Daiwa Securities Group

Sustainability Report

2006

What we can do
What kind of society awaits these 54 babies
when they become adults 20 years from now?
The precious faces of these infants―all childrenof Daiwa Securities Group employees―are an expressionof our hopes for the future. At the Daiwa Securities Group,
we are determined to take responsibility as individuals
and to play our role as a company to create a sustainable society―a contented
people living in harmony with an unspoiled Earth.

Message from the President

Employees who are proud of the work they do andthe company they represent will earn society's
confidence and achieve sustainable development
Shigeharu Suzuki
President and CEO,
Daiwa Securities Group Inc.

CSR involves contributing to society
through daily operations.
Attention to meeting compliance standards
lead to better business performance.
The essence of CSR does not involve doing anything
extraordinary, it is simply to contribute to society through a
company's core business operations. To achieve this, it isof utmost importance that all employees to approach their
daily work with an awareness of their duty to society.
In the securities business, we handle financial products
which are inherently subject to price fluctuations.
Therefore, it is critical for us to be confident that our work
is being carried out properly. We do not want to conduct
any but truly fair, sensible and socially acceptable
operations. Carrying out our work in a transparent andproper manner will bring profits as a matter of course.
Indeed, compliance and business performance are notcontrary goals; rather, compliance is the most direct way tosustainable long-term growth. I firmly believe that we havebeen able to improve the Daiwa Securities Group's
performance as a result of educating our employees about
this concept.

Promoting CSR specified as a goalin the medium-term management plan.
Taking action to encourage SRI.
In April 2006, the Daiwa Securities Group established athree-year Medium-term Management Plan which is due tobe completed by the end of fiscal 2008. With formulating adefined CSR strategy stated as a goal within the plan, theGroup aims to promote socially responsible investment(SRI) as part of its CSR efforts.
The Daiwa Securities Group has become Japan's
largest manager of SRI funds. We believe companies thattake measures to protect the environment and help society
are expected to perform better over the long term, andhence, offer satisfaction to their investors. I would
therefore like to strive for a better understanding of SRI
among existing and new customers.

1

DAIWA SUSTAINABILITY REPORT 2006

A company worth working forincreases shareholder value.
Employees are important stakeholders.
As an executive of the firm, it is my greatest concern tomake the Daiwa Securities Group an enterprise worth
working for. Such a company is one that employees trust.
They are aware of the importance of their roles, and they
have a sense of solidarity with their co-workers.
One of our key goals as a commercial enterprise is tomaximize shareholder value. Although the shareholders
own the company, it does not exist solely for theirbenefit. The company is an integral part of society. If all
stakeholders−customers, suppliers, employees−do not
accept us as a desirable enterprise, we cannot maximize
shareholder value.
In this regard, I think employees represent an importantgroup of stakeholders. All communication between otherstakeholders and the company is carried out throughemployees, and thus, the actions of employees reflect theactions of the company. It is through the employees' hard
work that the company can excel, in turn, raising
shareholder value. Therefore, by focusing on the welfare of
employees, we are taking care of all our stakeholders.

In order to realize a workplacethat is conducive for staff to maximize
their capabilities, we need to create
an environment that is supportive of women.
I think women have a huge role to play in the securities
business, and I endorse the creation of workplaces thatoffer encouragement to female employees. In Japan,
securities companies historically have been dominated bymales, but I think this was largely due to an inability toprovide the right environment for talented female
employees to thrive.
Since the securities business requires specialized
qualifications and skills, it is usually not possible for new
employees entering the company to hit the ground running.
Losing female employees who have acquired years ofexpertise because of marriage or childbirth is a great andneedless expense to the company.
The Daiwa Securities Group already has women in
branch manager and other management positions, andthese employees are demonstrating their abilities to thefullest potential. In the future, we will continue to focus on
giving our employees a work environment that will allow
both men and women to balance their work and personal
life. We want our employees to feel that this is a company
worth working for.

Employee pride earns us the confidenceof our customers and society.
Human resources are the key
to sustainable development.
The company's strategies and initiatives are publicizedthrough the Sustainability Report, TV commercials, andother forms of media. However, these channels also serve
to convey information from the company to our employees.
I believe that this public announcement of our activities isa source of pride to our employees. The Daiwa Securities
Group is a signatory to the United Nations Environment
Programme Finance Initiative (UNEP FI), as well as the
Principles for Responsible Investment (PRI). These typesof public commitments also send important signals toour employees.
When our employees carry out their respective duties
with pride based on the understanding of the Group's
initiatives, they convey their faith in the company to the
public, and in turn, earn the public's confidence. After all,winning society's trust and confidence is the ultimate goalof CSR.
I think the key to the Group's long-term sustainability
depends solely on whether we can cultivate very loyal
people who understand that the company's success is areflection of their own success, and that the company's
well-being also ensures their own happiness. I want tomake the Daiwa Securities Group the type of company that
attracts and energizes such people.

DAIWA SUSTAINABILITY REPORT 2006

2

BUILDING
Editorial Policy
We have published this report every year since 2002 withthe aim of disclosing, clearly and in good faith, information
relating to the Daiwa Securities Group's sustainability andcorporate social responsibility (CSR) initiatives. We also
see the process of preparing this report as an important
opportunity for us to affirm the outcome of our efforts andidentify issues for further attention.
The 2002 Sustainability Reporting Guidelines, aninternational set of requirements for sustainability
reporting published by the Global Reporting Initiative(GRI)*1, was used as reference when putting this report
together. Raising CSR-awareness among employees andpromoting dialogue with various stakeholders were twoparticular objectives in the preparation of this publication.
In the Special Feature sections, we focused on thesocial responsibility that the Daiwa Securities Groupneeds to take on as a financial institution, and gave
serious consideration to issues and directions, presenting
the exchange of opinions in and outside the Group. Twomain initiatives that are highlighted are the promotion ofsocially responsible investment (SRI) by the Group, as wellas educational and research efforts in the areas of financeand economics.
The goal in the Management section, as well as insubsequent chapters, was to account for the Daiwa
Securities Group's management and execution systems
to each stakeholder. Also, the Group's social, economic,
and environmental performance in fiscal 2005 werereported according to the GRI guidelines.

S U S TA I N A B L E
SOCIETY
Table of Contents
Message from the President

1

Table of Contents and Editorial Policy

3

Overview of the Daiwa Securities Group

4

Daiwa Securities Group's Areas of Business

5

Daiwa Securities Group's Social Mission

7

Special Feature 1: What Financial Institution Can Do for CSR
Round-table Discussion: A New Financial Product toPromote the Development of the Emissions Trading Market

9

Dialogue: Finance Drives CSR Efforts

11

Special Feature 2: Initiatives Based on Daiwa Securities Group's Core BusinessInitiatives for Socially Responsible Investment

13

Initiatives to Encourage Economic and Financial Literacy

15

Scope of reportManagement

Intended readership:
The Daiwa Securities Group's diverse stakeholders,which primarily include customers, shareholders,investors, and employees; also, business partners,
non-profit organizations (NPOs), persons living andworking in the vicinity of Daiwa Securities headquarters
and our branch offices nationwide, and finally,educational organizations.

Performance, Issues, and Targets

19

Corporate Governance21

CSR Management

23

Compliance25

Scope of reporting:This report basically covers our nine main groupcompanies*2, which account for about 90% of theGroup's total number of employees. The report does
not, however, encompass data from all nine companieson all items reported. Rather, information is provided inproportion to the size and business area of eachcompany. The scope of numerical data is noted alongwith the data.

Information Disclosure

29

Initiatives to Achieve Customer Satisfaction

33

Period covered by report:
Fiscal 2005 (April 2005—March 2006). The report also
includes some information on activities carried out infiscal 2006 which became available close to the
publication date, as well as some information on
activities that occurred prior to fiscal 2004.

Communication with Shareholders

35

Human Values and Human Resource Utilization

37

Round-table Discussion: What Makes a Good Workplace?

41

Publication date:
September 2006 (Previous report was published in
September 2005, and the next report is planned for
September 2007).

Corporate Citizenship43

Economic Report
Distribution of Economic Value to Stakeholders

31

Social Report

Environmental Report
Environmental Initiatives

47

Third-party Evaluation

50

Third-party Opinions

51

GRI Content Index / The Road to Sustainability

53*1 Global Reporting Initiative (GRI): An organization founded in 1997 to draw
up and disseminate international guidelines for sustainability reporting.
Participants include a variety of stakeholders, such as businesses, nongovernmental organizations (NGOs), consultants, accounting groups, andtrade associations from different parts of the world.
*2 See "Daiwa Securities Group's Areas of Business" on page 5 for theGroup's nine principal companies.

3

DAIWA SUSTAINABILITY REPORT 2006

Overview of the Daiwa Securities Group
Principle management indicators (consolidated)

Operating revenues (¥ million)
Net operating revenues (¥ million)
Ordinary income (¥ million)
Net income (loss) (¥ million)
Net assets (¥ million)
Total assets (¥ million)
Return on equity (ROE) (%)
Net income (loss) per share (¥)
Net assets per share (¥)
Annual dividends per share (¥)

Corporate profile
Company name

FY2001

FY2002

FY2003

FY2004

FY2005

488,044387,658

453,813519,337

845,659

284,932

270,809352,434

390,432

579,358

25,84929,20096,130120,433

260,651△ 130,547△ 6,322

42,63752,665

139,948

570,839541,718

604,170648,332

792,2817,827,306

9,502,825

10,765,665

12,378,961

14,898,890

―

―

7.4

8.4

19.4

△ 98.27△ 4.75

31.66

39.03

103.90429.68407.84453.60486.70598.27

6.00

6.00

10.00

13.00

34.00

Number of employees (consolidated basis)*

By company
12,587 12,483 12,459

12,243 12,561

12,000

Headquarters

Group companies
outside Japan11%

By region

Daiwa Securities
Group Inc.
2%

Americas5%Asia/Oceania
3%Europe2%

9,000
Other group
Daiwa
companies
Securities
in Japan
Co. Ltd.
25%
46%
Daiwa
Securities
SMBC Co. Ltd.
16%

6,000

Telephone

81-3-3243-2100

Number of employees 12,561

Persons
15,000Daiwa Securities Group Inc.

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

Employee composition

3,000

Established

0

Japan
89%

FY2001 FY2002 FY2003 FY2004 FY2005
Fiscal year end

December 27, 1943 (Founded 1902)

As of March 31, 2006

* The number of employees includes the number ofFinancial Advisors (FA).

President and CEO

Shigeharu Suzuki

Operating revenues, and net operating revenues
Consolidated operating revenues
Consolidated net operating revenues

Capital¥138.8 billion (As of March 31, 2006)
Number of employees* (consolidated)¥ billion
1,000

Breakdown of net operating revenues by region¥ million
Service feesand other sales
44,808¥ million
Europe21,672

Asia/
Oceania
10,492

Americas
5,527

800

12,561 (As of March 31, 2006)

845

Interest anddividend income
245,210600

Number of consolidated subsidiaries

46 (13 in Japan, 33 outside Japan)

Breakdown of operating revenues

400 488200

284

Number of equity-method affiliates

5

0

352

Total
579,358

579

519

453
387

Commissions
309,188

Net gain on trading
224,912390

270

FY2001 FY2001 FY2003 FY2004 FY2005

Japan
541,666

Net gain on private equity and other securities
21,539FY2005

FY2005

Shares issued and outstanding

1,332,460,000 (As of March 31, 2006)
Ordinary income, net income, and ROE
Consolidated ordinary income
Consolidated net income
Return on equity (ROE) (right-hand side)¥ billion
300

50

200

260
96

100

-50

29
-1.1
-6

7.4

120
8.4

42

52

19.4
139

¥ billion
15,000¥ billion
1,000
14,89812,000

800

40
30

150
50 25
0

Consolidated total assets (left-hand side)
Consolidated net assets (right-hand side)

%
60

250

Total assets, and net assets

20
10
0
-10

-20.3
-20
-130
-150
-30
FY2001 FY2002 FY2003 FY2004 FY2005

12,378
10,765
648
9,502
604
6,000
570
541
7,827
3,000

¥
40
34

35
30
25

792
9,000

Annual dividends per share

600
400

20
15

13
10

10
6

200

6

5

-100

0

FY2001 FY2002 FY2003 FY2004 FY2005

00

FY2001 FY2002 FY2003 FY2004 FY2005DAIWA SUSTAINABILITY REPORT 2006

4

Daiwa Securities Group's Areas of Business
The Daiwa Securities Group is comprised of Daiwa Securities Group Inc., the holding company which controls
the group companies, the two main corporations, Daiwa Securities Co. Ltd. and Daiwa Securities SMBC Co.

Daiwa Securities Group's Areas of Business
The Daiwa Securities Group is divided into the following six areasof business.
1. Retail securities business
Services are provided mainly to individual customers through theonline trading service Daiwa Direct, the Call Center, and Daiwa
Securities Co. Ltd.'s nationwide sales branches. All kinds offinancial products and services are offered, with a focus on
securities brokerage. Daiwa Securities Co. Ltd. is the Group's
principal company in the retail securities business.
2. Wholesale securities business
The Daiwa Securities Group offers fund management andinvestment banking services to institutional investors, corporateclients and financial institutions, in and outside Japan. Daiwa
Securities SMBC Co. Ltd., is the Group's principal company in thewholesale securities business.
3. Asset management business
The Group provides development and management of stock, bond,and private investment trusts, as well as other investment
management services. Daiwa Asset Management Co. Ltd. andDaiwa SB Investments Ltd. are the Group's principal companies in
the asset management business.

4. Investment business
Using its own funds, the Daiwa Securities Group invests in private
equity, monetary receivables, real estate, venture capital
opportunities, and business regeneration. It also forms andmanages investment funds. Daiwa Securities SMBC Principal
Investments Co. Ltd. and NIF SMBC Ventures Co., Ltd. are theGroup's principal companies in the investment business.
5. Research, systems, and consulting business
The Group is engaged in various forms of consulting and research
reporting in fields such as management, finance, and information
technology. This information is provided to institutional investors,
corporate clients, financial institutions, and public institutions in andoutside Japan. Daiwa Institute of Research Ltd. is the Group's
principal company in the research, systems, and consulting business.
6. Group support
Services are supplied to member companies within the Daiwa
Securities Group in areas such as administrative outsourcing
relating to securities, as well as consulting for real estate andbuilding management. Daiwa Securities Business Center Co., Ltd.
and Daiwa Property Co., Ltd. are the Group's principal companies in
the area of group company support.

Daiwa Securities Group Inc.

Individual
investors

TradingDaiwa Securities Co. Ltd.

Securities issuance, underwriting

Securities services
mainly for
individual investors

Securities market
Corporations
Issuers
Trading

Institutional
investors
Insurancecompanies
Pensionfunds

Daiwa Securities SMBC Co. Ltd.
Securities services
for corporate customers

Daiwa Instituteof Research
Ltd.

Daiwa AssetManagement
Co. Ltd.

Daiwa SB
Investments
Ltd.

Securities issuance, underwriting

Investmentbanking services

Daiwa Securities
Business Center
Co., Ltd.

Daiwa Property
Co., Ltd.

NIF SMBC
VenturesCo., Ltd.

Administrative
outsourcing

Office management

Venture capital
opportunities

Trust banks
Research

OthersAsset management* For details about the individual companies within the Daiwa Securities Group, please visit the Group's website at http://daiwa.jp/ir/english/index.cfm .

5

DAIWA SUSTAINABILITY REPORT 2006

Ltd., and the many other companies that support their operations. The Group is therefore able to provide its
customers with a comprehensive array of investment and financial services.

Overview of retail securities business
Daiwa Securities Co. Ltd. provides financial asset management
services mainly to individual customers through three channels: the115 branches across Japan (as of March 31, 2006), the industry's
largest call center, and over the Internet.
Direct sales and brokerage of stocks, bonds, investment trusts,
and insurance products
The Daiwa Securities Co. Ltd. offers a wide array of financial
products and services through its consulting services provided bysales staff. This effort is further enhanced by the Group's
extensive sales support and detailed research. In fiscal 2005, theDaiwa Securities Co. Ltd. saw strong demand from individual
investors for Japanese Government Bonds and foreign-currency
bonds. Separately, the Group managed to raise ¥1 trillion fromretail customers for the Daiwa Global Bond Fund, an investment
trust composed of foreign bonds that pay monthly dividends.
Online trading
Daiwa Direct, the Group's online trading service, provides
customers with a wide range of products, information and services,
all within a highly stable, easy-to-operate system with reasonabletransaction fees. Technical support services for Daiwa Direct arealso offered at the branches of Daiwa Securities Co. Ltd.

Call Center
The Call Center has telephone service representatives (TSR),
delivering customer service over the phone. In fiscal 2005, theGroup increased the number of TSR and improved phone line
capacity and interactive voice response (IVR) technology in orderto handle a higher number of calls. In April 2006, the Call Center
expanded from 300 to 450 operator lines.
Daiwa SMA
Daiwa SMA (Separately Managed Account) is a new investment
management service for high net-worth customers. Each customer
has a personal SMA consultant, who provides services and advice,
such as assisting in the determination of an investment strategy
based on the customer's individual investment needs.
Securities intermediary business
The securities intermediary business is gaining prominence inJapan as a new channel for the sale of securities products.
Currently, the Daiwa Securities Group is working with the Sumitomo
Mitsui Banking Corporation, the Sumitomo Trust & Banking Co.,
Ltd., regional banks, and non-financial corporations to help expand
the customer base and sales of products and services.

Overview of wholesale securities business
By offering services in the area of corporate finance and investment,
the Group supports all aspects of the institutional investor,
corporate client, and financial institution, from business expansion
to financial and capital strategies.

Brokerage and trading
In order to meet the funds management needs of institutional
investors in and outside Japan, the Group offers brokerage andtrading of stocks, bonds, derivatives, and a full range of othersecurities and financial products.

Investment banking services
Corporate finance
The Group offers companies in and outside Japan a wide range ofservices, including proposals for optimal finance and businessstrategies, advice on the issuing of stocks and bonds, andsecurities underwriting, based on research and analysis.
Initial public offerings (IPOs)
The Group supplies public offering guidance and underwriting
services to companies seeking to raise funds and list on the stock
exchange. Detailed business advisory services are offered inareas including corporate governance, internal control, andinformation disclosure.

Mergers and acquisitions (M&A)
The Group is engaged in putting forth proposals and executing
deals relating to corporate link-ups, such as acquisitions andmergers, business tie-ups, capital participation, joint ventures,and stock swaps. Through cooperation with its overseas
subsidiaries, the Group has also successfully executed crossborder M&A deals.
Structured finance
The Group securitizes many types of assets, repackaging theminto products such as asset-backed securities (ABS) and realestate investment trusts (REIT). Securities backed by real estateor monetary receivables held by the company are issued undersuch structures.
Principal financing
In order to support the diverse needs of companies undergoing
business reorganization or new business development, the Groupinvests in private equity, monetary receivables, and real estate.

DAIWA SUSTAINABILITY REPORT 2006

6

Daiwa Securities Group's Social Mission
Money plays an important role in the creation of a sustainable society. Therefore, the Daiwa Securities Group's mission is toincorporate a social perspective into the finance industry, and help channel money towards the resolution of society's problems.

Corporate social responsibility is key for the realization of a sustainable society
Today's society is faced with various problems that threaten
sustainability, such as global warming and the destruction of thenatural environment. These are major issues that cannot be resolved
unless public institutions, companies, and citizens all takeresponsibility for their own actions.
Through their roles in the economy, companies now have a major
impact on society as a whole, and are therefore key players in therealization of a sustainable society. Financial institutions in particularneed to have a clear social mission in the way they approach theircore business.
This mission is to fulfill a public and fundamental role in society,bringing together those who need financing and those who want toinvest. This objective sets us on the path towards a sustainable
society through the effective collection and re-distribution of money.

Incorporating a social perspective into investment and finance
Currently, there are various trends in the efforts to encourage a social
viewpoint in the finance industry. The United Nations Environment
Programme Finance Initiative (UNEP FI), which involves a partnership
between the UN Environment Programme and various financial
institutions worldwide, is striving to implement finance activities thattake the environment and the concept of sustainability into account.
The initiative, whose goal is to raise awareness of efforts towards
achieving sustainability, has been in operation since 1992.
In April 2006, UNEP FI and UN Global Compact unveiled thePrinciples for Responsible Investment (PRI), guidelines to promote theincorporation of environmental, social, and corporate governance(ESG) considerations into the decision-making processes of
institutional investors. Major financial institutions from around theworld have signed and agreed to these principles.
Daiwa Securities Group Inc. joined the UNEP FI in November 2004,
and Daiwa Asset Management Co. Ltd., the Group's asset management
division, became a signatory to the Principles for Responsible
Investment in May 2006. Daiwa Securities Group Inc. also became asignatory to the Carbon Disclosure Project (CDP)*1 in March 2004.

*1 Carbon Disclosure Project: With the support of institutional investors concerned about climate change, the Carbon Disclosure Project asks global companies to disclose
information relating to their initiatives and approaches to environmental problems.

Daiwa Securities Group Corporate Principles(established March 1998)

Customer trust
We stand on the trust of our customers. Prudently putting
customer interests first and achieving a high standard ofprofessional competence, we intend to become Japan's
most appealing securities group at home and abroad.
Human values
People are the source of our competence. We highly value
creative initiative by the individual, we cherish thechallenging spirit, and appreciate the capability andcontributions of the individual.
Total compliance
We can be proud and prosper only when we achieve total
compliance and gain the trust of our customers, our market
and of our world society. We will maintain high standards ofprofessional 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
through sound business operations. We will offer valuable
services to our customers and earn adequate rewards for
distribution to our shareholders.

7

DAIWA SUSTAINABILITY REPORT 2006

Principles for Responsible Investment
The Principles for Responsible Investment (PRI) areinvestment guidelines for institutional investors concerned
about environmental, social, and corporate governance(ESG) issues. They promote a CSR approach to asset
management, lay out a plan for adopting the practices ofsocially responsible investment (SRI) in long-term
investments, and emphasize the necessity of long-term
evaluations by asset managers. The PRI are outlined below.
1. We will incorporate ESG issues into investment analysis and decision-making processes.
2. We will be active owners and incorporate ESG issues into our ownership policies and practices.
3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.
4. We will promote acceptance and implementation of the Principles within the investment industry.
5. We will work together to enhance our effectiveness in implementing the Principles.
6. We will each report on our activities and progress towards implementing the Principles.

Principles for Responsible Investment: http://www.unpri.org./principles/Five approaches to realize a sustainable society(1) Serving society in our daily operations
The work carried out by securities companies provides a very publicbenefit. This industry is key in supporting Japan's transition froma savings economy to that of an investing one. It acts as anintermediary, bringing together entities in need of financing andinvestors looking to invest.
The Daiwa Securities Group must execute its operations, not onlyin accordance with the local laws and regulations, but also to meetthe expectations of society in its day-to-day conduct, and strive topromote the sound functioning of the securities markets.
(2) A business strategy that takes society and the environment into account
The Group is striving to incorporate a social perspective into theway it conducts its core financial business, practicing the kind of
CSR that should be expected from a financial institution. Specifically,
the Group is providing investment opportunities for generalinvestors to participate in tackling environmental and social issues,in the form of SRI funds and CO2L Bonds (Cool Bonds)*1.
(3) Promoting CSR outside the company
Through the UNEP FI, PRI and CDP, the Daiwa Securities Group islending support to various stakeholders, including the financial
industry, to encourage CSR activities.

(4) Corporate citizenship activities
In order to develop the next generation of economics and financial
professionals, the Daiwa Securities Group aims to encourage
education in these fields as part of its Medium-term Management
Plan. The Group will continue to provide long-term support throughfinancial mechanisms relating to its core business, by offering
assistance to the local and international communities via foundations
and NPOs.
(5) Social and environmental management initiatives
The Daiwa Securities Group is aware of the social and environmental
impact of its own business operations. Along with achieving fullcompliance, attaining customer satisfaction, and improving theworkplace environment, the Group is striving to raise environmental
awareness among its employees and build an environmental
management system. As a result, the Group is reducing its use of
paper, the part of its daily operations which has the biggest direct
impact on the environment.
*1 CO2L Bonds (Cool Bonds): See pages 9 and 10 for more details.

