Daiwa Securities Group

Sustainability Report

2005
BUILDINGS U S TA I N A B L E
SOCIETY

W ha t we ca n do
What kind of society awaits these 36 babies when they
become adults 20 years from now? The precious faces ofthese infants—all children of Daiwa Securities Group
employees-are an expression of our hopes for the future.
At the Daiwa Securities Group, we are determined to takeresponsibility as individuals and to play our role as a company
to create a sustainable society—a happy societythat lives in harmony with an unspoiled Earth.

Over view of t h e Daiwa Se c uri ti e s Group■ Businesses of the Daiwa Securities GroupThe Daiwa Securities Group is composed of Daiwa Securities Group Inc., which holds the stock of the group companies, the two main corporations Daiwa Securities
Co. Ltd. and Daiwa Securities SMBC Co. Ltd., and the many other companies that contribute to their operations. The Group provides customers with comprehensive in-

GRI Content Index

vestment and financial services.

GRIガイドライン対照表

Daiwa Securities Co. Ltd., primarily serves individual investors making securities investments. Daiwa Securities SMBC serves institutional investors, including businesses
outside the finance industry,Indicatorin the field of fund management, andalso helpsItem
businesses and other organizations
raise funds through its investment
Item
Pages
Indicator
Pages
banking activities.
1.Vision and strategy
Statement of the organisation's sustainability vision and strategy regarding its contribution to sustainable development 4-5,6-7

1.1

3.17

Reporting organisation's approach to managing indirect economic, environmental, and social impacts resulting from its activities

3.18

Major decisions during the reporting period regarding the location of, or changes in, operations

9

Nothing

3.19 Programmes
Daiwa Securities Group
Inc.and procedures pertaining to economic, environmental and social performance

2.Profile

20-21, 22-23, 24, 26, 27, 28, 29, 30, 31, 32, 36-37, 38-39, 40-41, 42-43, 45, 46

Organisational profile
2.1

Name of reporting organisation

2.2

Major products and/or services, including brands if appropriate

2.3

Operational structure of the organisation

3.20

2

Status of certification pertaining to economic, environmental and social management systems

27, 44

4. GRI content index

2, 8-9, 10

Provide a table identifying location in report of each element of GRI content (item and indicator) in the report 54-55

4.1

2, 34

Individual
5.
Performance
Description of major divisions, operatingcompanies, subsidiaries andjoint ventures Securities
2
個人
Trading
Daiwa
Co.
Ltd. indicators
investors
Integrated indicators
2.5 投資家
Countries in which the organisation's operations are located
2
2.4
2.6

Nature of ownership; legal form

2.7

Nature of markets served

2.8

Scale of the reporting organisation

2.9

List of stakeholders, key attributes of each, and relationship to the reporting organisation

Systematic Systematic indicators relate the activity of an organisation to the larger economic,
indicators environmental, and social systems of which it is a part

2

Securities services
mainly for individual
investors

2, 33, 34

33

Economic performance indicators
2, 32-33, 34-35
全体系的Securities
marketDirect
指標 impacts

2, 3, 7, 31, 35, 38-39

Core indicators

Report scope
2.10

Contact person(s) for the report, including e-mail and web addresses

2.11

Reporting period (e.g. fiscal/A32calendar
year) for information provided
Trading

Businesses

Customers

55

Daiwa Securities3 SMBCEC2Co.Geographic
Ltd. breakdown of markets

2.12

EC1

3

Date of most recent previous report (if any)
Institutional
2.13 Boundaries of report (countries/regions, products/services,
divisions/facilities/joint
Fundmanagement forinvestors
ventures/subsidiaries) and any specific limitations on the scope
corporate customers

Net sales

2, 32, 35

Securities issuance, underwriting

2, 34

Suppliers

Investment banking

EC3 activities
Cost of all goods, materials, and services purchased
Employees

2, 3

2.14

Significant changes in size, structure, ownership, or products/services that have occurred since theInsurance
previous reportNonecompanies

EC5

35

Total payroll and benefits (including wages, pension, other benefits, and redundancy payments)

by country or region
35
Daiwa Securitiesbroken down
Daiwa
NIF Ventures
Pensionfunds
Providerssituations
that can significantly affect comparability
from period to Management
period and/or between reportingorganisations None Businessof Research
Investments
Center of capital
PropertyCo., Ltd.
EC6 Distributions
providers of capital broken down by interest on debt and borrowings, and dividends
Ltd. provided in earlier
Ltd. reports,
Co., Ltd.
Co.,toLtd.
2.16 Explanation of the nature and effect ofLtd.
any re-statements ofCo.
information
Basis for reporting on joint ventures,Daiwa
partially owned
subsidiaries, leased
facilities,
outsourced operations
andSB
other
Institute
Daiwa
Asset
Daiwa

2.15

Trust
andbanks
the reasons for such re-statement (e.g., mergers/acquisitions, changes ofon all classes of shares, with any arrears of preferred dividends to be disclosed

Assetmanagement

Researchbaseyears/periods,nature of business,measurement methods)

Others35

VentureShop and office
Securities-related workin retained earnings
at end of period
capital work
management
Agency EC7work Increase/decrease

N/A

35

Public sector

Report profile

EC8

N/A

Total sum of taxes of all types paid, broken down by country

35

2.17

Decisions not to apply GRI principles or protocols in the preparation of the report

2.18

＊For
details about
the individualcompanies
the costs
Daiwaand
Securities
Group'sDonations
website attohttp://daiwa.jp/ir/english/index.cfm.
community, civil society, and other groups broken down in terms of cash and in-kind
Criteria/definitions used in any
accounting
for economic,
environmental,
and ofsocialbenefits Group,
35 visit the EC10

2.19

Significant changes from previous years in the measurement methods applied to key economic,

donations per type groupenvironmental and social informationNone

and reliability that can be attributed to the sustainability report

3,30

Employeecomposition
Environmental
performanceindicators (FY2004)■ Corporate
profile2.20 Policies
and internal practices to enhance and provide assurance about the accuracy, completeness,

Core indicators

ByEnergy
company

Group companies
Means by which report
usersSecurities
can obtain additional
information
Company2.22
name
Daiwa
Group
Inc. and reports about economic,
outside Japanenvironmental and social aspects of the organisation's activities, including facility-specific10%

Headquarters

6-4, Otemachi 2-chome,
Chiyoda-ku, Tokyo 100-8101,
3.Governance structure and management systems
Japan
information (if available)

Established
3.2

EN8

81-(0)3-3243-2100
Other group
Governance structureof the organisation, including major committees under the board of directorsthat are responsible for setting strategy and for oversight of the organisation

December 27, 1943 (Founded 1902)

Percentage of the board of directors that are independent, non-executive directors

President3.4andBoard-level
CEO processes
Shigeharu
Suzukifor overseeing
the organisation's identification and management ofcompanies
22-23
in Japan
22
27%

44

3.5

Linkage between executive compensation and achievement of the organisation's financial and non-

44
45

Daiwa Securities

Labor practices
46% and decent work

Japan
90%

Employment

3.6

Organisational structure and key individuals responsible for oversight, implementation, and audit of

LA1

Daiwa Securities
23
SMBC Co. Ltd. 15%

1,331,736,000 (As of March 31, 2005)

Greenhouse gas emissions

EN11 Total amount of waste by type and destination
Social performance
Co. Ltd. indicators

22-23

Shares issuedfinancial
and outstanding
goals (e.g., Environmental performance, labour practices)

Breakdown of workforce, where possible, by region/country, status (employee/non-employee), employment type (full time/part time),
and by employment contract (indefinite or permanent/fixed term or temporary). Also identify workforce retained in conjunction withother employers (temporary agency workers or workers in co-employment relationships), segmented by region/country

39

22, 23, 24, 26, 27, 28, 29

LA2Net employment creation and average turnover segmented
region/country
Netbyoperating
revenues:

39

Mission and values ¥519.3
statements, internallybilliondeveloped(FY2004)codes of conduct or principles, and policies relevant

LA3¥390.4
Percentage of employees represented by independent tradeunion billionorganisations or other bona fideeconomic,(consolidated)environmental, social and related policies
Operating revenues
3.7

44

Total water use

Core indicators

economic, environmental,
and billion
social risksand¥138.4(As
ofopportunities
March 31, 2005)

CapitalAsia/Oceania
3%Europe 5%

Emissions, effluents and waste

Structure and governance

Telephone
3.1

Group Inc.
2%

Water
EN5

By region

2%
Daiwa
Securities
Directenergyuse segmented byAmericas
primary source

EN3

2, 10, 11, 30, 32, 38, 43, 45, 51

42

Number of employees: 11,295

to economic, environmental and social performance and the status of implementation

Net operating revenues (consolidated)

employee representatives broken down geographically OR percentage of employees covered by

7, 30, 36

By Business

By regioncollective bargaining agreements broken down by region/country

Stakeholder engagement¥390.4 billion (FY2004)

Net financial revenues
3.9
Basis for identification and selection of major stakeholders
2,3Ordinary income(consolidated)
3.10 Approaches
to stakeholder consultation reported in terms of frequency of consultations4%
by type and¥120.4 billion (FY2004)
by stakeholder group

Net operating revenues (FY2004)

Asia/Oceania
Americas 3%
Europe8%or programmes, as well as monitoring2%
LA10 Description of equal opportunity
policies
systems to ensurecompliance and results of monitoring.

11, 24, 25,31,on36-37,
52-53
Net26,
gain
trading

41

Other 2%
Diversity and opportunity

38-39, 41

securities
Composition of senior management and corporate governance bodies (including the board of directors),
LA11 Equity
Bonds /
39%
22, 39including male/female ratio and other indicators of diversity as culturally appropriate
16-17,
18-19,31,
25, 2005)
26, 31, 36-37, 41, 43, 48-50, 52-53,
Questionnaire
21%
11,295 (Asof Marchcurrency
Bonds
Additional Indicators
3.12 Use of information resulting from stakeholder engagements
37
exchange
1%
NumberOverarchingof consolidated
subsidiaries
25% Employment
policies and management systems
Type of information
generated by stakeholder consultations
Number 3.11
of employees*(consolidated)

3.14

46 (13 in Japan, 33 outside Japan)

other initiativesaffiliates
to which the organisation subscribes or which it endorses
Number of equity-method
5 in industry and business associations, as well as national/international
3.15 Principle memberships
advocacy organisations
Assets under custody¥42.055 trillion (As of March 31, 2005)
3.16

Policies and/or systems for managing upstream and downstream impacts＊ Excluding temporary employees and financial advisors.

02
54

LA12 Employee benefits beyond those legally mandated

Externally developed, voluntary economic, environmental and social charters, sets of principles, or

DAIWA SUSTAINABILITY REPORT 2005

Investment

Asset
relations
6-7Stocks Labor/managementbanking
14%

11, 14

management
12%

Japan
87%

39

LA13 Provision for formal worker
18%representation in decision-making or management, including corporate governance 41
Training and education

Commissions
LA16 Description of programmes to support the continued employability of employees and to manage career endings 40-41
8-11
Other
55%
(commissions on sales of life insurance)
3%＊For more details on the revenue structure, see "Economic Relationships with Stakeholders" on page 34.

Key features of Sustainability Report 2005

Special Feature 1: Initiatives in the Daiwa Securities Group's Core BusinessSpecial Feature 2: Stakeholder Dialogue

Internal Stakeholders' Meeting

This feature reports on our progress in two initiatives to help
realize a sustainable society through our everyday business:socially responsible investment (SRI) and economic and financial education.
Page 8We invited people who are related to the Daiwa Securities
Group's CSR initiatives to join us in a dialogue in order to gain
an understanding of society's expectations and demands.
Read what they had to say.
Page 16

What do frontline employees think about the Daiwa Securities
Group's CSR activities? We present a frank, roundtable discussion among three sales employees from Daiwa Securities
Co. Ltd.
Page 48

Editorial policy
We have published this report every year since 2002 with the aim of disclosing, clearly and in good faith, information relating to the Daiwa Securities Group's sustainability initiatives and corporate social responsibility. We
also see the process of preparing this report as an important opportunity
for us to confirm the status of our efforts and identify issues for further attention.
We gave particularly strong attention to the need for dialogue with stakeholders and the promotion of understanding among employees when planning and producing this year's report. As with the 2004 report, we focused
this year's report on the efforts in socially responsible investment and economic and financial education that we are making in our everyday business, as well as on reports on management, and on social issues. As forenvironmental reporting, we are working to continuously collect environmental impact data in preparation for disclosure. We hope to be ready toreport in this area as well in the near future.
The 2002 Sustainability Reporting Guidelines, an international guideline forsustainability reporting published by the Global Reporting Initiative (GRI),*1
and GRI's Financial Services Sector Supplement: Social Performance,
were used as references in the preparation of this report.

Scope of report
Intended readership:
The Daiwa Securities Group's diverse stakeholders, primarily customers,
shareholders, investors, and employees as well as business partners, nonprofit organizations (NPOs), persons living and working in the vicinity of
Daiwa Securities headquarters and our branch offices nationwide, and educational organizations.

Scope of reporting:This report basically covers our nine main group companies,*2 which account for about 90% of the Group's total number of employees. The report
does not, however, encompass data from all nine companies on all items
reported. Rather, information is provided in proportion to the size and business area of each company. The scope of numerical data is noted alongwith the data.

Period covered by report:
Fiscal 2004 (April 2004 - March 2005). The report includes some information on activities carried out in fiscal 2005 which became available close to
the publication date, as well as some information on activities that occurred prior to fiscal 2004.

Publication date:
September 2005 (Previous report in September 2004, next report planned
for September 2006).

Table of Contents
04

Message from the President

06

The Daiwa Securities Group and Sustainability

Special Feature 1: Initiatives in the Daiwa Securities Group's Core Business08

Initiatives for Socially Responsible Investment

12

Initiatives for Economic and Financial Literacy Education

Special Feature 2: Stakeholder Dialogue
16

Conversation between Daiwa Securities Group
Employees' Union and Personnel Department

18

Disaster Assistance through Corporate-NGO Partnerships

Management
20

Results, Issues, and Targets

22

Corporate Governance24

CSR Management

26

Compliance30

Information Disclosure

Economic Report
32

Business Results and Market Position of the Daiwa Securities Group34

Economic Relationships with Stakeholders

Social Report36

Initiatives for Customer Satisfaction

38

Human Values and Human Resource Utilization

42

Working with Society as a Good Corporate Citizen

Environmental Report
44

Environmental Initiatives

46

Paper ProjectCommunication
48

Internal Stakeholders Meeting

1. Global Reporting Initiative (GRI): An organization founded in the autumn of 1997 to draw up and disseminate*internationalguidelines for sustainability reporting. Participants include a variety of stakeholders such as busi-

51

Internal Communication to Increase CSR Awarenessnesses, non-governmental organizations (NGOs), consultants, accounting groups, and trade associations from different parts of the world.

52

Third-party Opinions

54

GRI Content Index / The Road to Sustainability*2. See "Overview of the Daiwa Securities Group" on page 2 for the Group's nine main companies.

DAIWA SUSTAINABILITY REPORT 200503

Me ssage f rom t h e Presi de nt

Fulfilling the Daiwa Securities Group'ssocial role and responsibilities
Shigeharu Suzuki
President and CEO,
Daiwa Securities Group Inc.

■ Contributing to society through everyday work is CSR––What does corporate social responsibility, or CSR, mean for
the Daiwa Securities Group?
I think that the essence of CSR is to help build a better society
through our everyday work.
Businesses need to procure capital to run their business activities. On the other hand, investors are looking for better money
management opportunities. Our job is to work as a bridge between businesses and investors. When we meet the needs of
both, the economy and society continue to run smoothly and develop in a sustainable manner. Our work therefore has a very significant public aspect.
This contribution to the public good is inherent in the securities
business, and I see it as the core of our social responsibility.

■ The switchover to the committee system was very natural––Did the transition to a committee system in June 2004 bringabout any repercussions related to the management setup?
I felt no discomfort at all when we switched over to the committee
system. When the Daiwa Securities Group moved to a holding
company structure in April 1999, we established the Advisory
Board and Compensation Committee. We have had outside directors since 2002. So by June 2004, the Daiwa Securities Group already had a well-established culture, affirming separation of management and supervision.
Looking ahead, I think we have to continue improving our dialogue with shareholders. I want more of our stakeholders to knowthat the Daiwa Securities Group is a transparent, open group ofcompanies.

04

DAIWA SUSTAINABILITY REPORT 2005

■ A business that violates socially accepted norms will

■ SRI funds invest in promising companies

not succeed––It seems that compliance is firmly established throughout theGroup. What is your assessment?
In our business – which sometimes involves handling volatile financial products – sometimes customers see a profit and sometimes they see a loss. Our customers will simply not accept inadequate explanations of products that carry this kind of risk. In
that sense, we are especially careful when it comes to compliance. For us, compliance is more than merely obeying laws andregulations; it means acting in accordance with corporate ethics
as well as socially accepted norms. I have made it clear to all our
employees that we are absolutely never to engage in any type ofbusiness that could even appear to be out of line with socially accepted norms, even if it does not violate the letter of the law or
regulations. Even if that kind of practice made us some money, it
would cost us the trust of society, which is by far our most valuable asset.

■ Honest disclosure protects a company––How do you think about disclosure?
A company is a large group of people, and, someone is bound to
make a mistake. In my view, the important thing is how quickly
and accurately the facts, the cause, and the countermeasures are
made public, after such a mistake is unfortunately made. Going
public with a problem would be embarrassing for the company,
but hiding it would be a much greater shame.
It is a universal truth that cover-ups risk the very survival of acompany, while honest disclosure saves it.

––The company is promoting socially responsible investment(SRI) as one of its CSR activities within the scope of its regularbusiness. Can you give us your outlook on this?
Simply put, companies that are serious about CSR have strong
growth prospects. That is why SRI funds, or funds that base investment decisions on thorough considerations of the CSR of thecompanies targeted for investment, can be expected to return
good performance over the long-term. Once more investors cometo understand this, I think SRI will grow significantly in the future.

■ Focusing on environmental protection to help achieve asustainable society––Why did you join the United Nations Environmental Programme Finance Initiative (UNEP FI) in November 2004?
The UNEP Statement by Financial Institutions on the Environment
and Sustainable Development clearly proclaims a financial institution's intent to contribute to the sustainable development of society through its regular business. This statement is fully compatible
with the Daiwa Securities Group's basic philosophy of conducting
all of its business in a way that fulfills our CSR.
The simultaneous pursuit of economic growth and environmental protection is an important theme for human society in the 21st
century. Going forward, Daiwa will be one of the financial institutions that work aggressively to help achieve that goal.

DAIWA SUSTAINABILITY REPORT 200505

T he Daiw a S ecu r it ies Group a nd Susta i na bi l i ty
■ The role of a securities business is to support the smooth flow offunds between businesses and investors by bringing them together
The term finance, in its simplest sense, means making money available topeople. Finance involves those who have funds to spare (individuals orbusinesses) making those monies available to those who have a shortageof funds (usually businesses and governments). Finance can take either theform of direct finance, in which a business or government procures funds
directly from certain investors, or indirect finance, in which a business or
government borrows funds through a financial institution such as a bank.
The negotiable securities handled by a securities company are a means ofconducting direct finance.
Negotiable securities represent a means for businesses to procure necessary funds and for investors to manage their funds. Negotiable securities
include stocks, bonds, and investment trusts (also called "mutual funds").
Businesses issue stocks to raise capital for their operations. People who
respond to the appeal of a business receive shares (stock certificates) fromthe business as proof of their investment of money and thereby become
shareholders. A bond is one type of document of obligation (an IOU) issued
by public institutions or businesses to borrow funds. An investment trust is
an arrangement where a professional manages a sum of money belonging
to a number of investors. Investors can receive dividends or interest ascompensation for their investment in these negotiable securities.
When an investor buys or sells stocks, a securities company acts as anagent to carry out the trade at the securities exchange. Investors can also
buy or sell bonds and investment trusts through a securities company.
At the same time, a securities company also helps businesses and organizations raise needed funds. For example, a securities company handles the procedures required to offer the stock of an unlisted company tothe public and to increase the capital of publicly-traded companies.
Thus, the role of a securities company is to help investors build their assets by serving as a transaction agent in the buying and selling of securities, and to help businesses, public institutions, and other organizations
raise needed funds. This is how a securities company supports the smoothsupply of funds in society by bringing business and investors together.

Daiwa Securities Group Corporate Principles(established March 1998)■ The role of financial institutions in building asustainable society
Capitalism, which is supported by this financial structure, has brought
about the economic development of modern society. On the flip side,
however, attention is also coming to focus on the negative phenomena
produced by business activities that pursue economic gain alone under
the aegis of globalism and the capitalist economy, such as environmental destruction on a global scale and the expanding gap between therich and poor. The global society is facing challenges to its present
course as a result of these types of business activities.
The concept of sustainability derives from the idea of sustainable development articulated in "Our Common Future," a report published in
1987 by the United Nations' World Commission on Environment and Development, commonly known as the Brundtland Commission. The
Brundtland Commission defined sustainable development as"development that meets the needs of the present without compromising the ability of future generations to meet their own needs." Achieving
sustainable development requires that all actors on Earth must, in consideration of future generations, behave in accordance with principles
that promote co-existence and shared prosperity.
The present economic system is the greatest factor underlying the apprehensions about sustainability. The lifeblood of that economic system
is money, so in that sense, money has the potential to ruin the sustainability of society. On the other hand, however, money is also the key tosolving a variety of problems that might affect sustainability. For thatreason, financial institutions, which handle money, can play a significant
role in terms of encouraging sustainability. That role would be to integrate a social perspective into the process of finance in order to help
channel money in a manner that leads to solutions for sustainability
problems.

UNEP Statement by Financial Institutions on the Environment
and Sustainable Development (Signed November 26, 2004)

Customer trust

We members of the financial services industry recognize thatWe stand on the trust of our customers. Prudently putting customer in-sustainable development depends upon a positive interaction

terests first and achieving a high standard of professional competence,

between economic and social development, and environmental

we intend to become Japan's most appealing securities group at home

protection, to balance the interests of this and future genera-

and abroad.

tions. We further recognize that sustainable development is the

Human values

collective responsibility of government, business, and individu-

People are the source of our competence. We highly value creative initia-

als. We are committed to working cooperatively with these sec-

tive by the individual, we cherish the challenging spirit, and appreciatetors within the framework of market mechanisms toward com-the capability and contributions of the individual.

mon environmental goals...

Total compliance
We can be proud and prosper only when we achieve total complianceand gain the trust of our customers, our market and of our world society.
We will maintain high standards of professional ethics and a fair code of
conduct, thereby contributing to the development of our society.
Sound profit
Our fundamental objective is to enhance shareholder value throughsound business operations. We will offer valuable services to our customers and earn adequate rewards for distribution to our shareholders.

06

DAIWA SUSTAINABILITY REPORT 2005

UNEP FI■ Contributing to sound economic and social development■ Issues facing the Daiwa Securities Groupthrough our core businessAs a financial institution working at the center of the economic world, theDaiwa Securities Group sees contributing to sound economic and social
development through its everyday business as its most important corporate social responsibility (CSR). To that end, the Group is currently focusing
on two areas.
The first is the popularization and promotion of socially responsible investment (SRI) in Japanese society. SRI supports the building of a sustainable society by investing proactively in companies that are working to solve
societal issues and companies that are honest with their stakeholders. In
November 2004, we joined the United Nations Environmental Programme
Finance Initiative (UNEP FI) and signed UNEP Statement by Financial Institutions on the Environment and Sustainable Development in a move to cooperate with other financial institutions in further promoting SRI.
The second is educational and research activities in the field of economics and finance designed to foster a broad investor base and bolster development of the capital market. Our objective is to invigorate the financial
and securities markets in order to contribute to revitalization of the Japanese economy. We will promote this by helping investors and the generalpublic, especially young people, to acquire accurate knowledge of economics and finance.
The Daiwa Securities Group will push ahead with these two initiatives
based on its Corporate Principles and its commitment to earning the trustof stakeholders.

Moving these initiatives forward, however, is not an easy matter. The
Daiwa Securities Group has a number of issues that it needs to overcome. Our first and biggest challenge is to promote a CSR mentality
and communicate the significance of these initiatives to all employees.
At present, we cannot say that all our employees fully understand key
ideas such as the significance of SRI and the importance of Economic
and Financial education. Moreover, we have only just begun to build a
CSR promotion system and environmental management system.
There are no textbooks on initiatives for achieving sustainability. We
will, therefore, venture forward in a spirit of exploration and experimentation, and will always keep our internal and external stakeholders informed by describing our progress in this Sustainability Report. Our
management is determined to continue to improve the Group's sustainability initiatives by listening to the viewpoints and suggestions of our
stakeholders.

Daiwa Securities Group stakeholders

Customers

NPOs
and
NGOs

Employees

Local
communities

Customers
We will raise customer satisfaction by providing better
products and services, responding sincerely to customer
feedback and understanding
customer needs.

Employees
We will build work environments that enable employees
to feel a sense of fulfillment,
pride, and satisfaction in theirwork and enthusiastically demonstrate their abilities.

Stakeholders and investors
We will earn trust by disclosing
information in a highly transparent manner and meet expectations by continuously creating value.

Shareholders
andinvestors

Local communities
We regard our corporate citizenship activities as an investment
in society, and will contribute to
the development of communities primarily in the field of economic and financial education.

NPOs and NGOs
We will not only provide monetary support,
but also use our knowledge and expertiseto collaborate with NPOs and NGOs. We willreflect the values of society in our management by proactively engaging in dialogue
and collaborating with NPOs and NGOs.

DAIWA SUSTAINABILITY REPORT 200507

Special Feature 1
Initiatives in the Daiwa Securities Group's Core BusinessInitiatives for Socially Responsible Investment
Initiatives for SRI funds■Evaluation points in the R-BEC001 CSR evaluation
standards used for the Daiwa SRI Fund

What are SRI funds?
An investment fund is a financial product in which a company
specializing in investment (the fund management organization)
oversees the money collected from a large number of investors
in a single investment account on behalf of the investors. One
type of investment fund is an SRI fund, where the stocks forpotential investment are screened from the perspectives bothof growth potential and of sustainability under certain CSR
evaluation standards. The eco funds (ecologically oriented investment funds) that began to appear in Japan in 1999 are one
example of an SRI fund.
SRI fund products differ in their characteristics, dependingon the portfolio construction process and the CSR evaluation
standards. The CSR evaluation standards and portfolio building
process for the Daiwa SRI Fund are shown in the diagram.

