Investment Committee meeting in March every year, the analytical data from the portfolio at end of the previous year arereported, and in July the important themes for climate change-related engagement are decided. Additionally, the chair of the Responsible Investment Committee
reports the evaluation results to the Executive Management Committee, which allows members of senior management to utilize these reported details to makemanagement decisions.

 addition to Institutional Shareholder Services’ (ISS) analysis methodology for climate-related risk and opportunities, we are carefully analyzing the impact thatIn
climate-related risks and opportunities have on our business, strategy, financial plans, and portfolio. This includes our financial analysis and transition risk analysis
using internal carbon price in our ESG scores for Japanese equities.
Please refer to Page 41 for information on the scenario analysis we performed for our four-asset integrated portfolios.

Risk
Management

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

Metrics andTargets

39

Responsible Investment Report 2023

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

In order to evaluate climate-related risks and opportunities in accordance with our own strategies and risk management process, we measure four carbon metrics
recommended by the TCFD (total carbon emissions, carbon footprint, carbon intensity, and weighted average carbon intensity) and perform scenario analyses aswell as transition risk analysis and physical risk analysis for equities and corporate bonds portfolios.
 o analyze total carbon emissions, we use Scope 1 and Scope 2 emissions disclosed by companies (if a company does not provide disclosure, we use ISS’sTestimates) as well as ISS estimates for Scope 3 emissions. Meanwhile, for carbon footprint, carbon intensity and weighted average carbon intensity, we use only
Scope 1 and Scope 2 emissions.
 e have established a 2050 Net Zero Goal as well as a 2030 Interim Target. Under the 2050 Net Zero Goal, we will work to achieve net-zero GHG emissions bothW
from our own business operations as well as for assets under management (our investment portfolio). Under the 2030 Interim Target, we will work to ensure that,by 2030, 55% of our investment portfolio assets are being approved by SBTi. We will verify and report on our track record with regard to these targets inaccordance with the methodology recognized and endorsed by NZAM.

BY 2050

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

Carbon Footprint

2022 Summary

Total Carbon Emissions(Million tCO 2e)

18.1
15.9

15

5.1
4.9

10

5

11.0

13.0

1.9
0

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

Scope 3
(Million tCO 2 e)

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

184.0

1.9

0.3
1.6

0.3
1.6

0.70.10.7

0.80.10.7

1.00.1

0.9

1.1

0.1
1.1

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

194.3

NAM’s
portfolioBM% of BM

95%

Japanese
bonds

1.8

2.3

80%

4.9

3.0

162%

% of BM

Globalequities

12.4

13.9

89%

Globalbonds

Japanese
equities

199.9

212.4

94%

Japanese
bonds

2.6

3.1

82%

90%

Global
bonds

5.9

4.2

142%

Globalequities

14.3

15.8

Ratio of Total Carbon Emissions by Industry

385.4
337.0

300

NAM’s Japaneseequities portfolio

200

NAM’s global
equities portfolio

75.5

Scope 2

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

100

Scope 1

20

111.8

85.9
59.7

126.9

59.4

NAM’s global
bonds portfolio

0
NAM’s
JapaneseJapanese equities equities
portfolio
benchmark

NAM’s global
equities
portfolio

GlobalNAM’sequities
Japanese bonds
benchmarkportfolio

NAM’s Japanesebonds portfolio

Japanesebonds BM

NAM’s
Japanesebonds portfolio

Globalbonds BM

0%

20%

40%

60%

80%

100%

40

Scenario Analysis

2022 Summary

1

Sustainable Development Scenario

2Announced Pledges Scenario

3

(SDS)

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

(APS)

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

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

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

SDS

APS

STEPS

Portfolio

100Stated Policies Scenario(STEPS)

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

80
60
40
20
0
2022

2024

2026

2028

2030

2032

2034

2036

2038

2040

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

41

Responsible Investment Report 2023

2042

2044

2046

2048

2050
(year)

BY 2050

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

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

36.4% Approved SBT

No Target

18.0%

Non-Ambitious Target

20.1%
10.8% Committed SBT
Ambitious Target

14.7%

Risk Analysis

2022 Summary

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

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

42

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

43

Responsible Investment Report 2023

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

Figure 1

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

TNFD Final Recommendation

14 recommended disclosures (Final recommendation)

Governance

Strategy

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

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

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

Risk and impact
management

Metrics and targets

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

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

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

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

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

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

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

BD isclose the metrics used by theorganization to assess and manage
dependencies and impacts on nature.

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

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

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

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

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

Source: Prepared by Nomura Asset Management based on TNFD website

44

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

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

LocateEvaluate

The interface with nature

L1

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

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

E1

E2

L3

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

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

Identification of dependencies
and impacts

E3

E4

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

Impact materiality assessment
Which of our impacts are material?

Source: Prepared by Nomura Asset Management based on TNFD website

45

Responsible Investment Report 2023

A1

A2

Dependency and impact measurement

Interface with sensitive locations

L4

Identification of environmental assets,
ecosystem services and impact drivers

PrepareRisks and opportunities

What are our dependencies and impacts on nature?

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

AssessDependencies & impacts

Dependency and impact screening

L2

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

A3

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

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

Risk and opportunity measurement
and Prioritization

To respond and report

P1

P2

P3

Which risks and opportunities should be prioritized?