■ Daiwa Securities Group: Five approaches to realize a sustainable society(1) Serving society in our daily operations(2) A business strategy that takes society
and the environment into account(3) Promoting CSR outside the company

Sustainable company

Sustainable society(objective)(objective)

Changing the awareness andbehavior of stakeholders(5) Social and environmental
management initiatives

CSR activities (measures)(4) Corporate citizenship activities

Future issues
No matter how much financial institutions talk about incorporating asocial perspective into the way the finance industry works, without
the participation of customers, this goal cannot be achieved. To gainwidespread public support of this goal, the key is to increase themarket's evaluation of companies with outstanding social initiatives,

and to enhance the performance of investments that maintain asocial perspective, such as SRI funds. A future issue for the Daiwa
Securities Group to consider will be how to demonstrate toinvestors the effectiveness of SRI.

DAIWA SUSTAINABILITY REPORT 2006

8

Special
Feature1

What Financial Institutions Can Do for CSR

A New Financial Product to Promote
the Development of the Emissions Trading Market

Kunihiro Nishikawa

Dai shu Nagata

Teruaki Kashiwabara Ma sa hisa Uryu

Mariko Kawaguchi

Deputy General Manager
Private Equity Investment Dept. &Carbon Finance Business
Daiwa Securities SMBC Principal Investments Co. Ltd.

Deputy General Manager
Corporate Planning Dept.
Daiwa Securities SMBC Co. Ltd.

General Manager
Head of Structured Products
Fixed Income Dept.
Daiwa Securities SMBC Co. Ltd.

Senior Analyst, Management Strategy
Research Department
Daiwa Institute of Research Ltd.

General Manager,
Structured Products Department
Daiwa Securities SMBC Co. Ltd.

Cool Bonds: Raising awareness about the importance of CO2
emissions reduction and curbing global warming
he birth

T of Cool Bonds
Nishikawa: Daiwa Securities SMBC Principal Investments Co. Ltd.
invests in companies with the Daiwa Securities Group's own
investment funds. Since the effort to reduce CO2 emissions affects
the operations of many companies, we thought that it would very
likely impact our corporate investment operations as well. However,
we also realized that the emissions targets from the Kyoto Protocol
are in line with economic rationality, and hence, new business
opportunities would arise. Thus, the right conditions for the Cool
Bond initiative were created.

What are Cool Bonds?
Cool Bonds have a mechanism to return to investors asinterest payment the value of emissions credits sold, as
established by the Kyoto Protocol. For example,
emissions credits obtained through greenhouse gas
reduction in China are sold in the market for emissions
credit transactions, and the sales proceeds are
returned to the bond investors as interest payment.
Based on this method, individual investors that
normally would not be able to participate at all inemissions trading are now able to participate in thesetransactions indirectly. Cool Bonds are also expected
to provide stable earnings for the greenhouse gas
reduction business.

■ Cool Bond mechanism
Companies reducing
greenhousegas emissions

DAIWA SUSTAINABILITY REPORT 2006

Purchasing CER* at a fixed price,based on interest payout funds

CER

CO2L Bonds

Interest

Interest(CER sales value)

Emissionstrading market

For more details on the website, visit:
http://www.daiwasmbcpi.co.jp/news/060216/060216.html (in Japanese only)

9

We began our investigations two years prior to theimplementation of the Kyoto Protocol. Initially, we invested in theCommunity Development Carbon Fund*1. At that time, thepredicted scale of the emissions trading market was fairly large,
ranging between 300 billion yen and 30 trillion yen, and we could
see that there was potential for development due to theunpredictability of the market. We became more firmly convincedthat the concept could be commercialized; hence, we consulted
with the Structured Products Department on the creation of a new
financial product based on emissions trading.
Uryu: The role of the Structured Products Department is to develop

Value of CER
sold prior tointerest payout

Investors
Principal

Redemption* CER: Certified Emissions Reduction

In February 2006, Daiwa Securities SMBC Co. Ltd. and Daiwa Securities SMBC Principal Investments Co. Ltd. Developed "CO2L Bonds" (Cool Bonds), a
financial instrument whose interest is linked to the market value of greenhouse gas emissions credits.
The persons involved in the development, sales, and marketing of this financial product were brought together recently to discuss the development
objective behind Cool Bonds, the future of the emissions credits business, and what financial institutions should do to help resolve environmental problems.
(Discussion date: May 25, 2006)

response from the media
H uge
and individual investors
Nagata: The Corporate Planning Department is in charge ofthe media strategy. There was a tremendous interest in Cool Bonds
at the time of its launch, since they had been covered by morethan ten newspapers and television programs in Japan. There
have also been a lot of inquiries from environmental magazines,
and I think this can showcase the Daiwa Securities Group's
environmental initiatives.
Uryu: The team members that created the product are also incharge of sales. Whenever I explain Cool Bonds to customers, I
always begin with an explanation about the Kyoto Protocol. I tellthem that Japan needs to meet its Kyoto Protocol obligations,and since companies generally incur heavy costs to reduce their
CO2 emissions, it is expected that there will be strong demand foremissions credits from the companies
that cannot stay within their emissions
quota. I then go on to explain that
there is already an active market foremissions credits in North America andEurope, and the price of these credits
is on the rise.
Nagata: Some individual customers see
an article about Cool Bonds innewspapers or elsewhere, and then call
us to learn more about purchasing them.
However, since this product is a private
placement issue*3 sold in minimum unitsof 500,000 dollars, it is not affordable formost individual investors at this time.
Uryu: While learning about environmental issues during thedevelopment of this product, I became keenly aware thatenvironmental protection both offers a business opportunity for
financial institutions, as well as poses a business risk. I also
developed a greater awareness and concern for the environment asa result. Unfortunately, however, it has not quite reached the point
where I've changed my own eating habits or other daily behavior.
Kashiwabara: That's true. As a result of this work, I now pay more

institution's mission is to raise funds
A forfinancial
global warming prevention projects
Uryu: Although Cool Bonds do not directly contribute to the
reduction of greenhouse gas emissions, emissions trading willgrow as the number of participants increase, and publicawareness is expected to follow suit as a result.
Kawaguchi: Certainly, Cool Bonds will not directly reduce CO2
emissions. But by increasing participation in emissions trading, I
think there will be an increase in the awareness of costs related to
CO2 in our environment. As a result, there will be more done tocontrol global warming.
Nishikawa: Currently, only international institutions and a limited
number of professionals are able to provide funds for CDM
projects. As the sources of funding increases, projects indeveloping countries will become more diversified. One of the
Daiwa Securities Group's missions as a financial intermediaryis to directly connect individuals, companies and global
environmental projects.
Nagata: In the future, we would like to have a wider range ofinvestors purchase Cool Bonds through public offering, and hence,
greatly increase the number of people involved in emissions trading.
Nishikawa: Next, we'd like to increase the range of emissions
trading-related instruments available by finding more
opportunities to participate in similar green house gas reduction
projects. At the same time, we'd like to continue telling our staff
and the public that the creation of financial products based onemissions trading is contributing towards measures to prevent
global warming.

Special Feature 1

attention to articles in the newspaper about environmental issues.
Once I started paying attention, I realized that there are actually asurprising number of articles about the environment.

What Financial Institutions Can Do for CSR

the new financial products. When I first heard the words "emissions
trading", "Kyoto Protocol", and "clean development mechanism(CDM)"*2, I had no idea what it was all about. However, if there wasa market involved, I knew that financial products could be made.
Moreover, at that time, a graph I saw showed emissions trading
values on the rise, and my intuition told me that interesting
investment products could be made.
Kashiwabara: The Fixed Income Department's job is specifically tocreate the bond. To be honest, I thought it would take quite a lot oftime to commercialize the concept, as there were so many types ofrelated contracts and provisions that needed to be included. It was
decided that the whole Group would start marketing and selling
this new product on the first anniversary of the implementation of
the Kyoto Protocol. As such, we worked with the lawyers at afeverish pace to complete the necessary preparations, andeventually, the product was ready for sale by the target deadline.

*1 Community Development Carbon Fund: A World Bank fund that provides
funding to projects to curtail emissions of greenhouse gases in developing
countries. The fund investors receive portions of the emissions credits
according to the resulting reduction in greenhouse gases.
*2 Clean development mechanism (CDM): One of the mechanisms established by
the Kyoto Protocol. Developed countries provide funding, as well as othertypes of support, for projects to reduce emissions in developing countries, andthen part of the reduction achieved can be counted as a reduction in thedeveloped countries concerned.
*3 Private placement: Bonds that are issued for less than 50 purchasers. Issued
mainly for institutional investors.

DAIWA SUSTAINABILITY REPORT 2006

10

Special
Feature1

What Financial Institutions Can Do for CSR

Finance Drives CSR Efforts

P ro f e sso r

Y o s h i h i r o Fuj i i
Graduate School of
Global Environmental Studies
Sophia University

Ma sa r u A r a i
Director & Principal Executive Officer
Chief Investment Officer
Daiwa Asset Management Co. Ltd.

Financial institutions recognize their ability to help resolve
social problems, and hence, are willing to acknowledge the reasonsfor their operation and existence within society.
nvironment, society, and economy: Financial professionals

E must achieve balanced investment results

Arai: Professor Fujii, I was fortunate to have read your book,
Addressing Global Environmental Issues Using Financial Functions.
It made me realize that the changes described in your book arehappening on a daily basis around the globe−the increase indepositors and investors who demand to know the stances ofcorporations on the environment and the measures they take; andinvestment and lending activities carried out based on these criteria.
To solve environmental problems on a global scale, utilizing thefunction and power of finance can prove to be an effective way
to achieve this. This is certainly the perspective that underpins
the Principles for Responsible Investment (PRI)*1 recently put
forward by the United Nations Environment Programme FinanceInitiative (UNEP FI).
Fujii: As a financial institution handling investments, your company
should be commended for becoming one of the first signatories to
the PRI. Since the investment professional is entrusted with funds
from investors and has to decide how to best invest them, I applaud
the Daiwa Securities Group for clearly stating its intention to
perform investments that aim for a balance of environmental, social,and economic results. I look forward to good financial results basedon this approach.

articipating in the creation

P of common CSR guidelines
Fujii: Although Japan has typically adopted CSR rules from Europe
and North America in the past, it is very important that Japanese

11

DAIWA SUSTAINABILITY REPORT 2006

financial institutions now participate in the writing of CSR guidelines
at the global level. I think that in the near future, rules will be written
to reflect the diverse values of people worldwide, so that everyone
is more willing to observe them.
Arai: I participated in the third edition revision of the GRI*2
Guidelines, as a member of the Investor Consultation Group. The
Investor Consultation Group makes recommendations from theviewpoint of the investor. I noticed that the guidelines created thus
far, from a Japanese standpoint, were conceived with European andNorth American perspectives in mind. The thing that struck me,
however, was that Europe and North America are keen to haveJapan present its own perspective in this process. Since CSR and
SRI are closely linked with the culture of each particular country, they
are interested to know where companies and people in Japan standon specific issues. The other members of the Investor Consultation
Group are asking its Japanese members, as representatives ofAsia, to actively express their own views on the subject.

f there are financial products that indicate the investment

I recipients, then investors can make choices as consumers

Arai: I think the purpose of stock investment is not only tomaximize profits, but to actually achieve a wider set of benefits, notjust for the individual, but for society. Just as there are investors
looking only for short-term gains, there are also investors looking
for long-term social results, such as a person raising a child orbuilding a company.
Investment trusts are now offered by banks and post offices, andnew types of investors are surfacing in Japan. By focusing on what

If those working at financial institutions take pride in the fact that
their efforts can make the world a better place, I think that society
will be headed in the right direction.
Arai: I feel a very heavy responsibility as an investment company
employee or investment institution professional. SRI is certainly nota difficult thing. For example when you want to make a new friend,you have an idea of the kind of friend you are looking for. The samekind of approach should be applied when looking to invest in acompany. The Daiwa Securities Group SRI funds have become thelargest of their kind in Japan. This shows how motivated we are toprovide SRI funds to investors. The Group's medium-term
management plan announced this spring also emphasizes SRI in
our basic strategy.
Stock exchanges and financial markets are gradually changing,
and a new breed of investor is being created. As a corporate group,
we want to keep explaining to investors that their money can helpchange the world.
Fujii: The world is facing great problems. However, if everyone
recognizes that these problems are real, everyone will have toparticipate in solving them. By acknowledging that they have theability to help address these issues, employees at financial
institutions can fully appreciate the meaning of their work andexistence. This gives them strength, and makes the company morecompetitive, creating a desirable self-reinforcing effect.
Money will then flow in the right direction, and many
people will be satisfied with that. Financial institutions
and their investment selection criteria will support thisflow, and this will lead to higher profits. If you appeal topeople's wish to do the right thing, and promote thesekinds of financial products in an honest and sincere way,
I think the Daiwa Securities Group will be supported bya large number of customers.
I really hope that your company with lead the way inthis capital flow revolution.

What Financial Institutions Can Do for CSR

is important when investing, these services are creating newinvestment opportunities. Our obligation is to actively promote the
SRI concept.
Fujii: Individual investors are also consumers. Since the function offinancial products is not immediately apparent, the eye initiallyturns to aspects such as the interest rate, dividends and yield. Thisis worsened by the fact that conventional investment trusts do not
fully explain how they evaluate their investment choices.
Once it is clear which companies are selected for investment
based on what criteria, investors are better able to select products
depending on where they wish their money to go. Considerations
for environmental and social impact are always going to be a partof one's decisionmaking process. Of course, people also consider
their children and their own retirement in making investment
decisions, and everyone wants good economic returns. At thesame time, how healthy your neighborhood is, how long it'll staythat way, whether the sky above will be clouded from pollution,
those are universal concerns, too.
As more investment products that show where the funds aregoing come to market, investors will display typical consumer
behavior, making choices depending on their own perception of agood investment. This is where they will expect the professionals to
help them.

Special Feature 1

What role should financial institutions play to help resolve social problems such as environmental, labor, and poverty issues? Professor Yoshihiro Fujii, who
specializes in environmental finance at the Graduate School Of Global Environmental Studies, Sophia University, and Masaru Arai, Director & Principal
Executive Officer and Chief Investment Officer at Daiwa Asset Management Co. Ltd., sat down to discuss this question. (Discussion date: June 5, 2006)

ccountability and funding through financial markets.

A Focusing on socially responsible investment.

Fujii: When considering environmental issues that affect all
countries, such as global warming, it is very hard to secure funds totackle these problems on a global scale. No matter how many
regulations the governments put in place, or how many subsidies
are provided, there is an inherent market inefficiency. However, by
utilizing the financial market, whose role is to move funds into
investments, financial resources can be used to the benefitof all the parties involved−financial institutions, investors andsociety as a whole.

*1 PRI: Principles for Responsible Investment. These principles are based on
environmental, social, and governance considerations. They are used inperforming asset management and investment by institutional investors andfund managers.
http://www.unpri.org/principles/*2 GRI: Global Reporting Initiative. An international institution established in 1997
with the goal of preparing and promoting international guidelines relating tocorporate sustainability reporting.

DAIWA SUSTAINABILITY REPORT 2006

12

Special
FeatureInitiatives Based on the Daiwa Securities Group's Core Business2

Initiatives for Socially Responsible Investment
Daiwa Securities Group's approach to SRI and related initiatives
In its Medium-term Management Plan announced in April 2006, theDaiwa Securities Group listed its targets, including the promotion
and popularization of SRI. Educating the public about SRI involves
highlighting the importance of a company's impact on society, andhow that, as well as profitability, should also be considered as aninvestment criterion. Indeed, this has become one of the main
pillars in the Group's CSR efforts related to its core business.
SRI initiatives are specifically encouraged through the following
three approaches.
1. Product development and marketing
Investment managers for SRI funds carefully screen potential
companies for investment, based on environmental and social
responsibility evaluations. The sales of such funds are the Group's
most important effort towards the promotion of SRI. In addition, theGroup is developing and selling regional support funds that invest incompanies that are based in particular regions in Japan. Further,products that enable investors to access the emissions trading market,
such as CO2L Bonds (Cool Bonds)*, are being marketed to customers.

2. Self-financing investment
The Group invests its own money in the Community Development
Carbon Fund, a fund created by the World Bank, as well as regional
corporate recovery funds which are designed to help revitalize
regional economies.
3. Supporting organizations that promote SRIThe Group supports NPOs that organize SRI-awareness events,
either in Japan or overseas, such as Social Investment Forum
Japan (SIF-Japan), and Association for Sustainable & Responsible
Investment in Asia (ASrIA).
As an investor focusing on social consciousness in its decision
making, the Daiwa Securities Group hopes to fulfill its social
mission and promote the practice of making investment choiceswith a social perspective among individual investors. Once thisconcept becomes widespread, companies will be encouraged toresolve social issues in response to its investors' demands.
* Cool Bonds: See pages 9 and 10 for more details.

Daiwa Securities Group SRI funds
On March 31, 2006, the Daiwa Securities Group SRI funds were
worth ¥78 billion. This is about 30% of the total value of SRI funds
in Japan (¥260 billion) and represents the largest share of theJapanese market.

Daiwa SRI Fund

The Daiwa SRI Fund and the Daiwa Eco Fund are the Daiwa
Securities Group's flagship SRI funds. The following arecomments from investment managers from each of these funds.

Companies with outstanding CSR efforts also
have strong management

Initial fund establishment: May 20, 2004

The Daiwa SRI Fund is astock investment trustthat invests in issues
that are selected basedon their CSR efforts andgrowth strategy.

■ Investment performance (as of June 30, 2006)
％

50
40

46.63

40.14

43.47

Launched in May 2004, the Daiwa SRI Fund has outperformed the market since
the rally in early 2005. By the end of the second year in May 2006, we were able
to pay a dividend of ¥2,500 per unit. The companies selected for investment by
this fund were picked for their active CSR approaches and also have goodmanagement teams. Specifically, the executives of these companies define clear
CSR polices and management strategies, educate their employees about them,and construct systems and processes to check on the proper implementation ofthese policies. By publicizing the companies' stance and clearly stating strategy
and initiatives in the areas of the environment, society and other concerns, thesecompanies are able to secure the support of stakeholders. They are also able toachieve medium and long-term growth by increasing the awareness of their
management's business and social strategies. I think most of the companies withoutstanding CSR efforts operate globally and are among the most competitive in
the international market.
In addition to seeking good returns on investments, I hopethat investors will take a look at investing in companies that
fulfill their social responsibilities.

34.81

30
Daiwa SRI Fund

20
10
0

13

TOPIX
Past year

Since fundestablishment

DAIWA SUSTAINABILITY REPORT 2006

Ryoji Takaoka
Senior Fund Manager
Daiwa Asset Management Co. Ltd.

Achieving both environmental goals
and profit growth
Initial fund establishment: March 9, 2006

The Daiwa Eco Fund is a stock investment
trust that invests in issues based on the
improvement of corporate values such as
return on equity (ROE) performance andmeasures to address environmental issues.

Regional support funds
The Daiwa Securities Group is creating and selling regional
support funds that aim to revitalize regional economies throughthe investment in companies active in certain regions of Japan.
The Daiwa regional support funds have won the approval of local
investors and financial institutions, and have grown from ¥21.2
billion (5 funds) at the end of June 2005, to ¥84.3 billion (16 funds)
at the end of June 2006.

The Daiwa Eco Fund was launched in 2006, which has become
an extremely important year for corporate environmental
initiatives worldwide. This is because a comprehensive set ofenvironmental regulations now in effect obligates corporate
management to be environmentally responsible. The RoHS
Directive*, which took effect in Europe on July 1, is representativeof this type of legislation. In order to meet the requirements of the
new environmental regulations, it is necessary for companies tobuild excellent supply chains that cover all suppliers of raw
materials and parts to ensure that hazardous substances are notincorporated into the final products. This means companies are
now confronted with the difficult task of instituting and requiring
compliance from themselves and their suppliers. Indeed, we have
now reached the point where a company's ability to beenvironmentally conscious and implement proper andcomprehensive initiatives will determine its future.
Japanese companies are actively promoting measures tocomply with environmental regulations, as well as developing
new technologies to achieve environmental-friendly outcomessuch as the new hybrid vehicles. I believe companies that haveproducts and technology with superior environmental features
will see better performance and further progress.
* RoHS Directive: An EU directive to limit the use of
six hazardous substances including lead andmercury in electrical and electronic devices.

Initiatives Based on the Daiwa Securities Group's Core Business

Daiwa Eco Fund

Special Feature 2

Socially responsible investment (SRI) is an approach to investing in companies, considering not only the company's financial performance, but evaluating its
efforts to deal with environmental issues, social programs, and ethical practices.

Katsuya Kikuchi
Senior Fund Manager
Daiwa Asset Management Co. Ltd.

原良也

CSR practices lead to sustainable development
Yoshinari Hara, Chairman of the Board of Daiwa Securities Group Inc., has also been serving as the Chairman of the Committee for Promotion of CSR
Management (CSR Committee) at the Japan Association of Corporate Executives since fiscal 2004. This committee was established in order to encourage
corporate management to focus on CSR practices. The corporate executives on the committee engage in discussion based on the latest developments
and successful cases of CSR management in and outside Japan. The following is an excerpt of an interview with the Chairman that appeared in the March
2006 edition of Keizai Doyu, the official bulletin for the Japan Association of Corporate Executives.

I believe the most important issue for the 21st century issustainability. We need to put CSR as a top priority for corporate
management, and only those companies that emphasize andpractice CSR will be able to enjoy sustainable development. The
best approach for companies is not superficial treatment of thesubject, but to incorporate the concept of CSR into their corebusinesses. This means that top executives must steer theircompanies with a strong hand to achieve their goals on the basisof efficiency and compliance.
In the future it will continue to be necessary to educate all on theimportance of sustainability, and to take the steps needed to attainit. For example, SRI funds in Japan are still at the several hundredbillion yen level. If they grow to the size of several tens of trillionsof yen, as they have overseas, their impact on the economy will bequite powerful. We would like to prepare mechanisms and tools to
encourage this kind of endorsement from capital markets.

Finally, I would like to emphasize the point that the market has
already shifted towards a focus on CSR. As is clear from oursurvey, analysts and fund managers today do not makeinvestment decisions based on
statistics and financial results alone,
but also consider other factors thatare often overlooked by the market.
Therefore, executives need tocarefully respond to questionnaires
sent by fund managers assessing
companies for investment in theestablishment of new SRI funds. On
the whole, executives will definitely
need to be more aware of CSR andYoshinari Hara
SRI issues.
Chairman of the Board
Daiwa Securities Group Inc.

DAIWA SUSTAINABILITY REPORT 2006

14

Special
Feature2

Initiatives Based on the Daiwa Securities Group's Core BusinessInitiatives to Encourage Economic and Financial Literacy
Initiatives to encourage economics and financial literacy
The Daiwa Securities Group is keenly aware of the importance of
education and research in the fields of economics and finance. Its
initiatives address two main areas.
The first is the sponsorship of education and research throughpartnerships with universities and graduate schools. The Group isproviding programs that teach practical business know-how, such as
financial business courses by group employee instructors, while offeringresearch positions with a focus on cutting-edge financial technology.

The second initiative entails support for programs that are
carried out in the classrooms, as well as promotional activities topopularize the study of economics among elementary, junior high,and senior high school students. By learning about economics andsociety in secondary school, students will understand social
interaction and discover the importance of work.