Overall ethical and legal compliance activities
Ethics and integrity
Social contributions and responsibility
Environmental and green activities
Planning systems and processes
Management philosophy
Basic policies for ethical and legal compliance
Compliance manual
Implementation plans, legal rules, and internal regulations
Systems and processes for implementation and management
Divisions and departments in charge of ethical and legal complianceCorporate governance
Education and training in ethics and legal compliance
Communication
Management and control
Preparation and measures for crisis management
Systems and processes for auditing and improvement
Self evaluation
Internal evaluation
Prevention and correction measures based on self and internal evaluations
Management system auditing
Follow-up audits
Improvement by management levels■Basic policy for Daiwa SRI Fund portfolio construction

STEP 3
Portfolio

STEP 2

STEP 1

Investment stock
candidates

Group of companies witha high CSR evaluation

Build prospective portfolios by assessing stock
market volatility and stock price levels

Select stocks by evaluating corporate investment
value from the perspective of growth potential
and sustainability.

Screen stocks by referring to the evaluation
results from Integrex.

* Integrex Inc. is a company that carries out quantitative CSR evaluation. Supported only by individual investors, it is an impartial evaluation company with no capital relationships with financial institutions or non-financial companies. Integrex carries out SRI evaluations using CSR evaluation standards (R-BEC001). These are based on Japan's own ECS2000 CSR standards and were mostly prepared by the Reitaku University Business Ethics and Compliance Research Center (Representative: Dr. Iwao Taka).

08

DAIWA SUSTAINABILITY REPORT 2005

Socially responsible investment (SRI) is a method of investing that emphasizes firms' performance in the area of corporate social responsibility (CSR), including their environmental initiatives, social consciousness, and ethics, in addition tofinancial performance factors such as sales and profits. The Daiwa Securities Group, whose main business is the provision of financial services, is well-positioned to contribute to creating a sustainable society through the technique of SRI.
The following is a report on our initiatives for SRI funds, initiatives in the asset management business and the Daiwa
Group's own investment business, as well as initiatives with the goal of improving awareness and understanding of SRI.

Daiwa Securities Group SRI funds(The figures are according to a Daiwa Securities Groupsurvey, as of June 30, 2005.)

Daiwa SRI FundUBS Global Equity 40 SRI+

■Performance results for the Daiwa SRI Fund

Mrs. Green

Daiwa SRI Fund benchmark prices

(¥)

TOPIX

11,500(May 20, 2004 to June 30, 2005)

11,000Special Feature 1

The Daiwa Securities Group began with the Global Eco Growth Fund (commonly called "Mrs.
Green") in 2001, followed by the UBS Global
Equity 40 SRI+ in 2003, and the Daiwa SRI Fundin 2004. The total net assets of these three SRI
funds amount to ¥30.254 billion, which is 22.6%of the total net assets of all SRI funds in Japan(¥133.623 billion).
The Daiwa SRI Fund is a new product based onJapan's own ECS2000 CSR standards, which also evaluate the sincerity and transparency ofcompanies. Although the performance of thisfund is currently below that of the Tokyo Stock
Price Index (TOPIX), we are aiming for performance results that are better than the TOPIX overthe medium and long term.

10,50010,0009,000
5/20/04

7/20/04

9/20/04

11/20/04

1/20/05

3/20/05

5/20/05* Initial TOPIX value has been set to 10,000, to serve as a comparison index

Current situation of Japanese SRI funds
In the US, the value of SRI fund assets has expanded rapidly
since the 1990s, in 2003, the number of funds reached 200,
achieving a combined value of about US$162 billion (¥18 trillion). Meanwhile, Japanese SRI funds only number about 20,
and their total asset worth is just over ¥130 billion.
(The US figures are from 2003, while the Japanese figures are as of June 30,
2005, according to a survey by the Daiwa Securities Group. Source: "2003
Report on SRI Trends in the US," SIF)

■Comparison of SRI funds in Japan and the US(¥ billion)

Number of funds

250

25,000200

200

17,82020,000150

15,000100

10,00050
020

Number of funds
Balance

5,000

Initiatives in the Daiwa Securities Group's Core Business

9,500

130
Japan

US

0

Issues and outlook for the popularization of SRI funds
SRI funds have only a brief history in Japan, and they have notyet demonstrated returns over the medium and long term.
However, since companies that promote CSR activities are likely to increase in value over the long term, SRI funds provide an
attractive investment tool.
An SRI awareness survey was conducted during the Daiwa
SRI Investor Seminar held in June 2004. About 35% of respondents thought that the SRI concept is having an impact on

current investment behavior, and 76% thought that SRI will
gain popularity in Japan in the future. Due to the increased interest among investors, the market for SRI funds has future
growth potential.
One social mission of the Daiwa Securities Group is to leadthe way in the popularization of SRI. Through our own initiatives
and support for NPOs and NGOs that advance SRI, we intend
to promote SRI funds in Japan.

DAIWA SUSTAINABILITY REPORT 200509

Special Feature 1
Initiatives in the Daiwa Securities Group's Core BusinessInitiatives for Socially Responsible Investment
Initiatives in other investment business
Additional investment in a World Bank carbon fund, and clean development mechanism approval
In March 2005, Daiwa Securities SMBC Principal Investments Co. Ltd.,
added US$5 million to its investment in the Community Development Carbon Fund, one of the World Bank's carbon funds (US$2.5 million investment in July 2003, for a total investment of US$7.5 million). In July 2005,
the Community Development Carbon Fund's La Esperanza Hydroelectric
Project was approved as a clean development mechanism (CDM)*1 by the
CDM Executive Board at a meeting in Bonn, Germany.

Overview of the La Esperanza Hydroelectric Project
Near the city of La Esperanza in the Intibuca region of Honduras, a 12,700kw hydroelectric plant will be built in order to supply electricity to 40,000
people in La Esperanza and the surrounding area. This effort will enable a
37,000-ton reduction in the annual emissions of greenhouse gases.
*1. A system that enables the trading of greenhouse gas reduction amounts to meet obligations under the Kyoto Protocol. This is achieved through development projects to reduce greenhouse emissions, which are subject to certain approval procedures. However, the project must be carried out ina developing country by a firm from a developed country that supplies the technology and financing.

Regional corporate recovery funds
The recovery of local medium and small-scale businesses is indispensablefor the revitalization of a region's economy and industry. Daiwa Securities
SMBC Principal Investments participates in the formation and managementof various regional corporate recovery funds. Through the acquisition ofstocks and the purchase of loans from financial institutions, it is supporting
the revitalization of small and medium-sized businesses in rural areas.

■Framework for the Hokkaido Corporate Recovery Fund
Stockholders
Investors
Management company
Hokkaido Mother Land Capital, Ltd.

• Hokkaido Corporate Recovery Fund: ¥10 billion in total asset commitment• Tochigi Corporate Recovery Fund: ¥8 billion in total asset commitment• Tokyo Challenge Fund: ¥7.5 billion in total asset commitment

Board of directors

Auditors

Investment committee

Advisory board

Management

Business tie-up agreement

Hokkaido Corporate
Recovery Fund

Investment

Daiwa Securities SMBC Principal Investments
Regional recovery funds (Japanese only)

URL http://www.daiwasmbcpi.co.jp/solution/sol400.html

Initiatives in the asset management business
Exercising our stockholder responsibilities
The two asset management companies of the Daiwa Securities Group recognize the importance of investment target companies living up to their social responsibilities. They are therefore moving forward with corporate governance initiatives that include the exercising of stockholder voting rights.
In May 2002, Daiwa Asset Management Co. Ltd., established its basic
philosophy and guidelines for the exercising of stockholder voting rights,
and in July 1998, Daiwa SB Investments Ltd., put in place the Corporate
Governance Initiatives Objective and Basic Approach (these policies havebeen made public online, in Japanese). Both companies have increased
stockholder value over the medium and long term, and have made it theirpolicy to exercise voting rights in order to fulfill their responsibility as investment trustees. Specific votes on issues are determined by committees
on the basis of corporate governance committee regulations. Daiwa is also
going beyond voting and is striving to improve shareholder value by using
various opportunities to encourage investment target companies and to improve their corporate governance.
10

DAIWA SUSTAINABILITY REPORT 2005

Regional support funds
The Daiwa Securities Group puts together and sells regional support funds
that are made up of companies based in certain regions of Japan, on thetheme of revitalizing regional economies. In March 2005, we invested inlisted companies from Toyama Prefecture, in a new fund called the Toyama
Support Fund. This fund is not charity; its aim is to secure stable profits
and to promote growth of the entrusted assets. This brings the total number of these support funds to five.

■List of regional support funds (as of June 30, 2005)
Fund name
Ibaraki Fund
Kanagawa Support Fund
Sainokuni Support Fund
Shizuoka Benchmark Fund
Toyama Support Fund
Total

RegionIbarakiKanagawa
SaitamaShizuoka
ToyamaTotal net assets(¥ billion)

3.7
1.2
4.2
7.2
4.9
21.2

Initiatives aiming to improve the awareness and understanding of SRI

Supporting NPOs and NGOs that advance SRIThe Daiwa Institute of Research Ltd. publishes various reports relating
to CSR and SRI on the CSR web site of the Daiwa Securities Group.
The March 2005 report entitled "Good Stock Performance by Companies that Actively Support Female Employees" (Quantitative Analysis
Team, Investment Strategy Department) examines the strong businessperformance of companies that actively promote women as well as
those that have systems to make it easy for women to work while
meeting childcare or elder care responsibilities at the same time. It is
not possible to prove a causal relationship from these analysis resultsthat the promotion of women is directly linked to better stock performance. However, it is possible to say that the selection of and investment in companies that have CSR management policies that address
the needs of female employees is a valid investment strategy.
CSR and SRI related reports(Japanese only)

The Daiwa Securities Group has become a member of two organizations: the Social Investment Forum Japan (SIF-Japan), which aims toestablish social systems where capital is directed into reputable, socially responsible companies, and ASrIA, which seeks to promote SRI
across Asia.

URL http://www.daiwa.jp/branding/sri/report.html

Adoption of Daiwa SRI Fund for corporate pension plans
Since November 2004, the Daiwa SRI Fund, which invests in companies that are highly rated for their CSR initiatives, was added to the selection of investment products for the Daiwa Securities Group 401k
plans, our defined contribution pension plans for employees. This fund,which is already an investment product for defined contribution pension plans for general clients, will be further expanded in the future.

TOPICS

Current situation for the popularization of SRI

According to the Questionnaire on the Roles Companies Should Playin Society carried out in November 2004 by the Nikkei CSR Project*2
sponsored by the Nihon Keizai Shimbun, the level of recognition of
SRI was only 10% among business people and individual investors.
However, those that would invest in a company that actively pursues
CSR management as opposed to another company of comparable
standing exceeded 90%. Another survey of analysts and fund managers carried out in December 2004 by Daiwa Investor Relations Co.
Ltd., showed the recognition level was 95% for SRI and 94% for CSR.
It is expected that investment in companies with active CSR policies will also gain popularity in Japan as CSR is more widely recognized and understood.
*2. The Daiwa Securities Group supported this project from April 2004 to
March 2005.

Nikkei CSR Project: Questionnaire on the Roles Companies Should Play in Society
Target groups: Business people (356 men and women working at listed companies or companies
with at least 100 employees)
Individual investors (326 owners of stocks or investment products) (November 2004)

Item
Recognize SRIBusiness people
10.9%

Individual investors
13.8%

92.7%

93.1%

Would prefer to invest in a company that actively
pursues a policy of corporate social responsibility,
given a choice with another company of otherwise
similar management and financial conditions.

Special Feature 1

In order to convey the importance of SRI to as many people as possible, we placed an SRI fund advertisement in the magazine, Nikkei
Ecology (April 2005).

Issuing CSR and SRI reports

Initiatives in the Daiwa Securities Group's Core Business

SRI fund advertising activities

SRI awareness survey by Daiwa Investor Relations
Target groups: 99 Japanese stock market analysts and fund managers

Item(December 2004)

Current survey

Compared to previous survey

Recognize SRI

94.9%

Up 2.3 percentage points

Recognize CSR

93.9%

Up 3.8 percentage points

SRI will gain popularity in Japan67.7%

Up 7.2 percentage points

SRI affects report preparation andselection of stocks for investment

35.3%

Up 14.3 percentage points

DAIWA SUSTAINABILITY REPORT 2005

11

Special Feature 1
Initiatives in the Daiwa Securities Group's Core BusinessInitiatives for Economic and Financial Literacy Education
Two core programs focused on economic and financial education
The Daiwa Securities Group recognizes the importance of educational and research activities for economics and finance. We are promoting initiatives focused on these two fields, by working with various educational institutions and NPOs.
The first initiative involves support for the education and research fields through partnerships with universities and graduate schools. In
addition to promoting joint research with graduate schools and offering courses and sending lecturers to universities all over Japan, theDaiwa Securities Group sends out program coordinators in order to connect "seeds" (inside the universities) with "needs" (in industry).
The second initiative involves support for programs that are carried out in the classrooms, as well as activities to popularize economic
learning among elementary, junior high, and senior high school students.
The Daiwa Securities Group places importance on corporate citizenship activities that utilize its own specialized knowledge and expertise, as part of the Group's core-business CSR activities, and we will continue to actively perform these activities in the future.
■Initiatives for Economic and Financial Education

Sustainable development of the Japanese economy in the 21st century
Educational institutions

Research institutions

Understanding socialand economic principles

Raising the level of economic
and financial knowledge

Development offinancial experts

Publication and utilizationof research results

Practical applicationand commercializationof research results

Elementary, junior high, andsenior high school students

Undergraduate students

Graduate students

ResearchersIntellectual property
and patents

Support for teachers
Participation in classes

Courses offered or sponsored,
lecturers sent

Courses offered or sponsored,
lecturers sent

Joint research
Research support

Support for university venturecompanies and intellectual
property departments

Cooperation of group employees■Main academic partnerships with universities until fiscal 2004
Main university partnerships

Courses sponsored or offered,lecturers sent

Joint research

Support for commercializationof research results

University nameExamples of main courses and themes

Graduate School of International Corporate Strategy (ICS), Hitotsubashi University

Daiwa Securities corporate strategy creation, corporate restructuring

Faculty of Policy Management, Keio University (Shonan Fujisawa Campus)

Corporate governance theory

Graduate School of International Management, Aoyama Gakuin University

Fund management, institutional investors and asset management

Graduate School of Economics, Kyoto University

Institutional investors and asset management, securities system theory

Graduate School of Medicine, Kyoto University

Entrepreneur development course

Faculty of Law, Chuo University

International internship, international finance and securities market, and law

Faculty of Comprehensive Welfare, Tohoku Fukushi University

Welfare society and securities

Faculty of Economics, Kagawa University

Securities market theory

Division of University Corporate Relations, Tokyo University

Joint research for commercialization of university technology

Graduate School of Economics, Kyoto University

Calculation of voting right values

Waseda Graduate School of Finance, Accounting and Law

Corporate governanceBusiness, Research and Intellectual Property Center, Nihon University

Technology licensing organization (TLO) consulting and commercialization support

Waseda University

TLO pilot fund and company activities for backing seed ventures

Keio University

Joint research for technology commercialization through participation in the Keio University Venture Forum
Public lectures by Assistant Professors Kerbini and MorimotoSupport, courses, and holding joint
conferences and lectures

Graduate School of International Corporate Strategy (ICS),

Guest Lecture by Michel Crouhy

Hitotsubashi University

Special Lecture by Dr. Darrell Duffie
Special Commemorative Lecture for the Establishment of Daiwa Sponsored Courses
2004 Daiwa International Workshop on Financial Engineering

Graduate School of Economics, Kyoto University

International Commemorative Symposium for the Opening of the Shanghai Center
Commemorative Symposium for the Establishment of Daiwa Sponsored Courses

12

DAIWA SUSTAINABILITY REPORT 2005

A company does not exist merely to perform business functions; rather it must also play a role as a member of society, a corporate citizen. Partof this role is to give back to society some of the technology, knowledge, and expertise that it accumulates in each of its core business areas.
As a corporate group mainly involved in the financial sector, the Daiwa Securities Group is utilizing the expertise that it has developed
through its core business. We are working with NPOs and educational institutions including schools, and providing opportunities for the next
generation to learn about economics and finance. This is one way that the Daiwa Securities Group is carrying out corporate social responsibility activities through its core business.

Partnerships with universities and graduate schools
The Daiwa Securities Group is promoting partnerships with universities and graduate schools, as part of its initiatives to contribute to thesustainable development of the economy. We are creating mutually beneficial dynamics between industry and academia through various
channels including support for education, research, and exchanges.

At the Shonan Fujisawa Campus of Keio University, we offer a course on the theory ofcorporate governance. Started in the fall semester of 2001, this course is now in its
fourth year and is open to both undergraduate and graduate students. Based on thetheme of corporate governance in the securities market, the course is taught by both
Keio University professors and executives and staff of various Daiwa Securities Group
companies, primarily the Daiwa Institute of Research Ltd. The course has covered everything from basic knowledge to investor relations, socially responsible investment, corporate reorganization, and even the recent series of corporate scandals. Consequently, it isable to deepen students' understanding of securities in a systematic way. The course
has been very well received thanks to incorporation of recent real-world cases, and thenumber of students enrolled is increasing every year. The course has become so popularthat some students come to listen in on the lectures at the back of the large lecture hall.

Special Feature 1

Courses offered

Class at Keio
University

Joint research entitled "J-REIT Net Asset Value Calculation" was carried out by Professor Yuichiro Kawaguchi of Waseda University's Graduate School of Accounting Financeand Law, and the Structured Finance Department, Daiwa Securities SMBC Co. Ltd.
This joint research involves the preparation of a computer program to calculate themonthly total net asset value of real estate investment trusts (J-REIT) listed on the Tokyo
and Osaka stock exchanges. It also includes the calculation of monthly total net asset
value based on this program. By providing a useful index on J-REIT investment to investors, we expect to broaden the participation in the J-REIT market.

Initiatives in the Daiwa Securities Group's Core Business

Joint research
From the right: Assistant Professor Hiroshi
Ishijima (Waseda University Center for Financial
Research),
Professor Yuichiro Kawaguchi(WasedaGraduate School of Finance, Accounting andLaw), Deputy General
Manager Masayuki Yokota, Assistant Manager Yoshiaki Iguchi(Structured Finance
Department, Daiwa
Securities SMBC)

Supporting the Porter Prize
The Porter Prize was established in July 2001 by Graduate School of International Corporate Strategy, Hitotsubashi University (ICS), with Michael Porter of Harvard University
serving as an advisor. The purpose of the award is to honor Japanese companies that
implement a unique strategy to successfully achieve high, sustained profits in their industry. In May 2001, the Daiwa Securities Group and ICS established a comprehensive
partnership based on the common philosophy of promoting cooperation between industry and academia in the fields of both finance and management, and contributing to therevitalization of the Japanese economy. As part of this partnership, the Daiwa Securities
Group has provided comprehensive support for the Porter Prize since its inception.
The Porter Prize selection process is expected to become an innovative method ofcorporate evaluation for the future. The fourth annual Porter Prize ceremony was held on
December 3, 2004. The awards went to Daido Life Insurance Company, and PHOENIXElectric Co., Ltd.

Awards ceremony
Professor MichaelPorter (right) andSadaichi
Saito,
then-President of
PHOENIX Electric(now Chairman)

DAIWA SUSTAINABILITY REPORT 2005

13

Special Feature 1
Initiatives in the Daiwa Securities Group's Core BusinessInitiatives for Economic and Financial Literacy Education
Developing life skills: Economic Literacy education for young people
The Daiwa Securities Group places high importance on learning about the flow of money and economic mechanisms, especiallyfor young people, who are the leaders of tomorrow. We are providing program support in the classroom and pursuing activities topopularize economic education for elementary, junior high and senior high school students.
In the past there has been insufficient education for Japanese young people concerning real-world economics, while today, ouryoung people get daily exposure to the virtual world of the Internet. Therefore, finding out about social mechanisms and developing communication skills through hands-on learning for economics is a great way to enable young people to grow.

Partnerships with NPOs
The Daiwa Securities Group supports the activities of Junior Achievement,*1 a non-profit organization that is providing economic literacy education around the world. Since joining the organization asa corporate member of Junior Achievement Japan/Board Chair,
Mr.Takeo Shiina (Senior Advisor of IBM- Japan) in 2000, we havebuilt a partnership with Junior Achievement through various activities. These include sending employees to participate in theStudent Company Program at high schools, providing support to
Global Leadership Forums for Elementary, Junior High and Senior High School Teachers, and producing the Japanese versionof Financial Fitness for Life for studens, teachers and parents.
*1. Founded in the US in 1919, Junior Achievement developed activities for the promotion
and implementation of education related to finance, economics, and corporate management. Today, 40,000 companies support the organization through financial and human resources assistance, which includes company employees and managers who serve as
Junior Achievement instructors. Each year the organization teaches 6.5 million young participants grobally. Junior Achievement Japan was established in 1995.

Stakeholder comment
Expectations for the Daiwa Securities GroupThe sentiment that companies ought to contribute to society as corporate
citizens has become quite strong. However, there is also a strong sense inJapan that social contribution activities by companies are a type of charity.
Since companies have greatly benefited from and depended on resources
provided by local communities such as labor and government services, it isnecessary for them to realize that they need to give back to the community
through their activities as corporate citizens. I believe that, in the future, allcompanies will come to think this way. Based on theidea of giving back to society, the Daiwa Securities
Group strives to enhance its activities in cooperation
with NPOs and local communities. I think that the
Daiwa Securities Group will be respected as a leading
company in this new era for corporate responsibility.
Yoshihiro Nakamoto
President & Chief Operating Officer, Junior Achievement Japan

Global Leadership Forum for Elementary, Junior High and Senior High School Teachers
The Daiwa Securities Group has been supporting the Global Leadership Forum for Elementary, Junior High and Senior High School
Teachers, sponsored by Junior Achievement
Japan, since fiscal 2003. At the fourth annual
forum held on February 26, 2005, with about
500 teachers in attendance, Yoshinari Hara,
Chairman of the Board of Daiwa Securities
Group Inc., gave a lecture entitled, "Why
Companies Should Support Economic Literacy Education for Youth."

14

DAIWA SUSTAINABILITY REPORT 2005

Why Companies Should Support Economic Education for YouthAn important focus of corporate social responsibility activities today is investment in the
future to ensure sustainable growth. The Daiwa Securities Group is emphasizing support for financial and economic literacy education as an important pillar of its CSR activities. As professionals in the field of finance and economics, we are promoting education for youth, in the conviction that helping to create a better society also contributes
to the development of our own corporate group.
Japan lags behind other parts of the world in economic
education, even though we now live at a time when market
economies are rapidly taking sway. This is an issue thatthe entire Japanese society needs to address in order toimprove our future competitiveness and economic development. I hope that the elementary, junior high and seniorhigh school students of today, who are also the leaders of
tomorrow, will learn that society should be based on peaceHaraand mutual prosperity, that the actions of individuals can Yoshinari
Chairman of the Board
Daiwa
Securities
Group Inc.
create value for society, and that individual autonomy andmoral values are indispensable for economic activities.

Student Company Program (SCP)■Income Statement for Ichigan Inc.

(for the period from September 16,
2004 to February 3, 2005)

Revenues and Expenses
28,580Daiwa Securities
Kyoto Branch
9%17,500

Paint

Other
12%

550

Metal washers

Market sales(shopping district
and kindergarten)
44%
Persons fromthe school(PTA members and teachers)
35%

2,110

Wrapping supplies

2,117

Other costs

6,303

Gross profit

155,165

Sales and general administrative expenses
Salaries

43,77528,135

Employee bonuses

7,500

Facilities and equipment expense

2,380

Transportation

1,060

Other expenses

4,700

Operating income

111,390

Revenues and Other Income and Expenses
Non-operating income
Other expenses

70
15,000

Income before taxes

96,460

Income tax

32,796

Net income

63,664Retained earnings for the period

63,664(¥)

Established Ichigan Inc.

December 12, 2004

Started product sales

January 24, 2005

Sales at the Daiwa Securities Kyoto Branch

January 29, 2005

Sales at the Takatsuski Futaba Kindergarten

February 2, 2005

Fifth sales event at the Otesuji

Stakeholder comment
Product: Angel Heart candles

shopping district in Fushimi-ku, Kyoto
February 3, 2005

Activities completed

March 25, 2005

Reported results to President Suzuki at

Product sales on the street

Daiwa Securities Group Inc. headquarters
March 26, 2005

183,745

Cost of sales
Paraffin wax■Overview of activities
September 16, 2004

Sales

Announced results at the joint general
meeting of shareholders

Joint general shareholders meeting

Special Feature 1

Sales activity details

Participating in the Student Company Program
I helped out with this hands-on practical business education program by playing the role of an outside director, over a period of 16 weeks.
Since all of the activities in the program were ones
that actually occur in the real world, I personallylearned a lot of things even though I was there to help
teach the young people, and the experience was very
worthwhile. I was also amazed by how much the students grew through these activities.
I think the Student Company Program provides
both students and business people the opportunity tolearn and grow. All employees
of Daiwa Securities Groupshould experience this program if they have the chance.
Kenji Kawamura

Initiatives in the Daiwa Securities Group's Core Business

The Daiwa Securities Group has been supporting the Student Company Program (SCP) since fiscal 2003. This
hands-on practical business education program is run by
Junior Achievement, and is being provided as a regularcourse at Ritsumeikan Senior High School in Kyoto.
In fiscal 2004, 20 alumni of the second year of thecourse set up a joint-stock company with capital of¥10,000. They then began developing, producing, andselling products, and after 16 weeks they announced theresults at a general meeting of shareholders. For the second year in a row, three employees/retirees from Daiwa
Securities Group participated in the classes each week byserving as "outside directors" for the students' company.

General Manager,
Corporate Communications Department
Daiwa Securities Group Inc.