Risk and opportunity materiality assessment

A4

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

P4

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

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

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

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

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

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

ESG Investment Manager

Dai Yamawaki

46

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

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

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

47

Responsible Investment Report 2023

Disclosure in alignment with TNFD nalytical data on nature-related risks and opportunities compiled by the Responsible Investment
A
Department and the status of engagement on related efforts are shared within the Investment andResearch Unit in a timely and appropriate manner, and are utilized in company analyses andinvestment decisions. These analytical data are regularly reported to the Responsible Investment
Committee, comprised of members of the Investment and Research Unit, which then evaluates thenature-related risks and opportunities of our portfolios. For example, the Responsible Investment
Committee receives reports on portfolio analysis data from the end of the previous year, and in
July the Committee plans to decide the priority themes for nature-related engagement.
In addition, the Chair of the Responsible Investment Committee reports the results of evaluations
to the Executive Management Committee, and the senior management team uses the content ofthese reports to make management decisions.

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

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

Metrics and Targets

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

Risk and impact
management

Governance e have positioned nature-related risks and opportunities as elements that have importantW
impacts on our business and medium- to long-term management goals, and we have built an
appropriate governance system. The data about nature-related risks and opportunities and thestatus of engagement and other initiatives compiled by the Responsible Investment Department
which is the secretariat for the Responsible Investment Committee, is ultimately reported to theBoard of Directors through the Executive Management Committee, which allows the Board of
Directors to appropriately monitor our nature-related risks and opportunities.

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

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

PDF
Potentially
Disappeared
Fraction

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

Weighted
Average PDF
Intensity
Weighted
Average
PDF
Intensity

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

Weighted Average=
PDF Intensity

market value of theinvestment
market value of theportfolio

absolute PDF value of theinvestee company
sales of investee
companies

48

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

Figure 4

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

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

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

50

(PDF km2. yr /Mil. EUR)

2,500

2,456.8

41.4
40

400

39.3

30

300

28.8

250.9

23.6

Figure 3

Absolute Biodiversity Impact

20

200

10

100

202.3

(Million km2.yr)

20
17.5
15

10

9.0

9.9

5

0.1

0

49

5.3

4.2

NAM’s
Japanese
equities
portfolio

111.4

Japanese
equities
benchmark

NAM’s global
Globalequities
equities
portfolio
benchmarkResponsible Investment Report 2023

NAM’s
Japanesebonds
portfolio

0.8Japanesebondsbenchmark

2.1
0
NAM’s
GlobalGlobal bonds
bonds
portfolio
benchmark

0
NAM’s
Japanese
equities
portfolio

Japanese
equities
benchmark

NAM’sJapanesebonds
portfolio

Japanesebondsbenchmark

NAM’s global
GlobalNAM’s
Globalequities
equities Global bonds
bonds
portfolio
benchmarkportfolio
benchmarkAt the same time, in order to measure our portfolios’ dependence on nature, we
examined the extent to which our portfolio companies’ activities are dependent on thethree major categories of ecosystem services: provisioning services (groundwater/
surface water, animal vitality, textiles and other materials, etc.); regulating services(water quality and water circulation, soil maintenance, protection from disasters,
pest control, etc.); and cultural services (ecotourism, recreation, etc.). We found thatin all areas (domestic equities, global equities, domestic bonds, and global bonds)
our portfolios Figure 5-1 were highly- dependent on regulating services, while notas dependent on cultural services as others. We also found that for global bonds
Figure 5-2 we were more dependent than the benchmark on provisioning services,while for other assets there was not much of a gap between our portfolios and thebenchmarks.
Figure 6-1

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

Land Transformation
Freshwater Acidification

Freshwater
Acidification
0.30%

Ecosystem Services Dependencies
Provisioning

Regulation & Maintenance

Cultural

NAM’s Japaneseequities portfolio

23.0

70.0

7.0

NAM’s global
equities portfolio

20.0

73.0

7.0

NAM’s Japanesebonds portfolio

23.0

70.0

7.0

NAM’s Global
bonds portfolio

25.0

68.0

7.0

Regulation & Maintenance

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

MarineEutrophication
0.24%

Freshwater
Ecotoxicity
0.09%

Land
Occupation
0.01%

Figure 5-2

Benchmark comparison
Provisioning

Terrestrial
Acidification
2.70%
MarineAcidification
23.7%

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

Climate Change
28.0%

Figure 5-1

LandTransformation
44.9%

NAM’s Japaneseequities portfolio

3.0

0.0

−3.0

NAM’s global
equities portfolio

−1.0

0.0

1.0

NAM’s Japanesebonds portfolio

2.0

−1.0

−1.0

−13.0

3.0

NAM’s Global
bonds portfolio

10.0

50

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

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

Figure 6-2

Min

Max

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

Figure 7

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

500

(%)

Percentage of total

20

19% 470
16%

16%

400
15%

329
12

300
271
11%

8

200

100

101

117

129
4

0

0
2018

51

Responsible Investment Report 2023

16

15%

2019

2020

2021

2022

2023

Example of Engagement(Japanese company)

Conservationof forests andbiodiversity
Status of milestone
management

Nomura AssetManagement
Japanese foodcompanyFirstinterviewinterview
1 time122436Engagement period

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

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

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

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

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

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

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

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

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

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

Natural Capital Risk Issues

Example of Engagement

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

(Global company)

Supply chain
deforestation
problem
Status of milestone
management

Switzerland
consumer staple
company28

monthinterviews
5 times
12

24

Engagement period

Nomura AssetManagement36

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

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

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

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

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

52