■ Education in economics and finance

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 application andcommercialization ofresearch 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 provided

Courses offered or sponsored,
lecturers provided

Joint research
Research support

Assistance offered to university
venture companies and intellectual
property departments

In cooperation with group employees■ Main academic partnerships with universities in fiscal 2005
Main university partnerships

University nameMethods and theories for investment in securities

Graduate School of Medicine, Kyoto University

Entrepreneurship

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

Corporate strategy

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

Corporate governance theory

Graduate School of International Management, Aoyama Gakuin University

Portfolio management, institutional investors and asset management

Waseda Graduate School of Finance, Accounting and Law

Bond investment

Courses sponsored or offered, Open Education Center, Waseda University
lecturers provided
Faculty of Comprehensive Welfare, Tohoku Fukushi University

Joint research

Examples of courses and themes

Graduate School of Economics, Kyoto University

Basic Course of Entrepreneurship and Business Planning
Employee welfare management

Faculty of Law, Chuo University

International finance and securities market, and law

Faculty of Business Administration, Toyo University

New financial products and the transformation of the securities market

Department of International Trade, Faculty of Economics, Kanagawa University

Special economic theory

Otemon Gakuin University

Theory of venture capital and securities markets

University of the Ryukyus

Securities market

Okinawa University

Securities market theory

Graduate School of Economics, Kyoto University

Construction of valuation models for intellectual property and intangible assets

Graduate School of Business Administration, Keio University

Effects of IR activities on corporate value

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

Development of models for fair stock option valuation

Waseda Institute of Finance

Creating processes for eliminating financial system uncertainty and the future role of capital markets

Aiding in the commercialization Incubation Projects of Waseda University Intellectual Property Center Venture management leadership course at Waseda Universityof research results
Business, Research and Intellectual Property Center, Nihon University Technology Licensing Organization*
Support, courses, and holding Graduate School of International Corporate Strategy (ICS), Hitotsubashi University Porter Prize
joint conferences and lectures Graduate School of Economics, Kyoto University
2005 Daiwa International Workshop on Financial Engineering

15

DAIWA SUSTAINABILITY REPORT 2006

The Daiwa Securities Group is determined to help society enjoy sustained development. Now, it is giving back to the community, using its knowledge of its
core business and its expertise accumulated over the years. One of these activities is education of young people in the areas of economics and finance.

Special Feature 2

Basic Course of Entrepreneurshipand Business Planning at Waseda University

The Basic Course of Entrepreneurship and Business Planning, aDaiwa Securities Group-sponsored course at Waseda University,
provides practical financial and securities markets expertise. The
course is taught by part-time instructors who are actual Daiwa
Securities Group employees engaged in work in this field.

Developing venture capitalists at university
for the revitalization of the Japanese economy
The Basic Course of Entrepreneurship and Business Planning is acourse that provides fundamental knowledge to university students
ready to take on the challenge of becoming real entrepreneurs. The
precursor of this course, the Waseda/Daiwa TLO* Pilot Project,
was started in 1997.
The course is offered to undergraduate students in their firstthrough fourth years. Successful managers and young executives
at newly listed companies are invited to come and speak tostudents about their experiences. These basic lectures cover
topics such as the importance of management philosophy andvision, finance and accounting, legal matters, and approaches tointellectual property.

Lecture by Eiji Suzue, Executive officer at the Daiwa Institute of Research Ltd.

"I am grateful for this valuable experience which
would not be available to me at any other university.""I learned things that are actually useful, ranging from financial affairs
to effective presentation methods. Furthermore, I received expert
advice from a professional, which I was able to put to use in mybusiness plan." These are the words from a student at the School of
Political Science and Economics at Waseda University, Mr. Taichi
Murakami, who won the 2005 Business Plan Contest. "I received aninternship at the Daiwa Institute of Research, and at class, I heard
entrepreneurs recount their stories. It was a great experience."
By helping outstanding, enthusiastic student entrepreneurs withgood ideas to realize their dreams, the Daiwa Securities Group iscontributing to the revitalization of the Japanese economy.

Initiatives Based on the Daiwa Securities Group's Core BusinessInitiative
exampleLecture by Eiji Azuma, Senior managing director at the Daiwa Institute of ResearchWith this basic knowledge, the students prepare actual businessplans. Employees at NIF SMBC Ventures Co. Ltd., the venture
capital division at the Daiwa Securities Group, provide guidance
including pointers on creating a presentation to venture capitalists.
The course follows actual business practices, and offers guidanceand evaluation from actual business professionals. The course
culminates in a Business Plan Contest. The creator of the winningbusiness plan is given free use of an office at the Waseda
University Intellectual Property Center for one year.

Mr. Taichi Murakami in his company start-up office at the Waseda University
Intellectual Property Center, after winning the Business Plan Contest.

* Technology Licensing Organization
An organization that discovers and evaluates research results based ontechnology available at universities. Viable ideas are then patented andtransferred to companies.

DAIWA SUSTAINABILITY REPORT 2006

16

Special
Feature2

Initiatives Based on the Daiwa Securities Group's Core BusinessInitiatives to Encourage Economic and Financial Literacy
Initiative
exampleFinance Park for junior high school students

Since June 2005, the Daiwa Securities Group Inc. has been
providing support to Finance Park, an educational facility set up toimitate a real economy and provide students an interesting way oflearning economics and finance. The park, located in Tokyo's
Shinagawa-ku, is the first of its kind in Japan. Established by the
NPO Junior Achievement Japan*, Finance Park gives children an
opportunity to learn and experience economics. There are about
1,500 students from 18 public junior high schools in Shinagawa-ku.
The students, playing different roles in society, learn about how
their local community works and the function of economics within
the community. They also learn how to manage their lifestyle,deciding on various plans that target living expenses and actual
expenditure, as well as plans for individual investment. The
students then go round to different booths set up by 14
participating companies and organizations. By putting principles
learnt into action, the students not only accumulate knowledge, butalso learn practical skills. At the Daiwa Securities Group Inc. booth,the students learn how to invest in stocks for asset management.

Finance Park opening ceremony.

Feedback from student participants in Finance Park
I'm glad I had a chance to learn how to manage my money in the
future. I've never thought much about finances, but through thisexperience, I have realized the value of money.

I found out how hard it is to live on a limited income. By having achance to experience the difficulties of life in this game, I feel I havegained knowledge that will be very useful to me in the future.

* Junior Achievement was founded in 1919 in the United States, and promotes

Daiwa Securities Group Inc. booth at Finance Park.

Initiative
exampleStudent Company Program for senior high school students

The Student Company Program (SCP) offered by Junior
Achievement Japan is a program for senior high school students
to learn about economics through practical experience. The
students establish and manage a real company and thus learn
how a company operates and the economy functions. Throughthis exercise, students develop the ability to make independentjudgments and hone their decision-making skills. They also learn
to take responsibility for the company's results. Since fiscal 2003,
the Daiwa Securities Group Inc. has supported the SCP in
Ritsumeikan Senior High School in Kyoto, as part of the school's
regular curriculum. Group employees are sent to the school toprovide practical business advice as "external directors" to thecompany established and managed by the students. The students
show remarkable growth and maturity through the program bydirectly tackling business problems, and using their own abilities
to solve them.

17

education in the areas of corporate management, economics, and finance,
together with practical experience. Currently, the organization receives bothfinancial support as well as human support in the form of instructors who are, infact, corporate executives and employees from some 40,000 firms. Every year,
4.5 million youths participate in Junior Achievement programs worldwide. Junior
Achievement Japan was established in 1995.

DAIWA SUSTAINABILITY REPORT 2006

SCP
participants
discussing
companybusiness.

Candleholder produced by student
enterprise, Sho Inc.

The Daiwa Securities Media Networks manage Daiwa Securities
Information TV and Daiwa Internet TV, which broadcast information
concerning securities and economics to the general public.
The Daiwa Securities Information TV is aired as Japan's only
channel dedicated to securities information, and can be watchedby subscribers of SKY PerfecTV (broadcasts are only in Japanese).
One of the programs on this channel, Investment for Beginners,
provides easy-to-understand information about securities andeconomics for beginner investors. As of May 31, 2006, theviewership for this channel was about 410,000 households.
Daiwa Internet TV (http://www.daiwatv.jp/) is a website for thelarge-scale distribution of videos relating to finance and securities.
In the Website section entitled "Learning to Invest", visitors canwatch five-minute lessons on basic topics such as types of
securities products and fundamental investment concepts. The
number of visitors to the site in May 2006 was about 890,000, andthe number of video viewings numbered around 420,000.

Initiative
exampleSpecial Feature 2

Basic securities courses on the web and TV for the public

Daiwa Securities Information TV
http://daiwa766.jp/ (in Japanese only)

Encouraging the use of Japanese-translated American high school economics textbook

The Japanese translation of Economics: Principles and Practices
by Gary E. Clayton (McGraw Hill), a textbook widely used byAmerican senior high school students, was published in
September 2005. The book uses examples taken from daily life,and provides easy-to-understand explanations of economic
fundamentals. By covering topics like supply, demand andmacroeconomics, it serves as a good introduction to economics
for both students and working adults. Employees at Daiwa
Securities Group Inc. felt it was important to encourage people inJapan to acquire a good foundation in economics, and hence,suggested the idea of having this book published in Japanese.
The translated book has been featured on the Daiwa Securities
Group Inc.'s website, and 500 free copies have been distributed toteachers and education experts based on a lottery.

Initiative
exampleInitiatives Based on the Daiwa Securities Group's Core BusinessInitiative
exampleJapanese translation ofan American high school
economics textbook.

Helping to publish Financial Fitness for Life in Japanese for use as primary and junior high school textbooks

The Daiwa Securities Group Inc. is sponsoring Junior Achievement
Japan for the publication of the Japanese version of Financial
Fitness for Life, a series of textbooks widely used in American
junior high schools.
By employing a consistent theme that economics is based on
choices, these textbooks are intended to teach children to use
economic concepts in their daily decision making and future career
paths. The text has been adapted to reflect local culture andcustoms, in order to make it more relevant for Japanese students.

The Japanese versionof Financial Fitness for Life.

DAIWA SUSTAINABILITY REPORT 2006

18

Management

Performance, Issues, and Targets
The following are the results of various initiatives taken by the Daiwa Securities Group in fiscal 2005 towards building a sustainable society.
The targets for fiscal 2006 are also presented here.

Issues and targets for fiscal 2005

Progress

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

◎

Continue to study ways of linking executive compensation with stock price.

○

Strengthen the systems auditing at principal group companies.

○

Perform categorized audits, such as on compliance with the Personal Information Protection Law.

◎

Conduct training in compliance, corporate ethics, and CSR at all Daiwa Securities Co. Ltd. branches, to be completed by the end of fiscal 2007.

◎

Promote group employees' understanding of CSR.

○

Strengthen cooperation between the legal compliance department in Daiwa Securities Group Inc. and its counterparts in each group company.

△

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

◎

Examine establishment of Voluntary Action Standards.

△

Enforce management practices incorporating the perspectives of legal compliance and customer protection.

◎

Further improve the compliance framework and eliminate violations of rules.

○

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 personal information protection and new areas of business resulting from regulatory reform.

◎

Encourage active disclosure of information to attract new individual shareholders.

△

Actively pursue post-sales follow up.

○

Enhance the convenience of offices through utilization of IT.

◎

Create office atmospheres that are welcoming to a broad clientele.

○

Corporate governance

CSR management

Entire Group

Daiwa
Securities
Compliance

Daiwa
Securities
SMBC

Information disclosure

Customer satisfaction

Communication with shareholders Hold shareholder forums and other events.

Human values andhuman resource utilization◎

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

△

Enhance training programs.

○

Develop workplace environments where women can fully demonstrate their abilities.

◎

Enhance volunteer programs so that as many group employees as possible can participate.

△

Improve precision of Daiwa's independent environmental management systems.

△

Promote environmental communication.

○

Establish a basic policy on green procurement.

×

Corporate citizenshipWorking for the environment

19

DAIWA SUSTAINABILITY REPORT 2006

Document internal standards relating to financial reporting and establish evaluation methods for the entire group.
Prepare systems for each group company in compliance with upcoming changes in Japanese commercial law.
21-22

Keep rigorous guard against anti-social influences and unfair trading practices.

Implement training that includes current issues, and enrich e-learning content.

◎Fiscal 2006 targets

Focus more on economics and finance education.
23-24
Promote the widespread practice of socially responsible investment (SRI).
Arrange activities to raise awareness of the Corporate Ethics Hotline among group companies.
Strengthen measures against anti-social influences.

Practice proposal sales in order to support the asset formation that clients truly want.
Streamline the way consultations are conducted between customers and senior branch officers.
26-27

Improve quality of performance in order to eliminate complaints and claims.

Take steps to prevent any leakage of personal data during the implementation of measures.
28◎Fiscal 2005 performance
In fiscal 2005, in addition to ongoing
initiatives, the Daiwa Securities Groupfocused on further strengthening its
compliance framework and creating aworkplace environment that better supports
its female employees.
Female employees have greater andgreater opportunities in the Group. The
Group will continue promoting the support ofwomen in the workplace and encourage
female employees to utilize the programs
available to them.
In the area of compliance, the Daiwa
Securities Group strengthened workplace
training in compliance awareness andconducted checks of the effectiveness ofmanagement and monitoring.

Improve group management structures by investigating performance evaluation methods and promoting business continuity plans (BCP).

25

Fiscal 2005
performance andfiscal 2006 objectives

Build an inspection system to watch for conflicts of interest.
Create a framework to comply with the Comprehensive Supervisory Guidelines for Securities Companies established by the Financial Services Agency.
Set up a trading management system according to the new rules of the Japan Securities Dealers Association.
Encourage a better understanding of disclosure-related regulations within the Group.

29-30
Expand IR programs to suit more types of investors.

Management

Issues and targets for fiscal 2006

Performance, Issues, and Targets

Page(s)in report

In fiscal 2006, the Daiwa Securities Group
set targets based on the initial year of theaction plan designed to achieve the new
Medium-term Management Plan "Passion
for the Best" 2008 announced in May 2006.
The fiscal 2006 targets for each division
correspond to this medium-term management
strategy. The pursuit of these targets is
intended to help maximize corporate value
for all stakeholders.

Actively pursue post-sales follow up.
33-34

Create office atmospheres that are appealing to a broad clientele.
Implement education programs to improve manners and knowledge of younger sales staff.

35-36

Improve investor relations activities for individual investors.
Strengthen initiatives for job creation.

37-40

Enhance education and training programs to increase the number of qualified analysts and certified financial planners (CFPs).
Continue workplace initiatives in support of female employees.
Strengthen initiatives that address social issues.

43-46
Promote volunteer programs that enable the participation of larger numbers of employees.
Expand the environmental management systems to consolidated subsidiaries in Japan.
47-49

Progress◎：Implemented and good results achieved○：Implemented and fair results achieved

Reduce environmental impact through the computerization of documents and the reduction of office paper usage.

△：Implemented, further work necessary

Establish guidelines on procurement.

×：Not yet implemented

DAIWA SUSTAINABILITY REPORT 200620

Management

Corporate GovernanceIntroduce the stock options (at an exercise price of ¥1) for
executive compensation, replacing the system to acquire stock.

Awarded stock options at an exercise price of ¥1 as
stock-price-linked compensation.

Continue to study ways of linking executive compensation
with stock price.

Continued investigating the best approach forcompensation linked to stock price in fiscal 2006.

Strengthen the systems auditing at principal groupcompanies.

Results and progressfor fiscal 2005

Issues and targets
for fiscal 2005

In order to maximize corporate value to its stakeholders, the Daiwa Securities Group is constantly improving its system of corporate governance to achieve
greater management transparency and flexibility.

Thoroughly investigated and confirmed measures to be
implemented to comply with the Personal Information
Protection Law; also, inaugurated new information security
management systems in the principal group companies.

Perform categorized audits, such as on compliance with
the Personal Information Protection Law.

Daiwa Securities Group's
approach to corporate
governanceCorporate governance is how a company
ensures the effective and efficientmanagement of its business operations
through the establishment of management
policies, and the supervision and evaluation of
top management. The Daiwa Securities Group
moved to the committee system in June 2004.
This was the Group's most important step
toward achieving its goal of a highly
transparent and agile management structure.

•Set up systems auditing at four departments in Daiwa
Securities Co. Ltd., two departments at Daiwa Securities
Group Inc., and two group companies that do not haveinternal audit departments.
•Appointed full-time systems auditors at Daiwa Securities
SMBC Co. Ltd. and at Daiwa Securities Group Inc.

Corporate governancesystem(1) Execution
The company is led by an Executive
Committee comprising all the executive
officers in the Daiwa Securities Group Inc;
this committee deliberates and sets theoverall group business strategy, group-wide
management issues, and important financial
matters. To expedite decision-making, theExecutive Committee has been given the
maximum authority permitted by law,
without the need for prior review by the
Board of Directors. As some of the Daiwa
Securities Group Inc. corporate executive

officers also hold executive positions at eachof the group companies, this provides
a more unified and effective groupmanagement system.
(2) Audit and supervision
Headed by the Chairman of the Board,
the Board of Directors serves as the
management supervisory body, and iscomposed of 13 members, including four
outside directors. Within the Board of
Directors are three committees in charge of
nominations, audit, and compensation.
1. Nominating Committee
This committee performs investigations
relating to the selection of director• Corporate governance organization chart
Nominating Committee, 5 members*2 (including 3 outside directors)

General Meeting of Shareholders

Proposes selections and dismissals of directors

Board of Directors, 13 members (including 4 outside directors*1)

Audit Committee, 3 members*3 (including 2 outside directors)
Audits execution of duties by directors and executive officers

Basic management policy

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

Disclosure Committee

Group-wide business strategy and management issues,

Monitors key information and determines what to disclose

important financial matters

Group IT Strategy Committee
Representative executive officer*1. Outside directors*2. Nominating Committee

Tetsuro Kawakami

Yoshinari Hara (Committee Chair)

Kenji Hayashibe (Committee Chair)

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

Director
Daiwa Securities Group Inc.

Counsel, Sumitomo Electric Industries, Ltd.

Ryuji Yasuda
Professor, Hitotsubashi University
Graduate School

Keisuke Kitajima
Attorney

Koichi Uno
Certified public accountant

21

Writes original IT investment budget, evaluates and monitors IT investments

DAIWA SUSTAINABILITY REPORT 2006

*3. Audit Committee(internal)*4. Compensation Committee(internal)(internal)

Yoshinari Hara (Committee Chair)
Shigeharu Suzuki

Shigeharu Suzuki
Director and President (CEO)Daiwa Securities Group Inc.

Tetsuro Kawakami
Ryuji Yasuda
Keisuke Kitajima

Keisuke Kitajima
Koichi Uno(external)(external)

Tetsuro Kawakami
Ryuji Yasuda
Koichi Uno(external)

Audit Committee
Opinion exchange

ReportingApproval of audit plans

ReportingDaiwa Securities Group Inc. Internal Audit Department
Physical inspection

Daiwa Securities Group companies(currently without Internal Audit Department)

Cooperation
Internal Audit Departments of
Daiwa Securities Group companies
Physical inspection

Opinionexchange

Accountant auditors

Physical inspection

Each department of
Daiwa Securities Group Inc.

Departments and branches
Daiwa Securities Group companies(with Internal Audit Department)

candidates, as well as developing thebasic approaches to director candidate
nomination and deciding the composition of
the Board of Directors, in accordance withcorporate governance policies.
2. Audit Committee
This committee inspects the performanceof internal control systems, and thedecisionmaking of directors and corporate
executive officers, based on the Audit
Committee Audit Standards.
3. Compensation Committee
This committee studies incentive plans forthe entire group, which are intended to
improve the group's consolidated results. It
also investigates and determines policies
related to director compensation andindividual compensation packages.
(3) Internal control
The Daiwa Securities Group aims to ensure1) business effectiveness and efficiency,
2) reliability of financial reporting; and3) compliance with laws and regulations. In
order to achieve this, the Internal Audit
Department, headed by the CEO of Daiwa
Securities Group Inc., regularly coordinateswith the internal audit departments in eachof the principal group companies. Internal
control is executed based on the regulations
and ordinances applicable to each division.
The internal audit plan and results arereported and approved by legal andcompliance meetings at the principal groupcompanies and by the Internal Control
Committee, a subcommittee of the group's
Executive Committee.

(4) Compensation of the directors andexecutive officers
Compensation for directors and executive
officers includes base salaries, performancebased bonuses, and stock-price-linked
bonuses. These categories are defined
as follows.
1. BaseBase compensation is a fixed amountdetermined for the individual's position
and responsibilities.
2. Performance-based
Performance-based compensation isdetermined by the assessed contribution of
the individual to the company's success. It ismeasured through indicators such as thecompany's consolidated ordinary profit andreturn on equity (ROE), as well as otherfactors like customer assets undermanagement, productivity, and customer
satisfaction. Directors not serving as
executive officers do not receive
performance-based bonuses.
3. Stock-price-linked
In order to better align the executives'interests with those of its shareholders,the Group awards stock-price-linked
compensation to its directors. The value ofthe stock options awarded is based on a
fixed ratio according to the individual's basesalary. Outside directors are not offeredstock-price-linked bonuses.

Fiscal 2005 initiatives(1) Stock-price-linked compensation
In order to align the executives' interests
with those of its shareholders, in fiscal 2005,
the previous system of outright gifts of stock(2) Strengthening systems auditing
A scheme has been created to implement
detailed systems audits on the principal
group companies. In fiscal 2005, systems
audits were carried out at four departments in
Daiwa Securities Co. Ltd., two departments
at Daiwa Securities Group Inc., and twogroup companies that do not have internal
audit departments. Part of this effort was theappointment of full-time systems auditors at
Daiwa Securities SMBC Co. Ltd. and at
Daiwa Securities Group Inc.

Management

Internal Control Committee

was abolished. It was replaced by a policy ofallotting stock options to directors andexecutive officers at an exercise price of ¥1.

Corporate Governance• Internal audit system(3) Enhancing the information security
management approach
In September 2004 the management of
information security, executed in accordancewith the Minimum Standards for Information
Security, was improved at the principal
group companies to comply with the
Personal Information Protection Law,.
(4) Measures for internal control reporting
Internal control reporting will take effect inthe year ending March 31, 2009. The Groupestablished a basic internal control policy
when it moved over to the committee
system and is now in the process ofadapting its internal control for financial
reporting to conform with the Internal
Control Reporting System. A working teampromotes the measures necessary forthis system.

Future issues and fiscal 2006 targets
To improve the internal control reporting
process, the Group will establish documentationand evaluation methods relating to financial
reporting and implement them group-wide.
The Daiwa Securities Group will improve its
group management system; a group business
continuity plan (BCP) and a performance
evaluation framework will be created thatreflect capital costs for each business division.
It will also implement new measures for eachgroup component to improve company
structure and work procedures based on the
new Japanese commercial law.

DAIWA SUSTAINABILITY REPORT 2006

22

Management

CSR Management

Conduct training in compliance, corporate ethics, andCSR at all Daiwa Securities Co. Ltd.branches, to becompleted by the end of fiscal 2007.

Promote group employees' understanding of CSR.

Daiwa Securities
Group's approach to
CSR management

Implemented at 95 of Daiwa Securities Co. Ltd.'s
branches, in cooperation with the Corporate Ethics
Department (currently the General Affairs Department) andthe Compliance Division at Daiwa Securities Co. Ltd.
Implemented a CSR questionnaire for all group heads
and directors.

CSR promotion system

CSR means an entity or organization
contributes towards the building of a better
society, through daily business activities. In
its medium-term management plan for 2006
to 2008, the Daiwa Securities Group has
clearly established CSR as one of its major
management objectives.

●

Results and progressfor fiscal 2005

Issues and targets
for fiscal 2005

Information relating to corporate social responsibility is actively distributed both inside and outside Japan. CSR activities are promoted throughcommunication with stakeholders.

The CSR Promotion Department wasestablished at Daiwa Securities Group Inc. in
July 2004. The department participates asneeded in department head meetings atgroup headquarters and in departmental
liaison meetings held through the Group,
where it reports on the Group's CSR

Daiwa Securities Group's basic CSR strategy
Taken from "Passion for the Best 2008," Daiwa Securities Group's new medium-term management plan.

To carry out communication with stakeholders on a more comprehensive scale. The Group
contributes to the development of a sound economy and society, as well as maintain itssocial status.
●Education in economics and finance: To work with educational institutions and NPOs topromote economics education, as well as support education and research based on thecooperation between business and universities.
●Socially responsible investment (SRI): To promote the widespread practice of SRI.
●Environmental protection: To build an environmental management system, including theestablishment of environmental policies, within the group companies, starting first with theprincipal group companies in Japan, then the consolidated subsidiaries in Japan, and later, theoverseas subsidiaries.

• CSR promotion system

Foundations
Daiwa Securities
Health Foundation
Daiwa Securities Foundation
Daiwa Anglo-JapaneseFoundation

President and CEO
Executive officers
Sustainability Report
CSR website

ReportDialogue

CSR Promotion
Department

Dialogue

Local communities
NPOs and NGOs
Shareholders
Customers
Outside research agencies
Government

Stakeholders

Daiwa Securities Group Inc.
General Affairs Department
Compliance Department,
Daiwa Securities Co., Ltd.