Production support for the Japanese version of Financial Fitness for LifeThe Daiwa Securities Group provided support for the production of
the Japanese version of Financial Fitness for Life, a teaching material
that is widely used for economic and financial literacy education injunior high schools in the US. Among the volunteers who participated in the translation of the text were 44 employees from the Daiwa
Securities Group.
By employing a consistent theme that economics is based on
choices, the goal of this textbook is to enable children to use economic concepts in their daily decision making and future career

paths. To enable effective learning, it is comprisedof three parts: one for students, one for teachers,
and one for parents.
In the Japanese version, the translators
strived to adapt the original US text to better reflect the culture and customs in this country,
and to make it easier for Japanese children tounderstand. Junior Achievement Japan plans The Japanese versionof Financial Fitness forto utilize this Japanese version in its programs. Life.( Trial version)
DAIWA SUSTAINABILITY REPORT 2005

15

Special Feature 2 Stakeholder Dialogue

Conversation between Daiwa Securities Group
Employees' Union and Personnel Department
Aspiring to build a work environment where people can display their professionalism

We want to stimulate communication among
union members to broaden their horizons.
Wakabayashi: The union seems to have been organizing a lot of animated roundtable talks and social gatherings for its members recently.
Koshimizu: Yes, it has. We're trying to create as many opportunities as
possible for union members to exchange opinions among themselves.
Our slogan for this is "Communication Revolution." Examples include
the Young Sales Employees Roundtable and the Evaluation System Review Team, which have been meeting about one to four times permonth since August 2004. The goal is to stir up wide-ranging communication, at numerous locations, where union members with diverse
points of view gather.
The Daiwa Securities Group is comprised of companies in diverse
business categories. There are also regional differences and differencesof attitude among employees, depending on how long they have beenwith the Group. I think that having lively face-to-face interactions to overcome these differences leads to personal and professional growth for theunion members themselves. Sometimes members with radically different
viewpoints have a clash of opinions. However, there are also cases where
on-the-job communication becomes smoother after a heated discussion.
Wakabayashi: At the Daiwa Securities Group, the Employees' Union isrecognized for having played the crucial role of facilitating communication
among employees. I see the current drive to reinvigorate communication
as an extension of that history.
Koshimizu: That's exactly right. The whole intention of union activities
is to contribute to the well-being of employees. In the mid- and longterm, this goal cannot be achieved without the growth of the company.
That's why I think that labor and management are ultimately after thesame thing.
Nevertheless, having said that, it is true that people in different positions have different perspectives. The role I'd like to see the union play is
to encourage the growth of individual union members and the Groupoverall by understanding those differences and communicating them tothe company.
Stimulating communication among employees outside of the workplace is one method of realizing the union's basic stance. I think it's very

Takashi Koshimizu
ChairmanDaiwa Securities Group
Employees' Union

16

DAIWA SUSTAINABILITY REPORT 2005

important for us to obtain an overall understanding of things that are notapparent during normal working hours or during training programs heldby the company.
Wakabayashi: Yes, the regular route of communication within a corporate structure is top-down. But, I think that if you imagine the corporate
structure as organic, like a living body, having diverse communicationroutes will, in the end, increase the collective strength of the organization.

We must constantly confirm whether the useof a performance-based evaluation system is
actually resulting in the fulfillment of CSR.
Koshimizu: The current attempt to enhance communication is also an
attempt to substantiate how employees are taking to the performancebased evaluation system that's been in place for several years now, andto measure how satisfied each of them is with the system.
Wakabayashi: Fairness and transparency are essential to making aperformance-based evaluation system work. In that sense, communication is extremely important. I think it's effective both for management
and employees to have the union provide feedback to management bytapping into opinions that employees find difficult to express directly tothe company.
Koshimizu: The Daiwa Securities Group is engaged in quite a few lines ofbusiness, and not all results appear clearly in the numerical value. Even if
those quantifiable areas may become clear, something always gets leftout when it comes to specific or sensitive areas. It's true that the performance-based evaluation system is more difficult to accept than theAs evidenced by the Next Generation Education and Support Promotion Act and the spread of the concept of the"family-friendly company," society's demands for better work environments and the realization of better modes of
employment have been increasing in recent years. The focus today is on the intangible aspect of how to makesystems more accessible to employees, rather than on the tangible aspect of enhancing systems. The Chairmanof the Daiwa Securities Group Employees' Union and the General Manager of the Personnel Department at Daiwa
Securities Group Inc. held a discussion about the kind of work environment we should strive to develop.

other meetings.

The challenge going forward is how to create
a comfortable life and equal opportunities.

Koshimizu: I feel there's a need to deepen company-wide understanding by promoting communication when running other programs, as well.
We believe that the union's key role is to go beyond merely demanding that the company provide systems that improve working conditions, as was common in the past, and actually encourage these programs to be utilized naturally. Even if the number of programs
increases, it is meaningless if no one wants to use them. In that sense,
I think it can be said that the points of contention have moved from thetangible to the intangible.

Stakeholder Dialogue

traditional general evaluations.
Meanwhile, employees have come to expect an even higher level of
implementation of performance-based evaluation. Now that the system isin place, they are asking whether they really have a sense of their own
achievement, and they're looking for the relationships between their objectives and what they were actually evaluated on. When it comes down
to it, I think the most important thing is for them to feel satisfied with thesystem's aims and implementation.
Wakabayashi: What I think you mean is, we are at a stage now where thequestion is how to breath life back into the performance-based evaluation
system. An institutionalized system for, for example, raising performanceor complying with the law, only begins to take on meaning when everyone puts their spirit and passion into it.
Koshimizu: For that to happen, employees must have a sense of ownership. The important question is whether or not the system allows each individual to have a sense that he or she is working as a professional, having set his or her own goals, rather than the feeling that they're just doing
what the company asked them to do.

Wakabayashi: From the management side as well, we would like to implement better measures to address society's declining birthrate and aging population in our five-year plan. We're going to discuss this with theunion. For example, although some women have taken child care leave,
no men have done so, leaving us with a number of points for improvement. We're considering the introduction of a reemployment system or areturn-to-work program, as well as support for child-rearing. We are going to establish a team for promoting the success of women to provide
recommendations from the women's perspective.

Special Feature 2

Koshimizu: While we're putting an effort into communication activities,
as I emphasized before, the union is also continuing its traditional role ofholding economic negotiations with the management and making proposals about the work environment. For instance, at the spring negotiation in 2005, we demanded that management develop an action planthat goes beyond the letter of the law by incorporating conditions letting
every employee take care of their children while continuing to work at
the company.

Wakabayashi: More and more people utilize the in-house staff recruitment system, and they like it more. Still, I think there's a need to confirm
how effective this system is and to understand new demands, so that we
can continue to tirelessly improve our personnel systems.
In that sense, I'd like to continue to conduct active exchanges of opinions and information with the Employees' Union, and I hope we can work
together to build even stronger corporate activities.

Wakabayashi: Quite right. There would seem to be an overlap between this idea and CSR, which has now become a significant driving
force in society.
In the securities industry, we deal with the public market, and so are always playing a public role. Each employee has to behave fairly, with theawareness of being an economic and social leader.
Koshimizu: It's important for each and every employee to actualize CSR
through his or her own work. Our union wants to communicate this importance to employees while exchanging our views at roundtables and

Takatoshi Wakabayashi
Corporate Executive Officer& General Manager of
Personnel Department
Daiwa Securities Group Inc.

DAIWA SUSTAINABILITY REPORT 2005

17

Special Feature 2
Stakeholder Dialogue

Disaster Assistancethrough Corporate-NGO Partnerships
The decisive factors in our commitment to this project were the conditions of long-term support that makes use of the distinctive abilities of a financial business and the acceptance of accountability.
Kiyama: What was the sequence of events that led to the Daiwa Securities Group's providing assistance after the Sumatran
earthquake and South Asian tsunami?
Miyashita: Until now, we have always collected money fromgroup executives and managers when there was a large disaster. This time too, we immediately started a fundraiser, but thepresident provided strong direction. He said, "This is not a typical disaster. I want us to do all that we can, after considering
the most basic point—what they really need in the afflicted
areas." So, we met with some people from the Japan NGO
Center for International Cooperation (JANIC).*1 We asked about
the ACT scheme, and saw a close match with what we werelooking for. We made it the framework for our support. We thenproceeded into the details.
Kiyama: What kind of match do you mean?
Miyashita: First of all, it was a long-term initiative, capable ofallowing us to see how the funds we provide are used on the
ground. We also liked the fact that we would be able to makerevisions after a few years. In addition, we were attracted to thepossibility of making an effort that takes advantage of the characteristics of the financial industry, such as using a charitable
trust, which is a financial mechanism, and utilizing the banking

Keiko Kiyama
Secretary General
JEN (NPO)

Mayuko Murasawa
Relationship Development Manager
JEN (NPO)JEN (formerly Japan Emergency NGOs)
Established in 1994, JEN is a registered nonprofit organization that supports the psychological care and selfreliance of people who have been deprived of their means of livelihood due to conflicts and or natural disasters. In the wake of the Sumatran earthquake and South Asian tsunami, JEN deployed emergency assistance to
Sri Lanka, based on its ample experience providing refugee assistance in the former Yugoslavia and emergency assistance in western India, southeastern Iran, and following the Chuetsu earthquake in Niigata Prefecture,
Japan. JEN is currently providing reconstruction assistance in Sri Lanka, Afghanistan, Eritrea, Iraq, and Niigata.

18

DAIWA SUSTAINABILITY REPORT 2005

practice of micro finance*2 as a means of reconstructing the affected areas.
Kiyama: Reconstruction takes a long, long time. But, not many
donors commit to long-term support. Micro finance itself is ahigh-risk, high-return undertaking, but it's a truly important
form of support. So, when I heard about this project, I felt thatyou are really aspiring to provide assistance that is truly for thegood of the beneficiaries. It gave me a great deal of courageand hope for the future of our NGO activities.
Kaneda: I think there are two main factors related to accountability that enabled us to commit to a long-term initiative. One isthat the funds would be managed by a trust bank, which would
report back to us how the funds were used. The second is that
we would receive activity reports each year, activity assessment
reports every three years, and a comprehensive assessment report at the end of the project after ten years. I wonder if there
are any NGOs that issue an activity report that records and assesses their activities across the board for a ten-year period.
Kiyama: I often hear of government five-year plans and ten
year plans, but I've never heard of a report that covers ten
years of a single, locally-based project like this one will. I hopethat you'll make the report available to the public, so that otherNGOs including ourselves can learn from it.
Kaneda: This project is something of a challenge for us, too,
and we'd certainly like to provide the information so that it becomes a valuable asset for others as well.
Miyashita: The project is based on a charitable trust and wasformed in partnership with an NGO. It's an unprecedented effort that we had to build up from scratch while consulting withthe people at JANIC. During the process we included an provision allowing ¥1 million per year for administrative expenses.
We put this in because we believed that administrative personnel costs and other such costs should be paid out of this money. I would be all the happier if the project scheme including
this point gets used as a model in the future.
Kiyama: When you wish to perform well, you have to havethings set up the right way. But in Japan, it is not widely understood that NGOs also need such a setup and it also costs decent amount of fund. I hope that you will spread the information of good results due to your support directed to setups.
We would highly appreciate that.
Kaneda: Non-profit activities don't mean that you are volunteering for free. To conduct your activities as a professional,
you need a proper budget. This is the same for both corporations and NGOs.

*1. Currently, the Asian Community Center 21 is serving as the secretariat for ACT.
2. A financial service that provides small loans and savings mainly to low income*earners
and small-scale business owners with the aim of reducing poverty.

The Daiwa Securities Group would like to express once more its heartfelt condolences for the victims of the Sumatran earthquake
and South Asian tsunami that stuck on December 26, 2004. The Group is providing long-term support, which will continue for aperiod of ten years, through a public charitable trust—the Asian Community Trust (ACT)—to reconstruct the disaster area left in
the wake of the earthquake and tsunami. On April 26, 2004, four months after the disaster struck, we invited representatives froman NGO that was conducting relief work in Sri Lanka to provide us with its opinion of corporate-NGO partnerships.

Miyashita: What kinds of things do NGOs desire or hope forwhen entering into a partnership with a corporation?
Kiyama: Majority of Japanese NGOs are facing difficulties withfund raising. If companies will share even a small part of theirexpertise on marketing, we can speak the same language as
corporations, which, I think, would in turn deepen their understanding of NGOs. Corporations have a lot of know-how thatthey have cultivated over the years.
Murasawa: I have had many opportunities to talk with company workers—mainly those from corporate community affairs
departments or CSR promotion departments—but general employees working at other sections very rarely know of community activities undertaken primarily by these departments. I understand that the Daiwa Securities Group has 12,000
employees. I think it would be a great support for us just to
have all these employees understand what their CSR Promotion Department does. It'd be great if each of these employees
felt the desire to support the developments of this project overthe next ten years while they work here.
Kaneda: I agree. The reason we wanted to get a yearly reportabout this project is because we have a strong desire to provide all employees with yearly feedback.
Kiyama: I understand that the Daiwa Securities Group is promoting SRI funds. I think this is very effective as a new vehicle
for the general public as well as employees to help contribute

Stakeholder Dialogue

NGOs expect partner companies to provide
their specialist know-how and promote internal communications.

to society. In this sense as
well, we expect a lot from the
Daiwa Securities Group andhope that it will make rapid
progress with these types of
new initiatives.
Miyashita: Not all employees
necessarily understand thefull significance of either corporate citizenship activities or
SRI funds yet. I think that facilitating understanding ofthese activities among allgroup employees is our biggest challenge here in the
CSR Promotion Department.
Murasawa: We'd be very
glad to speak about the situation in the field if it would help your internal communications. I
think we can provide interesting inputs in many areas.
Kiyama: Another problem is that NGOs in Japan are not fullyrecognized or supported by civil society. Of course, we NGOs
need to promote ourselves. At the same time, however, we
would really appreciate it if corporations could send out themessage that corporations and NGOs can work together aspartners. I strongly hope this project to become a model for
corporate-NGO partnerships, and hope that the Daiwa Securities Group will fulfill a leadership role in the corporate citizenship activities of Japan.

Special Feature 2

See page 43 for details about the Daiwa Securities Group's framework for assistance.

Miyashita: Thank you very much for this valuable conversation today.

Yoichi Miyashita
Head of CSR
Promotion Department
Daiwa Securities Group Inc.

Koichi Kaneda
Deputy General Manger,
CSR Promotion Department
Daiwa Securities Group Inc.

DAIWA SUSTAINABILITY REPORT 2005

19

Management

Results, Issues, and Targets
Below, we report the one-year results of efforts designed to promote the sustainable growth of society and the Daiwa Securities Group itself, and indicate future issues and targets.

Item

Issues and targets for fiscal 2004 and beyond
Establish more widely acceptable evaluation standards based on group strategy.

Corporate Governance

Progress
Partially completed

Establish Corporate Governance Principles.

Ongoing

Further enhance internal control system.

Ongoing

CSR Management
Raise level of internal understanding of Corporate Ethics Hotline and periodically survey awareness.

OngoingExamine establishment of Voluntary Action Standards.

Ongoing

Achieve more thorough legal compliance, eliminate improper conduct. Higher level of investor protection.

Ongoing

Appoint Compliance Officers.

Completed

Create Work Manual for Internal Administration Supervisors.

Completed

Strengthen compliance and online training for each division and department.

Ongoing

Revise Handbook for Legal Compliance.

Completed

Establish an electronic bulletin board for internal administration supervisors.

Ongoing

Entire Group

Daiwa Securities

Compliance

Daiwa Securities
SMBC

Strengthen functions of internal administration supervisors and administrators, enhance training, strengthen intra-departmental inspections, and improve environment to ensure thorough legal compliance.

Ongoing

Create a booklet of Compliance Newsletters.

Completed

Take measures to minimize risk of information leaks.

Ongoing

Increase percentage of shares owned by individual shareholders.

Ongoing

Actively pursue two-way communication with stakeholders.

Ongoing

Establish Daiwa SRI Fund and hold Daiwa SRI Investor Seminar.

Completed

Partner with Waseda Graduate School of Finance, Accounting and Law.

Completed

Make continuous efforts in post-sales follow up: Increase frequency of customer contact, study customer needs, and improve quality of proposals to customers.

Ongoing

Check basic actions: Be thorough in carrying out basic procedures and providing fundamental services.

Ongoing

Provide information that is easy for customers to understand: Use simple, straightforward language in documents and forms, etc., intended for customers.

Ongoing

Increase customer satisfaction by improving sales organization and service programs.

Ongoing

Review job descriptions and improve workplace environments to ease employment of the disabled.

Ongoing

Improve evaluator training to increase the objectivity of evaluations.

Ongoing

Achieve target of 20% group-wide enrollment in Daiwa Leadership Program.

OngoingEnhance personnel system with goal of fostering professional human resources.

Ongoing

Partner with aid-recipient parties subsidized by foundations and perform community-based corporate citizenship activities through branch offices.

Ongoing

Promote group company employees'understanding of volunteer activities through "welfare experience courses."Ongoing

Strengthen environmental communication with the goal of raising group employees' environmental awareness.

Ongoing

Study effectiveness of implementing ISO 14001, accounting for the characteristics of each business area.

Completed

Achieve greenhouse gas reduction target (1.9% less than FY2001, CO2 equivalent) at Daiwa Eitai Building.

Completed

Information Disclosure
Socially Responsible Investment
Initiatives in the
Daiwa Securities
Economic andGroup's Core Business Financial Education

Customer Satisfaction

Daiwa People

Philanthropy and Community Involvement

Working for the Environment

20

DAIWA SUSTAINABILITY REPORT 2005

Introduce the stock options (at an exercise price of ¥1) for executive compensation, replacing the system to acquire stock.
22-23

Continue to study ways of linking executive compensation with stock price.
Strengthen the systematic auditing at principal group companies.
Perform categorized audits, such as on compliance with the Personal Information Protection Law.

24

Conduct training in compliance, corporate ethics, and CSR at all 120 Daiwa Securities offices by the end of FY2007.
Promote group employees'understanding of CSR

26-27
Strengthen cooperation between the legal compliance department in Daiwa Securities Group Inc. and its counterparts in each group company.
Enforce management practices incorporating the perspectives of legal compliance and investor protection.
28

Reinforce management of complaints and claims.
Comply with new Personal Information Protection Law.
Upgrade Compliance Division.
Expand the online training program so that each office can find needed subjects .
Inspect the extent to which measures have been established to address risks identified in previous internal audits.
Expand intra-departmental inspection lists to include securities brokerage and personal information protection.

29

Encourage proactive disclosure of information to appeal to new individual shareholders.
30-31
8 -11

Hold shareholder forums and other events.
Popularize and promote SRI (including collaboration with NPOs and NGOs).
Support Finance Park, a hands-on economics education program run by Junior Achievement.

12-15
Actively engage in joint research.
Actively pursue post-sales follow up.
Enhance the convenience of offices through utilization of IT.
36-37

Create office atmospheres that are welcoming to a broad clientele.

Review job descriptions and improve workplace environments to ease employment of the disabled.
Enhance training programs.
38-41

Develop workplace environments where women can fully demonstrate their abilities.

Understanding issues
and setting targets
The Daiwa Securities Group is working in avariety of ways to promote the sustainable
development of society and the Group itself.
We see the disclosure of the Group's issues
and targets as a key part of our accountability to stakeholders.
As in fiscal 2003, in fiscal 2004 the Group
continued to focus on initiatives related to its
core business as a securities firm, including
efforts to popularize and promote socially responsible investment (SRI). The Group also
focused on economic and investment education for young people by supporting NPOs
and NGOs, and collaborated with industry
and academia to promote the healthy development of society. By adopting a committee
system, we enhanced our corporate governance system, which emphasizes management transparency, agility, and efficiency.
Daiwa Securities is also working to further
enhance customer satisfaction by reforming
its sales structure to meet customer needs.
In fiscal 2005, we aim to develop workplace environments where women can fully
demonstrate their abilities, and to further
strengthen our compliance activities aboveand beyond the efforts we have undertaken
thus far. We will also move forward with the
preparation of the Daiwa Securities Code of
Conduct (tentative name), which will summarize basic concepts that every group executive and employee should comply withand respect in the performance of his or her
duties as a professional.
Following an examination of our environmental management system, we have decided at this time that we will not pursue ISO
14001 certification for the corporate group.
Instead, we will promote efforts designed to
improve the precision of our independent
environmental management system.

Management

Issues and targets for fiscal 2005

Results, Issues, and Targets

Page(s) in report

Enhance volunteer programs so that as many group employees as possible can participate.
42-43
Improve precision of Daiwa's independent environmental management systems.
44-45

Promote environmental communication.
Establish a basic policy on green procurement.

DAIWA SUSTAINABILITY REPORT 2005

21

Management

Corporate GovernanceWe continuously work to improve our corporate governance system, which emphasizes management transparency,
agility, and efficiency, in order to maximize corporate value for all our stakeholders.

Issues and targets for fiscal 2004 and beyond

Results and progress for fiscal 2004

Establish more widely acceptable evaluation
standards based on group strategy.

Compensation Committee established evaluation standards
in full consideration of consolidated business management.

Establish Corporate Governance Principles.

Published our stance on corporate governance on the website of Daiwa
Securities Group Inc. at the time of conversion to the committee system.

Further enhance internal control system.

Launched projects to improve the Group's
systematic auditing structure.

View of corporate governanceCorporate governance is the system by which
a company ensures the effective and efficientmanagement of business operations by establishing management policies and supervising and evaluating how the top management
runs the business. The goal of corporate governance is to maximize corporate value forshareholders and all other stakeholders. The
Daiwa Securities Group converted to thecommittee system*1 in June 2004. This was
the most important step toward achieving ourgoal of a highly transparent and agile management structure.
Committee system: A corporate governance structure in which*the1. articles
of incorporation of a company, pursuant to Audit Special
Exeptions Law, stipulate that the company shall establish three committees (nominating, audit, and compensation) of which a majority ofmembers are outside directors and shall also appoint corporate executive officers to run the company's operations.

Governance structure
under the committee system
In 1999, Daiwa Securities Group Inc. became
the first listed company in Japan to convert toa holding company structure. Since then, we
have built a highly transparent governancesystem that contributes to the effective andefficient running of the company. This included the establishment of an Advisory Board
and Compensation Committee, both of whichwere composed of experts from outside thecompany. Conversion to a committee system
has improved agility during decision making
by broadly delegating authorities from theboard of directors to the executive officers. In
addition, the supervisory function was
strengthened by increasing the number ofoutside directors from two to four and by establishing the Nominating, Audit, and Compensation Committees.
The Nominating Committee met three times■Corporate governance organization chart (as of June24, 2005)

General Meeting of Shareholders

Nominating Committee, 5 members*2 (including 3 outside directors)
Proposes selections and dismissals of directors

Board of Directors, 13 members (including 4 outside directors)
Basic management policy

Audit Committee, 3 members*3 (including 2 outside directors)
Audits execution of duties by directors and executive officers
Compensation Committee, 5 members*4 (including 3 outside directors)
Sets policies on director and executive officer compensation, amount of individuals' compensation
Internal Control Committee
Performs internal control and prepares risk control and internal audit system

Executive Committee, 14 members
Group-wide business strategy and management issues,
Important financial matters

Disclosure Committee
Monitors key information and determines what to disclose

Representative executive officer

Group IT Strategy Committee
Writes original IT investment budget, evaluates and monitors IT investments*1. Outside directors
Tetsuro KawakamiCounsel, Sumitomo Electric Industries, Ltd.
Ryuji Yasuda
Professor, Hitotsubashi University Graduate School
Keisuke Kitajima
Attorney
Koichi Uno
Certified public accountant

22

DAIWA SUSTAINABILITY REPORT 2005

*2. Nominating Committee

Yoshinari Hara (Committee Chair) (internal)

Chairman of the Board of Corporate
Executive Officer, Daiwa Securities Group Inc.

Shigeharu Suzuki*3. Audit Committee*4. Compensation Committee

Keisuke Kitajima
Koichi Uno(external)

Tetsuro Kawakami
Ryuji Yasuda
Koichi Uno(external)

Kenji Hayashibe (internal)(Committee Chair)Director,
Daiwa Securities Group Inc.

Yoshinari Hara
(internal)(Committee Chair)
Shigeharu Suzuki

Director and President (CEO)Daiwa Securities Group Inc.

Tetsuro Kawakami
Ryuji Yasuda
Keisuke Kitajima(external)

Executive compensation structure
closely linked to performance
Compensation for directors and executive officers consists of base compensation, performance-based compensation (bonuses),and stock-price-linked compensation. It is set
by the Compensation Committee.
In addition to corporate financial results
such as ordinary income and ROE,*3 we see
the views of customers, who are an important
set of stakeholders, as a key standard in calculating performance-based compensation.
For example, performance assessments reflect client assets under custody, results ofcustomer satisfaction surveys, and the productivity of individual employees.
In June 2004, we eliminated the retirement
gratuities system for retiring directors toincrease the linkage with performance andtransparency of executive compensation.
3.See "Business Results and Market Position of the Daiwa Securi*ties
Group" on page 32 for information on ROE.

Enhancing internal controls■Three objectives of internal controls
Internal controls are a number of processes
performed within the Group to secure threeobjectives: (1) Business effectiveness and effi-

April 1, 2004 to June 23, 2004
Compensation based on articles ofincorporation or resolutions
by the general meeting of shareholders

June 23, 2004 to March 31, 2005
Retirement allowances based
Executive bonuses as aon resolutions by the general
result of disposition of income meeting of shareholders

Amount established basedon resolution byCompensation Committee

Recipients

Value

Recipients

Value

Recipients

Value

Recipients

Value

Directors

7¥58 million

7¥116 million

1¥14 million

Executive
officers

16¥391 million

Auditors

4¥15 million

4¥54 million

Directors

5¥80 million

The table is divided to reflect the different number
and composition of executives before and after thetransition to the committee system.

*

The total compensation for persons who holddual posts as directors and executive officers isgiven in the row for executive officers.
The total compensation for the four outside
directors is ¥50 million.

**

ciency; (2) reliability of financial reporting; and(3) compliance with laws and regulations.
That is, the main purpose of internal controls
is to ensure that the business operates effectively and efficiently with appropriate risk
management, that business results are properly reflected in financial statements, and that
the Group obeys laws and regulations.

