Statement on principal adverse impacts of investment decisions on sustainability factors
Nikko Asset Management Luxembourg S.A. (LEI: 549300FGDQCC2A0R2432)
Summary
Nikko Asset Management Luxembourg S.A. (“NAML”) considers principal adverse impacts of its investment decisions on sustainability factors (“PAIs”). The present statement is
the consolidated statement on principal adverse impacts on sustainability factors of NAML, covers the reference period from 1st of January 2022 to 31st December 2022 and isbeing disclosed in line with Regulation 2019/2088 on sustainability‐related disclosures in the financial services sector (“SFDR”)
Although this first publication doesn’t allow yet to comment on PAIs evolution, NAML observed large discrepancies in terms of data coverage which ranged from 5.9% (unadjusted
gender pay gap) to 95.4% (lack of carbon emission reduction initiatives, violations of the UNGC principles or OECD Guidelines for Multinational Enterprises and exposure tocontroversial weapons). All PAIs are Integrated in sustainable investment risk management or monitoring processes and in some cases used within binding risk limits or processesof NAML Article 8 or 9 Sub-Funds.
PAIs are prioritized by NAML whenever they correspond to environmental and social characteristics promoted by a product, if their impact is severe or repeated and if they
contradict NAML internal policies or external commitments. Their monitoring is performed by NAML Risk Management Function (in addition to the monitoring that may be
performed as part of the investment process). Potential findings and recommended actions are reported to NAML ESG & Stewardship Oversight Committee, NAML ComEx and
NAML Board.
Although NAML Engagement Policy and Nikko Asset Management Group Engagement and Stewardship Strategy require ESG to be integrated in proxy voting and engagement
processes, they do not specifically refer to SFDR PAIs. The management of these indicators for NAML Article 8 or 9 Sub-Funds is the responsibility of its investment managers.
Each investment manager retains the ability to consider principal adverse impacts as defined within the prospectuses of the Sub-Funds by taking relevant actions where required,including when exercising voting rights.
Nikko Asset Management Group adheres to the following international standards that may be monitored through PAIs:• Net Zero Asset Managers initiative (GHG - greenhouse gas - emissions and Carbon Footprint)• Task force on Climate Related Financial Disclosures (GHG emissions, Carbon Footprint and GHG Intensity of Investee Companies)

Description of the principal adverse impacts on sustainability factors

Adverse sustainability indicator

Greenhousegas emissions

1. GHG emissions

2. Carbon footprint

Indicators applicable to investments in investee companies
ImpactImpactMetric[year nExplanation[year n]1]
Climate and other environment related indicators

Actions taken, and actions
planned and targets set for the
next reference period

Scope 1 GHG emissions

20,831 TCO2e

N/A

Data or proxies were collected for
81.0% of the holdings. Impact
figure was scaled back to 100%

Scope 2 GHG emissions

15,632 TCO2e

N/A

Date or proxies were collected for
81.0% of the holdings. Impact
figure was scaled back to 100%

Scope 3 GHG emissions

430,225 TCO2e

N/A

Data or proxies were collected for
80.9% of the holdings. Impact
figure was scaled back to 100%.

Total GHG emissions

466,687 TCO2e

N/A

Data or proxies were collected for
80.9% of the holdings. Impact
figure was scaled back to 100%.

Integrated in the sustainable
investment risk management ormonitoring process. Used withinbinding risk limits/processes for
Article 8 or 9 Sub-Funds.

Carbon footprint

0.00 TCO2e/EURm Sales

N/A

Data or proxies were collected for
80.9% of the holdings. Impact
figure was scaled back to 100%.

Integrated in the sustainable
investment risk management ormonitoring process. Can be usedwithin binding risk limits/processesof some Article 8 or 9 Sub-Funds.

9.44 TCO2e/EURb Sales

Integrated in the sustainable
investment risk management ormonitoring process. Can be usedwithin binding risk limits/processesof some Article 8 or 9 Sub-Funds.
Integrated in the sustainable
investment risk management ormonitoring process. Can be usedwithin binding risk limits/processesof some Article 8 or 9 Sub-Funds.
Integrated in the sustainable
investment risk management ormonitoring process. Can be usedwithin binding risk limits/processesof some Article 8 or 9 Sub-Funds.

3. GHG intensity of investee
companies

GHG intensity of investee companies 399 TCO2e/EURm Sales

N/A

Data or proxies were collected for Integrated in the sustainable
83% of the holdings. Impact figure investment risk management or
was scaled back to 100%.
monitoring process. Can be usedwithin binding risk limits/processesof some Article 8 or 9 Sub-Funds.

4. Exposure to companies
active in the fossil fuelsectorShare of investments in companies
active in the fossil fuel sector

0.93%

N/A

Data was collected for 95.4% of
the holdings. Impact figure wasscaled back to 100%.