DAIWA SUSTAINABILITY REPORT 2006

Participates indepartment headmeetings held at group Departments within
Daiwa Securities
headquarters
Group Inc.
Dialogue
Departments
within group
Participates in liaison
companies
meetings across Group

Dialogue Joint Compliance Training
CSR questionnaire to employees

Daiwa Securities branch
offices
Employees

23

Daiwa Securities Group

activities and raises CSR-related issues. The
department also serves as the secretariat
for the Environmental Management
Committee, which is tasked with improving
the quality of environmental management
systems group-wide.
The CSR Promotion Department also
prepares the Daiwa Securities Group
Sustainability Report, responds to various
surveys from outside organizations, andcommunicates with external stakeholders
such as NPOs and NGOs.

Activities to promote
CSR awareness
The Daiwa Securities Group strives topromote better understanding of CSR
among its stakeholders inside andoutside the Group, through various modesof communication.
●Promoting CSR awarenesswithin the GroupThe Daiwa Securities Group provides its
employees with training in order to raise
CSR awareness and understanding. The
CSR Promotion Department conducts the
Joint Compliance Training together with
Daiwa Securities Group Inc.'s Corporate
Ethics Department (currently the General
Affairs Department) and Daiwa Securities
Co. Ltd.'s Compliance Division, visiting each
Daiwa Securities Co. Ltd. branch acrossJapan. As of March 31, 2006, the training
had been held at 95 branches, and theGroup plans to provide training at all 115
business sites by March 31, 2007. Seminars
are also held for new employees, focusing
on the significance of CSR activities andDaiwa Securities Group's basic approach tothis subject.

The sustainability section on the website for Daiwa AssetManagement Co. Ltd.
▲

http://www.daiwa-am.co.jp/sustainability/index.html(in Japanese only)

while in Australia, local employees areoffered Japanese language classes. In the
future, the Group intends to implement its
environmental management measures atoverseas sites, as well as corporate
citizenship activities that best suit therespective locations.

The Daiwa Securities Group is promoting a
global network for information sharing andsustainability activities.
The following initiatives are being carriedout at almost all the Daiwa Securities Group's
principal overseas sites (37 locations
including local subsidiaries, branches, andrepresentative offices).

Management

Initiatives atoverseas locations

CSR Management●Release of information outside the GroupThe Daiwa Securities Group sees theprovision of CSR information to the generalpublic as one of its important responsibilities.
On the Daiwa Securities Group website,
there is not only information about specific
CSR activities carried out by the Group, butalso a general explanation of CSR andsocially responsible investment (SRI). The
website for Daiwa Asset Management Co.
Ltd. has a new section on sustainability.
Finally, the Group is striving to distributeinformation externally through industry
publications, national newspapers, andbusiness organizations' bulletins such as
Nippon Keidanren and the Japan Associationof Corporate Executives (Keizai Doyukai).

・Establishment of a code of ethics andstaff manuals
・Preparation of crisis management manuals
・Training to prevent gender harassment;
creation of employee counseling services
・Maintenance of hiring and working conditions
in compliance with local laws and guidelines
・Meeting the local minimum working age
requirement when hiring
・Reduction of environmental impact bypromoting recycling

Future issues and fiscal 2006 targets
The Group's focus is on the three priority
issues set out in the medium-term
management plan: (1) Education ineconomics and finance; (2) promotion ofsocially responsible investment (SRI); and(3) environmental management. In fiscal
2006, the Daiwa Securities Group willcontinue to carry out Joint ComplianceTraining sessions and other related
initiatives for the promotion of CSR
awareness throughout the Group. At thesame time, it will increase communication
with various stakeholders both inside andoutside the Group, as a means ofproviding information for the better
understanding of CSR.

The Group is pursuing various otherinitiatives overseas in addition to themeasures above. Daiwa Securities SMBC
Europe Limited has prepared employment
guidelines based on best practices in theindustry, in an effort to provide employeeswith equal opportunities. Daiwa Securities
America Inc. requires that all its employees
attend harassment sensitivity seminars,• The Daiwa Securities Group and its relationships with its stakeholders

Customers

We will not only provide monetary
support, but also use our knowledge
and expertise to collaborate with NPOs
and NGOs. We will demonstrate thevalues of society in our management
by proactively engaging in dialogue
and cooperating with NPOs and NGOs.

NPOs
and
NGOs

We regard our corporate citizenshipactivities as an investment insociety, and will contribute to thedevelopment of communities,
primarily in the field of economic
and financial education.

Daiwa
Securities
Group
Local
communities

We will raise customer satisfaction by
providing improved products andservices, responding sincerely tocustomer feedback and better
understanding customer needs.

Employees

Stakeholders
andinvestors

We will build a work environmentthat enables employees to feel a senseof fulfillment, pride and satisfactionin their work and thus, encourage
the enthusiastic demonstration of
their abilities.

We will earn the trust of our
stakeholders and investors by
disclosing information in a highly
transparent manner and meeting
expectations by continuously
creating value.

DAIWA SUSTAINABILITY REPORT 2006

24

Management

Compliance Group-wide efforts

Strengthen cooperation between the legal compliancedepartment in Daiwa Securities Group Inc. and its
counterparts in each group company.

The checking operations at group headquarters
concerning legal and compliance risk management by
each group company were made more rigorous.

Results and progressfor fiscal 2005

Issues and targets
for fiscal 2005

Compliance is the basis of CSR. The Group is therefore strengthening its initiatives to achieve this goal, in terms of group-wide policies as well as of polices
at the individual group company level.

Raise level of internal understanding of Corporate Ethics
Hotline and periodically survey awareness.
Examine establishment of Voluntary Action Standards.

Increased the level of awareness and the number of
hotline reports by promoting in-house PR activities andorganizing training at each sales branch.
Emphasized the further application of the existing code of
conduct and principles; also, continued investigating theestablishment of a new code.

Approach tocompliance and initiatives

Structure and performanceof the Corporate
Ethics Hotline

The Corporate Principles of the Daiwa
Securities Group are underpinned by theconcept of total compliance, which, in turn,forms the basis for the Group's approach tocorporate social responsibility (CSR). As theGroup consists of different types ofcompanies, the laws that apply are also
varied. For this reason, detailed compliancerules and initiatives are established at thegroup company level. Still, compliance at thegroup level is also essential; close cooperation
between the legal and compliance department
at Daiwa Securities Group Inc. and the legal
and compliance departments of each groupcompany is emphasized.

The Corporate Ethics Hotline, is an internalreporting system for all employees groupwide to directly report ethical problems
related to business operations and theworkplace to either headquarters or an
external legal body. There were 30 reports
made through the hotline during 2005. This
was a marked increase from the 13 reports
made in 2004; the rise is attributed toincreased awareness of the hotline within theGroup, as well as greater confidence in the
anonymity of the program. There were many
reports relating to the length of working
hours in 2004. However, due to proper
guidance on time management, such reports
decreased this year, revealing a definite
improvement resulting from the hotline.

Initiatives to spreadcompliance awarenessamong employees
Daiwa Securities Group Inc. and Daiwa
Securities Co. Ltd. are jointly conducting
training on corporate ethics, CSR, andcompliance. The Group works to raiseawareness of these matters during new
employee training and highlights theirimportance in contributing to the developmentof sound securities markets.

• Examples of reports made through the Corporate Ethics Hotline
ReportResponse

Misuse of power andposition, character
disparagement, etc.

After an investigation of the situation,
a warning was issued to the higherups and guidance was provided

Sexual harassment

After an investigation of the situation,
a warning was issued to the staff andguidance was provided

Breaches of sales
ethics and rules

After an investigation of the situation,
special training and guidance wasprovided to the individuals concerned

ImpolitenessA warning was issued at a general
meeting concerning proper businesspractices and conduct

Employee awarenesssurvey for the Corporate
Ethics Hotline
The Group surveyed all executives andmanagers with a questionnaire about the
Corporate Ethics Hotline. This year the
executives were asked about the hotline, and
90% indicated awareness, while 77% responded
that they would make a hotline report if there
was a problem. However, since only 51%
thought the hotline provides anonymity, it isclear that there is still a lack of understanding in
the program. Therefore, the Group will seek tobuild confidence in the hotline.

Postponement of voluntaryaction standards andfuture initiatives
A yearlong investigation was carried out
concerning the establishment of voluntaryaction standards, including surveys of
executives and managers. The results
suggested that rather than creating a new Codeof Conduct and Ethics, it would be better to firstpromote a deeper comprehension of thecurrent code at each group company. Training
was therefore carried out at all sales locations
and succeeded in building understanding of theexisting code. However, the company willcontinue considering a new code.

• Corporate Ethics Hotline system
Presidents of group companies

CEO of Daiwa Securities Group Inc.
Internal Control Committee
Instructions

Urgent and important reports

Daiwa Securities Group Inc.
Corporate ethics officer

Instructions

Reports

Group companies
Each department
Grasp ofsituation

Officers overseeinginternal control
at group companies

Law officeInternal informant

25

DAIWA SUSTAINABILITY REPORT 2006

Legal andCompliance officers
at group companies

Future issues and fiscal 2006 targets
Although most of the reports made through the
Corporate Ethics Hotline have come from Daiwa
Securities Co. Ltd., awareness-raising activities arebeing carried out at the other group companies.
Moreover, through the collaboration between thecompliance departments at the Daiwa Securities
Group Inc. and Daiwa Securities Co. Ltd., efforts toeliminate antisocial influences are being stepped up.

Further improve the compliance framework and eliminate
violations of rules.

The number of rule violations was reduced by 40%
compared to FY2004.

Reinforce management of complaints and claims.

Comply with new Personal Information Protection Law.

・Continued to administer specific tests to check how its
staff manages personal information; also, conducted
instructor-led training.
・Carried out inspections of all departments and business sites
in order to verify the effectiveness of the internal systems.
・ Actively promoted outstanding young employees tointernal administration supervisor positions, and put effort
into the development and training of these supervisors.
・Implemented various types of programs for staff
skill development.

Upgrade Compliance Division.

Approach tocompliance and initiatives
Compliance is an issue of utmost importanceand forms the foundation of a company that
contributes to society. To improve its ability
to attain a better level of compliance, Daiwa
Securities Group has taken various initiatives
to improve practices, reducing administrative
errors, combating antisocial influences, andstrengthening claim handling. It emphasizes
the importance of adopting the customer's
point of view as the employees carry out
sales activities.

Appointed a senior officer responsible for handling claims,
and created a system of cooperation between the Customer
Support Center, Customer Support Section within the
Compliance Department, and the sales branches.

Initiatives to improve
the quality ofoperations activities
Compliance involves more than just an
adherence to laws and regulations; it covers
all awareness, attitudes, and actions that arenecessary to earn the maximum confidence
from customers. Therefore, starting in thesecond half of fiscal 2005, the Daiwa
Securities Co. Ltd. has made the quality ofoperations activities a key compliance issue.
Daiwa Securities Co. Ltd. is working hard toproperly understand the needs and wishes ofinvestor clients, to provide them with suitable• Approach to promoting compliance

Customers

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

Management

Implemented various training programs including branchtraining sessions and on-the-job training for internal
administration supervisors. Increased employee complianceawareness and emphasized the importance of value to thecustomer when carrying out sales activities.

Compliance

Enforce management practices incorporating theperspectives of legal compliance and customer protection.

Results and progressfor fiscal 2005

Issues and targets
for fiscal 2005

Initiatives at Daiwa Securities Co. Ltd.

Reports from sales branches /Direct guidance from Compliance Division

Sales branches
Sales
supervisors

Compliance Department

Internal
administration
supervisors

investment advice, while offering easy-tounderstand explanations, and taking care to
avoid errors at the time of order placement.
Daiwa Securities Co. Ltd. intends to improve
the quality of its operations, and increasecustomer confidence through these efforts.

Approach topromoting compliance
Compliance officers have been appointed ineach of the 24 area groups that coordinate
the network of Daiwa Securities Co. Ltd.
branches across Japan. In fiscal 2005,
Daiwa Securities Co. Ltd. actively promoted
and groomed young employees for internal
administration supervisor positions, as
representatives of the next generation ofcompliance supervisors in each of the
branches. In order to enhance the ability ofdepartments and branches to uncover andresolve their own problems, a system has beencreated whereby the internal administration
supervisors and compliance officers check
management conditions in their sales
branches and file monthly management
reports with the Compliance Division.

Customer Support Department
Check
Information Security Department
Internal Audit Department

Guidance/
education

Compliance Officers
belong to Compliance Department,
assigned to "core branches."

Guidance/
education

Employees

DAIWA SUSTAINABILITY REPORT 2006

26

Management
Initiatives at Daiwa Securities Co. Ltd.

Conducting training to raisecompliance awareness
Daiwa Securities Co. Ltd., provides ongoingtraining for executives, sales staff,
managers, and new employees, according to
the type of job and position. This includes
branch visits and training by a team ofCompliance Department staff, as well as
Joint Compliance Training sessions
conducted at the branches. The latter
program is a collaborative effort between thedepartments in the Daiwa Securities Group
Inc. responsible for corporate ethics andCSR. In addition, the company uses theintranet and small-group training sessions
in the Compliance Division for the
improvement of quality of operations
activities, while also providing special
training to conduct activities such as the
mandatory testing of employees' knowledgeof laws and regulations.

the large drop in compliance violations
related to unapproved electronicallyavailable materials, as mentioned above. In
the future, the company will continue towork towards zero compliance violations bymaking properly executed sales activities theprimary compliance objective, in line withlegal adherence and customer protection.
* The internal detection rate is the percentage ofincidents not revealed by customer complaints orexternal inspection, out of all the compliance violations
reported to the Financial Services Agency.

Combating unfair
transactions and antisocial
influences
In order to promote sound securities markets,
Daiwa Securities Co. Ltd. is stepping up its
efforts to combat illegitimate influences such asorganized crime and corporate racketeers. The
company provides data from various sourcesand guidance by specialized staff, and isdetermined to completely eliminate suchinfluences from the market. Daiwa has also built
a system to stop identity theft where criminals
attempt to establish accounts in other people's
names to carry out unlawful transactions.

Compliance measures under
the Personal Information
Protection Law

Joint Compliance Training

Eliminating complianceviolations and protecting
investor clients
Compliance violations or incidents arisingfrom improper execution of securities
transactions occur when someone deviatesfrom the various laws and regulations thatgovern a securities company and its
executives and employees. A prime exampleof this is the failure to deliver prospectuses
that should be given to customers before orat the time of investment. In fiscal 2005,
Daiwa Securities Co. Ltd. was able to reduce
the number of compliance violations by
40%, compared to the previous fiscal year.
This was mainly due to the tight control overthe staff's email communication, leading to a
substantial reduction of cases where sales staff
electronically sent unapproved investment
promotion materials to customers.
In fiscal 2005, the internal detection rate* ofcompliance violations dropped from 74% in theprevious fiscal year to 63%. This was due to27

DAIWA SUSTAINABILITY REPORT 2006

effectiveness of internal information
management, the company carries out
inspections at all branches and strives to make
improvements. The TRUSTe Certification
program has been updated as a means ofevaluation from outside organizations.
Further measures are planned in fiscal 2006
in business units at high risk of personal
information leakage.

Daiwa Securities Co. Ltd. continues toadminister specific tests to check how its
staff manages personal information, in orderto promote awareness of the need to protect
such information. In order to verify the

Future issues and fiscal 2006 targets
In order to maximize customer
confidence, it is of utmost importance for
Daiwa Securities C o . L t d . t o f u r t h e r
improve the quality of its operations
and sales. The company continuallymonitors and guides its sales staff toensure the quality of their efforts and has
also created procedures to properly
ascertain customer intentions and hence,
provide appropriate advice. Therefore, thecustomer interview process is being mademore rigorous. Also, steps are being
taken to eliminate unfair transactions andantisocial behavior.

Comments from stakeholders

My expectations of the Daiwa Securities GroupThe Corporate Ethics Hotline now plays a major role in the Group's
determination to achieve a higher level of compliance. However, whatis the most important element for this system of internal monitoring towork? I think it is the confidence employees have in it. Without thisconfidence, the company cannot quickly identify in-house problems
through internal reporting. I am of the view that the higher number ofreports from the Daiwa Securities Group companies is a reflection ofincreased confidence in the system's effectiveness. However, theGroup still needs to further boost employee confidence. In the end,
the fastest way to achieve this will be to address each and every
incident report in an honest and effective manner. I hope that the
Daiwa Securities Group will continue its efforts in this area.

Mr. Naoki Yanagida
Attorney
Yanagida & Nomura

Expand intra-departmental inspection lists to include personal
information protection and new areas of business resulting from
regulatory reform.

Basic approach tocompliance
Compliance is one of the key management
issues for Daiwa Securities SMBC Co.
Ltd. The company emphasizes proper
operations under an effective system formonitoring compliance.
The company expects the following
measures to ensure that the system is
effective: 1) Establishing business conduct
rules in line with all laws and regulations;2) making the rules known and understood
throughout the organization and following
them strictly; 3) monitoring compliance withthese rules; 4) developing and enforcing
procedures to tackle identified problems;and 5) incorporating these procedures into
the rules.

System of achieving
compliance
Daiwa Securities SMBC Co. Ltd. hasappointed internal administration supervisors
and internal administrators for eachdepartment who provide compliance
guidance for daily operations. The Legal &Compliance Department, which coordinates
these efforts, monitors and offers legal
counsel on operational issues, watches out
for unfair transactions, and provides
guidance for intra-departmental inspections
conducted by individual departments. This
intra-departmental inspection watches for theeffectiveness of the management of high-risk
issues by having each division and department
perform a self-assessment of its potential
operational risks. The company is working
towards a better approach to achieving
compliance by creating procedures to deal
with problems identified during inspections,・Performed a comprehensive inspection of measures implemented
in each division and department.
・Used specific case studies for training at each division and department.
・Put in place self-assessments and intra-departmental training relating
to the firewall regulations ban on transferring non-public information.
Created a more exact approach to inspection by incorporating specificintra-departmental items such as policies to prevent the recurrence oforder errors, and the management of personal information.

incorporating these procedures into
operational manuals, and then putting theminto practice. The Internal Audit department
confirms that operations are being properly
carried out through department audits andspot audits on specific issues.

Improving compliancetraining
Daiwa Securities SMBC Co. Ltd. holds
instructor-led training as necessary for newly
appointed executives, fresh hires, recently
transferred employees, and employees
leaving for overseas posts. The company isdeveloping intra-departmental training toinclude selected operational topics for eachdepartment and division. In fiscal 2005,
online training content was prepared on the
Personal Information Protection Law, firewall
regulations, and the securities broker
representative license. The company plans
to continue its efforts building its online
training content.

Examining the implementationof measures resulting
from internal audits
Between April and August of 2005, Daiwa
Securities SMBC Co. Ltd. performed acomprehensive inspection of progress madeon measures implemented to tackle issues
highlighted in past internal audits at eachdivision and department. The company
carried out intra-departmental trainingthat incorporated actual examples fromother companies, including recommended
administrative initiatives, as well as
disciplinary action taken for violations. Selfassessments and training relating to thefirewall regulations ban on transferring nonpublic information was also carried out.

Management

Inspect the extent to which measures have been established toaddress risks identified in previous internal audits.

Developed online training content on the Personal Information
Protection Law, firewall regulations, and the securities broker
representative license.

Compliance

Issues and targets
for fiscal 2005

Expand the online training program so that each office can findneeded subjects.

Results and progressfor fiscal 2005

Initiatives at Daiwa Securities SMBC Co. Ltd.

Complying with
the Personal Information
Protection Law
In addition to examining how personal
information is handled in an internal
assessment ordered by the Legal &Compliance Department, the company also
prepared information management manuals
and held training sessions for internal
administration supervisors and information
security managers. A system has beencreated through the preparation of indexes
and individual management tables for eachdivision and department to use in managing
personal data.

• Daiwa Securities SMBC's
approach to promoting compliance
Legal Auditing Meeting
Reporting on major issues
Head of Internal Administration Supervisors(Deputy President)

Reporting performance of duties

Internal auditing reports

Deputy Head of Internal
Administration Supervisors

GeneralManager ofInternal Auditing
Department
Internal Auditing
Department(Legal Compliance Officer)(General Manager of Legal & Compliance Department)

Legal & Compliance Department

Preliminary
consulting

Complianceleadership

Monitoring

Internal
auditing

Each department
Sales Supervisors, Internal Administration
Supervisors, Internal Administrators
In-advanceconsulting

Compliance leadership Intra-departmental
inspections

Sales and office staff

DAIWA SUSTAINABILITY REPORT 2006

28

Management

Information Disclosure

Encourage active disclosure of information to attract new
individual shareholders.

Daiwa Securities Group's
understanding of information
disclosure and initiatives• We will observe fair and timely
disclosure of important financial,social and environmental information("Management-Related Information")
regarding the Daiwa Securities
Group so that our stakeholders(including shareholders, investors
and the communities we operate in)may understand and maintainrealistic expectations of the Daiwa
Securities Group.
• We will comply with the Securities
Exchange Law and other laws andordinances related to securities
transactions and the various rules ofthe stock exchanges where on which
our stock is listed.
• We will endeavor to achieve fairdisclosure both in terms of content
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 ofthe securities markets in terms of
disclosure and set the standards forall other listed corporations.
• We have established the Daiwa
Securities Group Inc. Disclosure
Regulations, that define guidelines
such as setting up a disclosurecommittee and the methodsof disclosing managementrelated information to fulfill the spiritof this Policy.

29

DAIWA SUSTAINABILITY REPORT 2006of transparency that can serve as a model toother listed companies.
The expansion of the individual shareholder
base is also important for the basic health of
the Japanese economy as savings aregradually diverted towards investment.
Accordingly, the Daiwa Securities Group isproviding greater disclosure to individual
investors with information dissemination
sessions. The decrease in the number ofshareholders in fiscal 2005 was due toincreased selling by individual shareholders
following the rise in the stock price.

Approach to information
disclosure
Daiwa Securities Group Inc. established theDisclosure Regulations in order to achieve thegoals set in the Disclosure Policy. Based onthese regulations, the Disclosure Committee,
a subcommittee of the Executive Committee,
makes the final decisions on information
disclosure. There are also rules for controlling
the release of Management-RelatedInformation established at each of the groupcompanies. Information is therefore collectedin an efficient and effective manner at all thegroup companies and reliably reported to
Daiwa Securities Group Inc.

Fair, timely, and appropriate
information disclosure
The Daiwa Securities Group believes that
disclosing management information to its
stakeholders in a timely and appropriatemanner is of primary importance.
Various methods are used to disclose
information, including press releases, theInternet, printed materials, and information
dissemination sessions. The Group iscommitted to achieving fair disclosure of easyto-understand information that is accessible
to as many of its stakeholders as possible.

• Information disclosure flowat the Daiwa Securities Group

Information
disclosure
Inside Daiwa
Securities Group Inc.

Disclosure Committee
or Disclosure
Committee Chairman
Determination of information
to be disclosed and methods
ReportingExecutive
Committee• Disclosure Policy

Improved efforts to reach individual investors by holding
information disclosure sessions and setting up an IR
section on the company's website.

Reporting *1

The Daiwa Securities Group unveiled its
Disclosure Policy in March 2004. Based on
this policy, the Group has been working
towards providing information to stakeholders
in a fair, timely, and appropriate manner.
Proper disclosure of information forinvestment decisions is vital for the soundoperation of the stock markets. As a memberof the securities industry, the Group is
stepping up its efforts to offer investors a level

Results and progressfor fiscal 2005

Issues and targets
for fiscal 2005

The Daiwa Securities Group is committed to fair, timely, and appropriate information disclosure, in order to promote transparency for all stakeholders.

*1 Reports
importantdecisions

ReportingDisclosure
Committee secretariat
Reporting

ReportingCorporate Planning
Department

Finance
Department

Subsidiaries
Reporting
Reporting

Departments
responsible forprocessing information*2(Corporate Planning Department, etc.)