■Comprehensive internal auditing
on a consolidated base
The Daiwa Securities Group performs comprehensive internal audits at all companies
subject to consolidated accounting, with theview that internal audits are an importantmeans of enhancing internal controls. We
have established internal auditing departments in the principal group companies. The
Internal Audit Department, which is under the
direct control of the President and CEO of
Daiwa Securities Group Inc. directly audits
companies that do not have their own internal
auditing departments.
The Internal Audit Department regularly
communicates with the corporate planningand internal auditing divisions at group companies to share opinions of whether eachcompany's internal auditing is functioning effectively and whether they are taking appropriate controls and risk management measures. In this way, the Management Audit
Department collaborates with its counterparts
to enhance the Daiwa Securities Group's internal controls and internal auditing system.

■Internal Control Committee overseesinternal controls
We established the Internal Control Committee as a subcommittee of the Executive Committee to oversee internal controls and risk
management. The committee deliberates anddecides on matters relating to the development of internal controls for the Daiwa Securities Group.
As a general rule, the committee, which isheaded by the representative executive officer,
meets once every three months. The Internal
Audit Department submits proposals and reports of internal auditing plans and results tothe committee. The Legal, Financial, and Corporate Ethics Departments—the departmentsthat are responsible for risk management—alsosubmit proposals and report to the committee.

Management*2.Between June 23, 2004 and June 23, 2005.

■Value of compensation paid and other remuneration and benefits rendered for services
performed by Daiwa Securities Group Inc. directors, executive officers, and auditors (FY2004)

Corporate Governancein fiscal 2004*2 to discuss the composition of
the board of directors and the basic policy fornominating director candidates. The Nominating Committee carefully deliberates on andselects director candidates in light of theStandards for the Appointment of Directors;
these include criteria for securing the independence of outside directors.
The Compensation Committee met six
times in fiscal 2004*2 to determine the individual compensation of directors and corporate
executive officers and to set revisions to the
executive compensation and performance
evaluation systems.
The Audit Committee met 12 times in fiscal
2004*2 to deliberate on the method forauditing the state of internal control systems
at group companies.

Future issues and targets for fiscal 2005
In terms of our executive compensation structure, starting in fiscal 2005 we will introduce
the stock options (at an exercise price of ¥1)
for executive compensation, replacing thecurrent system to acquire stock. We will also
spend one year studying ways to link executive compensation with stock price.
In terms of internal controls, we aim to continuing raising the quality of internal audits. As
one measure toward that end, we will develop
a system to conduct more exhaustive system
audits at principal group companies.
Additionally, we will perform categorized
audits, such as audits to determine whether
compliance with the Personal Information Protection Law is adequate.

DAIWA SUSTAINABILITY REPORT 2005

23

Management

CSR Management
In July 2004, the Daiwa Securities Group Inc. established the CSR Promotion Department with the aim of expanding
the measures it had undertaken to date and ensuring that CSR would take root throughout the Group.

CSR promotion systemmittee, which is tasked with improving the accu-

queries, and communicating with outside stake-racy of environmental management systems

holders such as NPOs and NGOs.

In July 2004, Daiwa Securities Group Inc. setgroup-wide, and the Code of Conduct Commit-

As the department responsible for corporate

up the CSR Promotion Department to encouragetee, which is currently drafting the Daiwa Securi-

citizenship activities, the CSR Promotion Depart-

CSR initiatives throughout the Group. The CSR

ties Group Code of Conduct (provisional name).

ment serves as the Group's point of contact for

Promotion Department participates as needed inthree foundations (Daiwa Securities Health Foun-

Activities of the CSR
Promotion Department

department head meetings at group headquarters and in departmental liaison meetings held

dation, Daiwa Securities Foundation, and Daiwa
Anglo-Japanese Foundation), runs education

throughout the Group, where it reports on the

The CSR Promotion Department is mainly inand training programs related to corporate citi-Group's CSR activities and raises CSR-related

charge of planning and promoting the Daiwa Se-

zenship activities, and provides information on

issues. This department also serves as the sec-

curities Group's CSR initiatives, preparing thevolunteer opportunities to group employees

retariat for the Environmental Management Com-

Sustainability Report, responding to outside

through the Group's intranet.

■Daiwa Securities Group CSR promotion system (As of June 30, 2005)
Foundations

President and CEO

Daiwa Securities Health Foundation
Daiwa Securities Foundation
Daiwa Anglo-Japanese Foundation

Executive officers
ReportSustainability Report
CSR website

Dialogue

Dialogue

Local communities
NPOs and NGOs
Shareholders
Customers
Outside research agencies
Government

CSR Promotion Department
Environmental Management Committee
Code of Conduct Committee

Compliance Department,
Daiwa Securities Co. Ltd.

Daiwa Securities Group
Departments
withinDaiwa Securities
Group Inc.

Participates in department
head meetings
held at group headquarters

Dialogue
Participates in
Departments within liaison meetings
across Group
group companies

Compliance, corporate ethics,
Corporate Ethics Department, Dialogue CSR training programs,
CSR questionnaire to employees
Daiwa Securities Group Inc.
Daiwa Securities branch offices

Stakeholders

Employees

Future issues and targets for fiscal 2005
As of May 2005, we are implementing compliance, corporate ethics, and CSR training
programs at branch offices of Daiwa Securities Co., Ltd. to improve group employees'
understanding of CSR. We aim to have training implemented at 40 branch offices by theend of March 2006 and at all offices (120, asof the end of March 2005) during a three-year
period starting from fiscal 2005. Going forward, we will broaden the scope of thesetraining programs group-wide to deepen understanding of CSR among more employees.

■CSR activities at overseas business sites
Below, we introduce representative CSR-related initiatives undertaken at the Daiwa Securities Group's overseas
business sites. In the future we will expand these exemplary initiatives by sharing information within the Group.

Daiwa Securities SMBC-Cathay Co. Ltd. (Taiwan)
This company holds a monthly meeting attended by
all employees. Opinions are solicited from employees
and outside speakers are invited to give lectures on
various topics. To foster a sense of family, monthly
meetings are also used to introduce employees whosebirthday falls within that month.

Seoul Branch, Daiwa Securities
SMBC Co. Ltd.
This company specifies responses
measures for natural disasters,
cyber terrorism, and bio terrorism
in its crisis management manual.

Head Office, Daiwa Securities SMBC Europe Limited
Recognizing the diversity of values of its employees, thiscompany makes efforts to ensure that it provides all employees with equal opportunities in the workplace, regardless of factors such as ethnicity, religion, and nationality.

Daiwa SB Investments (Singapore) Ltd.
This company provides scholarships to educational institutions in Singapore and dispatches
employees as lecturers.

24

DAIWA SUSTAINABILITY REPORT 2005

NIF Ventures USA, Inc.
All new employees sign a form to acknowledge that they have carefully readand agree to the Code of Ethics andCode of Conduct at the time they transfer from other offices or hire on locally.

Daiwa Securities America Inc.
This company holds an anti-harassment workshop once a year thatis mandatory for all employees.

Daiwa Securities SMBC Australia Limited
All employees read the Code of Ethics and Codeof Conduct and submit a certificate indicating
they understand its contents to the company.

TOPICS

All group employees surveyed with a CSR questionnaire

In May 2005, we conducted a questionnaire survey of all of the approximately 13,000 employees of the Daiwa Securities Group in order to survey employees' attitude about the establishment of a Group Code of Conduct, and to grasp the level of employees' awareness and knowledge of CSR. Below, we report some of the results from the questionnaire. The Daiwa Securities Group takes these results seriously, and will promote CSR activities with the full agreement and voluntary participation of employees.

Do you know the meaning of the term "CSR"?

No. 4%

Not really, but I haveheard the term.
15%

Precisely, and I can
explain it to others.
23%

What do you think of the problem of the
global environment?

It is serious, butdoes not seem
urgent right now.
32%
It is a serious
problem that must
be addressed by
all humanity.
68%

Basically, but notenough to explain
it to others.
58%

Employees who have not read the Sustainability Report 2004 : 43%
When asked whether they had
read the Sustainability Report
2004, a total of 43% of employees
said they had not read it, with
11% responding that they had acopy but had not read it, and 32%
responding that they had not readit at all and did not know where
their copy was. As to why they did
not read it, the largest group of respondents (35%) said that they
did not have time because they
are busy at work, and 25% said
they had forgotten to read it.

When asked about their awareness of the problem of the global
environment, a total of 100% of
employees were aware that the
global environment is currently aproblem, with 68% supportingwidespread, immediate action and
32% responding that it is serious
but not urgent.

(For those who have a copy now
but did not read it.)Why didn't you read it?

Just forgot
to read it.
25%

No time, because
I am busy working.
35%

Too long anddifficult to read.
16%
Notinterested.
12%

Subject notdirectly related
to my work.
12%

Employees who remember the
Daiwa Securities Group's corporate principles : 72%
Seventy-two percent of employees remember the Group's corporate principles, while one in four
does not. While 92% of employees think that, more than anything, the Daiwa Securities
Group's CSR means faithfully following the Group's corporate
principles, only 81% feel that it isactually possible to behave incompliance with the Group's corporate principles and brand statements at the workplace.

Management

When asked if they knew themeaning of certain terms, employees' level of recognition was nearly the same for "CSR" and "SRI,"
at 81% and 75%, respectively, butsomewhat less for "sustainability,"
at 59%. As to whether they expected SRI to become widespread in Japan, 75% thought itwould, the same percentage who
knew the meaning of the word.

Employees who think that the global environmentis a serious problem : 100%

Do you remember the
Daiwa Securities Group's
corporate principles?
No. 7%Yes.
30%

Not really.
21%

Somewhat.
42%

CSR Management

Employees who know the meaning of the term "CSR" : 81%

Employees who think CSR-related training programs for employees should be implemented and strengthened to firmly establish CSR activities : 17%
When asked about how to firmly establish the Daiwa Securities Group's
CSR activities, 17% of employees
supported strengthening CSR-related training programs for employees,
11% recommended them for management and above, 12% recommended a Group Code of Conduct,and 10% preferred discussions andtraining in the workplace.

What do you think should be done in the future to firmly establish the Daiwa Securities Group's CSR activities?
CSR-related training programs for employees should be implemented and strengthened.

17%

A Group Code of Conduct should be established to clarify concrete standards and norms of judgment and behavior.

12%

CSR-related training programs should be implemented and strengthened at the management level and above.

11%

Discussions and training programs should be implemented and strengthened within the workplace.

10%

Top management should repeatedly comment on CSR activities.

9%

A simple CSR explanation booklet should be distributed.

8%

CSR and ethical assessments should be reflected in employee evaluations.

8%

Measures should be taken to have the company's CSR activities covered in newspapers and magazines.

7%

CSR should be explained on the company's satellite broadcasts.

6%

A system should be designed for incorporating stakeholder opinions into company business operations.

5%

Disciplinary regulations for misconduct should be strengthened.

4%

A video that explains CSR should be distributed.

2%

DAIWA SUSTAINABILITY REPORT 2005

25

Management

Compliance
We will work to build a group-wide compliance structure, focusing on strengthening the compliance structures at each of our group companies,
with their different types of operations. Our goal is nothing short of total compliance.

Group-wide efforts
Issues and targets for fiscal 2004 and beyond

Results and progress for fiscal 2004
• Results of survey on internal reporting published in in-house

Raise level of internal understanding of "the Corporate Ethics
Hotline" and periodically survey awareness.

magazine Fuji (Spring 2004).
• Corporate Ethics Hotline poster distributed to departments

and branches of relevant companies.
Examine establishment of Voluntary Action Standards.

Concepts and important issues
The Daiwa Securities Group is thoroughly
dedicated to legal compliance, which is thebasis of CSR, and views the commitment tototal compliance as a cornerstone of theGroup's corporate principles. We have madestrenuous efforts across the Group to prepare internal regulations and rules, educate
and instruct employees, and make arrangements to monitor business operations.
In fiscal 2004, our two most important issues were measures to comply with the Personal Information Protection Law and addressing intellectual property rights.

Compliance promotion system
The Daiwa Securities Group's basic policy isfor each group company to develop a legal
compliance system, but the Group is taking
measures to ensure that the systems are
consistent group-wide.
We regularly collect information on compliance-related meetings at each company
and request reports from departments concerned when necessary. The Legal Department of Daiwa Securities Group Inc. participates from the planning/discussion stage ingroup-wide proposals for further encouragement of compliance.
Particularly important proposals arebrought up as issues for consideration in themeetings of the Board of Directors, Executive Committee, or Internal Control Committee of Daiwa Securities Group Inc., thereby
addressing group compliance at the management level.

26

DAIWA SUSTAINABILITY REPORT 2005

Set up Group Code of Conduct Committee and now working
to formulate the Code during fiscal 2005.

Additionally, we check internal compliancesystems by building internal auditing systems at each group company while having
the Internal Auditing Division of Daiwa Securities Group Inc. examine subsidiaries asappropriate.

Internal reporting system setup
and results
In January 2003, we introduced the Corporate Ethics Hotline to encourage “self-monitoring” among our organizations. The system is set up so that informants can use ourintranet, e-mail, postal mail, telephone, or
face-to-face consultations to report to the
Corporate Ethics Officer at group headquarters or an outside law office. Users can report information anonymously, and information concerning reporters is treated with theutmost confidentiality.
In fiscal 2004, 13 reports were made, including ones related to business practices,handling of workload pressures, and smoking. In all cases, we took appropriate responses while protecting anonymity andthe informants. This is resulting in a heightened attitude of compliance among em-

ployees, an enhanced compliance system,
and an improved workplace environment.
Thirty reports were made in total between
the establishment of the Hotline and theend of June 2005.

Survey of employee awarenessof the Corporate Ethics Hotline
In April 2005, we surveyed about 13,000 executives and managers with a questionnaire
about the Corporate Ethics Hotline to promote understanding of this system. Morethan 51% responded to the questionnaire.
We found a high level of recognition, with82% (compared to 70% last year) responding that they knew about the internal report-■Results of employee awareness survey (April 2005)
1. Do you know about the Daiwa Securities Group's internal reporting system?
Yes

82%

No

2. Have you ever seen the Corporate Ethics Hotline intranet page?
Yes

No

69%

3. If you discovered activity that should be reported, would you report it?
Yes

75%

No

4. If you were to make a report, how would you do so?
By e-mail or similar method By postal mail, telephone, or similar method 61%

5. If you were to make a report, would you give your name or remain anonymous?

■Examples of internal reports and responses
Total reports in FY2004: 13
to themReportResponse

Business practices that go
against company policy on
asset expansion.

Compliance Department investigated situation and redoubled guidance.

Poor handling of workloadpressures.

Encouraged taking of breaks
during overtime hours andimplemented alternating substitute off-time to be taken
after busy season.

Smoking outside designatedsmoking time.

Promoted separation ofsmoking areas by establishing smoking rules such as restricted spaces for smoking.

I would remain anonymous. 66%

I would give my name.

6. Do you know that if an informant makes a report to a lawyer under his or her
name, the lawyer will keep the informant's name secret from the company?
Yes

58%

No

7. Do you think this system protects the informant and his/her anonymity?
Yes

No

51%

8. Do you think this system deals with reported incidents appropriately?
Yes

64%

No

9. Do you think this system effectively encourages self-monitoring among our organizations?
Yes

78%

No

Complying with the Personal
Information Protection Law
The entire Daiwa Securities Group is working on measures to comply with the Law
concerning the Protection of Personal Information, which came into full effect on April
1, 2005.
The Information Technology Department isthe department at Daiwa Securities Group
Inc. that is responsible for the protection of
personal information. This department surveyed the state of these compliance measures at each company, once at the end ofJanuary and once in mid-April 2005. Its task
was to confirm that the Group handles personal information according to the law. We
have developed an internal reporting andcontact system to prepare for the potential
event of a personal information leak. In the
future, we will continuously follow up on thestate of implementation of measures on theprotection of personal information at eachgroup company and will report this informa-■Acquired information security qualifications
Company
Daiwa Securities Co. Ltd.
Daiwa Asset Management Co. Ltd.
Daiwa SB Investments Ltd.
Daiwa Institute of Research Ltd.
Daiwa Securities Business Center
Co. Ltd.

Qualification
TRUSTeTRUSTeSAS70
ISMS
Privacy MarkISO9001
Privacy Mark

Efforts to facilitate the adoption of a“compliance mindset” among employees
In addition to running compliance training
sessions at each group company based on
their specific business situations, we are also making efforts as a Group to hold training
sessions on and thoroughly spread knowledge of compliance. These efforts include
holding lectures on compliance for new recruits when they join the company and regularly thereafter, holding training sessions for
newly appointed executives, and providing
instruction on the revision of laws and regulations at various meetings.
As a measure for complying with the Personal Information Protection Law, we haveprovided information via our intranet and implemented training sessions for employeeson the protection of personal information.

Protecting and respecting
intellectual property rights
We regard intellectual property rights as animportant strategy and have established anIntellectual Property Section within the Legal

Department of Daiwa Securities Group Inc.
We have encouraged all group employees toreport incidents that involve intellectual property rights. In fiscal 2004, we registered eightpatents in and outside Japan.
In addition, we have strengthened ourmeasures for managing trademarks andcopyrights, and are working to prevent infringement by other companies on the Daiwa
Securities Group's intellectual property
rights. As part of our program of compliance,
we are also working to prevent infringementby any party within the Group on intellectual
property rights held by other companies.

Future issues and targets for fiscal 2005
Until now, our basic policy has extended autonomy to each group company in terms ofthe details of regulations and measures to enforce compliance. This policy was practiced
because each group company had to comply
with different laws due to their varying business structures and because it was our intention to respect, as a pure holding company,
the professionalism and individuality of eachcompany. However, with the strengthening ofcorporate governance and the increased importance of internal controls, and also with thetransition to the committee system in June
2004, we see the need to expand internal administration and enhance our group-wide
compliance system.
In fiscal 2005, we aim to achieve that expansion by enhancing coordination between
the Legal Compliance Department of Daiwa
Securities Group Inc. and the legal compliance departments at each group company.

Management

Internal poster about the Corporate Ethics Hotline

tion to the committees of group headquarters. In addition, we are considering measures such as the common use of online andother training materials for executives andmanagers on the protection of personal information and the sharing of information on
cases in which there is a request to disclose,
correct, or refuse the use of personal information in our possession.

Complianceing system. On the other hand, many people
do not seem to know how the system works.
69% (79% last year) responded that they
had not seen the Hotline's intranet page and
51% (53% last year) expressed doubt thatanonymity and theinformant will beprotected. To makethis system function
effectively, we will
make efforts to increase the employees' trust in the security of the system.

Stakeholder comment

My expectations for the Daiwa Securities GroupI fully understand that the Daiwa Securities Group, with its commitment to complete compliance as a cornerstone of the Group's corporate principles, is aggressively working to build a compliance promotion system, operate and enhance its
internal reporting system and training system, and disclose negative information.
However, despite the fact that it takes time to disseminate awareness and understanding among employees, I am somewhat concerned that the level of trust regarding the protection of informants and their anonymity within the internal reporting system remains low. Looking ahead, I hope that the Daiwa Securities Groupwill develop voluntary action standards through a “bottom-up” process that enables employees to take ownership of and feel pride in the standards. I also hopethat the Group will broadly demonstrate to society the meaning of the compliancethat it advocates, going beyond mere obedience to the letter of the law in its business activities, as well as its firm determination to pursue compliance in this truest
sense of the term.

Mr. Satoshi Yura
Socially Responsible Investment (SRI) Program Director
Center for Public Resources Development (NPO)(As of April 14, 2005)

DAIWA SUSTAINABILITY REPORT 2005

27

Management

Compliance
Efforts at Daiwa Securities Co. Ltd.
Issues and targets for fiscal 2004 and beyond

Achieve more thorough legal compliance, eliminate improper conduct.
Higher level of investor protection.

Results and progress for fiscal 2004
• Increased internal detection rate from 73% in fiscal 2003 to 75% in fiscal
2004. (Elimination of improper conduct through strengthened internal checks.)• Transferred the Customer Support Center to the Compliance Division.
Developed system to provide quicker and more appropriate responses.

Appoint Compliance Officers.

Appointed Compliance Officers to 27 sales branches that were functioning as "core branches" as of April 1, 2004. As of the end of March 2005, there were 28 Compliance Officers.

Create a Work Manual for Internal Administration Supervisors.

Created a manual entitled, Training Manual for Persons in Charge of Internal Audits.

Concepts and important issues
We are continuing to work with the view thatcompliance is the most important concern inbeing a fair company that contributes to society. In fiscal 2004, we addressed investor
protection as a key issue to move beyond
mere legal compliance.

Compliance promotion system
In April 2004, we appointed Compliance Officers at "core branches," which oversee
group branches in separate regions, to build
a guidance and educational system that ismore in tune with front-office business conditions. In October 2004, we established theCompliance Division, in which we brought
together the former Internal Auditing Department, Compliance Department, and Customer Support Center. Additionally, in November 2004, we established the Information
Security Dept. within the Compliance Division to strengthen our system under the
Personal Information Protection Law.

plaints that may arise with the aim of responding to complaints more correctly,
faithfully, and promptly.

Elimination of improper conduct
and investor protection
Daiwa Securities is constantly working to
improve internal checks and monitoring. In
fiscal 2004, we raised our internal detection
rate*1 to 75%. We will continue our efforts
from last year and aim to further eliminate
improper conduct from occurring at all bystrengthening internal checks. Additionally,
to improve protection of our investors, wetransferred the Customer Support Center tothe Compliance Division and developed asystem capable of more prompt and appropriate responses.

The internal detection rate is the percentage of incidents*of1.securities
trouble reported to the Financial Services Agency that are detected in-house, rather than reported by customers or identified by outside investigations.

Dealing with anti-social forces
We have appointed special staff in Osakabranch, addition to Head Office, to strengthen our response to anti-social forces, suchas organized crime organizations and corporate racketeers. We have made our response
system more effective based on updated information on anti-social forces.

Future issues and targets for fiscal 2005
We recognize that compliance is not somethingthat can be accomplished once and for all, butrather a situation that must be maintained throughcontinuous effort. We always aim to maintain a highlevel of compliance by slowly but steadily repeating
the cycle of training, incident analysis, planning andimplementing measures, and evaluating their effectiveness. In fiscal 2005, we aim to further strengthen our sound business operations structure basedon a keen "compliance mindset" by pursuing thefollowing goals: A firm grounding of business activities in a commitment to legal compliance and investor protection; strengthening the system for
managing comments and complaints; to follow the
Personal Information Protection Law; and tostrengthen and improve the Compliance Division.

■Daiwa Securities' compliance promotion system

Handling comments
and complaints
We improved our handling of comments andcomplaints, given the centrality of this issue
to enhancing customer trust. In April 2005,
we established the Customer Support Dept.,
a dedicated organization tasked with handling complaints. Moreover, we clearlyspecified the reporting system for complaints and developed a manual to ensure
thorough, appropriate handling of any com-

28

DAIWA SUSTAINABILITY REPORT 2005

Head OfficeCompliance Division
Head of Internal
Administration Supervisors
Head of Compliance Division

Customers

Reports from sales branches /Direct guidance from Compliance Division

Compliance Department

Sales branches
Sales
supervisors

Customer Support Center

Internal administration
supervisors

Check
Information Security Dept.
Internal Auditing Department

Compliance officers

Guidance /Guidance /education (Belong to Compliance Department, education

assigned to "core branches.")

Employees

Efforts at Daiwa Securities SMBC Co. Ltd.
Issues and targets for fiscal 2004 and beyond

Results and progress for fiscal 2004

Strengthen compliance and online training
for each division and department.

Implemented internal training sessions on subjects selected to address problems typical ofeach workplace, primarily taught by internal administration supervisors at each department.

Revise Handbook for Legal Compliance.

Revised Handbook to reflect new laws and revisions to company regulations.

Establish an electronic bulletin board forinternal administration supervisors.

Established and put online an electronic bulletin board for internal administration supervisors to share information and communicate rapidly.

Strengthen functions of internal administration supervisors and internal administrators, enhance training, strengthen intra-departmental inspections, and enhance the environment to allow closer enforcement of legal compliance.

• Improved information accessibility

Create a booklet of Compliance Newsletters.

Published a booklet of Compliance Newsletters Nos. 51-100.

Take measures to minimize risk of information leaks.

Developed internal management system in compliance with Personal Information Protection Law.
which have reached the 100th issue.

■Daiwa Securities SMBC's compliance promotion system
Legal Auditing Meeting
Reporting on major issues
Head of Internal Administration Supervisors (Deputy President)
Reporting on performance of duties

Internal auditing reports(Legal Compliance Officer)(General Manager of Legal & Compliance Department)

General Manager ofInternal Auditing
Department

Legal & Compliance Department

Internal Auditing Department

Deputy Head of Internal Administration Supervisors

Preliminary
consulting

ComplianceleadershipManagement

Daiwa Securities SMBC regards legal compliance as a management issue of primary importance. We see the keys to this as promoting acompliance mindset among all executives andmanagers, effectively operating a compliancesystem, and promoting fair business practices.
Underlying this concept are the following steps,
which we continuously carry out to ensure theeffectiveness of our system: Establishment ofbusiness conduct rules in line with all laws andregulations; making the rules known throughout
the organization and following them strictly;
monitoring compliance with the rules; developing and enforcing measures to improve identified problems; and incorporating improvement
measures into the rules.

spect those job areas that are rated as high-risk.
In addition, we develop measures to solve problems that become obvious during intra-departmental inspections and incorporate them into
the operating manuals of each department as
new rules. In the process of performing this risk
analysis and assessment, and the intra-departmental inspections, each department steadily
carries out the steps shown at left, in order toencourage a compliance mindset and strengthen our compliance system.
In 2004, the Auditing Sections No. 1 and 2
and the Overseas Legal and Compliance Section were split off from the Legal & ComplianceDepartment to become the Internal Auditing Department. This department conducts audits tocheck the effectiveness of the intra-departmental inspections, checks for violations of law andcarries out other categorized audits.

Monitoring

Compliance

Basic concepts

by creating a database of compliance information.
• Revised Q&A list on firewall rules.

