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

25

Responsible Investment Report 2023

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

Figure 1

Difference Between Human Resources and Human Capital
Human Resources

Human Capital

Resources are the targetof consumption

Capital is the target
of investment

Suppress costs
spent on human resources
as much as possible

Necessaryfor the organization’s
growth strategy

Source: Prepared by Nomura Asset Management from various materials

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

26

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

Figure 2

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

Figure 3

Stock Return Model Using Human Capital Information

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

Return (Annualized)

Stock return

Fundamentals growth

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

Human capital evaluation

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

Incentives

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

1

External assessment

8.0

4.5%
4.0

3.3%

Human capital evaluation
5

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

2

Employeefriendliness
Score

Resilience
2.0

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

Human capital evaluation
4

3

Diversity

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

27

5.9%

6.0

Responsible Investment Report 2023

1.5%

0

Q1
Score (Bottom)

Q2

Q3

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

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

Figure 4

Human Capital Information Disclosure Trends in Countries
and Territories

Japan

U.S.

Europe

2021

2020

2018

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

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

2023

2021

2024

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

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

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

Source: Prepared by Nomura Asset Management from various materials

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

28

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

29

Responsible Investment Report 2023

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

Figure 5

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

Gap analysis

as is

Futureto be

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

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

Transformation

Current management
strategyManagement strategy to execute the business model

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

KPI
Governance centered on board of directors
Current
management
team

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

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

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

Figure 6

Human Capital Engagement Framework
Investors’ expectations

Response and information disclosure
demanded of company

Governanceandmanagement

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

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

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

Risk
management

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

Metrics andtargets

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

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

Figure 7

Human Capital Dialogue Feedback Loop

Investor

Start of dialogue

Feedback

Company valuation(visualization)

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

Disclosure

Revise human resources
strategy and execute
human capital investment

Source: Prepared by Nomura Asset Management

30

HUMANRIGHTS

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

Responsible Investment Report 2023

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

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

Figure 1

Human rights risk monitoring of companies

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

Engagement

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

Buy
Sell
Continuous hold

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

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

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

32

Nomura Asset Management’s
Human Rights Risk Monitoring Process

Sectors with high risk of human rights issues

Figure 2

Food/agriculture products
Major industries/products

Food, Daily goods, Food retails

Figure 3

Automobiles

ICT

ApparelResource related

Major industries/products

Major industries/products

Major industries/products

Major industries/products

Finished cars, Automobile
parts, Tires

Electric products, Electronic
components, Semiconductor
manufacturing equipment

Textiles, Shoes, Clothing retail

Mining/Petroleum, Steel,
Trading companies

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

No

No

15%

No

26%

44%

Commitment torespecting
human rights

Commitment torespecting workers’
rights

Implementation of
Human Rights Due
Diligence

Assessment of
human rights risk

Yes

Yes

Yes

Yes

85

85

%

74

%

No

No

53%

Yes

47

%

Responsible Investment Report 2023

56

%

No

26%
Action based on
evaluation results

33

No

15%

67%
Grievancemechanisms forworkers
Yes

74

Grievance mechanisms
for outside individuals
and community
Yes

%

33

%

%

Nomura Asset Management’s
Human Rights Risk Monitoring Process

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

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

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

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

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

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

Example of Engagement(Japanese Equity)

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

21months3interviews
1224

Background

Nomura AssetManagement
Japanese Electrical
Equipment
Company

36

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

Period of Engagement

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

Human rights risks arepoorly described overall.

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

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

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

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

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

Human Rights Risk Issues

Example of Engagement(Japanese Equity)

Understanding
Human Rights
Risk based on
Leadership fromTop Management
Milestone progress:5
Conclusion

37

months4interviews
12

24

36

Period of Engagement35

Responsible Investment Report 2023

Background

Nomura AssetManagement
Japanese
Machinery
Company

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

We determined that thegoal had been achieved,and concluded theengagement.

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

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

Example of Engagement(Global Equity)

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

Nomura AssetManagement/
Sustainalytics

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24

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

What is theaverage numberof complaints
received by eachfactory?

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

Swedish Specialty
Retailermonths7
interviews
12

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

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Period of Engagement

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

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

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

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

Human Rights Risk Issues

Senior ESG specialist

Takashi Miyao
Activities with PRI Advance

Senior ESG specialist

Senior ESG specialist

Senior ESG specialist

Madoka Minagoshi

Fuyumi Takeuchi

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

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

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