Reporting

Departments or directors
who are sources of information*2*2 Including subsidiaries of the subsidiary concerned

Flow of Management-Related Information(excluding financial information)
Flow of financial information

Information DisclosureManagement• Information disclosure tools

An IR information dissemination session held in New York.

Information disclosure withfinancial, social, andenvironmental impact
The Disclosure Policy mandates theannouncement of financial, social, andenvironmental information to all stakeholders
including shareholders, investors, and local
communities. The Daiwa Securities Grouppublishes its Sustainability Report after theDisclosure Committee has vetted thesuitability of the content.
The Daiwa Securities Group has beenhighly commended for its efforts to raise thelevel of transparency through the disclosureof quality information. As a result, the Daiwa
Securities Group Sustainability Report 2005
received honors from the Japanese Ministryof the Environment's 9th Environmental
Communication Awards 2005's environmental
report division.

Disclosure of negative
information
A company's approach to the disclosure ofnegative information can have a major
impact on how it is assessed by investors
and other stakeholders. Since the Daiwa
Securities Group believes that gaining theconfidence of its stakeholders is important
for the company over the long-term, theGroup chooses to disclose negative
information as it does positive information ina timely and appropriate manner.

Future issues and fiscal 2006 targets
In order to further expand disclosure
awareness among executives and managers,
one goal for fiscal 2006 will be to increase
understanding of disclosure-related regulations
within the Group. This will be promotedusing the Group's intranet and byincorporating related topics into in-housetraining programs.

Another issue to tackle is IR programs
suited to more types of investor. IR activities
at individual investors and one-on-one
meetings with overseas investors andJapanese institutional investors will bearranged. The Daiwa Securities Group aims
to create the best IR practices in Japan.

Comments from stakeholders

Expectations for the Daiwa Securities Group
It is my view that the Daiwa Securities Group is leading the industry in
information disclosure in terms of both content and communication.
The most difficult thing in information disclosure is communications
between management and investors. Management must convey
strategy and business conditions in an easy-to-understand format
while complying with laws and regulations at the same time. Individual
executives are obligated to make the correct decisions as eachsituation arises. The attitude of the entire management team towards
information disclosure, as well as the appreciation of the investor's
concerns, may also affect the effectiveness of this communication. I
hope that the Daiwa Securities Group will continue to improve on thisarea, and achieve the best practices in the industry.

Ms. Natsumu Tsujino
Vice President
J.P. Morgan Securities
Asia Pte. Limited

DAIWA SUSTAINABILITY REPORT 200630

Economic Report

Distribution of Economic Value to Stakeholders
The following looks at the Daiwa Securities Group's revenue structure and how economic value is allocated to stakeholders.

The purpose of this report is to outline theeconomic relationship between the Groupand each of its stakeholders, according to
the Global Reporting Initiative (GRI)
guidelines. The first section discusses theGroup's profit structure, with total revenues
earned by the Daiwa Securities Group in
fiscal 2005 termed as revenues in thisEconomic Report. Following this section is alook at the distribution of economic value toeach of the Group's stakeholders.

Revenues inthe Economic Report
For the purpose of this Economic Report,
revenues are calculated as the sum ofoperating revenues, non-operating income,and extraordinary gains. This total is taken
as representative of all revenues received byathe Group in one year. Operating revenues
make up 97.3% of these revenues.
In fiscal 2005, the Group's largest sourceof revenue was from commissions at 35.6%
of revenues. The following are the three maintypes of commissions.
Equity and fixed income commissions
These are commissions earned for broker
services from individual and corporate
customers for sales or purchases of
securities, such as stocks and bonds.
Investment banking commissions
These are the underwriting commissions
earned when corporate customers
issue stocks and bonds for fundr a i s i n g purposes. There are also
commissions earned from mergers andacquisitions (M&A).
Asset management commissions
These are the commissions earned fromthe sale of investment trusts, as well as
fees from the management or holding ofassets deposited by individual andcorporate customers.
The net gain on trading securities made up
25.9% of revenues. These are profits thatarise from the sale of the securities theGroup has in its own account, or when theGroup buys from or sells to its clients tomeet their transaction needs.
Interest and dividend income are theinterest and dividend income received from

31

DAIWA SUSTAINABILITY REPORT 2006

• Revenue structure (FY2005)• Revenue categories (FY2005)(¥ million)

Fixed income
0.4％Service feesand other sales
7.9％

Equity13.8％
Interest anddivided income
28.2％

Net gain on trading
25.9％

Net gain on private
equity and other securities
2.5％

Investmentbanking
9.5％

Commissions
35.6％

Asset
management
9.5％
Other
2.4％

the securities owned by the Group, as wellas those for securities lending transactions.

Distribution of economic
value to stakeholders
The Daiwa Securities Group keeps track of
how much economic value derived from its
business activities is being distributed to its
various stakeholders.
Economic value for the purpose of thisEconomic Report is calculated as revenues
as previously defined, minus interest
expense (less interest paid), the cost of
sales, selling, general and administrative
expenses (less personnel costs, taxes, andexpenditure for corporate citizenshipactivities), non-operating expenses (lessinterest paid), and extraordinary losses.
Executives and employees
The distribution of economic value to
executives and employees is calculated as
the sum of director bonuses paid for the
fiscal year and personnel expenses (which
include salaries, bonuses, welfare program
costs, social insurance contributions,a n d lump sum payments for retiring
executives). A fair and well-acceptedcompensation system for employees has
been created that incorporates complianceevaluations, as well as revenue generation,customer assets under management, andassessments by related departments. In
fiscal 2005, the distribution of economic
value to executives and employees
reached 172.9 billion yen, an increase of

Operating revenues

Rationale behindthe Economic Report

Commissions

309,188

Equity120,216

Fixed income

3,202

Investment banking

82,403

Asset management

82,735

Other

20,631

Net gain on trading

224,912

Net gain on private equity and other securities

21,539Interest and divided income

245,210Service fees and other sales

44,808Non-operating income

8,697

Extraordinary gains

14,825

Economic report revenues

869,179* The totals may not always add up due to rounding errors.

29.4 billion yen compared to the previous
fiscal year. This represented 37.9% of theeconomic value produced by the Group.
Society
Regardless of business cycle fluctuations,
the Group aims to provide stable funding
for its corporate citizenship activities which
represents its economic contribution tosociety. In fiscal 2005, expenditure in thisarea totaled 600 million yen. For details
concerning expenditure on corporate
citizenship activities see page 43.
Shareholders
Dividends are paid to shareholders annuallyas an allocation of economic value from thecompany. The Group's basic policy is to
distribute profits twice a year, with an eye
to maintaining the company's stability, at a
dividend payout ratio of approximately
30%. This is based on the consolidated
performance of the Group.
Interim and year-end dividend paymentsof 12 yen and 22 yen per share were madein fiscal 2005, for a total dividend paymentof 34 yen per share. Consequently, thetotal dividend payout for fiscal 2005 was
45 billion yen.
Creditors
The Group paid 18.4 billion yen in interestto creditors.
Government
Paying taxes on income is part of acompany's social responsibility. According
to the Daiwa Securities Group's financial
accounting, the tax amount paid is thesum of current income taxes, deferredincome taxes, and other taxes and duties

In April 2006, the Daiwa Securities
Group released its new Medium-termManagement Plan: Passion for theBest 2008. It is management's
objective to lead the Group towards
becoming Japan's top securities
group. The Group plans to expand its
business by building customer
confidence and employee enthusiasm
and by achieving the following
management goals. This plan calls forthe distribution of economic value not
only to shareholders, but also to
employees, the government, society,and all other stakeholders.

Economic Report

Daiwa Securities Group's new Medium-term Management Plan:
Passion for the Best 2008
• New Medium-term Management Plan goals
Consolidated ordinary income¥ 350 billion or more
Consolidated ROE
15 % or more
RetailDaiwa Securities customer assets balance:¥ 45 trillion or more
WholesaleNo. 1 on the League Table
Asset management
Stock investment trust balance:¥ 11 trillion or more
Investment advisory account balance:¥ 5 trillion or more

• Trends in the distribution of economic value to stakeholders

Distribution of Economic Value to Stakeholders

including consumption tax. In fiscal 2005,
the total tax amount paid was 86.1 billion
yen. This accounts for 18.9% of theeconomic value produced by the Group.
Minority shareholders
Profit is returned to the minority
shareholders of the Daiwa Securities
Group companies. The principal minority
shareholders are Sumitomo Mitsui
Financial Group with a 40% share in Daiwa
Securities SMBC Co. Ltd., and theshareholders of NIF SMBC Ventures, aJASDAQ-listed company in which Daiwa
Securities Group Inc. holds a majority
stake (46.2%). The minority interest for
fiscal 2005 was 40.3 billion yen.

(¥ million)

Stakeholders

FY2001

FY2002

FY2003

FY2004

FY2005

Executives and employees

129,972

123,904

137,511

143,469

172,923 Personnel expenses in S&GA expenses, and directors' bonuses for the fiscal year

SocietyCalculation method

604 Expenditures for corporate citizenship activities (see page 43).

N/A

320

332

708

Shareholders

7,971

7,969

13,307

17,29745,031 Interim and yearend dividends for the fiscal year

Creditors

22,65015,783

15,292

22,42818,478 Interest expense and interest paid for non-operating expenses

Government

10,92920,02526,42346,921

Income taxes, deferred income taxes, and other taxes and duties including
86,137 consumption tax

Minority shareholders

4,976

2,810

13,48019,77040,339 Minority shareholders' interest▲138,518 ▲14,291

28,782

34,65093,055 Net income, less dividends and directors' bonuses for the fiscal year

156,520

235,127

285,243456,567 Total

Internal reserve
Total economic value

37,980• Distribution of economic value to stakeholders (FY2005)(¥ million)

Internal
reserve
20.4%

Economic
value
456,567
Economic
Reportrevenues
869,179

Revenues

Costs related
Cost of sales to interest
34,729expense213,335
Costs related to
S&GA expenses
Other expenses
145,463
19,085
Expenditures

Minorityshareholders
8.8%

Executives
andemployees
37.9%

Government
18.9%

Creditors 4.0%

Shareholder
dividends
9.9%

Society 0.1%

* The totals may not always equal sums of the amounts given, due to rounding

DAIWA SUSTAINABILITY REPORT 200632

Social Report

Results and progressfor fiscal 2005

Issues and targets
for fiscal 2005

Initiatives to Achieve Customer Satisfaction

Actively pursue post-sales follow up.

Enhance the convenience of branches offices throughutilization of IT.
Create branch office atmospheres that are welcoming to abroad clientele.

Approach to achieving
customer satisfaction
The Daiwa Securities Group is built on thetrust of its customers. Customer confidence
is its number-one Corporate Principle.
Moreover, the Group has made improving
customer satisfaction a top priority amongits management issues. The Group seeks
the feedback from customers and uses thisinformation to provide new services and to
improve the quality of customer service.

How customer feedback isutilized and initiatives●Improving customer satisfaction
At Daiwa Securities Co. Ltd., the groupcompany that has the most customer
interaction, a Customer Satisfaction (CS)
Promotion Section in the Sales Planning
Department has been established to carryout initiatives to improve customer
satisfaction. For example, each week,
customer feedback received at the branches
is shared and discussed by all executives
and employees in the company.

Created more opportunities to gather customer feedback
and provide information by holding post-sales follow up
seminars, and encouraging interaction between customers,
the staff and their superiors. Improved programs fortraining junior sales staff.
Established online trading terminals and support desks at all
branches, enabling customers to easily access informationand place orders
Commenced renovations at all branches. Promoted inhouse projects with the goal of improving customer
service quality.

service. Further, Daiwa Securities Co. Ltd.
encourages training programs for thedevelopment of junior sales staff to further
emphasize, at an early stage, the importanceof following up post sales.
2. Utilizing IT at the offices
Daiwa Securities Co. Ltd. has placed online
trading terminals at its branches asconveniences for customers to gather
information and place stock orders. Also,
online support desks have been establishedat the branches to assist customers who are
not familiar with personal computers orInternet transactions.

3. Creating a functionally appealing environment at
all branches to satisfy a wider range of customers
Daiwa Securities Co. Ltd. plans to renovate
all its branches by the end of fiscal 2007.
The aim is to improve each branch’s
convenience and functionality, while creatinga relaxed, private and secure setting forinvestment consultation.
In-house projects such as raising awarenessof the basics like business etiquette andbranch tidiness are also being pursued.
By improving both facilities and customer
service etiquette, Daiwa Securities Co. Ltd.
aims to create a pleasant branch environment
for its customers.

• How customer feedback is utilized
Customers

Opinions, comments, and requests

Initiatives to address
fiscal 2005 issues

Improvement
Daiwa Securities Co. Ltd. branches

1. Actively pursue post-sales follow up
Based on the annual customer questionnaire
as well as other forms of feedback, following
up after sales is one of our most important
services. In fiscal 2005, Daiwa Securities Co.
Ltd. increased opportunities for customers
to give feedback to staff and their superiors.
It held more post-sales follow up seminars,
keeping customers informed of new
developments and encouraging them toprovide feedback. The seminar content wasalso expanded to include more on customer

33

DAIWA SUSTAINABILITY REPORT 2006

Opinions, requests,
reports, and inquiries

Gathering feedback
at each branch
to be shared by
all branches (weekly)

Response proposals andsteps for improvement

CS Promotion Section, Sales Planning Department, Daiwa Securities Co. Ltd.
Contact
Improvement
Departments responsibleat headquarters

ReportImprovement
Management• Number and types of calls received by the
Customer Support Center

0

2,000

4,000

6,000

Fiscal 2005 customer
satisfaction survey
Since fiscal 2001, Daiwa Securities Co. Ltd.
has been carrying out an annual customer
satisfaction survey in order to assesscustomers’ opinion of our services. In fiscal
2005, over 220,000 questionnaires were sentout, and about 80,000 of them were returned.

• Results from the customer satisfaction survey
8.4● Salesperson’s
appearance
and manner

Points to maintain

Social Report

From the responses, it was revealed thatthe greatest sources of dissatisfaction camefrom a change in salesperson due totransfers, and the lack of follow up after
sales. These issues will be addressed infiscal 2006.

Initiatives to Achieve Customer Satisfaction

In fiscal 2005, there were 7,019 calls made to
the Customer Support Center, an increase of
1,228 over the previous fiscal year. Of thesecalls, 2,075 were complaints, 361 more thanthe previous fiscal year. Problems with theonline trading system were the cause of 223
of these increase in complaints.
Complaints concerning branches made up
1,354 of the complaints received in fiscal
2005. Half of these dealt with dissatisfaction
over customer service and the businessetiquette of sales staff. In these cases, thecomplaints were relayed to the branches ordepartments concerned within the sameday. This system enables rapid response tocustomer complaints. Moreover, customer
comments received by telephone are
published in the Customer Support Center

Monthly Report, which is sent to executives,
all branch managers, branch internal
administration supervisors, and generalmanagers at headquarters.

Satisfaction level

Customer Support Center
inquiries and responses

Important points to maintain
Quick andefficient service●

Salesperson’s
ability to comprehend●●●
Easy-to-understandProduct andservice knowledge explanations

7.7

Calls
8,000
7.0

FY
2003 1,620

4,132

FY
2004 1,714

4,068

46
● Advice on
financial products
6.3

9● Comprehensive advice for
portfolio management
FY
2005

2,075

4,944

● Provision of information on
economic and market conditions● Post-sales follow up

0Important points for improvement
5.6
6.2

Complaints

Inquiries

6.9

7.6

Feedback

8.3

9.0

Importance level* There were five satisfaction levels from very high to very low, and three importance levels, with “high” (10.0 points),“neutral” (5.0 points) and “low” (0.0 point).

Future issues and fiscal 2006 targets
Comments from stakeholders

In fiscal 2006, the Daiwa Securities Co.
Ltd. will continue working on constructing
a pleasant environment at its branches.
Specifically, the Group aims to maximize
the utilization of new office space post
renovation and create a service flow thatwill give customers a better impression.
Also, the company is implementing
training programs that will improve theknowledge and etiquette of junior sales
staff. Following efforts started in fiscal
2005, the Group will continue to work on
the area of post-sales follow up.

Customer satisfaction initiatives at the
Daiwa Securities GroupThe Daiwa Securities Group is dependent on the satisfaction of its customers.
As the employees that actually interact with customers in the branches, wein the Investment Services Section play a major role in delivering customer
satisfaction. In order to ensure that customers are happy when they visit oneof our branches, I think it is important to make them feel glad they came in,and encourage them to come again. If every employee appreciates thebenefit of making customers feel this way, and thereby achieve in job
fulfillment, we can improve customer satisfaction even further.

Mami Kunifuda
Deputy General Manager
Headquarters Investment Services Section
Daiwa Securities Co. Ltd.

DAIWA SUSTAINABILITY REPORT 200634

Social Report

Communication with Shareholders

Results and progressfor fiscal 2005

Issues and targets
for fiscal 2005

The Daiwa Securities Group is working towards better communication with its shareholders by presenting information in forms that are easy to understand and with ashareholder reward program.

Hold shareholder forums and other events.

Regarding shareholders
and initiatives toimprove relations
As a member of the securities industry, theDaiwa Securities Group has a social
responsibility to expand the individual
investor base as part of the government's
initiative to channel savings into investments.
The Group is therefore aiming to implement
initiatives such as the provision of easy-tounderstand information and improving
communications with shareholders, which willserve as a model to other listed companies.

Shareholder composition
As of the end of March 2006, the Group's
shareholders included 37.3% of nonJapanese corporations and individuals, a
5.6% increase from the end of previous
fiscal year. The Daiwa Securities Group
Inc.'s standing overseas improved due to

Held the June 2006 general meeting for shareholders at a
hotel on a Saturday to make it easier for individual
shareholders to attend. Investor seminars were later held after
the meeting.

better business results, which increased, inturn, the number of overseas investors. The
percentage of individual investors fell by
2.7% from the end of previous fiscal year to
18.0%, but this was largely attributed to
profit-taking by many individuals after thestockprice appreciation.

Regular shareholder survey
The Daiwa Securities Group Inc. conducts aregular shareholder survey in order to findout and take into account investor opinions.
8,800 participants responded to the survey
carried out in November 2005.
When asked why they bought Daiwa
Securities Group Inc. shares, 26% of theparticipants chose "business results," while
23% replied "growth potential" and 16%
indicated "dividend yield." In response to
the question of how to increase theattractiveness of Daiwa Securities Group Inc.

shares, 33% said "increase in dividend,"
31% replied "better business results," and12% selected "enhance shareholder reward
program." When asked to identify effective
IR activities for individual investors, it was
revealed that 36% of the participants were infavor of posting more information for
individual investors on the group's IR
website, while 30% favored information
dissemination sessions presented by top
management officials for individual investors.
As a result of this survey, the IR website
for individual investors was created in June
2006. The focus now is to provide
appropriate and useful investment
information for its individual shareholders.

• Daiwa Securities Group Inc. shareholder composition(As of the end of March 2006,
percentage by number of shares)
Number of shareholders: 76,871▲

Daiwa Securities Group IR website for individual investors.
http://www.daiwa.jp/ir/individual /index.cfm (in Japanese only)

Other 0.9％

Communication with shareholders
Individuals
18.0％
Non-Japanese
corporations
37.3％
Other Japanese
corporations
4.9％

Other financial institutions
7.7％

35

DAIWA SUSTAINABILITY REPORT 2006

Banks
5.7％
Trust accounts
25.5％

Financial institutions
38.9％

Holding the general meeting for shareholders
on a Saturday
The 69th regular general meeting forshareholders was held for the first time at a
hotel on a Saturday (June 24, 2006) in order toallow as many shareholders as possible toattend. The number of shareholders inattendance reached 1,681, which was adramatic increase from 375 the previous year.
At the meeting, shareholders raised issues
such as the dividend policy and the promotion• Shareholder survey results (November 2005)

Business results
Growth potential
Dividend yield
Business area
Shareholder reward program
Financial soundness
Management policies
CSR initiatives
Management capability
OthersSocial Report

Q. What made you decide to buy Daiwa Securities Group Inc. shares?
26％
23％
16％

Communication with Shareholders

7％
6％
5％
4％
2％
2％
7％

Q. What do you think would increase the attractiveness of Daiwa shares?
Increase in dividend

33％

Better business results
Enhance shareholder reward program

4％

12％

Quarterly dividend payments

7％

Share buy-back scheme

6％

Clarification of dividend policy

6％

Smaller investment units
OthersOthers

31％

5％
1％

15％

Include more
information in
publications such as
financial reports
36％
15％
Hold information
dissemination
Q. The Daiwa Securities Group wants tosessions for individual
investors by top
improve its relations with individual
management

investors. What kind of activities doyou think would be effective?

of women, resulting in a lively exchange ofquestions and answers. The meeting was also
telecast live by satellite to alternate sites in
Osaka and Nagoya where there were 599 and
212 attendees respectively.
The general meeting for shareholders wasfollowed by a luncheon, and then, an
afternoon of seminars. Various booths were
set up at the stand-up buffet lunch venue,
enabling participants to view panel exhibits
displaying initiatives by the Daiwa Securities
Group to improve its relationship withsociety. During the afternoon seminars,
novelist Mr. Taichi Sakaiya gave a talk on theeconomy and the baby boom generation,
while Eiji Azuma, Senior Managing Director
at the Daiwa Institute of Research Ltd., gavea presentation called, "The Favorable Wind
Now Blowing through Japan".
A publication produced in collaboration with
the Daiwa Securities Group [Supplement to themonthly magazine Sotokoto: "Chibikoto
LOHAS (Lifestyles of Health and Sustainability)
Economics"] was also distributed.

Include moredetailed
information
for individual
investors
on the group
IR website

IR advertisingin the media

30％●Shareholder reward program
The shareholder reward program was
implemented for shareholders. Under the
Daiwa Point Program, shareholders withaccounts at Daiwa Securities Co. Ltd. areawarded points according to the number ofshares owned, which can then be exchanged
for a selection of gifts.

69th general shareholders meeting.

●Information dissemination session for
individual investors
The Daiwa Securities Group is taking steps toprovide information in an easily accessible
format to a large number of individual investors.
In November 2005 and February 2006,
information dissemination sessions were held
for individual investors in Tokyo. In March 2006,
a similar session was held in Fukuoka, alongwith a seminar on the economy.

Future issues and fiscal 2006 targets
The Daiwa Securities Group is working
towards the goal of increasing the numberof individual shareholders in the future, andhence, has been focusing its energies onways to make investing easier forindividuals. The Group is also working toprovide information that is easily accessiblefor investors in Japan and overseas.

DAIWA SUSTAINABILITY REPORT 200636

Social Report

Human Values and Human Resource Utilization

Results and progressfor fiscal 2005

Issues and targets
for fiscal 2005

In light of the Group's Corporate Principle focusing on human values, the Daiwa Securities Group is continuing its efforts to create a workplace that provides
equal opportunities for everyone, and hence, better help female employees realize their full potential.

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

Enhance training programs.
Develop workplace environments where women can fully
demonstrate their abilities.

Achieved an average disabled persons employment rateof 1.85% across the nine principal group companies (as ofMarch 31, 2006). Two employees at Daiwa Securities
Group Inc. obtained the Employment Counselor for
People with Disabilities certification.
Implemented several training programs: management, skills
improvement, CSR, information security, and compliance.
Enacted a plan to provide its female employees the
support needed to maximize their abilities.

Approach to humanresources management andimportant issues

Initiatives for recruitment

Human resources contribute to a company's
competitiveness. The Daiwa Securities
Group is building a personnel management
system that reflects the Group's Corporate
Principle of human values. In fiscal 2005, theGroup implemented key initiatives welcoming
disabled employees, improving employee
training, and creating a workplace environmentthat is supportive of women employees.

The Daiwa Securities Group has establishedrecruitment guidelines that stipulate equal
opportunity and fair treatment. The guidelines
are clearly posted in the hiring section on theGroup's website, and the staff responsible
for recruitment are expected to fully apply
these principles. The Group's policy forhandling job applicants' personal informationis also posted on the website.