Internal
auditing

Each department
Sales Supervisors, Internal Administration Supervisors, Internal Administrators

Enhancing ourcompliance system
Internal administration supervisors and internal
administrators are appointed to provide compliance leadership in each department. Kept informed of everyday business activities, these officers monitor the appropriateness of business
operations, in cooperation with the Legal &Compliance Department—which is the department that oversees compliance—receiving legal
consultations and information concerning the legality of new products.
In October 2002, we introduced an intra-departmental inspection system, which is operated
by designated the internal administration supervisors and internal administrators. In this system, we analyze and assess the latent risks inthe work of each department and regularly in-Compliance educationfor employees
We conduct training programs using online systems and implement group training sessions asnecessary for new executives, newly promoted
personnel, transferees, new recruits, and employees who will be posted outside Japan. We
especially focus on intra-departmental training;
subjects are selected by each department for
their relevance to the department.
In addition, in fiscal 2004 we made a databaseout of our Handbook for Legal Compliance,
which is our compliance manual, our Compliance Newsletters, which explain precedents, and
our Compliance Communication Letters, all internal reference documents. This improved theaccessibility of this information. We also made abooklet out of our Compliance Newsletters,

In-advanceconsulting

Complianceleadership

Intra-departmental
inspections

Sales and office staff

Future issues and targets for fiscal 2005
In fiscal 2005, we will increase the content
of online training programs to provide ample opportunities for training on topics suited to situations in each office. Other issues
include assessing progress in measures toeliminate risks identified in previous internal audits, and strengthening our inspection system by incorporating items on personal information protection and newduties resulting from revisions to laws andregulations into our intra-departmental inspection lists.

DAIWA SUSTAINABILITY REPORT 2005

29

Management

Information Disclosure
We are committed to fair, timely, and appropriate information disclosure.
Our aim in these efforts is to be an exemplary public corporation that is faithful to the spirit of its "Disclosure Policy".

Issues and targets for fiscal 2004 and beyond

Results and progress for fiscal 2004

Actively pursue two-way communication with stakeholders.

• Held small meetings for analysts and fund managers.
• Actively participated in stock investment informational eventsand IR fairs for individual investors.
• Broadened investor communication by revamping IR website.

Increase percentage of shares owned by individual shareholders.

Edged up from 20.7% in FY2003 to 20.9% in FY2004.

The Daiwa Securities Group's view of information disclosure is described in our Disclosure Policy, which we announced in April
2004. Based on that Policy, we strive for fair,timely, and appropriate disclosure of financial,social, and environmental information.

■Disclosure Policy• We will observe fair and timely disclosure of important financial, social and environmental information ("Management-Related Information") regarding the Daiwa Securities Group sothat our stakeholders (including shareholders, investors andthe communities we operate in) may understand and maintainrealistic expectations of the Daiwa Securities Group.
• We will comply with the Securities Exchange Law and otherlaws and ordinances related to securities transactions andthe various rules of the stock exchanges where on which ourstock is listed.
• We will endeavor to achieve fair disclosure both in terms ofcontent and timing.
• We will utilize various communication channels including presentations, telephone conferences, the Internet and printed
materials to disclose information in an easy to comprehend
manner for investors.
• We will consciously act as a leader of the securities markets interms of disclosure and set the standards for all other listed
corporations.
• We have established the Daiwa Securities Group Inc. Disclosure Regulations, that define guidelines such as setting up a
disclosure committee and the methods of disclosing management-related information to fulfill the spirit of this Policy.

among our important stakeholders. We disclose social and environmental information primarily in our Sustainability Report.
Additionally, we use our IR and CSR websites, located at the Daiwa Securities Group
Inc. website, to disclose information to all
stakeholders. In 2004, we revamped our IR
website to increase usability.

Fair, timely, and appropriate
information disclosure■Disclosure system
Daiwa Securities Group Inc. aims to disclose
information in a fair, timely, and appropriatemanner in line with its Disclosure Policy andDisclosure Regulations. In 2004, we split the
Corporate Communication Department into
separate public relations and investor relations departments to more clearly establish
their different roles.
The Disclosure Committee, which was es-

30

DAIWA SUSTAINABILITY REPORT 2005

■Announcement of the Declaration for Timely Disclosure
In 2005, the Tokyo Stock Exchange (TSE)revised its rules, requiring all listed corporations to submit a Declaration for Timely Disclosure. The Daiwa Securities Group submitted the declaration with accompanying forms
on January 28, one month ahead of the February 28 deadline. Faithful to the spirit of our
Disclosure Policy and to set an example for■Daiwa Securities Group information disclosure framework
Economic
Disclosure primarily
through the Annual
Report, securities reports, financial tanshin summary reports
and press releases

Disclosure of financial, social,and environmental information
We disclose financial information throughchannels such as our Annual Report, securities
reports, financial tanshin summary reports, andpress releases. Moreover, we have incorporated a CSR perspective into our Disclosure Policy. Social and environmental information are
included in the scope of information to be disclosed and we consider local communities

tablished in accordance with our Disclosure
Regulations, meets regularly throughout theperiod between the closing day of each business quarter and the day quarterly results areannounced, and also holds discretionary
meetings as necessary.
Each group company has prepared Rules
for Controlling Management-related Information in order to ensure the entire Group shares
the spirit of our Disclosure Policy. These rules
institute systems for collecting information
and reporting it to group headquarters.

Business activities
Financial information

SocialDisclosure
PolicyCorporate governance
Information disclosure
Compliance

Environmental

Working for the environment
Customer response
Employment, work environment, human rights
Acting as a corporate citizen

IR website

CSR website
http://www.daiwa.jp/ir/

http://www.daiwa.jp/branding/Disclosure primarily through the Sustainability Report

Our view of information
disclosureOther 1.6%

■Results of shareholder survey (Conducted November 2004)
How long have you been a
Daiwa Securities shareholder?
Do not know 2%

Non-Japanese
corporations
31.5%
Other Japanese
corporations
5.4%
Other financial
institutions 8.5%

Individuals
20.9%

Trust
accounts
25.8%

Banks
6.3%

Financial
institutions
40.6%

listed corporations, we immediately publishedour Declaration for Timely Disclosure on our IR
website after submitting it to the TSE.

Two-way communication
with stakeholders
We hold small briefings for analysts and fundmanagers, as the occasion may demand. In
September 2004, we held three briefings on
the retail business (online, separately managed accounts [SMA]), which were attended
by 35 people. In December, together with Sumitomo Mitsui Banking Corporation, we held
five briefings on investment banking activities,
which were attended by 76 people. In March
2005, we held three briefings with the President of Daiwa Securities Group Inc., whichwere attended by 26 people.
In September 2004, we participated in acompany information session for individual investors, sponsored by Daiwa Investor Relations Co., Ltd., and an IR fair for individual investors, sponsored by Nihon Keizai Shimbun,
Inc. In February 2005, we had a booth at the10th Anniversary Forum of the Japan Association for Individual Investors.

Regular shareholder survey
We conduct a regular survey of shareholders
in order to take account of their opinions inour dealings. One of the latest surveys was
conducted in November 2004. We received
about 9,600 replies, representing about 9% of
our total shareholders.
Thirty percent of respondents said that they
had been shareholders for less than three

Less than
one year.
9%More than
10 years
36%

1-3 years
21%

What was your reason/goal for acquiring our stock?
Daiwa Employees'
Stock Ownership(cumulative stock
investment program)
7%
Inheritance/
donation
4%

Attendance rate at general meeting ofshareholders and exercise of voting rights
To increase the attendance rate at our general
meeting of shareholders, in 2004 we held themeeting three business days before the socalled end-June "concentration day," a dayon which many Japanese companies havetraditionally held their shareholders meetings
at the same time. The meeting was attended

Other
11%

Profit fromshort-term trade25%

Long-term holding
52%

3-10 years
32%

years, an increase of seven points over theprevious year, indicating an increase in newshareholders. The fraction of respondents
with their own Daiwa Securities accounts increased seven points over the previous year
to 69%. We have been running the Daiwa
Point Program, a rewards program in whichshareholders can exchange their points forgifts, as a way to encourage a greater numberof shareholders to do business with Daiwa
Securities. We take this increase as a mark of
the success of this program.

No answer 1%

by 372 people, up by 150 people over theprevious year.
We also developed a system to encourage
shareholders to exercise their right to vote byenabling them to do so via the Internet. Moreover, in 2005 we made it possible to vote using a cellular phone. In 2004, about 28,000
shareholders exercised their right to vote, anincrease of about 4,000 over the previous
year, bringing the percentage of shareholders
who voted up to 68.5%.

Future issues and targets for fiscal 2005
Our main issue for fiscal 2005 and beyond
is to increase acquisition of new individual
shareholders. To that end, we are considering working with the headquarters andbranch offices of Daiwa Securities Co.,
Ltd., to hold company information sessions
in regional towns and cities, and will pursue
more proactive information disclosure. We
will also look at the holding of informal
shareholders forums as another issue.

Management(As of end of March 2004, percentage by number of shares)
Number of shareholders: 113,008

Information Disclosure■Composition of Daiwa Securities Group Inc. shareholders

Stakeholder comment

My expectations for the Daiwa Securities GroupThe Daiwa Securities Group's commitment to information disclosure and investor relations is highly praised by investors and the
media alike. Still, the Group is expected to maintain a very highstandard, considering its position as an entity that is supposed tostimulate further development of the securities market. This is because the way in which the Group sets an example for all publicly-traded companies helps revitalize the securities market and, byextension, translates into an increase of the Group's own corporate value. I hope that the Daiwa Securities Group will play aneven greater leadership role, not being satisfied with relative evaluations within the securities industry, in terms of both direct andindirect influences.

Ryuji Kakimoto
Equity Research
Credit Suisse First Boston

DAIWA SUSTAINABILITY REPORT 2005

31

Economic Report

Business Results and Market Position of the Daiwa Securities GroupThe following presents the business performance trends and financial strategy of the Daiwa Securities Group as well as its position in the market, including corporate scale and market share.
■Principal management indicators*
Operating revenues(million yen)
Net operating revenues(million yen)(million yen)
Ordinary income
Selling, general and administrative expenses (million yen)
Net income (loss)(million yen)(million yen)
Total assets(%)
Return on equity (ROE)(yen)
Net income (loss) per share(yen)
Dividends per share
Total shareholders' equity per share (yen)

FY2000FY2001

FY2002

FY2003

FY2004

714,909464,056
177,795
286,948
64,5507,694,051
9.3
48.62
13.00
539.72

488,044284,932
25,849262,163(130,547)
7,827,306

387,658
270,809
29,200246,701(6,322)9,502,825(98.27)(4.75)
6.00
407.84453,813352,434
96,130259,91442,637
10,765,665
7.4
31.66
10.00
453.60519,337
390,432
120,433
275,544
52,665
12,378,961
8.4
39.03
13.00
486.706.00
429.68* The revised Uniform Accounting Standards of Securities Companies(approved by the Board of Directors of the Japan Securities Dealers' Association on September 28, 2001) have been applied since fiscal 2001. Fiscal 2000 figures have been recalculated based on the revised standards.

In order to continually improve shareholder
value, it is important to have a financial strategy that balances both risks and returns.

The Daiwa Securities Group has always
placed importance on improving financial
security while raising consolidated return on
equity (ROE).*1 As a result, by the end of fiscal 2004, we had strengthened our financial
soundness, improved our credit ratings, andsucceeded in achieving the highest consolidated ROE among the three major Japanese
securities firms. We also established a dividend policy of a 30% dividend payout ratio*2
on a consolidated basis. In the future, wewill pursue further development of this basic
strategy, by promoting strategies that emphasize the expansion of the sales base andby improving business performance basedon careful consideration of risk and enhanced ROE.
Based on the inherent risk in the securities
business (market risk,*3 credit risk,*4 etc.),
the Daiwa Securities Group is aiming for ahigher level of financial security by incorporating risk management and building strong■Trends in net operating revenues,
ordinary income and ROE■Trends in net operating revenues and selling,
general and administrative expenses

Fiscal 2004
business performance
Due to an increase in trading securities andcommissions earned, fiscal 2004 operating
revenues rose by 14% compared to fiscal
2003, to reach ¥519.3 billion. Net operating
revenues, after subtracting financing andother expenses from operating revenues, also showed an increase of 11% year-on-year,
for a total of ¥390.4 billion. Selling, generaland administrative expenses only increased
6.0% to ¥275.5 billion, which contributed toordinary income of ¥120.4 billion, up 25%.
Net income also soared 24% to ¥52.6 billion.

Financial strategies of the
Daiwa Securities GroupROE

Net operating revenues
Ordinary income

464

%
25

(¥ billion)
500

352

9.3

15

400

464

7.4

271

5

-1.1

178

96

100

-20.3 26
032

FY2000FY2001**■Trends in total assets

300

-5

200

-15

100

-25

0

390
352

287 285
262 271247

12,00010,766
9,503

10,000

91.1

8.4

0
200

*

12,379
%
100

92.0
390

400

285

and investors. It is equal to net income divided by shareholdersÅf
equity (average of the period beginning and end).
2. Dividend payout ratio is the ratio of dividends paid to income, andis the inverse of the retained earnings ratio. Generally, if a company
has a low dividend payout ratio, this means that it is building up its retained earnings.
3. Market risk indicates the possibility of loss as a result of fluctuations in the value of financial assets and liabilities held, due to interest
rate or market value fluctuations in areas such as stocks, interest
rates, foreign currency exchange, or derivative products.
4. Credit risk indicates the possibility of loss as a result of a transaction partner not being able to fulfill the contract in question.

Selling, general and administrative expenses(¥ billion)
500

300

Return on equity indicates how much profit the company is mak*ing1. on
the investment in the company made by all the shareholders(¥ billion)
14,000

SG&A ratio

Net operating revenues

breakeven structures to withstand revenue
fluctuations. We are also pursuing higher returns based on careful consideration of risk
by efficiently distributing management resources to fields with high growth and profit
potential.
For more details on the financial performance of the Daiwa Securities Group, pleaserefer to our Annual Report for the year ending March 31, 2005.

260
73.7

90
8,000

276 80

7,694

7,827

6,000

70.6
70

4,000

120
61.8

60

2,000

50

0

29
FY2002

FY2003DAIWA SUSTAINABILITY REPORT 2005

FY2004

FY2000FY2001

FY2002

FY2003

FY2004

FY2000 FY2001 FY2002 FY2003 FY2004

The total value of assets (customer assets
held by Daiwa Securities Co. Ltd.) such as
cash and negotiable securities on deposit
from customers who are individuals and nonlisted companies (excluding financial institutions) was ¥21.1 trillion as of March 31, 2005.
This marks an increase of ¥2.6 trillion compared to the end of the previous fiscal year.
This total surpasses the level of ¥18.0 trillion reached in December 1989, during the
economic bubble period in Japan. It is equal
to 1.5% of the ¥1,400 trillion in total individual financial assets in Japan.*5■Research business(Daiwa Institute of Research Ltd.)The investment asset balance on March 31,
2005 was ¥5.674 trillion for Daiwa AssetManagement Co. Ltd., down ¥27.2 billion
from the previous year, and was ¥3.901 trillion for Daiwa SB Investments Ltd., up ¥59.8
billion over the same period. The total investment asset balance for the two companies combined was ¥9.575 trillion.

The Daiwa Institute of Research Ltd. ranked
first for the second consecutive year in the Annual Research Analyst Poll of the Nikkei Financial Daily. It also achieved first place for thesecond year running in the analyst and economist ranking of The Economist magazine.

(¥ billion)
20,000(¥ billion)
25,000Daiwa SB Investments Ltd.

Daiwa Asset Management Co. Ltd.

3,312

20,000

11,231
10,00018,507

19,301 18,646

2,962

8,830

9,249

9,575

2,505

3,303

3,901

6,325

5,946

5,674

12,0135,000

019,920FY2002 FY2003 FY2004

NomuraSecurities
Co., Ltd.

NomuraSecurities
Co., Ltd.

Daiwa
Institute of
Research
Ltd.

Daiwa
Institute of
Research
Ltd.

Daiwa
MorganSecond Stanley Dean Institute ofplace Witter & Co. Research
Ltd.

NomuraSecurities
Co., Ltd.

NomuraSecurities
Co., Ltd.

Nikko
Nikko
SalmonSalmonThird
place Smith Barney Smith Barney
Ltd.
Ltd.

DeutscheSecurities
Ltd.

UBS
Securities
LLC

First
place

15,325*■Customer assets (excluding those of financial
institutions) held by Daiwa Securities Co. Ltd.

FY2001■Trends in investment asset balance in asset
management business (fiscal year end)

15,0005. Since the customer assets held by Daiwa Securities Co. Ltd., include assets of some corporate customers, it is not statistically precise to compare this figure with the total individual assets in Japan.
This information is only provided as a rough indication of the size ofthe business for Daiwa Securities Co. Ltd.

■Annual Research Analyst Poll, Nikkei Financial Daily Total of all
sectors (excluding the overall division) and strategists (by company)

8,269

FY2000 FY2001 FY2002 FY2003 FY2004

21,08016,73615,000■Market share of wholesale business (Lead Manager League Table for FY2004)
Overall bonds(total of straight corporate bonds and agency bonds)

Public offerings and sales of company stocks

10,000
Other
18%

5,000

0

Dec/03 Mar/04 Jun/04 Sep/04 Dec/04 Mar/05
Month end

■Wholesale securities business(Daiwa Securities SMBC Co. Ltd.)
Daiwa Securities SMBC Co. Ltd., the investment bank of the Daiwa Securities Group, has
secured the top position in the fields of public
offerings and sales of company stocks as well
as of overall bonds (total of straight corporate
bonds and bonds issued by special public corporations eligible for fiscal investment andloans) according to the investment bank division of the league table ranking lead managing
underwriters for fiscal 2004.*6 In the overallbond division, we obtained the top share for the
fourth year in a row (from fiscal 2001 to 2004).
is the ranking of Japanese securities firms based on the share*of6.This
stock and bond issues they have undertaken.

Mitsubishi
Securities Co., Ltd.
12%
Nikko Citigroup
Securities Ltd.
13%

Daiwa
Securities
SMBC
Co. Ltd.
24%

Merrill Lynch Japan
Securities Co., Ltd. 4%
Mizuho Securities
Co., Ltd. 7%

Nomura Securities
Co., Ltd.
18%
15%
MizuhoSecurities
Co., Ltd.

Nikko Citigroup
Securities Ltd.
21%

Initial public offering of stocks
Goldman Sachs
Group, Inc.
4%

Other
13%

NomuraSecurities
Co., Ltd.
27%

Samurai bonds
Mizuho Securities
Co., Ltd.
18%

Other
15%
NomuraSecurities
Co., Ltd.
41%

UBS Securities LLC
8%

Daiwa
Securities
SMBC
Co. Ltd.
28%

Economic Report■Retail securities business (Daiwa Securities Co. Ltd.)■Asset management business (Daiwa Asset Management
Co. Ltd., and Daiwa SB Investments Ltd.)Business Results and Market Position of the Daiwa Securities Group

Market position of the
Daiwa Securities Group

Other
34%

Goldman Sachs
Group, Inc.
14%

Nikko Citigroup
Securities Ltd. 15%

17%
Daiwa
Securities
SMBC Co. Ltd.

Daiwa Securities
SMBC Co. Ltd.
13%

Mitsubishi
Securities Co., Ltd. 10%
Nomura Securities Co., Ltd. 11%

Source: Daiwa Securities SMBC Co. Ltd. April 2004 to March 2005 Data shown are based on payment date for public offerings and sales ofcompany stocks, public offering date for initial public offerings, and pricing date for straight corporate bonds.
Data for co-lead managers are divided proportionally according to the underwritten amount. The amounts obtained from the league table areshown as percentages. None of the above securities categories include real-estate investment trusts (REIT).

DAIWA SUSTAINABILITY REPORT 2005

33

Economic Report

Economic Relationships with Stakeholders
This section introduces the revenue structure for the Daiwa Securities Group in terms of the various products and services provided to customers, while also outlining the economic value delivered to each type of stakeholder.
(Figures are based on the consolidated financial statements in the securities reports.)

Revenue structure for the
Daiwa Securities Group

Asset management commissions

vestment business by Daiwa Securities SMBC

These are the commissions earned from thePrincipal Investments Co. Ltd. and NIF Venturessale of investment trusts, or from the manage-

Co. Ltd.

The revenues given in this economic report andment or holding of assets deposited by indi-shown in the pie chart below are the total of op-

vidual and corporate customers.

■Revenue categories (FY2004)(¥ million)

erating revenues,*1 non-operating income, andThe second largest source of revenues is net

for the Daiwa Securities Group in fiscal 2004 wasgain on trading securities, which accounts forcommissions earned. This accounted for 49.3%

34.5% of revenues. These are profits that ariseof the total revenues and is divided into the fol-from the sale of the securities the Group has on

lowing three categories.

its own account, or when the Group buys from orEquity and bond commissions

sells to its clients, in order to meet the transac-

These are the commissions for broker services
earned from individual and corporate custom-tion needs of customers for negotiable securities, such as stocks and bonds.

ers at the time of sales or purchases of nego-

Net financial revenues equal interest and divi-

tiable securities, such as stocks and bonds.

dend income such as dividends and interest re-Investment banking commissions

Operating revenues

extraordinary gains. The greatest revenue source

ceivables on negotiable securities owned, mi-These are the underwriting commissions

nus interest expenses such as interest payables

earned when stocks and bonds are issued by

and fees for discounts on notes. Furthermore,

corporate customers in order to procure new

the net operating gain on investment securities

funds, as well as commissions from mergers

is the total of the appraisal increase/decrease

and acquisitions (M&A).*2

and the sales profit/loss from the negotiable securities obtained for the purpose of doing in-Commissions

216,386

Equity83,887

Bonds

4,263

Investment banking

71,170Asset management

45,64011,425Other
Net gain on trading securities

151,117
171

Net operating gain on investment securities
Other sales

33,641

Net financial revenues(Interest and dividend income minus interest expenses)

19,548Other revenues(Sum of non-operating income and extraordinary gains)

17,461

Economic report revenues

438,324

totals may not always add up due to the rounding*offTheof figures.

1. Operating revenues are indicated after subtracting interest expenses (excluding interest payables not related to securities transactions), which is a component of operating expenses, from interest anddividend income in the operating revenues.
2. Mergers and acquisitions (M&A) actually has a broad meaningthat includes not just the joining of two companies through amalgamation or purchase, but also the transfer of operations, transfer ofstock, or capital alliance.

**■Revenue structure (FY2004)

Revenue structure by region
Economic report revenues¥438,324 million

Other revenues
Net financial revenues 4.0%
4.5%

Looking at the revenue structure by region,
87.6% of our revenues are from Japan. The Daiwa Securities Group earns most of its revenues

Other sales
7.7%

by serving individual and corporate customers in

Net operating
gain on investment
securities
0.04%

Equity
19.1%

Bonds
1.0%

Japan through asset management and funds
procurement.

■Revenue structure by region (FY2004)

Net gain on trading
securities
34.5%

Investmentbanking
16.2%

Commissions
49.3%

Americas
2.6%

Asia & Oceania
2.1%

Europe
7.6%

Asset management
10.4%

Japan
87.6%

Other
2.6%
(Net operating revenue basis)

34

DAIWA SUSTAINABILITY REPORT 2005

¥5.8 billion over the previous year to ¥142.8
billion. This accounts for 57.4% of the total

We paid ¥5.6 billion in loan interest to creditors.

economic value generated by the Group.

Society

Governments

We aim to provide a stable amount of funds

track of how much of the economic value de-3

Paying taxes on income is part of a company's

rived from its business activities is being distrib-

for our corporate citizenship activities,* whichsocial responsibility. According to the Daiwa Se-

uted to its various stakeholders.

represents economic distribution to society,curities Group's financial accounting, the tax

Economic value for the purpose of this eco-

regardless of the fluctuation in our businessamount paid is the total of current income taxes,

nomic report is calculated as the revenues as

results. In fiscal 2004, this type of expendituredeferred income taxes and other taxes and du-given in this economic report minus the cost of

totaled ¥710 million.

ties including consumption tax paid. In fiscal

Shareholders

sales, selling, general and administrative expens-

2004, the financial accounting tax amount wases, non-operating expenses, extraordinary loss-

Every year, we pay dividends to sharehold-¥46.9 billion. This accounts for 18.9% of thees, and minority interest.

ers as a distribution of economic value. Our

economic value produced by the Group.

Employees

basic policy is to distribute profits twice a*3. For details on expenditure for corporate citizenship activities, see page 42.

Employees' compensation and benefits thatyear at a dividend payout ratio of approxi-

are distributed to employees (including salar-mately 30%, based on the consolidated per-ies, bonuses, welfare program costs, and so-formance of the Group, while also ensuring

Procurement activities of the
Daiwa Securities Groupcial insurance contributions) have ranged fromstability. Based on this policy, we made an

It is extremely important for a company to con-¥120 billion to ¥140 billion in recent years,

annual dividend payment of ¥10 yen per

sider society and the environment when consid-

based on fluctuations in operating revenues.

share in fiscal 2003. In fiscal 2004, we madeering what products and services to procure and

The personnel costs in fiscal 2004 rose by

a total dividend payout of ¥20 billion, includ-

selecting suppliers for these. That is why the
Daiwa Securities Group carries out procurement■Trends in distribution of economic value to stakeholders

based on social and environmental considera(¥ million)

tions, even though its procurement activities are

Stakeholders

FY2000FY2001

FY2002

FY2003

FY2004

Calculation method

relatively small compared to manufacturers. In

Employees

140,426

129,972

123,904

136,963

142,751

Personnel expenses in
S&GA expenses

fiscal 2004, we purchased about ¥71 million in

N/A

N/A

320

332

708

Expenditures for corporate citizenship activities

products and services. This was performed us-

Shareholders

17,246

17,265

7,971

7,969

19,960

Dividends

ing Sanko Net, an intranet site administered by

14,890

11,134

8,388

7,821

5,590

Interest payables, excluding thosearising from securities transactions

Daiwa Sanko Co., Ltd., one of our group firms.

Creditors

was made based on green procurement stand-Society

Governments

77,403

10,93020,026

26,42446,921

Total of current income taxes, deferred income taxes andother taxes and duties including consumption tax paid

Retained within company

47,303

147,812 ▲14,293

34,66732,705

Amount of internal reserves

Of this total procurement, 29%, or ¥20 million,

Economic Report

The Daiwa Securities Group keeps continual

ing an interim dividend in September 2004.

Creditors

Economic Relationships with Stakeholders

Distribution of economic
value to stakeholders

ards, which take social and environmental factors into account.

