ProductGovernance

Our ProductGovernance Initiatives

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

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

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

of 2023 a consultation regarding the current status
and future vision of the SFDR was held, resulting in an
uncertain situation regarding the regulations that havealready been applied. Nomura Asset Management’s
UK and European offices provided responses to theconsultation regarding the SFDR. Our offices in the UK
and Europe believe that it is important to bolster ouraccountability with regard to ESG investment products
in an environment where regulations are unclearand fluid, and the RIOC has strengthened qualitative
monitoring focused on ability to explain suchproducts. In addition, the UK’s SDR (Sustainability
Disclosure Requirements and investment labelingsystem) was released in 2023, and the associatedrules are scheduled to be applied in phases starting in2024. Our offices in the UK and Europe are preparing
to respond, under the assumption that the applicationof anti-greenwashing rules will have an impact inPlease refer to the following link on our website for more information about ourmain ESG funds. (Japanese only)
https://www.nomura-am.co.jp/special/esg/strategy/esglineup.html

53

Responsible Investment Report 2023

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

Overall ESG Product Governance System for the Investment Side

Third-party asset managers

Company A

Nomura Asset Management

UK/Europeanoffices

Company BTokyo
UCITS / AIF

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

Monitoring

Responsible Investment
Oversight Committee

Investment Policy
Committee

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

ESG Committee

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

Keep alignment
Informationexchange
Compliance/
reportingMonitoring

Domestic andoverseas in-house

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

Supervision

In-house managed products (including overseas offices)

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

Provision

Reporting

Advisory FundManagement Department
Domestic thirdparty

NAM third-party
managed productsSupervision/
approval

ESG Investment Process
Evaluation Meeting54

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

Check ESG index quality

Communication with ESG Index Providers

Main topics of communication

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

I ndex providers’ ESG researchand ESG index provision system

Compare and study
candidate indicesCheck performance/ESG profile

1

I mportant topics in ESG evaluationand the latest global trendsEnhancementof information
provision to end investors
regarding ESG indices

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

Establish/
listing criteria

2

Due Diligence on ESG Index Providers

Main topics of communication

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

Status of efforts to secure ESG index quality

Before establishment

55

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

Responsible Investment Report 2023

At time of establishment

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

Adopted Benchmarks and Overviews of NAM’s ESG Index Funds

FTSE4GoodDeveloped100 Index

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

MSCI Japan
Empowering Women(WIN) Select Index

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

S&P500ESG Index

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

MSCI Japan Country
ESG Leaders Index

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

Solactive Japan ESG
Core Index

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

56

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

Nomura AssetManagement

Provideinformation

NFRC
Managementof fundAdvisory FundManagement Dept.
Gatekeeper

Third-party
asset manager

Provision ofinvestment
products

Product
structuring

Investors
Fund
Disseminate
management information
Sub-contract

Related departments

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

Needs

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

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

Responsible Investment Report 2023

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

Qualitative Evaluation of ESG Funds
We conduct ESG-specific qualitative evaluations ofESG funds. If an evaluation reveals a serious issue
in the management of an ESG fund, we will ask thethird-party asset management firm to improve its
management in the same way as we would for any
other third-party funds. Qualitative evaluations ofESG funds are led by the Advisory Fund ManagementDepartment, which is responsible for managing thirdparty funds, and starting from 2022 the Advisory FundManagement Department has been strengthening
collaboration with the Responsible Investment
Department and other ESG-related departments aspart of an effort to build a framework under which awide range of relevant internal parties participate inevaluating third-party funds, as part of our progress
on bolstering our evaluation system.
The evaluations are performed based on the seveninvestment styles identified by the Global Sustainable
Investment Alliance (GSIA). These are corporate
engagement and proxy voting, ESG integration,negative screening, positive screening, norms-basedscreening, sustainable-themed investment and impactinvesting. From 2022, among the ESG efforts subject
to evaluation, we added third-party asset managers’
response to climate change and other ESG issues aswell as cooperation with various initiatives.
In 2023, rules in countries around the world wereenhanced, including the strengthening of disclosurerules related to ESG investment. Amid this, wedetermined it was necessary to further improve ourqualitative evaluation by having it assessed from athird-party perspective, and we consulted with anoutside organization to enhance our evaluations,
including by adding new evaluation items such asinitiatives to address human rights and biodiversity
issues, as well as ESG risks.
With these improvements, we are now able toperform concrete checks, including of detailed
information on ESG investments by third-party asset
managers and the status of initiatives on a wider rangeof ESG issues than before. Our efforts targeting thirdparty-managed funds have been assessed externally,and in the 2023 annual evaluation by the Principles for
Responsible Investment (PRI), the item (module) score

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

Qualitative Evaluation Process for ESG Funds
Relateddepartments

Expansion of matters to check/evaluate

Collaboration

Advisory FundManagementDept.

Meetingmembers

Proposals

ESG
questionnaire

SendCollectDiscussion

ESG
evaluation

ESG Investment
Process Evaluation
Meeting

Inquiries,
Additional questions

ProductCommittee

Requests for
improvement, etc.

Third-party
asset manager

58