• Basic employee statistics(Daiwa Securities Group Inc.)●New graduate hiring increase
The Group's hiring target for new graduates infiscal 2007 has been greatly expanded, to a
total of 1,400 people. In addition to large-scale
recruitment seminars, the Group is alsoscheduling smaller scaled discussion groups
to attract talent by responding to theirconcerns. Recruitment drives are being held
both independently and jointly with othercompanies nationwide. The Group is also

FY2004

FY2005

Average annual salary*¥8.68 million ¥10.22 million

Average age

37.1 years old 37.8 years old

Average number ofyears of service

10.7 years

11.0 years* The average annual salary includes bonuses and other formsof additional remuneration.

• Number of new graduates employed in Daiwa Securities Group as a whole(persons)

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

Maleholding sessions for hiring people who want tofind jobs in their hometowns or in another city.
●Active recruitment of women
In response to the initiatives taken to support
women employees in the workplace, as wellas the push to hire female candidates of highcaliber, the number of female employees hiredby the Daiwa Securities Group has been
increasing each year. In fact, a key reason for
the Group's jump in popularity amongjobseekers is its various programs to support
female employees.
●Employment of persons with disabilities
The group-wide employment rate for disabled
persons is 1.85% as of March 31, 2006,
higher than the government's guideline of
1.80%. However, since this represents a
0.04% drop from fiscal 2004, the Group isplanning to take various measures to stabilize
the employment of disabled persons. As partof these efforts, two employees have obtained
the certification of Employment Counselor for
People with Disabilities.

• Employment rate for persons with disabilities(average across the nine principle groupcompanies, as of the end of each fiscal year)

April 2003

April 2004

April 2005

April 2006

Fiscal year

%

326

203

251

401

FY20031.90

FY20041.89

FY2005

1.85

Female

274

147

235

326

Male

0

0

0

0

Female

54

28

81

101

Male

12

11

34

33

Female

6

16

40

17

672

405

641

878

General employees*2

Human resources andskills development

Financial advisors*3

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

*2. General employees make up a class that was created in April 2003 by combining the old general employee class with the oldarea general employee class.

*3. Financial advisors are employees who work in sales at Daiwa Securities Co. Ltd., under one-year contracts.

37

DAIWA SUSTAINABILITY REPORT 2006

●Selective management training
The Daiwa Securities Group is enriching its
highly selective leadership and management
training program to groom the next
generation of business leaders. So far, 150
employees have graduated from the Daiwa
Management Academy for developinggeneral managers, and 415 have completed
the Daiwa Leadership Program for the
training of deputy general managers. The
number of graduates from both these
programs is steadily increasing.
●Skills development training
The Consulting Skills Training has beenenhanced to develop more proficient humanresources. The Daiwa Securities Group
introduced its Special Program for Improving
the Skills of Junior Sales Staff, a course
designed to train newly hired young
salespeople. To build up the level ofinvestment consulting skills, the fiscal 2005
training program was carried out for sevendays on a selective basis, and a total of 409
employees completed the program.
●Other training programs
The Daiwa Securities Group continues toimprove its various training programs,
including CSR training sessions andvolunteering in joint training for new hires.
Further, training related to information
security in compliance with the Personal
Information Protection Law is also offered.

• Successful applicants for internal intra-Group job postings

7th, FY2004 summer

Compliance, product development, M&A, research,
analysts, venture capitalists, fund managers

65

13

8th, FY2005 spring

Compliance, product development, investment advisors,
M&A, principal finance specialists, analysts,

87

24

9th, FY2005 fall

Corporate sales, product development, overseas postings

40

910th, FY2006 spring

SMA consultants, individual and corporate sales, overseas
study, M&A, product development, analysts, dealers

38

10●Internal (intra-Group) job postings andnew career path examinations
The Daiwa Securities Group's internal
recruiting system has been in place since
fiscal 2000. This facilitates personnel transfer
across the Group's companies, allowing
employees the opportunity to explore different
career options and realize their capabilities tothe fullest. In the fall of 2005, nine out of 40
applicants were successful, while 10 of 38
made it in the spring of 2006. There have beena total of 572 applicants since 2000, with a
total of 114 successful transfers.
The Group offers examinations for those ingeneral positions or regional career-trackjobs to move into a new career path.
●Introduction of qualification criteria
for promotion
In June 2005, the Group expanded its
existing program for obtaining qualifications,and introduced the attainment of specified

Training for instructors responsible for junior sales staff.

Applicants Successful applicants• Employees at Daiwa Securities Group as a whole

qualifications as a criterion for personnel
promotion. There are set "qualification
points" to obtain for the promotion to eachmanagerial post or grade. The Group istherefore encouraging the acquisition ofknowledge and credentials befitting anorganization of professionals.

Human Values and Human Resource Utilization

Jobs offeredSocial Report(Persons)

Period• Persons earning credentials(across the nine principal group companies)

Credentials(persons)
March 31,2006
Credentialed
persons

Chartered Member, Security Analyst Association of Japan

1,576

Total as ofChartered Financial Analyst (USA credential)

49

Financial Planner (AFP)

2,489

Financial Planner (CFP)

195

Licensed Tax Accountant
Variable insurance sales credentials

22
5,551

System Analyst

26

Overseas MBA program graduate, etc.

205

(persons)

As of March 31, 2004

As of March 31, 2005

Evaluation system

As of March 31, 2006

Japan

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

6,920

166

(career-track*2)

6,197

-

(manager)

3,180

-

Female3,463

728(career-track*2)

1,377

-

-

-

6,879

258

6,127

-

3,278

-

3,220

690

1,258

-

-

6,971

3,300

55

-

75

-

97

894

1,275 10,099

948

1,627 10,271

1,182

894

1,196

-

1,306 11,295

31

948

-

1,055

1,752

1,055

1,798

1,411

10,383

11,565

698

3,465
-

Japan total

Total

-

6,280

(manager)

Overseas

357

48

1,235

1,675 11,506

46*1. Temporary employees are part-time hires; the figure shown here is the average number of such employees over the year. ThisTo achieve a fairer and hence more widely
accepted framework for personnel
evaluations, the Group carries out a "two-way
evaluation system" between superiors andsubordinates, as well as a "multi-directional
evaluation system" which allow employees
to be evaluated by those not necessarily inthe same department, but with whom theywork closely. Compliance objectives arealso included in personnel evaluations andare used for determining personnel
reassignments and promotions.

class of employees is mostly made up of women.

*2. Includes regional career-track employees and specialist positions.

DAIWA SUSTAINABILITY REPORT 200638

Social Report
Human Values and Human Resource Utilization

Creating a healthy workplaceenvironment
In order to establish a healthy and positive
workplace for employees, the Daiwa
Securities Group is continuing its efforts toimprove awareness about the misuse of
power and gender harassment through thegroup intranet and training videos. The Group
has set up the Human Rights AwarenessPromotion Committee, chaired by the Daiwa
Security Group Inc. director in charge of
personnel management, and holds training
every year for all employees.

Healthcare measuresfor employees
In May 2005, Daiwa Securities Group Inc.
instituted a mandatory 10 p.m. "lights out
curfew" for its headquarters building, in a bid to
reduce overtime hours and achieve better time
management. In December 2005, the "lights
out curfew" was moved forward to 9:30 p.m.,to obtain even better operations efficiency. In
addition to having a full-time physician at
headquarters, a psychiatrist and clinicalpsychologist also provide in-house counselingonce a week to employees when needed.

• Working hours and paid vacation usage rate
(Daiwa Securities Group Inc., Daiwa
Securities Co. Ltd., and Daiwa Securities
SMBC Co. Ltd.)FY2003 FY2004 FY2005
Annual regular
working hours (Hours)

1860.01837.51845.0

Average monthly
overtime hours* (Hours)

25.6

29.3

27.0

Paid vacation usage rate

33.0%

33.2%

34.3%

* Figures represent the employees at the three companies
who are members of the Daiwa Securities Group
Employees' Union.

Employee welfare system
As part of efforts to build a flexible andunderstanding workplace, as well as toencourage work methods to incorporate thewelfare of the employee, the Daiwa Securities
Group expanded its childcare and family-careleave and subsidy program in October 2005.
The Group initially offered its employees two
years of childcare leave, exceeding thelegally mandatory one and a half years. The

39

DAIWA SUSTAINABILITY REPORT 2006

Group has now extended this period to three
years. Further, it introduced a childcare cost
assistance scheme to help cover expenses(to a specified limit) incurred by employees
who send their children under the age ofthree to nurseries.
With regards to family care, employees are
eligible for up to 365 days of leave, far beyond
the legal requirement. In the event of an
employee whose spouse is in need of daily caredue to an illness or disability, a grant is available
to cover home-helper expenses for up to sixty
days. Although these programs are in place,they are hardly utilized, so the Group will
endeavor to make them more widely known
among its staff.

• Employee welfare system usage (Daiwa
Securities Group Inc., Daiwa Securities Co. Ltd.,and Daiwa Securities SMBC Co. Ltd.)(persons)

FY2003 FY2004 FY2005
Number of
employees taking
childcare leave*

Female

81

115

138

Male

0

0

0

Number of
employees taking
family-care leave

Female

0

0

2

Male

0

0

0

* Employees eligible for childcare leave include non-regular
employees (contract workers, part-timers, etc.).

Communication with
employees
The Daiwa Securities Group recognizes theimportance of direct feedback from
employees. Therefore, it has instituted
employee interviews by the Personnel
Department and a semi-annual selfassessment questionnaire. The Group is
striving for open communication with its
employees by assigning counselingpersonnel and establishing alternativemeans of conveying employees' opinions tothe company. Furthermore, the Group is inconstant contact with the members of the
Daiwa Securities Group Employees' Union
through annual labor negotiations and atwice-a-year union-member questionnaire.
These efforts have gone a long way topromoting better relations between
employees and management.

• Number of Employees' Union members(seven principal group companies,* as of theend of each fiscal year)(persons)

FY2002 FY2003 FY2004 FY2005
Number of
Employees'
Union members

6,388

6,220

5,786

5,747

* Daiwa Asset Management Co. Ltd., which has its own
employees' union, and Daiwa Property Co., Ltd. which
has no employee union, are excluded from the Group's
principal companies.

Relocation projectquestionnaire
The Daiwa Securities Group is planning tomove its headquarters to the Grand Tokyo
North Tower (currently under construction in
Chiyoda-ku, Tokyo) in November 2007.
Consequently, the headquarters relocation
project has been launched, and an employeequestionnaire concerning desirable workplace
features was distributed. Many opinions werereceived regarding features that would help
relieve employee fatigue, including windows
and informal meeting spaces to make the officeenvironment more pleasant. The Group willcontinue its investigations as it prepares forthe move.

• Opinions from the relocation projectquestionnaire
Which of the following is important to you
in our new workplace (multiple responses)?
A pleasant office environment

14%

Easy access to public transport

13%

High level of earthquake resistance11%

Nice restrooms

10%

Latest IT infrastructure

8%High security

7%

Good interior design

6%

Environmental friendliness

5%

Good lunch options nearby

5%

Feelings of prestige

4%

Good exterior design3%

Accessibility for persons with disabilities

3%

Others11%

Support plan

Program overview

Introduction of sales staff re-employment
scheme (Professional Return Plan)

To provide re-employment opportunities to full-time employees who have resigned forreasons of marriage or childbirth

Extension of the period that employees canobtain childcare leave and time off forchildcare needs during the workday

To extend the application period for childcare leave and hours from the current
stipulation of "up to the day before the child reaches age two," to "up to the day before
the child reaches age three."

Establishment of a new childcare cost
assistance scheme

To assist with costs for nursery facilities for a child under the age of three

Improvement in employees' leave entitlement

To encourage employees to take annual paid leave by establishing marriage preparation
leave and family days off (for employees to strengthen family ties)

Workplace return program

To promote the smooth re-entry into the workplace, by providing those on childcare
leave with opportunities to interact with the company• Daiwa Securities Group's female employee
and manager rates in Japan
March 31, March 31, March 31,
2004
2005
2006

• Usage of the Daiwa Elder System (Daiwa
Securities Group Inc., Daiwa Securities Co.
Ltd. and Daiwa Securities SMBC Co., Ltd. as
the end of each fiscal year)

Social Report●Utilizing the power of womenin the company
The Daiwa Securities Group wants to provide
more support to its female employees, not justfrom a CSR perspective, but also as part of its
corporate strategy.
Of the 727 employees hired in April 2006
for career-track and regional career-track
positions, women accounted for 326
persons or 44.8%. Furthermore, women are
actively being promoted to management
positions after joining the company. As of
March 31, 2006, there were 97 female
managers at group company offices inJapan, including 4 branch managers. This
represents 2.7% of the total management
positions in the Group, an increase over theend of the previous fiscal year.
●Female Employee Support Plan
In order to provide female employees the
support needed to fulfill both work andfamily obligations, the Daiwa Securities
Group introduced a Female Employee
Support Plan in October 2005. The Grouphas been televising in-house satellite
programs and distributing the Childcare
Support Guidebook, to raise workplaceawareness and encourage more women to
take advantage of the plan.
These efforts have been recognizedoutside the Group. In June 2006, Daiwa
Securities Group Inc., Daiwa Securities Co.
Ltd., and Daiwa Securities SMBC Co. Ltd.
received the Tokyo Labor Bureau Chief
Award of Excellence in the Corporate Equal
Opportunity Awards sponsored by the
Ministry of Health, Labour and Welfare.

• Female Employee Support Plan

Human Values and Human Resource Utilization

Creating a work environmentthat is supportive of women
employees(persons)
Female employee rate

33.4%

31.9%

32.1%

Female manager rate

0.5%

0.7%

0.9%

FY2003 FY2004 FY2005
Number employed throughthe Daiwa Elder System

68

84

80

Retirement lifestyle support
Future issues and fiscal 2006 targets
In April 2006, the revised Law concerning
Stabilization of Employment of Older Persons
went into effect. This amended law is theresult of the predicted shortage of workers
due to Japan's declining birthrate, as well as
the increased desire of senior citizens towork following the reform of the pension
system. In 2000, the Daiwa Securities Group
introduced the Daiwa Elder System for there-employment of employees who had
retired under the mandatory retirement
scheme. The Group later introduced the
Daiwa Master System in April 2006 to allow
mandatory retirees that have achieved acertain level the choice to stay until age 65.
For employees 55 years of age or more, thereis the new Home Base Declaration, whichallows employees to be posted as close to
their desired retirement home as possible.
There is also the Voluntary Retirement
system, and the Second Career Support
Leave. The latter provides a two-month
period of leave for the preparation of reemployment or independent activities.

In April 2007, the Daiwa Securities
Group will step up initiatives to create
employment opportunities such as
targeting to recruit 1,400 new graduates, amajor jump from the year before. As
indicated in its Medium-term Management
Plan, the Group is working towards thebetterment of its education and training
programs, such as analysts' qualifications
and CFP, aiming to increase the number of
employees with professional qualifications.
The Group is continuing efforts towards
workplace improvement that will provide
even more assistance to women, by
establishing systems that will improve theirmorale and maximize their potential.

Childcare Support Guidebook.

DAIWA SUSTAINABILITY REPORT 200640

Social Report
Round-table Discussion

What Makes a Good Workplace?

The Daiwa Securities Group is a member of the securities and financial industry, an area long considered as a masculine
domain. The Group, however, is fully cognizant of the capabilities of women in the work force and seeks to tap thissource of talent. The Group is taking further steps to encourage the advancement of women, by establishing schemes toactively promote female employees to management positions while giving them the tools and options needed to balancefamily and work obligations. What is the current situation for women in the workplace? What is needed to further
encourage female employees? A discussion was held with a panel of working mothers and a branch manager from the
Daiwa Securities Group. (Discussion date: June 29, 2006)

In recent years, the workplace
has gradually evolved into one ofequality between men and women.
Yamazaki: There are two aspects to theencouragement of female employees. The
first is the active promotion of female
workers. Even prior to the enactment of theEqual Employment Opportunity Law, theDaiwa Securities Group has taken the lead in
this area. Just like Ms. Saito, women with real
ability are being promoted to all types of
positions, including branch manager.
Saito: I used to be in a regional career-track
position, and the job of branch manager
seemed like an unattainable goal for me atthat point. In fact, up until five or six years
ago, jobs were still divided along genderlines; nowadays, I think the inequality
between men and women is graduallydisappearing. Indeed, the number of female
managers is steadily increasing.
Katsuura: Until recently, women that rosethrough the ranks quickly had to try to act likemen. But now you can see women withtypically feminine qualities also being
promoted. I'm glad that we have reached thepoint where women like Ms. Saito can be
branch managers.

It is the attitude rather thanactual systems and processes
that change an organization.
Yamazaki: The other aspect is theestablishment of a workplace that allows
women to both have children and build acareer. In October 2005, the Female
Employee Support Plan was created, andvarious programs were introduced tosupport women. In the future I think it will be
important for each and every employee tohelp build an environment where women feel
free to use these programs.
Katsuura: I was lucky enough to be able tohave a child and continue my career, thanks
to the great understanding and cooperationof my branch manager and superiors when I
took maternity leave prior to returning towork. Even so, they actually had no concreteidea of what programs were available to me,
and I felt like I had to explain it to them andreceive permission. At this point, there are still
a lot of higher-ups that are not aware of the
programs available to women; I think theyshould be educated about them.
Yamazaki: The proper functioning of these
programs is dependent on the understandingof male employees, especially male managers.

Y u ko Y a m az ak i

Sei go Hasegawa

A kiko Ma t suo

Yukiko Ka t suura

N a oko Sa it oAssistant Manager
Personnel Department
Daiwa Securities Group Inc.

Deputy General Manager
Product Planning Dept.
Daiwa Securities Co. Ltd.

Deputy General Manager
Shinjuku Center Building Branch
Daiwa Securities Co. Ltd.

Station Plaza, Headquarters,
Daiwa Securities Co. Ltd.

Branch Manager
Nakano Branch
Daiwa Securities Co. Ltd.

Ms. Yamazaki serves as the leader of the
Women's Advancement Action Team
founded in the Personnel Department in
February 2005. "We have already begunchanging the focus from a workplacethat is supportive of women to one that is
supportive of both men and women."

While working at the union executive
office, Mr. Hasegawa focused on
workplace environment issues. "Thelevel of involvement of female
employees serves as an importantbarometer of a company's vitality."

Ms. Matsuo moved from a general
office position to a career-track job.
She is currently working in sales, whileraising a three-year-old. "It is hard
work raising a child and working insales at the same time. It consumes all
my energy."

Ms. Katsuura got married two years after
joining the company. Her child was born
two years after that, and is now five. "Since
I'd like to work until mandatory retirement, I
hope that the programs to support female
employees will be improved and properly
understood throughout the company."

In April 2005, Ms. Saito became the first
person to be promoted to branchmanager from a regional career-track
position, without any transfers to otherlocations. "I think that branch managers
need to realize that women can raisechildren and still maintain their careers."

41

DAIWA SUSTAINABILITY REPORT 2006

Saito: We are part of a profit-making
organization, thus the limited number of sales
staff at the branches is under constantpressure to produce profits. If one of thesesalespersons leaves his or her job, then weneed to think about how to fill this gap.
Whether or not someone has to look after achild or family, everyone must be completely
professional in their jobs.
Matsuo: That's true. I fully understand that asa manager, I am expected to work tomaintain a certain standard regardless ofwhether I have children or not. On the other
hand, there are time constraints, such as
when my child has to be picked up. As aresult, the demands of work and family push
me to the point of exhaustion.
Katsuura: However, even if working mothers
are at a disadvantage, I think they can still
produce good results. I have never comeacross a saleswoman who slacked off justbecause she had a child. That kind of person
would not come back to work after having ababy anyway. Since it is only those womenwith a lot of drive that return to work, I thinkthey will help boost the profits of the company
over the long term.
Yamazaki: Enabling women with experienceand skill to meet their childcare needs andstay employed long term is the best way tosecure an outstanding source of humancapital. It takes a lot of time to develop good
personnel from the time they are hired and it
would definitely benefit the company toenable as many women as possible to enjoy along career with the company.
Matsuo: From a program perspective, I think
the period of no overtime work should be
longer. Although the nursery lets my child staylater, once she enters elementary school,
she'll get out earlier and I want to be able tosend her for after-school activities.
Katsuura: I think there should be a way for
women to stay in touch with what ishappening at the office while they are onmaternity leave. It is very disconcerting not toknow what is happening at work while you areon leave. It would also be great to haveopportunities for working-mother colleagues
to bring their children and get together. We
could share tips and encourage each other.
Yamazaki: There are lots of programs forchildcare support. In order to raise awarenessof these programs, the Childcare Support
Guidebook was distributed to all employees inJune of this year. It presents the schemes in avery easy-to-understand format. A childcare
support website called the Daiwa Family Net
has been set up for employees on maternity
leave. Through the online bulletin board,
employees can communicate with each other,and co-workers can share news. Initiatives are
currently being publicized based on the
campaign to encourage female employees,
but first, the company is aiming to put in placea work environment that is supportive of both
men and women, in achieving a balance
between work and family. We want to createa workplace where any employee canparticipate in childcare, regardless of gender.

DAIWA SUSTAINABILITY REPORT 2006

Social Report

Career women are a valuable
resource. Childcare support helps
secure corporate competitiveness.

What Makes a Good Workplace?

In the future, we will have to make theprograms more widely understood andaccepted in the workplace.
Saito: Although I don't have children of myown, I try to be supportive of my employees
when it comes to theirs. For example, if one of
my employees asks for time off to attend
his/her child's school entrance ceremony,then I agree to it, so long as it does not cause
any problems in our operations. But somebranch managers would see this as being too
soft. They have the notion that taking a day offmeans you have no commitment to the job.
Hasegawa: During the period of rapid growth
in Japan, from the fifties to the seventies, thearchetype of a typical family gradually
become one where the man's position was at
the workplace and the woman's was at homeraising the children. Admittedly, it is very hard
to change this mindset, but I think thequestion is not whether we can change it, butwhether we will change it. Consequently, a lotof this depends on management, and it would
be great if the Daiwa Securities Group
became a pioneer in the creation of a newworkplace environment. First the management
must get a proper understanding of the
programs available to women employees,
and then take the responsibility of explaining
them to all their subordinates, especiallythose who are directly involved. The mostimportant thing, however, is to remember toput yourself in the other person's shoes
when considering these issues.
Saito: I really think a change in the mindset ofbranch managers is essential. If there wassome way that the personnel department
could make sure that female employees withsmall children are able to leave work at theofficial time, it would also help enforce achange in branch managers' attitudes.
Yamazaki: Don't you think that women
employees need not only the understandingof male managers but co-workers, too?
Matsuo: That's true. It does not help if
someone makes an insensitive comment
about a female employee arriving late andleaving early for childcare reasons.
Katsuura: That really puts stress on thefemale employee. I hope that I can be anunderstanding colleague in this respect.
Hasegawa: Ultimately, I think it is the attitude
rather than the mechanisms that will change
an organization. The sum of these attitudes
forms the corporate climate, and this will
determine if a better workplace environment
can be created.

42

Social Report

Corporate Citizenship

Enhance volunteer programs so that as many group
employees as possible can participate.

Approach to corporate
citizenship and initiatives

Results and progressfor fiscal 2005

Issues and targets
for fiscal 2005

Companies are important institutions within society, not just economically, but also socially. Hence, the Daiwa Securities Group is going beyond volunteeringand donations, and making corporate citizenship a core principle of its business operations.

Incorporated volunteerism into new employee training;organized clean-up projects around the station near the
Daiwa Training Center with a total of 400 participants.

(1) Education and research
activities in the fields of
economics and financeWe believe a good corporate citizen invests
in society through activities and projects that
contribute to the welfare of the public.
Daiwa Group's corporate citizenshipactivities fall into four categories:(1) Education and research activities in
the fields of economics and finance;(2) Encouraging volunteerism among employees;(3) Support for culture and the arts; and(4) Assistance to communities both on thelocal and international level throughfoundations and NPOs

The Daiwa Securities Group has undertaken
to contribute to society the knowledge andexpertise accumulated in its line of businessin economics and finance. The Groupsupports economics education in junior andsenior high schools and sponsors courses
and joint research projects with universities.
For more details, see pages 15 through 18.