■Distribution of economic value to stakeholders (FY2004)(¥ million)

Economic reportrevenues
438,324

Economic
value
248,635

Other expenses
38,423
S&GA
expenses
126,038

Revenues

Withincompany
13.2%

Cost of sales
25,228
Expenditures

Governments
18.9%

Creditors
2.2%

Employees
57.4%

Shareholders
8.0%

Society 0.3%

*The totals may not always add up due to the rounding of figures.
DAIWA SUSTAINABILITY REPORT 200535

Social Report

Initiatives for Customer Satisfaction
Among the many relationships the Daiwa Securities Group has with various types of customers,
this section focuses on initiatives taken by Daiwa Securities Co. Ltd. to improve the satisfaction of individual customers.
Issues and targets for fiscal 2004 and beyond

Results and progress for fiscal 2004

Make continuous efforts in post-sales follow up: Increase frequency of customer
contact, study customer needs, and improve quality of proposals to customers.

Held information provision seminars after product purchase, andraised the customer contact frequency by staff and superiors.

Check basic actions: Be thorough in carrying out basic proceduresand providing fundamental services.

Established leaders in each office with the goal of greater
accountability on basic business etiquette and proper conduct.

Provide information that is easy for customers to understand: Use simple,
straightforward language in documents and forms, etc., intended for customers.

Prepared easy-to-understand materials, handledaccount statements electronically, and simplified paperwork.

Increase customer satisfaction by improving sales organization and service programs.

Started a new sales system that meets customer needs(set up the Consulting Section, etc.).

Approach tocustomer satisfaction
The improvement of customer satisfaction is
one of the most important issues in management. The Daiwa Securities Group is
now working to establish a sales systemthat will provide new services for increased
customer satisfaction, based on feedback
from customers.

■Daiwa Securities Group Brand Statement(established March 2001)
At the Daiwa Securities Group, we are committed to acting as our clients' best partner
and to promoting their financial wellbeing. In
order to achieve this, we shall redefine currently accepted best practice drawing on thefollowing three core values.
We Shall Provide Products and Services
that Exceed Expectations
It is important that we apply detailed knowledge of customer needs, innovation in our internal processes and a strong customer focus to provide solutions that routinely exceed
customer expectations.
We Shall Bring the Full Strength of theGroup to Bear
Cooperation among group companies
sweeping aside traditional corporate barriers,
a flexible approach to business and swift decision making will enable us to offer comprehensive financial services precisely geared tomeeting our customers' financial goals.
We Shall Be a Leader in Defining Financial
Best Practice
Exploitation of our substantial store of professional knowledge and a pro-active approach to team building will enable us to remain pioneers in our marketplace.

36

DAIWA SUSTAINABILITY REPORT 2005

Initiatives to address issues
that arose in 2004
■Ongoing initiatives for post-sales follow up*1
Daiwa Securities Co. Ltd. holds seminars on
investment trust products owned by many
investors, and is actively working to provide
information after product purchases.
We are improving customer materials andraising the level of information provided tocustomers. We are also striving to offer better quality post-sales follow up by increasing
opportunities for direct customer contact,
not just by the staff involved, but also by thesales representative's superior.

■Emphasis on basic etiquette
In November 2004, leaders were establishedin each office with the goal of greater accountability on basic business etiquette andproper conduct.

■Making things easy for customers to understandWe consider the need for understandability
when preparing materials, diagrams, andgraphs for distribution to customers. We
have also simplified paperwork relating to
specification accounts, and have introduced
electronic delivery of account statements.

ing to investor protection. We also emphasize listening to customers in strengthening
our compliance efforts.
As a result, in October 2004, we moved
the Customer Support Center from under
the Customer Satisfaction (CS) Promotion
Department of the Sales Strategy Division,to the Compliance Division. In April 2005,
we set up a Customer Support Dept. in the
Compliance Division. Through the focusedmanagement of the Customer Support
Dept., a faster and more appropriate system
for handling complaints from customers is
now in place, including complaints received
by the Customer Support Center and thebranch offices.

Customer Support Center
inquiries and response
The Customer Support Center received 5,791
calls from customers in fiscal 2004. Of these,a majority of calls (4,068) were inquiries, while
1,714 were complaints. Most of the com-

■Number and types of calls received
by the Customer Support Center
0

1,000

2,000

3,000

4,000

5,000

Calls
6,000

1. At Daiwa Securities Co. Ltd., we use the term "post-sales follow*up"
to describe follow-up service after product sales.

FY2002

1,295

Organizational improvement for
better handling of complaints

FY2003

1,622

4,130

In order to increase customer satisfaction,
we quickly identify any problems that arise
due to differences in awareness between acustomer and the company, or issues relat-

FY2004

1,714

4,068

9

Inquiries

Feedback

Complaints

3,355

41

46

9.0

Important points to maintain

Points to maintain

Service andetiquette of staff ( 0)

Staff appearance (+0.1)●●
Office cleanliness (-0.2)
Convenience ofoffice location (+0.2) ●●Product knowledge at the office ( 0)●
● Easy-to-understandexplanations at the office (+0.1)●● Customer-oriented approach (+0.2)
Switching clients ●to different staff● Advice that matches

Level of office information ●technology (-0.1)

member (-0.2)

Service from staff
supervisor (+0.2）●

Friendliness toward
investment novices (-0.1)

customer goals ( 0)●Easy-to-understandtransaction statements ( 0)

● Product lineup (+0.1)●●●
Level of service

Satisfaction level with
post-sales follow up (+0.1)

compared to competitors ( 0)Every year since fiscal 2001, Daiwa Securities Co. Ltd. has been carrying out a customer satisfaction survey in order to assesscustomers' opinion of our services and help
us provide even higher quality services. The
results of the fiscal 2004 survey showed anincrease in overall customer satisfaction
compared to the previous year.
We increased our customer satisfaction
for all the items related to post-sales follow
up, including frequency, timing, and content,
but levels remained low compared to theother evaluation items. We are aiming to increase these scores further, and follow up
service will continue to be an important areaof focus.

● of staff (+0.3)● Prompt action by staff (+0.1)

Fast service by
the office (-0.1)

Office layout (-0.1)

6.0

Product knowledge

Telephoneetiquette (-0.1)

Points to watch
5.0
5.6

6.7

7.8

Important points
for improvement

8.9

10.0

Importance level
November and December 2004, a questionnaire was mailed out to 5,000 Daiwa Securities customers; 1,770 replies were received.
* During
graph above shows some of the 52 survey questions. There were five satisfaction levels from very high to very low, and three importance* The
levels, with "neutral" for both assigned 5.0 points. The average customer satisfaction score for every one of our customers was over 5.0.
* The bracketed figures indicate satisfaction score increase/decrease from the previous survey, which was carried out in November 2003.

■Evolving important improvement points based on the customer satisfaction survey
FY2002
Key points for improvement

FY2003
Key points for improvement

FY2003
Key points for improvement

Satisfaction level with post-sales follow-up

Satisfaction level with post-sales follow-up

Satisfaction level with post-sales follow-up

Advice that matches customer goals

Advice that matches customer goals

Advice that matches customer goals

Customer-oriented approach

Customer-oriented approach

Customer-oriented approach

Compared to competitors

Easy-to-understand reports

Accuracy of overall information

Switching clients to different staff member

Social Report

8.0

7.0

●
●

Initiatives for Customer Satisfaction

FY2004 customer
satisfaction survey■Results of the fourth annual customer satisfaction survey
Satisfaction level

plaints were related to service provided bybranch offices, or employee etiquette.
The Customer Support Center issues a
Customer Support Center Monthly Report,
which is sent to executives, all branch managers, internal administration supervisors inthe branch offices, and division generalmanagers. This allows the details of customer complaints to be shared among all the
relevant personnel. We are striving to improve our operations in each office based on
customer feedback.

Stakeholder comment

Future issues and targets for fiscal 2005
Based on the results of the fiscal 2004 customer satisfaction survey, Daiwa Securities
Co. Ltd., will continue to actively emphasize post-sales follow up in fiscal 2005. We
are working to increase the convenience of
our offices with information technology, andwill further improve services to customers
using the Daiwa Direct course on investment. Also, we are renovating our offices tocreate spaces that will appeal to a wider
range of customers.

Customer satisfaction initiatives of the Daiwa Securities GroupA book on customer satisfaction written over 20 years ago in the
United States is still available in new editions. In this book are excerpts from customer letters: "A person who buys clothes is not
actually looking for clothes, but rather a sophisticated look"; "A
person who buys a toy is not looking for a toy, but is in fact seeking to make a child happy."
Therefore, it seems to me that what investors are actually seeking from the securities industry is "the pleasure of increasing assets" and "a secure and happy retirement." It is important that we
continue our efforts to help customers reach their real goals in order to secure the sustainability of the Daiwa Securities Group.

Hiroyuki Sato
Deputy General Manager
CS Promotion Section, Sales Planning Department,
Daiwa Securities Co. Ltd

DAIWA SUSTAINABILITY REPORT 200537

Social Report

Human Values and Human Resource Utilization
The source of competitiveness for the Daiwa Securities Group is its people. We are working to create outstanding work environments
and improve our human resources system, which is designed to help employees to feel motivated, proud and satisfied in their work.
Issues and targets for fiscal 2004 and beyond

Results and progress for fiscal 2004

Review job descriptions and improve workplace environmentswith the aim of stabilizing employment of persons with disabilities.

• Ongoing regular interviews with Personnel Department staff.

Improve evaluator training to increase the objectivity of evaluations.

Most group companies have implemented this already, although some have not.

Achieve target of 20% group-wide enrollment in Daiwa
Leadership Program.

In fiscal 2004, 62 people entered the program, and at the end of the fiscal year 14% of
the deputy general managers (career-track employees) had graduated from the program.

Enhance personnel system with goal of fostering professional
human resources.

On June 1, 2005, a qualification point system was introduced as part of the promotion criteria. There
will be a transition period until fiscal 2007, and full-scale implementation will begin in fiscal 2008.

Basic approach tohuman resources
In order to develop personnel that are a competitive resource for the Daiwa Securities
Group, we are working to create a human resources system that reflects the idea of human values mentioned in the Group's Corporate Principles. Starting in fiscal 2003, wehave been focusing on Performance-based
Evaluation System, broadening employee
choices, establishing a fair evaluation system,and qualitative improvement of personnel.

• Held a get-together for employees with hearing disabilities (9 participants)■Hiring by career path■College internship system

The Daiwa Securities Group operates its hiring system based on different career paths,
since each of its member companies havedifferent business functions. Job candidates
are selected for each career path, based on
the business areas of retail securities, investment banking, asset management, research, systems consulting, and venture
capital. The system then assigns candidates
to specific group companies based on the
career path, though with the proviso that career paths generally require exchanges of
personnel between group companies.

At Daiwa Securities SMBC Co. Ltd., the financial industry's first internship program
based on open applications was started in
2001. It is an opportunity for university students to learn about investment banking activities, to make direct connections with employees working on the frontlines, and to geta feel for the work and the atmosphere of
Daiwa Securities SMBC.
The participants undertake work projects
set by their departments and make presentations on their results on their final days. The
employees also take part in the project, observe the presentations and discuss them. It
is more than an internship system that functions like an extended company tour, as it isan opportunity for students to get real
hands-on work experience and to obtainspecialized knowledge and experience.

■Basic employee statistics (Daiwa Securities Group Inc.)
Average annual salary＊¥8.68 million

Average age

37.1 years old

Average number of years of service

10.7 years(as of March 31, 2005)＊ The average annual salary includes bonuses
and other forms of additional remuneration.

■Number of new graduates employed in entire Daiwa Securities Group(persons)

April 2003

April 2004

April 2005

Male

326

203

252

Female

274

147

235

Male

0

0

0

Female

54

28

81

Male

12

11

35

Female

6

16

40

672

405

643

Initiatives for recruitment■Policies and initiatives for fair hiring
The Daiwa Securities Group has established guidelines for respecting human rights
and for recruitment based on fair and objective evaluations. Those involved in hiring
are thoroughly familiar with these guidelines, and they have also been posted on
our recruitment information site for jobseekers to see.

Career-track employees
and regional career-track
employees*1

General employees*2

Financial advisors*3

Total

career-track employees make up a class of career-track employees established at Daiwa Securities in 1998. These employees stay in one region*1.Regional
and are not subject to transfers that require a change of residence. Full-scale hiring of new graduates into this class began in April 2002.

Employment information web site (Japanese only)

URL http://www.daiwa.jp/recruit/

38

DAIWA SUSTAINABILITY REPORT 2005

employees make up a class that was created in April 2003 by blending the old general employee class with the old area general employee class.
*2.General*3.Financial advisors are employees who work in sales at Daiwa Securities Co. Ltd., under one-year contracts.

■Initiatives to ensure human rights
In its Code of Conduct and Ethics, Daiwa Securities Group Inc. prohibits discriminatory
treatment for reasons not related to fair business practices, as well as banning sexual andother forms of harassment. A Human Rights
Awareness Promotion Committee has also
been established with the director of human resources as its chairman. Regular human rights
awareness training is carried out once a year.
We are a member of the Industrial Federationfor Human Rights, Tokyo, and we strive to protect human rights. One of our activities in this ishuman rights awareness training programs.

■Percentage of workforce made up of employees with disabilities■Employee welfare system usage (Daiwa Securities Group Inc.,(average for nine group companies, as of the end of each fiscal year)

Daiwa Securities Co., Ltd., and Daiwa Securities SMBC Co.Ltd.)

%
2.00

1.90

1.89

1.90
1.80
1.70

1.69
1.60
1.50

(persons)■Overtime hours and paid vacation usage rates

FY2002 FY2003 FY2004

The average overtime working hours permonth increased from 25.6 hours in fiscal
2003, to 29.3 hours in fiscal 2004. This wasdue to the sudden increase in stock certificate
acceptance work in December 2004, resulting
from the introduction of a specification account system at Daiwa Securities Co. Ltd.
The Daiwa Securities Group aims to reduce
the number of overtime work hours, and in
May 2005, we began turning off the lights at
10 p.m. in the Daiwa Securities Headquarters
Building.
The paid vacation usage rate grew slightly from
33.0% in fiscal 2003, to 33.2% in fiscal 2004.

Employees taking Female
childcare leave*
Male

80

81

115

0

0

0

Employees taking Femalefamily-care leave
Male

1

0

0

0

0

0

Employees eligible for childcare leave include non-regular
employees (contract employees).
Since maternity leave is a legal requirement, the number of
employees taking this leave is not listed.

*
FY2002

FY2003*

FY2004■Employees of entire Daiwa Securities Group(persons)

As of March 31, 2003
Employees

Japan

Male

123

(career-track*1)（6,151）(manager) （3,055）
3,573

801

(career-track*2) （1,372）

（-）

（39）

Japan total 10,372(manager)

As of March 31, 2005

Financial Temporary
Financial Temporary
Financial Temporary
Employees
Employees
advisors employees*1
advisors employees*1
advisors employees*1

6,799

FemaleAs of March 31, 2004

6,920

166

（-）

（6,197）（-）（3,180）3,463

728（1,377）

（-）

（-）

（55）

924

1,242 10,383
1,182

-

1,265 11,565

894

Overseas

1,187

-

Total

11,559

924

-

-

23

6,879

258

（-）

（6,127）（-）（-）（3,278）

（-）

3,220

690

（1,258）

（-）

（-）

（75）

（-）

894

1,379 10,099

948

1,608

1,196

-

44

1,415 11,295

948

1,652

-

-

36

With the aim of creating more people-friendly work environments, we are working to improve our employee welfare program.
Employees on maternity leave are paid
their full monthly salary, and are also eligible
for childcare leave of up to two years, which
is longer than required by law. Althoughmale employees are also entitled to childcare leave, none have taken it so far, so weare encouraging them to do so.
Employees are also eligible for up to 365
days of family-care leave, which also surpasses the legal requirement. In the case ofan employee whose spouse is in need ofcare because of an illness or other hardship,a grant is available to cover home-helper expenses for up to sixty days. These benefits
have not been used very much yet, and wewill actively promote their use in the future.

Social Report■Employee welfare system

Realizing people-friendly
work environments

As of the end of March 2005, the average
percentage of our workforce made up of
employees with disabilities is 1.89% acrossnine group companies, which is above Japan's legally required level of 1.8%. The personnel departments of Daiwa Securities
Group companies regularly conduct personal interviews with employees with disabilities
to ensure that that they are facing no unnecessary obstacles in their work, and are able
to enjoy job satisfaction. In June 2004, we
held a get-together for hearing-disabled employees, attended by nine people. These
employees were able to strengthen ties witheach other, and also offered suggestions for
improvement.

Human Values and Human Resource Utilization■Employment of persons with disabilities■Working hours and paid vacation usage rate (Daiwa Securities
Group Inc.,Daiwa Securities Co. Ltd., and Daiwa Securities SMBC Co. Ltd.)FY2002 FY2003 FY2004
Annual regular
working hours (Hours)-

Average monthly
overtime hours* (Hours)
Paid vacation usage rate

1,845.0 1,860.0 1,837.5
22.2

25.6

29.3

34.1% 33.0% 33.2%

This is the number of Employees' Union members in Daiwa Securities Group Inc., Daiwa Securities Co. Ltd., and Daiwa Securities SMBC Co. Ltd.

*

1.Temporary employees are part-time employees; the figure shown here is the average number of such employees over the year.
The temporary employee class is made up mostly of women.
2.Includes regional career-track employees and specialist positions.

**

DAIWA SUSTAINABILITY REPORT 200539

Social Report

Human Values and Human Resource Utilization

Creating work environmentsthat encourage womengroup training including combined orientations
for new employees, and selective management training.

Training over six months, which culminated ina certification exam. 190 professional certification candidates have taken the course.

■Combined new employee orientation■Implementation of qualification criteria for promotion

The Daiwa Securities Group has a shared program for the training of new recruits in order topromote better communication across the entire Group and for new employees to learn
about social responsibility, corporate ethics
and our Corporate Principles. The programsets aside one day for social responsibility
learning including human rights. New recruits
engage in corporate citizenship activities suchas experiencing visual disability through ablindfold exercise, learning sign language, oroffering care support in an elderly home. An
hour has also been designated for new employees to learn about corporate social responsibility. Outside experts have been invited
as guest lectures since fiscal 2004.

In June 2005, we greatly expanded the support system for obtaining qualifications, alongwith the introduction of fixed qualification criteria for personnel promotion. We have set"qualification points" for each managerial postor grade, and are promoting the acquisition ofknowledge and credentials befitting an organization of professionals.

■Active recruitment and promotion
The Daiwa Securities Group is engaged in various initiatives to expand career opportunities
for women. Four seminars were held between
December 2004 and February 2005 for female
university students interested in career-track
employment. These included lectures by female executives and small discussion groups
with young female career-track employees. Attendance for the seminars reached 222 women; we had the highest number of female applicants for career-track employment and thehighest number of informal job offers to date.
We are also actively promoting women to
management positions. As of March 2005,
there were three female branch managers(Daiwa Securities Co. Ltd.), and two female
general managers at group companies. In addition, we have promoted 75 women to management positions (2.2% of the entire management). As of June 2005, there are now
three female branch managers, and four female general managers.

■Persons earning credentials (nine group companies)(persons)

Credentials

Credentialed persons

Chartered Member of the Security Analyst Association of Japan

1,211

Chartered Financial Analyst (USA credential)

39

Financial Planner (AFP)

2,499

Financial Planner (CFP)

193

Variable insurance sales credentials

Human resource andskills development
The Daiwa Securities Group carries out various types of training based on the idea that it
is human resources development that determines a company's competitiveness. In addition to training that meets the needs of individual group companies, we perform cross-

40

DAIWA SUSTAINABILITY REPORT 2005

5,423

System Analyst

25

Overseas MBA program graduate, etc.*

117■Establishment of the Women's Advancement Action TeamIn February 2005, we established the Women's Advancement Action Team (tentativename) consisting mainly of the female staff ofthe Personnel Department of Daiwa Securities
Group Inc. The team began looking into theimprovement of work environments and the
Daiwa Securities Group initiatives relating to
the Next Generation Education and Support
Promotion Act.
On June 1, 2005, the start of this new initiative was announced in-house. We will continue to promote full-scale efforts for this initiative in the future.

11

Licensed Tax Accountant(as of March 31, 2005)
sent by the Group to earn degree. Other degrees* Persons
include master's degrees in law and international affairs.
Presentation at combined new employee orientation■Intra-Group Job postings■Selective management training
As of June 2005, 130 people have graduatedfrom the Daiwa Management Academy program, which was instituted in 2000 for generalmanagers; 356 people have completed the
Daiwa Leadership program started in 2001 for
deputy general managers. We are striving todevelop human resources that will serve as
the next generation of leaders.

Our internal recruiting system facilitates personnel transfer across the Group, in order torealize the potential of employees with ambition
and ability. In the summer of 2004, there were
13 successful candidates out of 65. In thespring of 2005, there were 24 successful applicants out of 87, marking a substantial increase.
The total number of applicants since thestart in summer 2000 is 494, 95 of whom havebeen successful in their new positions.

■Skills development training
Amid the major changes in the environment
faced by financial institutions, the Daiwa Securities Co. Ltd., introduced a Professional
Certification System in fiscal 2004, in order tofocus on the important issue of professional
development for our employees. We are aiming
to award the first certifications in April 2006. In
fiscal 2004, we carried out Consulting Skills

A more impartial personnel
evaluation system
With the aim of achieving fairer personnel evaluations, we perform "mutual evaluations" between superiors and subordinates, as well as"360 degree evaluations" where employees areevaluated by those in other positions they have(Persons)

PeriodJobs offeredFund manager, analyst, venture capitalist

122Winter 2000

Work abroad

71

6

Summer 2001

Fund manager, analyst, venture capitalist, investment
information, principal finance, etc.

58

7Summer 2002

Fund manager, mergers and acquisitions, derivatives, work
abroad, internal wholesaler, satellite broadcaster, etc.

60

8Summer 2003

Individual and corporate sales, analyst, derivatives,
venture capitalist, internal wholesaler, dealer, trader

81

19

Winter 2003

Analyst, money manager, SMA consultant, sales,
consultative planning, dealer, trader, derivatives,
management consultant, pension consultant

60

16

Summer 2004

Compliance, product development, mergers and acquisitions, research, analyst, venture capitalist, fund manager

65

13

Spring 2005

Compliance, investment advisor, mergers and acquisitions,principal finance, analyst, venture capitalist, fund manager

87

24

We also have a program called the Voluntary
Retirement system, which offers individuals awide range of choices, as well as the Second
Career Support Leave, which provides twomonths leave for retirement job hunting or
preparations to start a new business.

■Number of Employees' Union members■Usage of the Daiwa Elder System(persons)(Daiwa Securities Group Inc., Daiwa Securities Co. Ltd.,and Daiwa Securities SMBC Co. Ltd., as of the end of each fiscal year)(Persons)

FY2002 FY2003 FY2004

Future issues and targets for fiscal 2005
In fiscal 2005, we will strive to improve
work environments and revise job descriptions, with the goal of retaining employeeswith disabilities. We will launch full-scale efforts to improve the training system for thedevelopment of professional human resources, and to create work environments thatencourage women.

FY2002 FY2003 FY2004

Number of Employees' Union members 6,388 6,220 5,786
Daiwa Asset Management Co. Ltd., which has its own employees'* Excluding
union, and Daiwa Property Co., Ltd., which has no employee union.

Successful
applicants

Summer 2000

We have established opportunities at ourgroup companies to hear from employees directly, through a semi-annual self reporting
system, and through interviews with the Personnel Department. We have also set up ways
for employees to submit opinions to the company through the Corporate Ethics Hotline,
and employee counselors.
We are also maintaining good labor relations, including the preparation of plans for
the Next Generation Education and Support
Promotion Act in consultation with the Daiwa
Securities Group Employees' Union. We maintain close communication with the union
through spring wage negotiations, and a union
member questionnaire at the time of semi-annual bonus payments. As of March 2004,
5,786 employees are members of the union.
(seven group companies,* as of the end of each fiscal year)

Applicants

Number employed throughthe Daiwa Elder System

57

68

84

Social Report

Communication
with employees■Employee success results for intra-Group job postings

Human Values and Human Resource Utilization

close connections with. Compliance objectives
are also included in personnel evaluation, andare used for determining personnel reassignments and promotions. We have implemented
evaluator training in order to improve the degreeof acceptance for individual evaluations.

Stakeholder comment

Retirement lifestyle support
The Daiwa Securities Group has a system to support the lifestyles of employees after they retire.
The Daiwa Elder System is a reemployment
system for those employees who have reachedmandatory retirement age. In fiscal 2004, we
reemployed 84 people by increasing our job
matching abilities. One program we offer iscalled the Senior Work system, which finds positions for employees that are 55 or older under a policy of assigning them to their desired
locations for retirement life whenever possible.

Thoughts on creating work environments that encourage women
In the past, there were no clear standards in the Daiwa Securities Group on career paths for women such as the work experience necessary for promotion. Recently however, there has been
an increase in the appointment of women to managerial positions, and women now have a clearer idea of how they can pursue a career in the Group. The female employees seem to havehigher morale as a result. There has also been an improvementin the awareness of childcare leave in the workplace, making iteasier for women to take advantage of the system.
I think that steady progress has been made, and I hope that
more measures will be taken in the future to help women in theworkplace.

Naoko Saito
Branch Manager
Nakano Branch, Daiwa Securities Co., Ltd.

DAIWA SUSTAINABILITY REPORT 200541

Social Report

Working with Society as a Good Corporate Citizen
We are promoting measures to enhance the relationships we enjoy with local communities,
based on the conviction that our activities as a good corporate citizen are an investment in society.
Issues and targets for fiscal 2004 and beyond

Results and progress for fiscal 2004

Partner with recipients of aid from foundations and perform community-based corporate citizenship activities through branch offices.

Deepened communication through the holding of informal gatherings and grant presentation ceremonies at branch offices.

Promote group company employees' understanding of volunteer activities through "welfare experience courses."

Promoted better understanding through sign language classes,
visual disability simulation exercises, and visits to nursing homes.