(2) Encouraging volunteerism
among employees
Volunteering broadens a person's horizon andteaches him or her to appreciate a broader setof values. The Daiwa Securities Group is
encouraging its employees to volunteer throughvarious programs. Volunteering is divided into
two types: those planned and promoted

independently by the Group, and those held incooperation with local communities and NPOs.
In order to encourage employees to participate,various volunteering opportunities are postedon the group intranet.
In fiscal 2005, a total of 1,874 employees
participated in 96 different activities. In
addition, the Group has also expanded its
programs to include fund raising forsurvivors of natural disasters, and recycling
projects involving
plastic bottle caps
and used stamps.

Information for group
employees on volunteering
opportunities• Daiwa Securities Group's initiatives as a responsible corporate citizen

Activities

Activity type(1) Education and researchin the fields of economics
and financeInitiatives for elementary, and junior and seniorhigh school students

Finance Park, Student Company Program (SCP)

Tie-ups between corporates, universities and graduate schools

Sponsored courses, joint research(2) Encouraging volunteerism
among employees

Independent activities

Joint training for new hires, Azabu-Juban Summer Festival,
forest thinning awareness activities, sign language courses

Joint activities

Communication courses, Chuo-ku clean-up

Promoting culture and the arts

Louvre Museum exhibitions,
Teatro La Fenice Japan Concert 2005

(4) Assistance to communities
both on the local andinternational level throughfoundations and NPOs

Two assistanceprograms

Threefoundations(3) Support for culture andthe arts

Main activity details

Daiwa Securities Health Foundation

Public health, medical care, and welfare assistance

Daiwa Anglo-Japanese Foundation

Promotion of mutual understanding between Japan and the
UK by hosting foreign students

Daiwa Securities Group
Tsunami Reconstruction Fund

Disaster relief for the survivors of the Sumatran earthquake
in December 2004

SRI assistance programs

Grant program donations based on sales of Daiwa SRI Fund

18,404

16,492

487

431

621

10,00036,00035,8001,500

16,0007,544

33,237

70,83560,457

Membership and support fees

Total

DAIWA SUSTAINABILITY REPORT 2006

21,250Assisting volunteer activities for youth welfare issues andto help the house-bound elderly and the disabled

Daiwa Securities Foundation

Other

43

Expenditure (unit: ¥10,000)
FY2003
FY2005
FY2004

￥

Pakistan earthquake
relief fund-raising￥3,746,788

1,064.2 kg

15.53 kg

1,400

Plastic bottle caps

Used stamps

Used telephone cards

Sign language class●Jointly sponsored activities
With the help of local communities and NPOs,
the Daiwa Securities Group also participatesin large-scale volunteering activities. In 2005,
the Group participated in a Chuo-ku clean-up
event promoted by Chuo Planet and 15 othercompanies located in that district of Tokyo.
Participants picked up litter including
cigarette butts, and helped beautify the urban
environment. Separately, communication
courses were held in Tokyo, Osaka, andNagoya, providing participants the skills
needed to interact and listen sympatheticallyto troubled or marginalized persons.

(3) Support for culture and the arts

New hire training (clean-up project)Social Report• Fund-raising by employees / Recycling
activities and results (FY2005)

The Daiwa Securities Group has also
undertaken various activities to support
culture and the arts. Between April andOctober 2005, the Group sponsored the
Louvre Museum exhibitions 'Masterpieces
from the Louvre Museum', and in May, theTeatro La Fenice Japan Concert 2005.
The Louvre Museum exhibitions held in
Kyoto and Yokohama attracted the greatest
number of visitors to an art exhibit in Japan
during fiscal 2005. In fiscal 2006, the Groupsponsored another Louvre Museum exhibition'Ancient Greek Art from the Louvre Museum'.

13,000

1.5 kg

9 bills

Used prepaid cards

Foreign coins

Foreign paper money

1,638

135

3,913.1

Calendars

Date books
and diaries"Bellmark" symbols*1
from product packages

Corporate Citizenship●Independent activities
The Daiwa Securities Group has incorporated
volunteering into its training for new
employees. In the new-hire training programin April 2006, participants engaged in acleanup around the station near the Daiwa
Training Center, and helped out at a nursing
care home. One new employee that had
participated in the program remarked that
she was touched by the expressions of
thanks from local residents. Another newhire commented that there were an awful lotof cigarette butts to pick up. Since that
employee was himself a smoker, he became
more socially conscious, keenly aware of the
problem it creates when people carelessly
toss this kind of rubbish on the ground.
The Daiwa Securities Group has beenorganizing a sign language class, open not
only to its employees, but also to membersof the public, since 2000. The course takes
six months, and about 50 people take part
each time.

*1. The "Bellmark" recycling program involves companies andschools, with the aim of giving children a clean and healthy
environment in which to receive their education.

(4) Assistance to communities both on
the local and international level
through foundations and NPOs
The Daiwa Securities Health Foundation
provides assistance for surveys and research
relating to public health, medical care, andwelfare for the middle-aged and older. In
fiscal 2005, the foundation provided
assistance for 30 projects totaling ¥30 million.
The Daiwa Securities Foundation provides
assistance for volunteer activities in thefields of welfare and medical care. In fiscal
2005, this foundation provided a total of¥43.98 million in funding to 206 groups.
The Daiwa Anglo-Japanese Foundation isdedicated to promoting mutual friendship andunderstanding between Japan and the United
Kingdom. Each year British students areawarded scholarships to come and study inJapan as Daiwa Scholars. There were sevenrecipients of this scholarship in fiscal 2005.

New hire training (volunteering at a nursing care home)

Future issues and fiscal 2006 targets

Private showing at the Louvre Museum exhibition

The Daiwa Securities Group will continue
its efforts to help resolve social issues
and promote activities that value "humanlife" by supporting various assistanceprograms and cooperating with NPOs
and NGOs.

DAIWA SUSTAINABILITY REPORT 200644

Social Report
Corporate Citizenship
The Daiwa Securities Group aims to provide reliable support to regions in need by lending assistance to local NPOs.

Fund to help survivors of theSumatra earthquake andthe South Asian tsunami
The Daiwa Securities Group Tsunami
Reconstruction Fund was established toassist survivors of the major earthquake andresulting tsunami that struck Indonesia andother countries along the Indian Ocean on
December 26, 2004. The fund will provide
long-term support for ten years starting infiscal 2005, with an annual disbursement of¥10 million, totaling ¥100 million.
The Daiwa Securities Group Tsunami
Reconstruction Fund was set up within the
Asian Community Trust (ACT), and provides
assistance to local NGOs in Indonesia,

Sri Lanka, and India that carry out projects
in three areas: psychological well-being ofchildren, education for children, andmicro-finance projects. Project selection,
implementation and monitoring are
performed by the Asian Community Center
21 (ACC21), which serves as the ACT
secretariat, and by the Sumitomo Trust& Banking Co., Ltd., according to theirrespective areas of specialty.
The major benefits of this fund are thatfirstly, it provides long-term rather than
temporary reconstruction relief; secondly, itoffers support by utilizing sustainable financial
systems such as public trusts and microfinancing. Finally, professional monitoring

ensures that reconstruction efforts are carriedout in the proper way.

Training to make handicrafts from coconut palm fronds• Aid-recipient organizations
Country

Local NGOs

Number of beneficiaries

Aid*

Women's independence anddevelopment programs

Activity

Women's Savings Effort "Wilpotha"

225 female householders and135 children￥3.20 million

Psychological care andeducational support for children

O.E.R.

120 children and 1,200 adults
needing educational support￥1.60 million

India

Occupational training and selfsufficiency support for orphansand persons with disabilities

TRUE

75 children￥1.19 million

Indonesia

Psychological care andeducational support for children

WALSAMA-NAD

157 children living inevacuation camps￥2.60 million

Sri Lanka* This is the amount spent in the first year of either a two- or three-year plan.

Distributing educational supplies to children

Comments from stakeholders

Rebuilding lives: Helping the survivors of the South Asian Tsunami
The monies from the Daiwa Securities Group
Tsunami Reconstruction Fund are being usedmainly for the following three programs. The first
involves micro-financing and business development
assistance for 225 women in the disaster-stricken
region of Galle, Sri Lanka, which did not receive
support from any other aid organization.
Specifically, the following three projects werecarried out over the past year: 1) Holding a total ofnine awareness-raising workshops; 2) conducting
occupational training and distributing tools in rope
making, sewing, cement block making, farming,
small shop keeping, stone masonry, foodprocessing, and handicrafts; and 3) implementing
campaigns by ten savings groups to generatesavings (total amount of savings is 91,480 rupees
or about ¥102,000 as of July 24, 2004).

45

DAIWA SUSTAINABILITY REPORT 2006

In the second program, school supply kits were
distributed to 135 children affected by the disaster.
These kits included a school bag, cap, umbrella,
textbooks, notebooks, shoes, pens, pencils, and acompass to help children get back to school. The
third program involved taking children affected by
the disaster on excursions to give them theopportunity to have fun and momentarily forget theirdifficulties. This program was placed on higher
priority than other projects simply because there
was a pressing need to help the children deal withthe disaster and loss. Through these programs the
local residents were able to rebuild their lives, andprovide support to each other through this period.
As a result, even people in the disaster-hit regions
are starting to see these programs as more thansimply relief aid - indeed, they help the survivors
help themselves through this time of reconstruction.

Ms. Karunawathie Menike
Chairperson,
Women's Savings Effort "Wilpotha"(Sri Lankan NGO)

The Daiwa SRI Fund is a fund that evaluates
the stocks of Japanese companies based on
the company's corporate integrity andtransparency. Daiwa Asset Management Co.
Ltd., Daiwa Securities Co. Ltd., and Daiwa
Securities SMBC Co. Ltd. donate fixedamounts based on the sales of this fund, andthis is used to finance activities that value"human life".
The recipients of this assistance are NPOs
that engage in projects to support people
whose lives are in danger for various social
reasons. Part of the funds go into strengthening
the NPO organizations themselves, byassisting with education and personnel costs,
rather than providing direct support to theprograms organized.
A selection committee composed of NPO
specialists determines the aid recipients.
Donations are made from the three Daiwa
companies that manage and sell the Daiwa
SRI Fund to the Civil Society Initiative Fund, aspecial non-profit organization. The donations
are then distributed where aid is needed.

Funds flow
Report flow

Social Report• Aid program

Regions
・Tokyo・Saitama
・Chiba・KanagawaAid program
Selection and advice
Selection committee

Support activities

Donations
Daiwa Securities
Group

Program development,
application and selection,and monitoring
Civil Society Initiative Fund

NPOs
Fields・Human safety
Use of the funds
・Strengtheningorganizations' foundations

Corporate Citizenship

Developing NPO staff
through the Daiwa SRI Fund
Assistance Program• Aid recipient plans and organizations
Plan

Organization

Aid

Building staff capabilities in the areas of caring for prisoners and providing
political advocacy on their behalf

Center for Prisoners' Rights￥1.80 million

Human resources development aimed at improving organizations' efficacy
in dealing with assisting refugees

Japan Association for REFUGEES￥2.00 million

Developing coordinators for the Young for Young Sharing Program (YYSP),
a mutual awareness-raising effort for young people concerning AIDS,
human rights, and human security issues

JAPAN HIV CENTER (offices nationwide)￥1.60 million

Creating a staff program to enable participation in volunteer projects for the poor

Non-Profit Organization: MOYAI(Independent Life Support Center)￥1.60 million

Comments from stakeholders

Developing human resources to achieve a society that values "human life"
We were inspired to step up our efforts in corporate
citizenship as the Daiwa Securities Group set up
the Daiwa SRI Fund, eventually leading us toinitiate contributions to NPOs. We studied the kindsof assistance programs that could clearly fulfill thispurpose, and in the end, decided to undertake anissue that would be difficult in general to tackle.
Our choice of issue is the realization of a society
where human life is valued, and our focus is on
staff development at NPOs that tackle projects ofthis nature. The most important thing for NPOs
working to protect human life is to improve theefficiency and quality of the staff's daily work.
Therefore, instead of project assistance, we now
provide as much financial help as possible towards
personnel costs.

For our first trial we decided to focus on theTokyo region. Despite collecting NPO applications
for only a short period of time, we have received
appeals from 22 non-governmental organizations.
After careful debate by the selection committee, we
decided to provide assistance to four NPOs that deal
with issues in Japanese society where the causes
are difficult to pinpoint, and that are typicallyignored by the majority of people.
The international community has made humansecurity a key issue, and similarly, Japan cannot
afford to ignore this topic either. The current
assistance program will certainly become apioneering example of working towards humansecurity, an issue close to everyone's heart.

Professor Yoshinori Yamaoka
President,
Civil Society Initiative Fund(Professor, Hosei University)

DAIWA SUSTAINABILITY REPORT 2006

46

Environmental Report

Environmental Initiatives

Improve precision of Daiwa's independent environmental
management systems.
Promote environmental communication.
Establish a basic policy on green procurement.

The Daiwa Securities
Group's perspectiveon environmental problems
Environmental initiatives at the Daiwa
Securities Group can be categorized into
three types. The first approach is efforts to
reduce the environmental impact of theGroup's day-to-day business activities.
The second is participation in activities
which appeal to society. For example,
the Group undertakes voluntary action
standards recommended by internationalorganizations. The third realm of action is
so-called eco-business or environmental
business, involving initiatives that help
alleviate environmental problems through theGroup's business operations.
(1) Steps taken to reduce the Group's
environmental impact
The Daiwa Securities Group is aware of its
obligations within society and is committed
to do its part to resolve environmental issues.
As such, the company is consciously working
to reduce the environmental impact of its
business. Along with recycling efforts, paper
usage reduction through the computerizationof information, and controlling theconsumption of electricity, gasoline, andwater, the Group is also investigatingprocurement standards including green
purchasing and the use of environmental
friendly paper such as Forest StewardshipCouncil certified paper. The Group informs
employees of volunteer environmental
projects and encourages them to initiate theirown projects. These small and individual
efforts add up to produce a great impact onsociety overall. Along the same vein, the47

DAIWA SUSTAINABILITY REPORT 2006

Results and progressfor fiscal 2005

Issues and targets
for fiscal 2005

The Daiwa Securities Group recognizes that the impact of its day-to-day business activities on the global environment is not inconsequential. It is therefore
working to build an environmental management system, as well as increase environmental awareness among its employees.

Expanded the scope of the environmental management
system from Daiwa Securities Group Inc. to include Daiwa
Securities Co. Ltd. and Daiwa Securities SMBC Co. Ltd.
Used the group website to distribute information, andexhibited at environmental events.
Investigated the introduction of purchasing standards inthe second half of fiscal 2006.

Daiwa Securities Group is also participatingin Team Minus 6%, a national campaign tofight global warming by the Japanese
Ministry of the Environment.
(2) Appealing to society
The Daiwa Securities Group emphasizes
appeals to society to help resolve
environmental issues. This includes active
participation in voluntary action standards, andefforts through international organs to addresssocial and environmental problems.
Daiwa Securities Group Inc. became asignatory company to the Carbon Disclosure
Project (CDP)*1 in March 2004. It also joined
the United Nations Environment Programme
Finance Initiative (UNEP FI)*2 in November
2004. Then in May 2006, Daiwa AssetManagement Co. Ltd. signed the newly
announced Principles for Responsible
Investment (PRI)*3.

Signing UNEP FI (November 2004)*1 See page 7 for more details*2 See page 7 for more details*3 See page 7 for more details(3) Initiatives as part of the Group'sbusiness operations
The marketing of socially responsible
investment (SRI) funds is one of theenvironmental initiatives being advancedby the Daiwa Securities Group in its corearea of business. The Daiwa Eco Fund isrepresentative of the SRI approach which

entails investing in companies that fulfill
their social obligations and in this particularcase, the focus is on environmental
responsibilities. Through the formation andsale of SRI funds, the Group is channeling awide range of public funds into companies
that take CSR and environmental concerns
seriously. At the same time, the Group is
encouraging companies to put more effort
into CSR and environmental initiatives inorder to attract more investment funds.
The Daiwa Securities Group is now
looking into transactions for greenhouse gas(GHG) emissions rights, as part of potential
environment-related business. The Group isinvesting in development projects to control
GHG emissions, such as wind-generated
power in developing countries, and investing
7.5 million dollars in the World Bank's
Community Development Carbon Fund. The
GHG emissions rights obtained through thisinvestment provide various business
opportunities in investment banking such as
product development, trading, and finance.
The current economic and societal
structure relies too heavily on fossil fuels.
This energy option has reached its limit andthere are calls for new approaches such asenergy saving and new energy sources. The
Daiwa Securities Group recognizes its own
social responsibility as a key participant infinancial and capital markets; it must findcompanies with these kinds of advanced
technologies, and assist them throughcorporate financing. The Group plans tocreate new markets in the area ofenvironmental technology.

(2) CO2 emissions (Table 2)
When the Group's energy consumption is
calculated in terms of CO 2 emissions, theGroup was responsible for producing
51,921 tons of carbon dioxide in fiscal
2005. However, by reducing electricity
consumption, which has the greatest
impact on CO2 output, the Group was able
to lower its emissions by 4.7% comparedto the previous fiscal year.
(3) Waste generation and recycling (Table 3)
In fiscal 2005, the Daiwa Securities Group
produced 1,470 tons of paper waste, which wasa fall of 82.5 tons, or 5.3%, from fiscal 2004.
The Group's paper recycling rate was 82%.

FY2003

FY2004

FY2005

95,239,027

89,546,672

86,320,394

Natural gas (cubic meters)

885,700

904,255

727,485

Heavy oil (l)45,17961,73930,146

Light oil (l)12,732

11,048

1,267

Gasoline (l)1,213,171

1,151,487

1,036,609

Electricity (kWh)* For the scope of data, see the "Scope of Environmental Impact Data" table.

• CO2 emissions (Table 2)(Unit: Kg-CO2)

FY2003

FY2004

FY2005

Electricity

52,857,660

49,698,403

47,907,819

Natural gas

1,841,955

1,880,543

1,512,921

Heavy oil

134,703

184,078

89,882

Light oil

33,34928,937

3,319

Gasoline

2,816,571

2,673,362

2,406,654

Total

57,684,238

54,465,324

51,920,594* The emissions conversion factors used in the CO2 output calculations are based on the ministerial ordinance related to thecalculation of greenhouse gas emissions arising from the business activities of specified emitters (March 2006, Ministry of Economy,
Trade and Industry and Ministry of the Environment, Ordinance No. 3), for all fiscal years. The emissions data from the previous year
has been revised according to these new conversion factors.
* For the scope of data, see the "Scope of Environmental Impact Data" table.

• Scope of environmental impact data (fiscal 2005)• Electricity usage over time (Graph 1)
Million kWh

120,000
100,000

95,239Building
89,54686,320○○○Daiwa Securities Kabutocho Building

○

○

○

60,000Marunouchi Trust Tower North Building○○

40,000Eitai Daiya Building○○

Sato Daiya Building○○

Daiwa Securities Osaka Branch Building○○

Daiwa Securities Nagoya Branch○○

Daiwa Asset Management Headquarters

○

○

○

Daiwa Institute of Research Headquarters Building

○

○

○

DIR Annex○○○

Daiwa Eitai Building

○

○

○

DIR Kiyosumi Park Building○

Daiwa Osaka Center Building○

Toyocho Center Building

○

○

○

Daiwa Securities branch offices*○○

Daiwa SB Investments Headquarters○○

NIF SMBC Ventures Headquarters○○

Daiwa Training Center○○

Daiwa Sanko Buildings (main and annex)○○

20,0000

FY2003

FY2004

FY2005* For the scope of data, see the "Scope of Environmental
Impact Data" table.

(Unit: tons)

FY2003 FY2004 FY2005
Amount generated

1,495.5

1,552.8

1,470.3

Paper Amount recycled
waste Amount discarded

1,297.4

1,328.8

1,212.3

198.1

224.0

258.0

Recycling rate

87%

86%

82%

Amount generated

316.5

417.5

391.8

Non-paper Amount recycled
waste Amount discarded

79.0

112.9

104.4

237.5

304.6

287.4

25%

27%

27%

Recycling rate

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

Tables 1 & 2 Graph 2 Table 3
Graph 1

Daiwa Securities Headquarters Building

80,000• Waste generation and recycling over time
(Table 3)

Environmental Report(1) Energy and water consumption(Table 1, Graphs 1 & 2)
The form of energy most heavily used by
the Group is electricity. Energy saving
measures such as "lights out curfews" at
the headquarters and branches and raising
the office air-conditioner temperature
setting in summer reduced the Group's
electricity consumption in fiscal 2005 to
86.32 million kWh, a 3.6% improvement
over the previous year.
By eliminating dining halls at theheadquarters and branches, the Group wasable to significantly reduce the amount of
natural gas, heavy oil, light oil, and water
consumed. The Group's use of gasoline is also
declining, thanks to the move to highly fuelefficient light motor vehicles for sales staff.

• Energy consumption (Table 1)

Environmental Initiatives

The Daiwa Securities
Group and the environmental
impact of its operations• Water usage (Graph 2)
500,000

438,428Kl

411,100

400,000

324,527
300,000
200,000
100,000
0

FY2003

FY2004

FY2005* For the scope of data, see the "Scope of Environmental
Impact Data" table.

○○○* 112 branch offices, excluding headquarters, Osaka andNagoya Branch buildings.

DAIWA SUSTAINABILITY REPORT 2006

48

Environmental Report
Environmental Initiatives

Reduced paper use byswitching to electronic
statements
Daiwa Securities Co. Ltd. is encouraging the
reduction of paper used for printing statements,
a major use of paper, through the Electronic
Statement Promotion Project. The project went
into full operation in February 2005. In addition
to reducing the amount of paper and hence
environmental impact, electronic statements
offer other advantages such as lower costs,
better internal administration efficiency,
tightened information security, and improved
customer convenience.
(1) Electronic statements for customers:
e-members
Daiwa Securities Co. Ltd. is inviting customers
who receive reports electronically, and thoseusing online trading, to sign up as e-members.
This type of customer receives his accountstatements, transaction reports and othernotices by email, thereby greatly reducing theamount of statement paper needed.

49

DAIWA SUSTAINABILITY REPORT 2006

Company

18,998Daiwa Securities Co. Ltd.

451,125
148,855

Daiwa Institute of Research Ltd.

160,548

Daiwa Asset Management Co. Ltd.

28,434

Daiwa Business Center Co., Ltd.

51,039Daiwa SB Investments Ltd.

33,272

Daiwa Property Co., Ltd.

3,108

Daiwa Sanko Co., Ltd.

3,770

Daiwa Card Service Co., Ltd.

268

NIF SMBC Ventures Co., Ltd.

12,624Other

21,135

Total copy paper

933,176

Daiwa Securities Co. Ltd.

467,134

Daiwa Securities SMBC Co. Ltd.

157,020

Total statement paper

624,154

Grand total• Number of internal statement pages printed
at Daiwa Securities Co. Ltd.

Total weight (kg)Daiwa Securities Group Inc.

Daiwa Securities SMBC Co. Ltd.

Copy paper

Paper usage forms the single largest sourceof environmental damage by the Daiwa
Securities Group. As a result, the Groupinitiated a Paper Project to reduce the use of
paper. Investigations are carried out toassess the paper usage situation and how it
can be further cut back.
In fiscal 2005's Paper Project, a target was
set to reduce paper use by 5% over theprevious year at Daiwa Securities Group Inc.
By cutting back the number of copies printed
of certain regular publications, the company
was able to exceed its reduction target.
The Group also expanded the scale of thisproject from Daiwa Securities Group Inc. to all
the principal group companies in Japan. The
types of paper consumed by the Daiwa
Securities Group in large quantities include
copy paper at each of the group companies,
and statement paper used at Daiwa
Securities Co. Ltd. and Daiwa Securities
SMBC Co. Ltd. In 2005, the Group bought
approximately 933 tons of copy paper which
was purchased in bulk for all groupcompanies, as well as 1,557 tons ofstatement paper: 467 tons for Daiwa
Securities Co. Ltd., and 157 tons for Daiwa
Securities SMBC Co. Ltd.

• Copy and statement paper purchase amountfor Daiwa Securities Group (fiscal 2005)

Statement paper

Paper Project

1,557,330

In fiscal 2005, the initiative's first year ofoperation, the Group reduced the number ofstatements sent to customers by about 5.83
million pieces of paper. As a result, theconsumption of statement paper by Daiwa
Securities Co. Ltd. fell by 6.2% in fiscal 2005,
which is estimated to be a savings of 31 tonsof paper.
(2) Electronic statements for internal use
Along with the diversification of financial
products, the types of internal statements andthe number of pages printed have risen
rapidly. Daiwa Securities Co. Ltd. has
switched over to electronic statements in all
its sales departments and branches, andstopped printing out 6,000 types ofstatements as of May 2006. As a result, thenumber of internal statement pages printed in
May 2006 was decreased by 62.1%
compared to the amount printed in May 2005,
while printouts in June were decreased by
70.4% compared to the previous year's
figure. A huge reduction in paper usage wasachieved; a savings of about 140 tons ofstatement paper is expected for Daiwa
Securities Co. Ltd. in fiscal 2006.

(pages)

April

May

June

2005

3,225,509 3,198,168

3,281,186

2006

3,449,499 1,210,571

971,530

Compared toprevious year

106.9%

37.9%

29.6%

Future issues and fiscal 2006 targets
During fiscal 2006, Daiwa Securities
Group Inc., Daiwa Securities Co. Ltd.,and Daiwa Securities SMBC Co. Ltd.,are broadening the scope of theirenvironmental management system toinclude consolidated companies in Japan,
in an effort to further reduce the Group's
impact on the environment. Specifically,
the Group will further cut down on
statement paper usage through the
adoption of electronic statements, while
also reducing electricity consumption
required for printing. The Group is taking
further steps to improve employee
environmental awareness in terms ofenergy conservation and copy paper
usage reduction. Investigations are also
being made into setting procurement
standards for the use of environmentallyfriendly paper, such as recycled paper orForest Stewardship Council certified paper,especially for copy and statement paper.

Third-party Evaluation
Daiwa Securities Group Inc. has been included in the following socially responsible investment (SRI) indices.

FTSE4Good Index

FTSE is a subsidiary of the UK's Financial Times and the London
Stock Exchange. It provides data and constructs global indicesfor investment.
Starting in September 2006, Daiwa Securities Group Inc. has
been included in the FTSE4Good, an index of socially responsible
companies compiled by FTSE. Mr. Will Oulton, Head of
Responsible Investment at the FTSE Group offered this comment
upon the inclusion of Daiwa Securities Group Inc. in the index.

Mr. Will Oulton
Head of Responsible Investment
FTSE GroupThe FTSE4Good Index series has
become one of the most internationallyrespected and influential responsible
investment indices. To be eligible forinclusion, a company must meet a set of
demanding criteria that are designed toreflect a broad global consensus on what
constitutes good corporate responsibility
practice. Companies gaining entry to the
FTSE4Good index are able to represent
that they have in place sufficiently robust
policies and management systems to

manage the environmental social andgovernance ("ESG") risks and impacts.
Although Daiwa Group met the socialand stakeholder criteria, Daiwa did notmeet the environmental criteria. This
year, FTSE are delighted to see an
improvement in Daiwa's wide range ofenvironmental measures and therefore
judged Daiwa to be eligible for inclusion.
For achieving FTSE4Good status,
Daiwa Securities Group Inc should
be congratulated.

Dow Jones Sustainability World Indices
The Dow Jones Sustainability World Index (DJSI World) is a stockindex of companies with sustainable practices as selected by
Dow Jones & Company, Inc. of the US, and Sustainable AssetManagement (SAM) of Switzerland. Daiwa Securities Group Inc.
has been in the DJSI World for eight years running now.

DAIWA SUSTAINABILITY REPORT 200650

Third-party Opinions
With regards to the Daiwa Securities Group's initiatives
to promote corporate social responsibility, I would liketo highlight two points of praise and suggest one issue
for improvement.
The first point I'd like to praise is the Group's focus onsocial contributions through its core business. As
presented in the Special Feature section of this report, theDaiwa Securities Group's CSR policy, drawn up based on
clear principles and careful planning, involves emphasis onsocially responsible investment (SRI) and the development
and marketing of products based on the SRI concept.
Socially responsible investors have the desire to makethe world we live in a better place. These investors arecertainly on the rise and their concerns are becoming moredifferentiated. The Daiwa Securities Group is able to meetthe expectations of these socially responsible investors, by
clarifying and distinguishing its stock-picking criteria in
response to the investors' diversifying and refining
opinions. As a result, the Group has built up Japan's
largest asset balance of SRI products.
The second point I commend is that the Groupemphasizes ethical and legal compliance in order toimprove the quality of its business and how it isconducted. The Group believes that by achieving a highstandard in managing its business, the company can andwill earn the confidence of its customers, including socially
responsible investors.
After reviewing many companies, I have noticed thatin the attempt to achieve full legal compliance on all
aspects, companies sometimes lack the will to pushthrough tough measures, resulting in only superficial efforts
at compliance. In extreme cases, some companies justcreate and sign required compliance-related documents,
hoping they will spare the company from scrutiny of its
actual practices. The Daiwa Securities Group appears to
be fully aware of such pitfalls, and has therefore made adetermined effort to internalize the concept of legal
compliance and integrity. Indeed, through the proper
implementation of ethical measures, the Group has madereal improvements to the quality of its business. But why
go to such efforts? I think it is because the Group is keenly
aware of the fact that it cannot offer SRI products to the
public without first becoming a law-abiding corporate
citizen and ethically respected company that has earned
the confidence of its stakeholders.
Finally, I would like to point out an area in need of
improvement. As the Group works toward improving thequality of its business operations, the number of customer
complaints continues to increase at the same time.
The number of telephone complaints in fiscal 2005
increased by over 300 calls from fiscal 2004, reachingan annual total of more than 2,000 complaints. Thisdevelopment suggests that drastic measures must be
taken to tackle this. Furthermore, the customer satisfaction
surveys show that clients are unhappy when the handoverof their accounts is managed poorly following a change intheir account manager. Follow-up after sales was also
highlighted as being poor. A greater number of complaints

51

DAIWA SUSTAINABILITY REPORT 2006

may be expected as a result of the increase in the numberof individual investors. However, to address the problem
areas, some form of group-wide change is required. More
importantly, the Daiwa Securities Group has chosen to beopen about this issue and has included it in this report.
This shows that the Group is ready and willing to take thenecessary steps to make real improvements.
This highlighting of the problem of customer
dissatisfaction could leave doubts in some readers' minds
about how confident they can be in the Daiwa Securities
Group. To answer this appropriately, let us take a look atwhat Daiwa Securities Co. Ltd. did after a large sellingorder was erroneously executed at a particular securities
firm in 2005. As a result of an input error, it mistakenly solda large quantity of stocks at a very low price.
As we see in the Message from the President, Shigeharu
Suzuki, President and CEO of Daiwa Securities Group Inc.,
always tells his employees that he does not want any
profits earned through unethical operations. If this were notthe case, then the Daiwa Securities Group could have
easily engaged in a massive purchase of the stocks, justlike other individual speculators and institutional investors.
However, once the Daiwa dealers noticed the spike in thevolume of selling resulting from the erroneous order, they
immediately stopped purchasing. During the few minutesthat other companies were making large profits as a resultof the error, frontline Daiwa staff made the decision without
the need for direction from above.
I will leave the readers to decide whether or not the
Daiwa staff made the right decision. In my opinion,
however, I see their actions as proof that the top
management's uncompromising integrity and honest
stance towards ethical commitment have definitely
become the foundation of the corporate culture at the
Daiwa Securities Group.

P r ofe s s or

Iwa o Ta ka
Graduate School of Economics
and Business Administration
Reitaku University

In the Message from the President at the beginning of thisreport, Mr. Suzuki said he believed that the Group's
improvement in business performance is due to theincreased CSR-awareness of its employees. It is clear fromthe Round-Table discussions and other information
provided here that the Daiwa Securities Group is making acommendable effort to make itself a company worth
working for, especially in the area of providing female
employees a supportive environment in which to work.
However, employees, as an important group of stakeholders,should be encouraged to read the Sustainability Report
more strongly, a necessary measure I suggested in last
year's report. If they do so, they can appreciate thepositive information presented here, and may feel more
inclined to provide direct and indirect support for thecompany's CSR efforts.
It is natural to expect that it, as Japan's top financial
institution, should take the lead, still I think the Daiwa
Securities Group should be praised for being one of the firstsignatories to the United Nations Environment Programme
Financial Initiative (UNEP FI) charter and the UN Principles
for Responsible Investment (PRI). Although the tasks ofeffectively implementing specific initiatives to realize theseprinciples are not easy, I expect the Daiwa Securities Groupwill have the determination to enforce them successfully.
As part of the Group's important CSR efforts, thecontent in its program for education and research ineconomics and finance has been expanding and gaining
depth each year. Moreover, the Group, as a financial
institution, has been tackling the very important issue ofachieving "Compliance", and hence, has taken steps toenforce and strengthen its measures. I highly appraisethese efforts, but people in the company should note thatthese do not fit the definition of CSR in Europe.
"Compliance" is a different matter from CSR, and the CSR
efforts described are seen as kinds of philanthropy andno more than a common-sense endeavor at profit
appropriation. There is no reason to be bound by theEuropean definition of CSR, but in light of the increasingMr.

T o shi hi ko Got oChair, Environment Auditing ResearchGroup (EARG)
Member, Board of Directors,
Global Reporting Initiative (GRI)

number of overseas shareholders, I think there is a needfor an explanation in the English version of this report toclarify that given the financial conditions here in Japan,
these measures for education and research are to beemphasized as part of Daiwa's core business.
In addition to compliance, environmental measures
represent core Japanese values when it comes to CSR in
Japan. As the Daiwa Securities Group is following its own
set of guidelines, different from the ISO 14000 series ofenvironmental management standards, typically usedwithin the Japanese manufacturing industry, I think theGroup's concept must to be explained when it implements
efforts overseas. As I put forth in my comments in last
year's report, in such cases the Group should seek toclarify its efforts to help secure biodiversity.
It appears that the Daiwa Securities Group has yet toestablish its corporate governance charter, which was
originally planned for 2004. There have been majorchanges in the external legal framework concerning
governance, such as the enactments of the Company Law
in 2005, and the Financial Products Transaction Law in2006. Therefore, I presume that this new legislation delayed
the establishment of a group corporate governance charter.
However, since the Group has already publicly stated its
intention to create such a charter, it should address thisissue and provide a timeline as to when it will be ready.
The investigation into the establishment of voluntaryaction standards across the Group, a recommendation I
made in 2004, has begun. Positive standards can becreated that go beyond compliance and place humancapital at the core of corporate values. It is important tostipulate the content of the corporate governance charterand voluntary action standards so that corporate
governance, and internal control in particular, can beestablished to enhance corporate value. While setting up
an internal control reporting system is an issue to tackle in
the future for the Group, I hope that Daiwa Securities will
put these and other policies in place to serve as the toprunning example to other companies.
The Daiwa Securities Group Sustainability Report has
become better every year, and external reaction to it has
also been increasingly friendly. Still, with the large volume
of information, sections on Corporate Governance andothers are a little hard to understand. While the moredetailed explanations about business operations are clear,
the amount of technical terminology has also increased.
Indeed, to appeal to a wider, more general audience,a better explanation of these terms is necessary. I hopethat the Group will also take advantage of the web tomake future improvements and expand the amount of
information being provided.
Progress has also been made on the statistical data
provided to make results more apparent to the reader.
However, based on the "Plan-Do-Check-Act" (PDCA)
approach, the sections where only the first two items,"Plan" and "Do", are presented need to be followed up withdetails about the latter two items, "Check" and "Act". I
hope an effort will be made in this respect for future reports.

DAIWA SUSTAINABILITY REPORT 2006

52

GRI Content Index
Item

Indicator

Pages

1 Vision and strategy
1.1
Statement of the organisation's sustainability vision and strategy regarding its contribution tosustainable development
1-2, 7-8
2 Profile
Organisational profile
2.1
Name of reporting organisation
4
2.2
Major products and/or services, including brands if appropriate
5-6
2.3
Operational structure of the organisation4, 5-6, 31-32
2.4
Description of major divisions, operating companies, subsidiaries and joint ventures
5-6
2.5
Countries in which the organisation's operations are located4
2.6
Nature of ownership; legal form
4, 21
2.7
Nature of markets served
5-6
2.8
Scale of the reporting organisation
4, 31-32
2.9
List of stakeholders, key attributes of each, and relationship to the reporting organisation 31-32, 24
Report scope
2.10 Contact person(s) for the report, including e-mail and web addresses
54
2.11 Reporting period (e.g. fiscal/A32calendar year) for information provided
3
2.12 Date of most recent previous report (if any)
3
2.13 Boundaries of report (countries/regions, products/services, divisions/facilities/joint
ventures/subsidiaries) and any specific limitations on the scope3
2.14 Significant changes in size, structure, ownership, or products/services that have occurred since
the previous reportNone
2.15 Basis for reporting on joint ventures, partially owned subsidiaries, leased facilities, outsourced operations and othersituations that can significantly affect comparability from period to period and/or between reporting organisations None
2.16 Explanation of the nature and effect of any re-statements of information provided in earlier
reports, and the reasons for such re-statement (e.g., mergers/acquisitions, changes ofbase years/periods, nature of business, measurement methods)
None
Report profile
2.17 Decisions not to apply GRI principles or protocols in the preparation of the reportNone
2.18 Criteria/definitions used in any accounting for economic, environmental, and social costs and benefits 31-32
2.19 Significant changes from previous years in the measurement methods applied to key economic,
environmental and social information
None
2.20 Policies and internal practices to enhance and provide assurance about the accuracy,completeness, and reliability that can be attributed to the sustainability report
3, 29-30
2.22
Means by which report users can obtain additional information and reports about economic,
environmental and social aspects of the organisation's activities, including facility-specificinformation (if available)
5, 7, 9, 18, 24, 35, 54
3 Governance structure and management systems
Structure and governance
3.1
Governance structure of the organisation, including major committees under the board of
directors that are responsible for setting strategy and for oversight of the organisation
21-22
3.2
Percentage of the board of directors that are independent, non-executive directors
21
3.4
Board-level processes for overseeing the organisation's identification and management of
economic, environmental, and social risks and opportunities
21-22, 23
3.5
Linkage between executive compensation and achievement of the organisation's financial andnon-financial goals (e.g., Environmental performance, labour practices)22
3.6
Organisational structure and key individuals responsible for oversight, implementation, and auditof economic, environmental, social and related policies
21-22, 23, 25-28, 29, 33, 39
3.7
Mission and values statements, internally developed codes of conduct or principles, and policies
relevant to economic, environmental and social performance and the status of implementation
7-8, 19-21, 23, 25-26, 28-29, 33, 35, 37, 43, 47
3.8
Mechanisms for shareholders to provide recommendations or direction to the board of directors 35-36
Stakeholder engagement
3.9
Basis for identification and selection of major stakeholders
3, 24
3.10 Approaches to stakeholder consultation reported in terms of frequency of consultations by typeand by stakeholder group25, 33-36, 39-42, 51-52
3.11 Type of information generated by stakeholder consultations
9-12, 27, 30, 33-46
3.12 Use of information resulting from stakeholder engagements
33-36, 39
Overarching policies and management systems
3.14 Externally developed, voluntary economic, environmental and social charters, sets of principles, orother initiatives to which the organisation subscribes or which it endorses
2, 7, 47
3.15 Principle memberships in industry and business associations, as well as national/international
advocacy organisations
13-14
3.16 Policies and/or systems for managing upstream and downstream impacts
13-14
3.17 Reporting organisation's approach to managing indirect economic, environmental, and social
impacts resulting from its activities
7-14
3.18 Major decisions during the reporting period regarding the location of, or changes in, operations None
3.19 Programmes and procedures pertaining to economic, environmental and social performance
19-49
3.20 Status of certification pertaining to economic, environmental and social management systems 50

53

DAIWA SUSTAINABILITY REPORT 2006

Item

Indicator

Pages

4 GRI content index
4.1
A table identifying location of each element of the GRI Report Content, by section and indicator 53-54
5 Performance indicators
Economic performance indicators
Direct impacts
Core indicators
Customers
EC1 Net sales
4, 31
EC2 Geographic breakdown of markets
4
Suppliers
EC3 Cost of all goods, materials, and services purchased
32
Providers of Capital
EC6 Distributions to providers of capital broken down by interest on debt and borrowings, and dividends on allclasses of shares, with any arrears of preferred dividends to be disclosed
32
EC7 Increase/decrease in retained earnings at end of period
32
Public sector
EC9 Subsidies received broken down by country or region45
EC10 Donations to community, civil society, and other groups broken down in terms of cash andin-kind donations per type group43, 45
Indirect impacts
Public sector
EC13 The organisation's indirect economic impacts
8
Environmental performance indicators
Core indicators
Materials
EN1 Total materials use other than water, by type
49
EnergyEN3 Direct energy use segmented by primary source48
Water
EN5 Total water use
48
Emissions, effluents and waste
EN8 Greenhouse gas emissions (CO2 , CH4 , N2O , HFCs , PFCs , SF6)48
EN11 Total amount of waste by type and destination
44, 48
EN13 Significant spills of chemicals, oil and fuels in terms of total number and total volume
None
Products and Services
EN14 Significant environmental impacts of principal products and services
49
Compliance
EN16 Incidents of and fines for non-compliance with all applicable international
declarations/conventions/treaties, and national, sub-national, regional and local regulations
associated with environmental issues
None
Additional Indicators
EnergyEN17 Initiatives to use renewable energy sources and to increase energy efficiency
48
Water
EN20 Water sources and related ecosystems/habitats significantly affected by use of water
None
Social performance indicators
Labor practices and decent work
Core indicators
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 withother employers (temporary agency workers or workers in co-employment relationships), segmented by region/country38
LA2 Net employment creation and average turnover segmented by region/country37
LA3 Percentage of employees represented by independent trade union organisations or other bona fide
employee representatives broken down geographically OR percentage of employees covered bycollective bargaining agreements broken down by region/country
41
Diversity and opportunity
LA10 Description of equal opportunity policies or programmes, as well as monitoring systems to ensurecompliance and results of monitoring
37-40
LA11 Composition of senior management and corporate governance bodies (including the board of directors),
including male/female ratio and other indicators of diversity as culturally appropriate
22, 38Additional Indicators
Employment
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 39
Training and education
LA16 Description of programmes to support the continued employability of employees and to manage career endings 37-38, 40
LA17 Specific policies and programmes for skills management or for lifelong learning
37-38

The Road to Sustainability
Pages

Year

Month The Daiwa Securities Group's Road to Sustainability

Human rights
Core indicators
Strategy and management
HR1 Description of policies, guidelines, corporate structure and procedures to deal with all aspects of human rights
relevant to the reporter's operations, including monitoring mechanisms and results
24, 37-40
Non-discrimination
HR4 Description of global policy and procedures/programs preventing all forms of discrimination in thereporter's operations, including monitoring systems and results of monitoring
24, 39Child Labour
HR6 Description of policy excluding child labour as defined by the ILO Convention 138 and extent towhich this policy is visibly stated and applied, as well as description of procedures/programmes toaddress this issue, including monitoring systems and results of monitoring
24
Forced and Compulsory Labor
HR7 Description of policy to prevent forced and compulsory labour and extent to which this policy isvisibly stated and applied, as well as description of procedures/programmes to address thisissue, including monitoring systems and results of monitoring
24
Additional Indicators
Strategy and management
HR8 Employee training on policies and practices concerning all aspects of human rights relevant to operations 39
Disciplinary practices
HR9 Description of appeal practices, including, but not limited to, human rights issues
25
HR10 Description of non-retaliation policy and effective, confidential employee grievance system(including, but not limited to, its impact on human rights)
25
SocietyCore indicators
Community
SO1 Description of policies to manage impacts on communities in areas affected by activities, as well as description ofprocedures/programmes to address this issue, including monitoring systems and results of monitoring 14, 43-44
Additional indicators
Community
SO4 Awards received relevant to social, ethical, and environmental performance30, 50
Product responsibility
Core indicators
Respect for privacy
PR3 Description of reporting organisation's policy, procedures/management systems and compliance mechanisms for consumer privacy 27-28
Additional indicators
Customer health and safety
PR6 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
30, 50, Back cover
Products and services
PR8 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
33-34
Advertising
PR9 Description of reporting organisation's policies, procedures/management systems and compliancemechanisms for adherence to standards and voluntary codes related to advertising
27

Item

Indicator

2004

January

CSR/brand management website goes online.

March

Disclosure Policy established.

April

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

May

Management and marketing begins for the 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.

July

CSR Promotion Department established at Daiwa Securities
Group Inc.

October

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

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

FebruaryLong-term support determined for areas devastated by theSumatra earthquake and South Asian tsunami. (Daiwa
Securities Group Tsunami Reconstruction Fund)

April

With the Incubation Projects of Waseda University Intellectual Property
Center, set up a basic venture capitalist course for students.

2005

Employee CSR questionnaire survey.
May

1-2, 23-24
23-24
25-30
27
9-10, 11-12, 33-46
37-40
40
4, 38, 40
43-46
31-32
7, 11-12
5-6
13-14
7, 13-14
9-14
13-14

June

Support provided to Finance Park, a hands-on economics
educational program offered by Junior Achievement Japan.

July

Daiwa Asset Management Co. Ltd. participates in the GRI
G3 project working group to consider the usefulness ofsustainability reporting from the perspective of financeand investors.

NovemberInaugurated support program for NPO staff, funded bydonations based on Daiwa SRI Fund sales.

January

The Daiwa Securities Group Sustainability Report 2005 wins theSustainability Report First Prize (Minister of the Environment
Award), sponsored by the Global Environmental Forum.

2006

February

Development of Euro-dollar Bonds with Emissions Credit
Value Referenced Coupons (Cool Bonds).
Started sales of Daiwa Eco Fund.

Financial Services Sector Supplement: Pilot Version 1.0
Social performance indicators
Corporate social responsibility (CSR) management
CSR1 CSR policy
CSR2 CSR organisation
CSR4 Management of sensitive issues
CSR5 Non-compliance
CSR6 Stakeholder dialogue
Internal social performance
INT1 Internal CSR Policy
INT2 Staff turnover and job creation
INT7 Employee profile
Performance to society
SOC1 Charitable contributions
SOC2 Economic value added
Investment banking
IB1 Investment policy
IB2 Customer profile: Global Transaction Structure
IB3 Transactions with high social benefit
Asset management
AM1 Asset management policy (socially relevant elements)
AM2 Assets under management with high social benefit
AM3 SRI oriented shareholder activity

Environmental Management Committee introduced at Daiwa
Securities Group Inc.

April

New medium-term management plan "Passion for the Best2008", which includes the Group's basic CSR strategy.

May

Daiwa Asset Management Co. Ltd. signs the Principles for
Responsible Investment (PRI), jointly created by the United
Nations Environment Programme Finance Initiative (UNEP FI)
and the UN Global Compact.

This report has been produced using a waterless printing process that does not
employ any organic solvents. The printing ink is made from soybean oil, which has avolatile organic compound (VOC) level of less than 1%.

Please send inquiries to:

CSR Promotion Department, Daiwa Securities Group Inc.
Address

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

81-3-3243-5992

E-mailbrand@dsgi.daiwa.co.jp

URL

http://www.daiwa.jp/

Published

September 2006 (Next issue planned for September 2007)

Design and production assistanceCre-en Inc.

DAIWA SUSTAINABILITY REPORT 2006

54

Daiwa Securities Group

Sustainability Report

2006
www.daiwa.jp

This report uses paper madefrom responsibly thinned timber.

What we can do

At the Daiwa Securities Group, we are engaged in the business of finance.
As such, we are not immediately confronted with environmental problems as
those in some other industries are. Nevertheless, we use huge amounts ofpaper in various reports—including this one—as well as in prospectuses,
sheets and forms. Paper wastage is therefore an environmental issue
that the Daiwa Securities Group must address and is addressing.
With the intention of protecting forests both in Japanand 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.

What kind of society awaits these 54 babies
when they become adults 20 years from now?
The precious faces of these infants―all childrenof Daiwa Securities Group employees―are an expressionof our hopes for the future. At the Daiwa Securities Group,
we are determined to take responsibility as individuals
and to play our role as a company to create a sustainable society―a contented
people living in harmony with an unspoiled Earth.