Initiatives for social issues
The Daiwa Securities Group invests in society
through its corporate citizenship activities. In
fiscal 2002, we began creating a system enabling branch offices of Daiwa Securities Co.
Ltd., to receive assistance requests from local
communities, as part of the promotion of ourmeasures to enhance our relationships withlocal communities.
Our efforts are divided into four sectors:(1) Education and research activities in thefields of economics and finance;(2) Support for volunteer work by employees;(3) Assistance for local communities in Japanand abroad through our foundations; and(4) Support for culture and the arts.

■Contributions to corporate citizenship activities(¥ thousand)Target sectors

FY2003

FY2004(1) Education and research activities in
212,500
the fields of economics and finance

184,040(2) Support for volunteer
work by employees

4,870

4,310

(3) Assistance throughour foundations

15,000160,000(4) Support for culture
and the arts

100,000

360,000

Total

332,370

708,350

Education and research activities in
the fields of economics and financePartnership between companies and universities in the areas of education and research isan important way to contribute to the development of the Japanese economy. In fiscal
2004, we developed support for researcher
exchange, including Daiwa-sponsored courses and joint research with Waseda Graduate
School of Finance, Accounting and Law. We
also continued to support economic educa-

42

DAIWA SUSTAINABILITY REPORT 2005

Daiwa Securities Group on its own, and general activities performed in conjunction withlocal community groups and NPOs.
As part of our independent activities, 41
group employees participated in a forest
maintenance project carried out on Mt. Takao,
near Hachioji, Tokyo. Ten employees also participated in a general activity that involved avisit to Tokyo Disneyland with disabled people. These participants thoroughly enjoyed
the experience, and expressed how meaningful it was to create an environment where alarge group of the disabled could actively enjoy themselves alongside the rest of society.
We are also engaged in activities for utilizing canceled postage stamps, recycling plastic beverage bottle caps, and raising funds tohelp the victims of natural disasters.

tion in elementary, junior high and senior highschools. For details see pages 12 to 15.

Initiatives to increase the number of
employees doing volunteer work
Volunteer activities expand the outlook of employees, create a new sense of values, and increase the flexibility of the organization. In
conjunction with CSR training, the new employee orientation includes social welfare experience courses that consist of hands-on experiences such as learning sign language,
doing visual disability simulations, and helping out at nursing care facilities. We also post
volunteer opportunities on
the Daiwa intranet for the
benefit of interested employees. In fiscal 2004,
a total of 2,295 employees participatedin 100 volunteer programs.
Information for group employees on volunteer opportunities

Main employee
volunteer activitie

Forest maintenance on Mt. Takao

Our volunteer activities are broadly divided into independent activities carried out by the■Results of employee fundraising and recycling activities(FY2004)
Contributions for the Chuetsu earthquake in Niigata(Including those from retired
employees)

8 million¥

Disaster relief for thevictims of the Sumatran earthquake andSouth Asian tsunami¥

Plastic beverage bottle caps

8.5 million 1,090.0 kg

Used prepaid
cards

Foreign coins

Canceled postage stamps

Used telephone
cards

30.0 kg

3,200 cards

Foreign bank notes

Calendars

Bell Mark830 sets

2,549 points =Pocket diaries

27,400 cards

4.0 kg79 notes

171 copies

¥

2,549

(From Aug. 2004 to Feb. 2005)http://www.daiwa.jp/branding/(Japanese only)

Support for reconstruction in theareas affected by the Sumatran
earthquake and South Asian tsunami.*2

The Daiwa Securities Group provided funding
for the Slovakia Philharmonic Orchestra's Tokyo performance in June 2004. Daiwa Securities SMBC Co. Ltd., also gave special support
for the Berlin Philharmonic Orchestra's tour ofJapan in November of the same year.
Special support was also provided for the
Louvre Museum exhibitions held in Yokohama
and Kyoto from April to October, 2005. As partof this effort, we held a private viewing of the
Louvre exhibit for 65 people with disabilities(plus 63 companions for a total 128 people) on
May 26, 2005

Children in Tricomalee (received by ACC21 from a local NGO)

■ACT system
Special exhibition
viewing

Program implementers
Local overseas NGOs
Monitoring
Grant provision

Activity reports

Secretariat
Trustee
Asian Community Center 21＆ Sumitomo Trust & Banking Co., Ltd.

*1. Details on the application procedures are available online at:
URL kouken/

Support for culture and the arts

Social Report

The Daiwa Securities Health Foundation provides assistance to hospitals and universities
for the advancement of empirical research relating to social welfare, and for promotion ofhealth among the middle-aged and seniors. In
fiscal 2004, the Foundation provided total assistance funds of ¥30 million to 30 projects.
The Daiwa Securities Welfare Foundation provides support for volunteer activities and received a record 750 assistance applications infiscal 2004. Based on the results of application reviews, the Foundation provided a totalof ¥47 million in assistance to 206 projects
carried out by volunteer organizations. Both ofthese Foundations solicit applications publicly
and select assistance recipients based on the
results of reviews.*1
The Daiwa Anglo-Japanese Foundation was
set up to support activities that promote mutual understanding between Japan and theUK, and each year it provides scholarships for
British students to come and study in Japan.
In fiscal 2004, seven students came to Japan.

while the Sumitomo Trust & Banking Co., Ltd.,
offers its services for the fund management.
By utilizing the financial system that makes up
the Daiwa Securities Group's core business,
we are able to help meet the long-term needsof recipient communities in a way that is notpossible with one-time contributions.

Activity report
Evaluation report

Contributions

Contributor
Daiwa Securities Group

2. See page 18, "Disaster Assistance through Corporate-NGO Partner*ships,"
for information on our reconstruction support efforts for the victims of the Sumatran earthquake and South Asian tsunami.

As a reconstruction measure for the victims of
the Sumatran earthquake and South Asian tsunami that struck in December 2004, we began
a 10-year support effort in 2005 targeting
NGOs in the three affected countries of Indonesia, Sri Lanka, and India. We established"the Daiwa Securities Group Tsunami Reconstruction Fund" as part of the Asian Community Trust (ACT), and are donating ¥10 million peryear for a period of 10 years. This is a longterm reconstruction program that supports local NGOs in the affected countries, by providing livelihood assistance in the three areas ofeducational opportunities for children, counseling services, and micro-finance projects.*3
The Asian Community Center 21(ACC21)
provides professional assistance in monitoring
the activities of the local NGOs overseas,

Financial services including deposit accounts and small-scale loans*for3.low-income
earners.

Future issues and targets for fiscal 2005
In fiscal 2005, we plan to further expand
our independent volunteer program to allow
more group employees to participate.
The Daiwa Securities Group understands
that its own sustainability as an enterpriseis intimately linked with the sustainability ofsociety. As a good corporate citizen, we are
actively engaged in efforts to address social issues in four priority sectors we haveselected, and we are helping to foster asustainable society.

Working with Society as a Good Corporate Citizen

Assistance for local communities in Japanand abroad through our foundations

Stakeholder comment

Participation in volunteer activities
I participated in the forest maintenance project on Mt. Takao withmy wife and son. Half of the time was spent listening to an introductory lecture on the environment, and the other half of the time
we helped to thin out the forest undergrowth. I think this was agood balance of activities, as it is important to understand the reason behind the forest thinning work. After just an hour and a half, I
was drenched in sweat, so it was definitely not easy work. However, I felt that I wouldn't mind doing more actual work next time. Although there has been an increase in the selection of Daiwa-sponsored volunteer activities, it seems that there are not enoughpeople participating in them. In the future, I think I will make an extra effort to invite my family and friends to participate with me.

Yuji Koseki
General Manager, Information Technology Department
Daiwa SB Investments Ltd.

DAIWA SUSTAINABILITY REPORT 2005

43

Environmental Report

Environmental Initiatives
The Daiwa Securities Group recognizes that the global environmental impact of its business activities is not inconsequential. It is working tobuild an environmental management system and increase the environmental awareness of its employees.
Issues and targets for fiscal 2004 and beyond

Results and progress for fiscal 2004

Strengthen environmental communication with the goal ofraising group employees' environmental awareness.

Published "Dr. Sustaina's Environmental Course," a serial onenvironmental communication, in in-house magazine, Fuji,
with aim of increasing group employees' environmental
awareness (three installments appeared in FY2004).

Study effectiveness of implementing ISO 14001, taking into
account characteristics of each business area.

In view of our business area, decided not to implement ISO
14001 group-wide at present. Established Environmental
Management Committee in May 2005 to increase precision of
our independent environmental management system.

Achieve greenhouse gas reduction target (1.9% less than
FY2001, CO2 equivalent) at Daiwa Eitai Building.

Achieved reduction target with an 11.3% reduction comparedto fiscal 2001.

Our perspective on
environmental problems
Although the Daiwa Securities Group's business activities have a relatively small impact
on the global environment compared to the
manufacturing industry, their absolute impact is not inconsequential. We view thecontinuous reduction of environmental impact as a corporate responsibility, regardlessof industry or business category. We arecontinuing to make efforts to reduce our environmental impact.
In fiscal 2001, we set about collecting environmental impact data. In fiscal 2004, westarted preparations to build our own environmental management system.

Liaison committee established to help build
an independent environmental management system
Daiwa Securities Group Inc. conducted a study
between February and March 2005 to bring thedebate over the pending question of whether
to acquire ISO 14001 certification to a conclusion. As a result, it was decided to forego cer-

Breakdown of CO2 emissions by energy type (graph 1)
Gas
5.3%
Fuel (gasoline, heavy
oil, light oil)
7.7%

Water andsewerage
0.6%

tification, and rather, to build an independent
environmental management system.
Accordingly, in May 2005 Daiwa Securities
Group Inc. established the Environmental
Management Committee, chaired by the executive responsible for CSR, and it is now
preparing to install an independent environmental management system.

1 Calculated CO equivalent of fuel, electricity, gas,
*water,and sewerage usage of the Daiwa Securities
2

Group at its 18 major office buildings and the branch
offices of Daiwa Securities Co. Ltd., across Japan,
using the Ministry of the Environment's greenhousegas emissions conversion formula.
2 For a total of 12,655 employees, including regular*employees,
financial advisors, and temporary
employees in Japan. For details see "Human Valuesand Human Resource Utilization" on page 39.

Reducing CO2 emissions
In fiscal 2004, the Daiwa Securities Group reduced its CO2 emissions by 2,109 tons (5.4%)
from fiscal 2003 to 37,009 tons.*1 In Japan,
CO2 emissions per employee*2 were brought
down 0.17 tons to 2.92 tons. Moreover, in fiscal 2003, the Daiwa Securities Co. Ltd. Headquarters Building and the Eitai Daiya Building
achieved the numerical targets for reduction of
CO2 emissions specified in the Global Warming Action Program that we submitted to theTokyo Metropolitan Government in fiscal 2002.
In fiscal 2004, the Daiwa Eitai Building reduced emissions by 11.3% from fiscal 2001,
achieving the 1.9% reduction target.

Electricity usage over time (graph 2)
Million kWh

120
100

18 office buildings plus
Daiwa Securities branch offices

99.40

95.24

Reducing electricity andwater usage
In fiscal 2004, we reduced our electricity usage by 5.69 million kWh (5.9%) from that in
fiscal 2003 to 89.55 million kWh. One of the
primary factors in drastically reducing electricity usage was to install inverters on the
57 computer room air conditioners in the
Daiwa Eitai Building; these facilities had
consumed a lot of electricity compared toour other business sites.
We reduced our water usage from the previous year by 27.36 million liters (6.2%) in
fiscal 2004, to 411.07 million liters.

Water usage over time (graph 3)
Million liters

500

89.55

400

80

16 office buildings plus
Daiwa Securities branch offices

473.05438.43411.07

FY2002

FY2003

FY2004

300

60
200

40

0
FY200444

DAIWA SUSTAINABILITY REPORT 2005

100

20

Electricity
86.4%

*

FY2002

FY20030

FY2004

For the scope of data, see the "Scope ofEnvironmental Impact Data" table on page 45.

*

For the scope of data, see the "Scope ofEnvironmental Impact Data" table on page 45.

Waste generation and recycling over time (table 1)(Unit: tons)

Amount generated
Paper Amount recycled
waste Amount discarded
Recycling rate
Amount generated
Non- Amount recycledpaper
waste Amount discarded
Recycling rate

2002

2003

2004

1,564.2

1,250.6

1,308.4

1,357.0

1,105.2

1,160.6

207.3

145.4

147.8

87%

88%

89%

352.6

260.1

330.7

101.0

84.7

114.3

251.6

175.4

216.4

29%

33%

35%

For the scope of data, see the "Scope of*Environmental
Impact Data" table below.

Scope of Environmental Impact Data
Building

Joining UNEP FI—committed toenvironmentally conscious finance
In November 2004, the Daiwa Securities
Group joined the United Nations Environment Programme Finance Initiative (UNEP
FI), signing the UNEP Statement by Financial Institutions on the Environment andSustainable Development. By joining UNEP
FI, we are now able to acquire information
about overseas locations on the environment and sustainability. In cooperation withother signatory members, the Daiwa Securities Group will pursue ideal forms of cutting-edge finance that take the environment
into consideration.

Graphs 1 & 2 Graph 3 Table 1

Daiwa Securities Headquarters Building
Daiwa Securities Kayabacho Building
Marunouchi Trust Tower North Building
Eitai Daiya Building
Daiwa Securities Osaka Branch Building
Daiwa Securities Nagoya Branch
DAM Headquarters
DIR Headquarters Building
DIR Annex
Daiwa Eitai Building
DIR Kiyosumi Park Building
DIR Izumi Eitai Building
Daiwa Osaka Center Building
DSC Headquarters
Daiwa Securities branch offices*
Daiwa SB Investments Headquarters
NIF Ventures Headquarters
Daiwa Training Center
Daiwa Sanko Buildings (main and annex)
branch offices, excluding headquarters, Osaka*120
and Nagoya Branch buildings (as of end of March 2005).

Green purchasing efforts
The Daiwa Securities Group promotes green
purchasing of office supplies through Sanko
Net, an intranet site operated by a groupcompany, Daiwa Sanko Co., Ltd. The site
lists products from the database of theGreen Purchasing Network (which we joinedin June 2003) that carry environmental marks.

Signing UNEP Statement

Internal and external
environmental communication
In November 2003, we began running"Dr. Sustaina's Environmental Course," aserial on environmental communication,in our quarterly in-house magazine, Fuji,
with aim of increasing group employees'
environmental awareness.
This series explains global environmental
problems in simple terms, focusing on linkages between the Daiwa Securities Groupand the environment. In addition to our internal newsletter, "Dr. Sustaina's Environmental
Course" is also published on the CSR site of
the website of Daiwa Securities Group Inc.
CSR website (Japanese only)

URL http://www.daiwa.jp/branding/

Future issues and targets for fiscal 2005
The Daiwa Securities Group has traditionallypracticed a certain level of environmental
management, collecting environmental impact
data and setting environmental impact reduction targets. In May 2005, we established theEnvironmental Management Committee at
Daiwa Securities Group Inc. to help build amore precise, independent environmental
management system.
From fiscal 2005 forward, we have beenworking through this committee to establish
the "plan-do-check-action" (PDCA) quality
control cycle, draw up group-wide environmental impact reduction targets, sort out directenvironmentally related risks, such as electricity, gas, and waster usage, as well as indirectenvironmental risks related to our business,and promote environmental communication.
Moreover, a remaining issue is the formulationof a basic policy on green purchasing. We will
work this out during fiscal 2005.

Environmental Report

In fiscal 2004, paper waste generated by the
Daiwa Securities Group increased by 57.8
tons (4.6%) over fiscal 2003 to 1,308 tons.
We maintained a recycling rate for paper
waste of just under 90% overall.

Our green purchasing rate through thissite for fiscal 2004 was 43% in terms of thenumber of items purchased and 29% on amonetary base.

Environmental Initiatives

Resource conservation,
recycling, and waste reduction

Stakeholder comment

My expectations for the Daiwa Securities GroupI would like to see more environmental efforts through your main
business areas. As for CO2 reduction, for example, efforts that utilize your various assets, rather than few percent reductions at offices with smaller environmental impact compared to other industries, are preferable. Although CSR efforts are lagging behind in thefinance industry, I hope that you will fulfill a role as an industry
leader by articulating a vision that describes what you will focus on
and what you aim to achieve, now that you have taken the firststep of joining UNEP FI. Furthermore, in terms of SRI initiatives, I
think it is important to introduce numerical evaluations to help support various CSR efforts and to develop financial education in orderto promote financial thinking from the SRI-based perspective.

Masaki Kimura
Secretary General
A SEED JAPAN(International Youth Environmental NGO)DAIWA SUSTAINABILITY REPORT 2005

45

Environmental Report

Paper Project
We launched the Paper Project to assess the use of paper throughout the Daiwa Securities Group. Paper usage is considered the largest direct environmental
impact generated by the financial industry.

Paper Project:
Assessing paper usage
Engaged as it is in the financial industry, theDaiwa Securities Group tends to use lesselectricity, gas, and water than other typesof business. However, that does not meanthat the Group generates no environmental
impact. We examined where our greatest
environmental impact was, and the answer
came into focus: paper.
Paper usage in offices has tended to increase in proportion with the growth of copy
machines and printers in recent years. The
Daiwa Securities Group uses a tremendous
amount of paper to print various types of reports—including this one—prospectuses,*1
sheets and forms, and other records.
Many employees had a sense that they
were using a huge amount of paper in their
daily work, but the truth is that we used tohave no real grasp of just how much paper
was being used group-wide.
Seeing that the most appropriate action for us to take to reduce the Group's
environmental impact would be to address paper usage, we launched the Pa-

per Project in March 2005 to estimategroup-wide paper usage.

Examining paper usage
at Daiwa Securities Group Inc.
As the first step of the Paper Project, the
CSR Promotion Department monitored theamount of paper used at Daiwa Securities
Group Inc. during the one-year period from
April 1, 2004 to the end of March 2005 togain an understanding of the situation. This
study covered copy paper, business cards,
and envelopes used at Daiwa Securities
Group Inc. and publications printed outside
the company at the request of departmentsof Daiwa Securities Group Inc.
The results of the study showed that Daiwa Securities Group Inc. used 103 tons ofpaper during fiscal 2004, or 401 kg of paper
per employee (see the "Paper Usage at Daiwa Securities Group Inc." table on the nextpage). Assuming that it takes about 20 logs
of 14-cm diameter and 8-meter length toproduce one ton of paper, the total usage
was equivalent to about 2,060 timber logs.

Current status of efforts
The concrete figures obtained as a result of
the study helped us realize that our environmental impact is by no means small.
Daiwa Securities Group Inc. has a historyof printing its Sustainability Report on Forest
Stewardship Council (FSC)-certified paper,
which is made of timber that is cut fromproperly managed forests, and using recycled paper in its other publications.
In June 2005, we participated in the Study
Group on Ecologically Ethical Paper Procurement, sponsored by five environmentalorganizations (Greenpeace Japan, FoE Japan, WWF Japan, Global Environmental Forum, and Japan Tropical Forest Action Network [JATAN]) with a view to further
promoting the protection of paper resources. In the panel, we began to study withother participating corporations about theuse and procurement of ecologically-responsible paper. Moreover, looking to protect forests in Japan, as is being done in developing countries, we used 10% thinned
timber in the paper used to print this report,with a desire to promote healthy development of Japan's mountains and forests.

1 Prospectuses are documents that, when selling or*making
public offering of securities, must be furnishedto investors to describe the details of the securities
and conditions of that offer or sale.
Amount of paper usedby Daiwa Securities
Group Inc.

Paper Project: Future issues
During the past year we gained an understanding of the paper usage at Daiwa Securities
Group Inc. As we think about our paper usage
going forward, the next step will be to gain anunderstanding of group-wide paper usage. We
anticipate that paper usage at Daiwa Securities Co. Ltd. which is engaged in the securities
business throughout Japan, will greatly exceedthat of Daiwa Securities Group Inc.
In addition, Daiwa Securities Group Inc. hasestablished a one-year paper reduction target
for fiscal 2005 of 5% less than the previous fiscal year. We will also review the percentage ofrecycled paper contained in paper that we use
as well as reconsider the raw materials used tomake paper.
Thinned timber logo mark.

46

DAIWA SUSTAINABILITY REPORT 2005

Paper usage at Daiwa Securities Group Inc. (FY2004)* Only items bought throughcentral purchasing

Legal Department

Personnel Department

Finance Department

44,800

0.001

45

1,490

10.2

15,198

Copy paper (A3)

37

12.24

453

Copy paper (B4)

71

15.6

1,108

Copy paper (B5)

19

7.8

148

Portfolio envelopes for securities (Kaku 2)

5,000

0.013

65

Portfolio envelopes for securities (Kaku 3)

1,000

0.01

10

Adhesive-type envelopes (Chou 3)

11,0000.005

55Envelopes with flap (Kaku 1)

200

0.035

7

Envelopes with flap (Kaku 2)

1,000

0.028

28

OCS envelopes (Kaku 1)

1,0000.0135

14

Envelopes for valuables (Kaku 2)

1,000

0.013

13

Daiwa Senjukai envelopes

9,000

0.013

117

Convocation notice

95,000

0.054

5,130

Notification of resolution

113,000

0.005

565

Announcement of simultaneous satellite broadcast

94,0000.003

282

Voting cards

93,1000.003

279

Introduction of the company for new career-track employees

20,000

0.33

6,600

Introduction of the company for new regional career-track employees

10,000

0.134

1,340

How to Read the Sustainability Report

85,000

0.046

3,910

----

----

1,717

Spring 2004 issue of Fuji

14,700

0.156

2,293

Summer 2004 issue of Fuji

23,700

0.172

4,076

Fall 2004 issue of Fuji

14,495

0.162

2,348

2005 New Year's issue of Fuji

23,500

0.166

3,901

Annual Report 2004 (Japanese)

22,0000.468

10,296

6,000

0.477

2,862

Daiwa Securities Group Business Report for Fiscal 2003

114,000

0.07

7,980

Mid-term Business Report for Fiscal 2004 (68th Term)

111,000

0.039

4,329

Performance for Fiscal 2003 and Vision of Future Growth

95,000

0.042

3,990

250

0.344

86

120

0.192

23

111,000

0.206

22,866

Securities reports
Semiannual reports
Sustainability Report 2004 (Japanese)

CSR Promotion Department

Sustainability Report 2004 (English)

2,000

0.192

384

List of errata

92,0000.00125115

SCP News

1,500

0.244

366

600

0.214

Japanese trial version of Financial Fitness for Life
Total

Total weight (kg)

Copy paper (A4)

Annual Report 2004 (English)
Investor Relations
Department

Weight (kg) / copy

Business cards

Other employment communications

Corporate Communications
Department

Number of copies

Environmental Report

Entire Daiwa Securities
Group Inc.

Description

Paper Project

Department

128
103,128DAIWA SUSTAINABILITY REPORT 2005

47

Communication

Internal Stakeholders Meeting

Participating employees (from left to right)

Masaru Maruyama

Chikako Kuromiya

Tomokazu Furuhashi

Deputy General Manager,
Corporate Client Department, Tsu Branch
Daiwa Securities Co. Ltd.

Assistant Manager,
Sales Department, Nagoya Station Branch
Daiwa Securities Co. Ltd.

Deputy General Manager,
Consulting Department, Shibuya Branch
Daiwa Securities Co. Ltd.

"I am in charge of selling securities thatfluctuate in value, such as bonds, to financial
institutions. Financial institutions receive funds
from customers in the form of deposits andmanage them through financing, negotiablesecurities and, in particular, bonds. This is themain area in which I am helping customers.""Since joining Daiwa Securities five years ago, I
have been involved in sales, ranging fromdeveloping new customer segments to visiting
individual customers for transaction assistance.
I handle all kinds of financial products including
stocks, bonds, and investment trusts.""Although I handle all kinds of negotiablesecurities, I mainly provide asset-management
consulting for non-listed companies andFoundations."Three sales representatives from the frontline staff of the Daiwa Securities Group spoke candidly witheach other about their views of CSR and SRI. Although not particularly self-conscious about "CSR" intheir daily work, they showed themselves to be salespeople who act with sincerity, while always
considering how to fulfill their responsibilities to customers.

48

DAIWA SUSTAINABILITY REPORT 2005

SRI funds are now part of our product lineup
Kuromiya : As investment advisors, we provide advice on
SRI funds in the same way that we recommend other stock
funds. Therefore, the question is whether we are properly
conveying the fund mechanisms to customers in the firstplace. Of course, we hold in-house seminars for each investment trust that we sell. Although I liked the idea of SRI funds,
I also felt like they were just another part of the sales pitch.
Maruyama : In the US, there are various reasons that peoplechoose SRI funds, including religious or moral objections toinvesting in companies producing tobacco, alcohol, or weapons. In Japan, it's harder for people to see the point in taking
a negative stance on beer or tobacco companies whenchoosing stocks. However, SRI funds can nicely match thegoals of religious or healthcare organizations.
Furuhashi : I also think they work
well for religious organizations. SRI
funds have the appeal of giving theowner a sense of contributing to society, rather than just seeking financial performance.
Maruyama : I also think it's a question of individual values. In the future, I think there will be more people

DAIWA SUSTAINABILITY REPORT 2005

Communication

Furuhashi : I've been with Daiwa Securities for 10 years
now, and until being asked to participate in this discussion, I
hadn't thought very seriously about CSR. To be honest, I
didn't think much about how we can fulfill our social responsibilities and contribute to society as I carried out my job. I
always thought just about how I could provide the bestproducts and information to meet my customers' needs,
and how I could improve the satisfaction of my customers.
Kuromiya : It was the same for me. We'd almost never discussed CSR in my branch office. When I dealt with customers, it was always in this context: first there was Daiwa Securities, then there was the Sales Department of the Nagoya
Station Branch, and then there was me. Especially for individual customers, I think they feel that they are doing business with the sales representative as a person, rather thanwith Daiwa Securities as a company.
Maruyama : We handle products that fluctuate in value. So,
our responsibility in selling something that does not guarantee any returns is to be honest, never to lie. If there isn't astrong relationship of trust between the customer and me,then the transactions will not go smoothly. The essential
thing for building relationships of trust is to take immediate
and proactive action whenever you receive negative information relating to a customer's assets.
Kuromiya : Of course, it's important
to explain all the advantages anddisadvantages before a customer
places an order, but it's even more
important to provide customer service after the purchase has beenmade. Since the market always
goes up and down, it's especially
important to go to the customer to give an explanation assoon as their portfolio value falls, in order to help them understand the situation.
Furuhashi : As both of you mentioned, it's important to talkto the customer whenever there is negative news. Without
good rapport and a relationship of trust with the customer,
it's pretty hard to secure any orders.

Maruyama : We want customers tomake purchases on their own personal responsibility, so it's essential
to show them the risks and havethem make decisions based on theirpersonal investment goals. I think
this process has been thoroughly
implemented.
Furuhashi : Japanese investors are described as less mature than investors in Europe and North America. However, I
feel that the principle of self-responsibility is really starting totake root here. Today, none of our customers would ignore
the rules of the market and demand that we make up for
their stock market losses. Daiwa Securities' compliance policy has become the basis of our business.

Internal Stakeholders Meeting

Compliance now forms the basis ofeveryday work activities

49

Communication

who want to invest in SRI funds, based on the perspectivethat to do so means more than just wanting a profit. With therise in online trading, the people who buy stocks on the Internet are probably investing with the desire to make a personal statement in the selection of their stocks. SRI funds
will likely gain popularity, starting at the grass roots level.
Kuromiya : There seems to be more and more of a bearish market for companies that neglect their social responsibilities. I think investors have started to notice this, andthe fund balances will gradually increase once SRI itself
becomes better understood. Nevertheless, SRI funds will
be attractive for organizations and individuals with a longterm perspective.

Furuhashi : When explaining the various product choices to customers, the SRI funds usually aren't among the top choices, but they aredefinitely something that always comes up inconversation. I think there is an increasingneed for us to understand SRI when giving advice to customers. Recently, the head of an organization said to me, "We are at a point where
we have to think about investing in SRI funds."
This kind of comment was unheard of only five
years ago.
Maruyama : Wealthy people in the US are often
involved in charitable activities. It seems that
SRI funds would be a good thing to recommend to executives, for example.
Kuromiya : There are probably a lot of customers that would get a lot of satisfaction from such investments. When Aichi Prefecture issued bonds for the openingof Expo 2005 Aichi, they were sold out on the first day. Certainly the interest rate provided was not that high, but they
attracted a lot of interest from local people who wanted tocontribute to the local community. If the same kind of interest could also be generated for SRI funds, they would certainly catch on.
Furuhashi : I won't hesitate to recommend SRI funds, depending on the customer's needs. We are likely to receive a
lot more inquiries about them in the future. Since public sentiment appears to be heading in that direction, I am pleased
that Daiwa Securities is offering SRI funds.

Reaction to the discussion with stakeholders
Employees are a very important stakeholder group,
which is why we asked three salespersons from theretail front lines to participate in the recent stakeholder discussion. As they work in direct contact
with customers, they openly admitted that they havea minimal awareness of CSR and usually only think
about customers on a daily basis. In their concern
and constant efforts for customer satisfaction, it iseasy to see the pride they have as securities sales

professionals. Because of this, I realized they actually had a strong sense of corporate social responsibility to their customers. At the same time, I
see the need to work hard to improve CSR awareness for the entire Daiwa Securities Group, by supporting employees on the front lines through the utilization of various group company initiatives.

Yoichi Miyashita
Head of CSR Promotion Department
Daiwa Securities Group Inc.

50

DAIWA SUSTAINABILITY REPORT 2005

Communication

Internal Communication to Increase CSR AwarenessIn order to fulfill our responsibilities to society, we are pursuing various initiatives based on the notion that CSR awareness is essential for all employees
in direct contact with the public.

Providing information using
various communication tools

Sustainability
Report seminar

High school students present resultsfrom an economic learning program

CSR training
sessionCSR seminar for job applicants
provisionally hired
In December 2004, the Daiwa Securities Group
held a Sustainability Report seminar for five university students who were provisionally hired,and scheduled to join the Group the following
spring. It was a trial initiative for deepening the
CSR awareness of employees. After reviewing
the Daiwa Securities Group Sustainability Report
together, the participants each gave a presentation on something that interested them from theReport. Four employees and two outside consul-

tion and answer session. It was a great opportunity for students and employees to discuss the
SCP results.

In May 2005, a presentation was held in the Asahi Tokai Building in Chiyoda-ku, Tokyo, to wrap
up the second year of the School Company Program (SCP), which had begun in September
2004. Students from Ritsumeikan Senior HighSchool in Kyoto announced the results of theirreal-world experience in founding and running
Ichigan Inc. No fewer than 50 interested employees had come there to hear the results; the presentation was followed by an enthusiastic ques-

Along with the establishment of the CSR Promotion Department in July 2004, a feature called,"CSR Bulletin" was created in the in-house magazine, Fuji. From six to eight pages of each issue
are devoted to the feature, which contains information on the latest trends inside and outside of
the company, upcoming CSR seminars, news related to environmental measures and social contributions, as well as profiles of volunteer activities carried out by employees. We are continually
improving the content so that it can give every
employee an opportunity to consider how the
Daiwa Securities Group can contribute to building a sustainable society.
"CSR News," created by the Council for Better
Corporate Citizenship (CBCC), a Nippon Keidanren-affiliated organization, is also posted on ourgroup intranet. It provides employees with information about global trends in CSR.

Presentationby the directors of Ichigan Inc.
In-house magazine, Fuji

TOPICS

Updating the CSR website: New design and simpler format

Daiwa's Japanese-language CSR website was redesigned in July 2005. The design was updatedwith Flash graphics for the top page. Now the content is better organized so that visitors can quickly
find the information they are looking for.
With the aim of creating a simple and easy-tounderstand format, the site content was divided
into two sections entitled, "Daiwa's CSR Initiatives," and "Reflecting on CSR and SRI." In thefirst section, visitors can find the Daiwa Securities
Group initiatives under categories such as"Initiatives for Socially Responsible Investment,"and "Initiatives for Finance and Economic Educa-

Communication

In May 2005, staff from the CSR Promotion Department at Daiwa Securities Group Inc. began atour of all branch offices of Daiwa Securities Co.
Ltd., nationwide to provide CSR training. The
training program includes an overview of corporate social responsibility, as well as the CSR activities being carried out by the Group. Its goal is
to deepen employee understanding of CSR.

tants then joined the group, and a lively discussion ensued.

Internal Communication to Increase CSR Awareness

CSR training at branch offices nationwide

tion." In the second section, information is provided for those that want to deepen their understanding of CSR and SRI. This includes "CSR
Conversations," in which Mariko Kawaguchi, Senior Analyst at Daiwa Institute of Research Ltd.
discusses CSR in dialogues with various people.
We plan to take advantage of the web and tocontinue expanding the content of this site. Our
goal is to create a site that explains CSR and SRI
in a friendly and enjoyable way.
CSR website (Japanese only)

URL http://www.daiwa.jp/branding/

DAIWA SUSTAINABILITY REPORT 2005

51

Communication

Third-party Opinions

Chairperson, Committee ofConsumer-oriented
Management System Director,
Nippon Association ofConsumer Specialists (NACS)

Yukiko FuruyaThis is the fourth Daiwa Securities Group Sustainability Report since
2002, and I feel strongly that the Group has come a long way with its
compliance-based CSR initiatives. I have selected the following
three points as outstanding aspects of this year's report.
The first point is the expanded disclosure of information from a
CSR standpoint. We have given an abundance of numerical dataand questionnaire results to measure the initiatives quantitatively.
Based on the Disclosure Policy established in March 2004, there is abetter system for information disclosure along with improvements in
the information content and media. We have also made progress indisclosing negative information, while issues and objectives are outlined for each report item.
The second advance has been the greater clarity in the Daiwa Securities Group's CSR initiatives. Since the scope of CSR is quite
broad, many other companies have just adopted a generic format forthe content of their initiatives. The Daiwa Securities Group recognizes
the importance of initiatives for SRI and economic and financial education and is pushing forward with its efforts in these areas, with thefull understanding that its unique CSR is to contribute to the sounddevelopment of our economy and society through the Group's corebusiness field. The Group has also clarified its own environmental initiatives, with the launch of the Paper Project to examine paper use,
its largest direct environmental impact. The details of these specific
CSR initiatives are explained in an easy-to-understand way.
The third point I would like to mention is the Group's substantial
efforts in communication with stakeholders. This year the content of
the "Stakeholder Dialogue" section was greatly improved with a dia-52

DAIWA SUSTAINABILITY REPORT 2005

logue with stakeholders: employees and NGOs providing disaster
relief. The candid discussion among frontline employees on CSR
and SRI as they relate to their work in the "Internal Stakeholders
Meeting" feature provided a good window on the current situation.
Today, the shift in public focus from savings to investment has
been accelerating in Japan, and the government has launched a
specific policy of emphasizing consumer needs and strict adherence
to consumer protection rules. The Daiwa Securities Group has also
set goals for the pursuit of business activities based on investor protection, and for strengthening its management system for customer
complaints. I would like to offer several suggestions that would help
to increase the confidence of consumers and society in the Group to
ensure safe and reliable securities transactions.
Firstly, the publication mentions incident reporting for securities
improprieties under the section on elimination of improper conduct
and investor protection. While disclosing the internal detection rate
is a good first step, the Group should also provide information onwhat problems it considers to be securities improprieties, and whatkind of solutions or measures it is taking in order to prevent any further incidents, and to secure the confidence of consumers. This
would enable evaluation of the Group's compliance management.
Secondly, the Group is determined to make good on its commitment to improve customer satisfaction. Daiwa announces the number and types of inquiries to the Customer Support Center and mandates after-sales follow-up and ongoing customer satisfaction
surveys in order to strengthen complaint handling. However, it is also necessary for us to disclose specific examples and details of customer complaints being used as input for the improvement of operations inside the Group, as well as to explain the policies andprinciples for responding to customers in a rapid, sincere, and correct manner. It is essential to make the customer satisfaction mechanisms more transparent.
Thirdly, I suggest that the management adopt a more consumeroriented perspective. One cannot hope for the development of asound economy and society just through a notion of ensuring customer satisfaction. It is necessary to understand the position of customers as consumers within the framework of the economy, as there
is an overwhelming gap in the level of knowledge and the amount of
information that they have, compared to what companies have,
which puts them in a weak position with respect to firms. By adopting the consumer's perspective, the Daiwa Securities Group canjump to the next level of CSR initiatives based on its core business.

Toshihiko Goto
Stating, "The essence of CSR is to help build a better society through our
everyday work," this Sustainability Report affirms that the Daiwa Securities Group is focusing its efforts on two CSR areas. The first is the promotion and popularization of socially responsible investment (SRI) throughthe Group's core business, and the second area is educational and research activities. This has been the Group's consistent approach formany years , and I could read from this entire report its strong intention toillustrate how Daiwa will continue to develop this approach.
In relation to the first area, the popularization and promotion of SRI, theDaiwa Securities Group has signed on to the United Nations Environment
Programme Finance Initiative (UNEP FI). I think the Group should be commended for bringing itself up to international standards in its commitment
to the global leadership principle. There is even a move within the UNEP
toward dropping the "S" in "SRI" in favor of "responsible investment," because socially responsible investment is already normal practice in finance. So I applaud the Daiwa Securities Group for having the foresightto have adopted this policy of responsibility some time ago.
The Group is carrying out various initiatives in areas including WorldBank carbon funds and regional support funds. At the same time, I thinkthat the long-term issue of spreading the SRI approach across the entire
business is becoming more apparent. Along with the tide of globalization,
the eradication of poverty has become one of the most important issues
from the standpoint of sustainability. I am waiting for some new creativeideas on how the Group can contribute to this issue through its core business in the financial sector.
Concerning the Group's second CSR area, education and research activities, last year I pointed out that by global standards the Group's high

DAIWA SUSTAINABILITY REPORT 2005

Communication
Third-party Opinions

Chair, Environment Auditing
Research Group (EARG)
Member, Board of Directors,
Global Reporting Initiative (GRI)

school learning program would be considered something halfway between
philanthropy and a CSR initiative related to the core business. Nevertheless, this shows the strong desire of the Daiwa Securities Group to position these activities as a part of its corporate brand. I think that consolidating this understanding throughout the Group would help increase
corporate value. Therefore, I hope that ways will be found to develop andshow quantitative, numerical, yet non-monetary indices for this intangible
value, rather than just providing qualitative descriptions of thiscorporate value.
The Sustainability Report 2003 was well received and was ranked 39th
among CSR reports worldwide in the Global Reporters survey publishedby SustainAbility / UNEP. And this year's Sustainability Report has beenfurther improved. The part of this year's report that really impressed me
was the support initiative for the victims of the Sumatran earthquake andSouth Asian tsunami. This is a good CSR example that should be studied by other companies in the future, as it included a clear policy, a longterm plan, and cooperation with NPOs.
The Group's four Corporate Principles were outlined in the report: customer trust, human values, total compliance, and sound profit. However,since 28% of the group employees cannot recall the Corporate Principles,I think that this issue should have been addressed in the section on specific issues and objectives for the future. There is also the fact that 43%
of employees have not read the Sustainability Report, even though they
are part of the target audience for the publication. Systematic measures
for this problem need to be implemented, such as using the report for internal training.
Last year I introduced the idea that to draw up group-wide voluntaryaction standards based on the participation of employees might be agood idea. As this year's report states that these standards will be decided during fiscal 2005, I have great expectations for the results. I was also
impressed by the frank comment that there is a problem with the factthat no male employees have taken childcare leave.
It seems that good progress is also being made on environmental
measures. The choice to build the Group's own environmental management system, rather than obtaining ISO 14001 certification, is a reasonable one. Toward this end, the establishment of transparency, reliability of
information, and appropriateness of efforts will be future issues for theGroup. The Group seems to have limited understanding of the issue of biodiversity, but this can also be said of most Japanese companies. The
Group has been participating in the Study Group on Ecologically EthicalPaper Procurement as part of its Paper Project. Utilizing the knowledge
gained at the Study Group, I hope that the Group would consider whatkind of measures to take in its core business, and then expand on these
initiatives, in order to help prevent deforestation, especially in rainforest
regions, and protect biodiversity.

53

GRI Content Index
Item

Indicator

Pages

Item

1.Vision and strategy
1.1

Statement of the organisation's sustainability vision and strategy regarding its contribution to sustainable development 4-5,6-7

2.Profile

Indicator

Reporting organisation's approach to managing indirect economic, environmental, and social impacts resulting from its activities

3.18

Major decisions during the reporting period regarding the location of, or changes in, operations

3.19

Programmes and procedures pertaining to economic, environmental and social performance

3.20

Status of certification pertaining to economic, environmental and social management systems

2.1

Name of reporting organisation

2.2

Major products and/or services, including brands if appropriate

2.3

Operational structure of the organisation

2.4

Description of major divisions, operating companies, subsidiaries and joint ventures

2

5. Performance indicators

2.5

Countries in which the organisation's operations are located2Integrated indicators

2.6

Nature of ownership; legal form

2

2.7

Nature of markets served

Systematic Systematic indicators relate the activity of an organisation to the larger economic,
indicators environmental, and social systems of which it is a part2.8

Scale of the reporting organisation

2

2.9

List of stakeholders, key attributes of each, and relationship to the reporting organisation

2, 8-9, 10
2, 34

2, 33, 34
2, 32-33, 34-35
2, 3, 7, 31, 35, 38-39

4.1

Direct impacts
Customers

55

2.11

Reporting period (e.g. fiscal/A32calendar year) for information provided

3

EC1

Net sales

2.12

Date of most recent previous report (if any)3

EC2

Geographic breakdown of markets

2.13

Boundaries of report (countries/regions, products/services, divisions/facilities/joint

2.14

Significant changes in size, structure, ownership, or products/services that have occurred since the

2.15

Basis for reporting on joint ventures, partially owned subsidiaries, leased facilities, outsourced operations and other

2, 3
None

EC3

Explanation of the nature and effect of any re-statements of information provided in earlier reports,baseyears/periods,nature of business, measurement methods)

N/A

2.17

Decisions not to apply GRI principles or protocols in the preparation of the report

2.18

Criteria/definitions used in any accounting for economic, environmental, and social costs and benefits 35

2.19

Significant changes from previous years in the measurement methods applied to key economic,

N/A

environmental and social information

EC5

35

Providers of capital
EC6

Distributions to providers of capital broken down by interest on debt and borrowings, and dividends
on all classes of shares, with any arrears of preferred dividends to be disclosed

35

EC7

Increase/decrease in retained earnings at end of period

35

EC8

Total sum of taxes of all types paid, broken down by country

35

EC10 Donations to community, civil society, and other groups broken down in terms of cash and in-kindCore indicatorsand reliability that can be attributed to the sustainability report

Energy3,30

Means by which report users can obtain additional information and reports about economic,

EN3

environmental and social aspects of the organisation's activities, including facility-specificWater

2, 10, 11, 30, 32, 38, 43, 45, 51

42

Environmental performance indicators

Policies and internal practices to enhance and provide assurance about the accuracy, completeness,

information (if available)

EN5

Direct energy use segmented by primary source

44

Total water use

44

Emissions, effluents and waste
EN8

Structure and governance
3.1

Governance structure of the organisation, including major committees under the board of directors

3.2

Percentage of the board of directors that are independent, non-executive directors

3.4

Board-level processes for overseeing the organisation's identification and management ofthat are responsible for setting strategy and for oversight of the organisation

22-23
22

Greenhouse gas emissions

44

EN11 Total amount of waste by type and destination

45

Social performance indicators
Labor practices and decent work
Core indicators

economic, environmental, and social risks and opportunities

22-23

Linkage between executive compensation and achievement of the organisation's financial and nonfinancial goals (e.g., Environmental performance, labour practices)

Employment
LA1

Breakdown of workforce, where possible, by region/country, status (employee/non-employee), employment type (full time/part time),
and by employment contract (indefinite or permanent/fixed term or temporary). Also identify workforce retained in conjunction with

23

other employers (temporary agency workers or workers in co-employment relationships), segmented by region/country

39

22, 23, 24, 26, 27, 28, 29

LA2Net employment creation and average turnover segmented by region/country

39

Mission and values statements, internally developed codes of conduct or principles, and policies relevant

LA3

Percentage of employees represented by independent trade union organisations or other bona fide

Organisational structure and key individuals responsible for oversight, implementation, and audit ofeconomic, environmental, social and related policies

to economic, environmental and social performance and the status of implementation

7, 30, 36

employee representatives broken down geographically OR percentage of employees covered bycollective bargaining agreements broken down by region/country

Stakeholder engagement
3.9

Basis for identification and selection of major stakeholders

3.10

Approaches to stakeholder consultation reported in terms of frequency of consultations by type andby stakeholder group2,3
11, 24, 25, 26, 31, 36-37, 52-53

3.11

Type of information generated by stakeholder consultations

3.12

Use of information resulting from stakeholder engagements

37

Externally developed, voluntary economic, environmental and social charters, sets of principles, or
6-7compliance and results of monitoring.

38-39, 41

including male/female ratio and other indicators of diversity as culturally appropriate

22, 39Additional Indicators
LA12 Employee benefits beyond those legally mandated

39

Labor/management relations
LA13 Provision for formal worker representation in decision-making or management, including corporate governance 41

Principle memberships in industry and business associations, as well as national/international
advocacy organisations

11, 14

Policies and/or systems for managing upstream and downstream impacts

8-11

DAIWA SUSTAINABILITY REPORT 2005

LA10 Description of equal opportunity policies or programmes, as well as monitoring systems to ensure

Employment

Overarching policies and management systems
other initiatives to which the organisation subscribes or which it endorses

41

Diversity and opportunity

LA11 Composition of senior management and corporate governance bodies (including the board of directors),

16-17, 18-19, 25, 26, 31, 36-37, 41, 43, 48-50, 52-53, Questionnaire

3.16

Total payroll and benefits (including wages, pension, other benefits, and redundancy payments)

donations per type group

None

3.Governance structure and management systems

3.15

35

Public sector

Report profile

3.14

Cost of all goods, materials, and services purchased

Employees

and the reasons for such re-statement (e.g., mergers/acquisitions, changes of

3.7

2, 34

broken down by country or region

situations that can significantly affect comparability from period to period and/or between reporting organisations None

3.62, 32, 35

Suppliers

previous report

3.5

33

Economic performance indicators

Contact person(s) for the report, including e-mail and web addresses

ventures/subsidiaries) and any specific limitations on the scope

54

Provide a table identifying location in report of each element of GRI content (item and indicator) in the report 54-55

2.10

2.22

27, 44

4. GRI content index

Core indicators

Report scope

2.20

9

Nothing

20-21, 22-23, 24, 26, 27, 28, 29, 30, 31, 32, 36-37, 38-39, 40-41, 42-43, 45, 46

Organisational profile

2.16

Pages

3.17

Training and education
LA16 Description of programmes to support the continued employability of employees and to manage career endings

40-41

The Road to Sustainability
Item

Indicator

Year

Pages

LA17 Specific policies and programmes for skills management or for lifelong learning

40-41

2003

Human rights

January Corporate Ethics Hotline, a group-wide internal reporting system, introduced.
February Internal Audit Department established at Daiwa Securities Group Inc.

Core indicators
Strategy and management
HR1

Month Sustainability Milestones for the Daiwa Securities GroupMarch

Description of policies, guidelines, corporate structure and procedures to deal with all aspects of human38, 39rights relevant to the reporter's operations, including monitoring mechanisms and results

April New shareholder benefit plan introduced.

Non-discrimination
HR4

June

Description of global policy and procedures/programs preventing all forms of discrimination in thereporter's operations, including monitoring systems and results

Daiwa Securities SMBC Principal Investments Co., Ltd.,
July invests in the World Bank's Community Development
Carbon Fund.

Strategy and management
Employee training on the reporter's policies and practices concerning all aspects of human rights relevant to the reporter's operations

40

Support begins for Student Company Program, a handsOctober on economics education program provided by Junior
Achievement.

Disciplinary practices
HR9

Description of appeal practices, including, but not limited to, human rights issues

26

HR10 Description of non-retaliation policy and effective, confidential employee grievance system(including, but not limited to, its impact on human rights)

26

OctoberSocietyCore indicators
Description of policies to manage impacts on communities in areas affected by the reporting organisation's activities, aswell as description of procedures/programmes to address this issue, including monitoring systems and results (include

2004

January CSR/brand management website goes online.
March Disclosure Policy established.

explanation of procedures for identifying and engaging in dialogue with community stakeholders) 10, 12-15, 42-43
Additional indicators

April

Cooperation with Waseda University's Graduate School ofFinance, Accounting and Law Begins.

May

Management and marketing begins for Daiwa SRI Fund, an
SRI investment trust that invests in Japanese corporations.

June

New management introduced under the leadership ofShigeharu Suzuki. Change to committee system.

Community
SO4Awards received relevant to social, ethical, and environmental performance

33

Product responsibility
Core indicators
Respect for privacy
PR3

Description of reporting organisation's policy, procedures/management systems and compliance mechanisms for consumer privacy 27

July CSR Promotion Department established at Daiwa Securities Group Inc.

Additional indicators
Customer health and safety
PR6

October

Voluntary code of compliance, product labels or awards with respect to social and /or environmental
responsibility that the reporter is qualified to use or has received

Back cover

SRI fund included in defined-contribution pension fund for
Daiwa Securities Group employees.

November Membership in the United Nations Environmental
Programme Finance Initiative (UNEP FI).

Products and services
PR8

Marketing begins for UBS Global Equity 40 SRI+, an SRI
investment trust that invests in global corporations.

November Membership in SIF-Japan, a socially responsible investment forum.

Community
SO1

Total value of compensation paid to directors and corporate
auditors of Daiwa Securities Group Inc. disclosed.

39

Additional Indicators
HR8

New medium-term management plan
(FY2003 — FY2005) drawn up.

Description of policy, procedures/management systems, and compliance mechanisms related to customer satisfaction,
including results of surveys measuring customer satisfaction. Identify geographic areas covered by policy

36-37

2005

Advertising
PR10 Number and types of breaches of advertising and marketing regulations

28

February

With Waseda University's Incubation Project Promotion Office, established
April a basic course to train venture entrepreneurs at Waseda University.
Employee CSR questionnaire survey.

Financial Services Sector Supplement: Pilot Version 1.0

May

Environmental Management Committee introduced at
Daiwa Securities Group Inc.

June

Special support provided for Finance Park, a hands-on
economics education program offered by Junior Achievement.

Social performance indicators
Corporate social responsibility (CSR) management
CSR1 CSR policy
CSR2 CSR organisation
CSR4 Management of sensitive issues
CSR6 Stakeholder dialogue

Long-term support determined for areas devastated by
the Sumatran earthquake and South Asian tsunami.

6-7
22, 24

Daiwa Asset Management Co., Ltd., participates in the GRI G3
July project working group to consider the usefulness of sustainability
reporting from the perspective of finance and investors.

28
16-17, 18-19, 25, 27, 31, 36-37, 45, 52, 53

Internal social performance
INT1

Internal CSR Policy

INT2

Staff turnover and job creation

26-27, 38
39

INT4

Senior management remuneration

23

INT7

Employee profile

39

CSR Promotion Department, Daiwa Securities Group Inc.

Performance to society
SOC1 Charitable contributions

42-43

SOC2 Economic value added

34-35

Investment banking
IB3Transactions with high social benefit

Please send inquiries to:10

Asset management

Address

6-4, Otemachi 2-chome, Chiyoda-ku, Tokyo 100-8101, Japan

TEL

81-(0)3-3243-5992

E-mailbrand@dsgi.daiwa.co.jp

URL

http://www.daiwa.jp/
September 2005 (Next issue planned for September 2006)

AM1

Asset management policy (socially relevant elements)

10

AM2

Assets under management with high social benefit

9

Published

AM3

SRI oriented shareholder activity

10

Design and production assistanceCre-en Inc.

DAIWA SUSTAINABILITY REPORT 200555

www.daiwa.jp

This report uses paper made from responsibly thinned timber.
At the Daiwa Securities Group, we are engaged in the financial business. As such, we are not confronted withenvironmental problems as immediately as those in some other industries. Nevertheless, it is true that we use hugeamounts of paper in various reports—including this one—as well as in prospectuses, sheets and forms. Paper istherefore an environmental issue that the Daiwa Securities Group must address and is addressing. With a view toprotecting forests in Japan, as well as in developing countries, we have printed this report on paper made from
responsibly thinned timber. We are committed to encouraging the healthy growth of forests everywhere.