Integrated in the sustainable
investment risk management ormonitoring process. Used withinbinding risk limits/processes forcertain Sub-Funds.

5. Share of non-renewableenergy consumption andproduction

Share of non-renewable energy
consumption and non-renewableenergy production of investee
companies from non-renewableenergy sources compared torenewable energy sources,
expressed as a percentage of totalenergy sources
Energy consumption in GWh per
million EUR of revenue of investee
companies, per high impact climate
sector

87.86%

N/A

Data was collected for 63.1% of
the holdings. Impact figure wasscaled back to 100%.

Integrated in the sustainable
investment risk management ormonitoring process. Can be usedwithin binding risk limits/processesof some Article 8 or 9 Sub-Funds.

1.24 GWh/EURm sales

N/A

Data was collected for 65.8% of
the holdings. Impact figure wasscaled back to 100%..

Integrated in the sustainable
investment risk management ormonitoring process. Can be usedwithin binding risk limits/processesof some Article 8 or 9 Sub-Funds.

N/A

Data was collected for 95.4% of
the holdings The data should
however not be considered ashighly reliable as the ESG dataservice provider used doesn’tclearly state whether thecompanies reviewed did confirm
there was no adverse impact orwhether they simply didn’t
disclose an adverse impact.

Integrated in the sustainable
investment risk management ormonitoring process. Used withinbinding risk limits/processes forcertain Sub-Funds.

6. Energy consumption
intensity per high impact
climate sector

Biodiversity

7. Activities negatively
affecting biodiversitysensitive areas

Share of investments in investee
0.00%
companies with sites/operations
located in or near to biodiversitysensitive areas where activities of
those investee companies negatively
affect those areasreports. Impact figure was scaled
back to 100%.
Data was collected for 12% of theholdings. Impact figure was scaled
back to 100%.

Water

8. Emissions to water

Tonnes of emissions to water
generated by investee companies
per million EUR invested, expressed
as a weighted average

45.40 T/$m invested

N/A

Waste

9. Hazardous waste andradioactive waste ratio

Tonnes of hazardous waste andradioactive waste generated byinvestee companies per million EUR
invested, expressed as a weighted
average0.25 T/$m invested

N/A

Social andemployeematters

10. Violations of UN Global
Compact principles andOECD Guidelines forMultinational Enterprises

Share of investments in investee
companies that have been involvedin violations of the UNGC principles
or OECD Guidelines forMultinational Enterprises

0.00%

N/A

Data was collected for 95.4% of
the holdings. Impact figure wasscaled back to 100%.

Integrated in the sustainable
investment risk management ormonitoring process. Can be usedwithin binding risk limits/processesof some Article 8 or 9 Sub-Funds.

11. Lack of processes andcompliance mechanisms
to monitor compliancewith UN Global Compact
principles and OECD
Guidelines forMultinational Enterprises

Share of investments in investee
87.72%
companies without policies tomonitor compliance with the UNGC
principles or OECD Guidelines forMultinational Enterprises orgrievance /complaints handlingmechanisms to address violations of
the UNGC principles or OECD
Guidelines for Multinational
Enterprises
Average unadjusted gender pay gap -4.27%
of investee companies

N/A

Data was collected for 89.5% of
the holdings. Impact figure wasscaled back to 100%.

Integrated in the sustainable
investment risk management ormonitoring process. Can be usedwithin binding risk limits/processesof some Article 8 or 9 Sub-Funds.

N/A

Data was collected for 5.9% of theholdings. Impact figure was scaled
back to 100%.

Integrated in the sustainable
investment risk management ormonitoring process. Can be usedwithin binding risk limits/processesof some Article 8 or 9 Sub-Funds.

Data was collected for 21.8% of
the holdings. Impact figure wasscaled back to 100%.

Integrated in the sustainable
investment risk management ormonitoring process. Used withinbinding risk limits/processes forcertain Sub-Funds.

Integrated in the sustainable
investment risk management ormonitoring process. Can be usedwithin binding risk limits/processesof some Article 8 or 9 Sub-Funds.

Indicators for social and employee, respect for human rights, anti-corruption and anti-bribery matters

12. Unadjusted gender pay
gap13. Board gender diversity

Average ratio of female to maleboard members in investee
companies, expressed as apercentage of all board members

29.24%

N/A

Data was collected for 88.8% of
the holdings and only covers Q3
and Q4 2022. Impact figure wasscaled back to 100%.

Integrated in the sustainable
investment risk management ormonitoring process. Can be usedwithin binding risk limits/processesof some Article 8 or 9 Sub-Funds.

14. Exposure to controversial
weapons (anti-personnel
mines, cluster munitions,chemical weapons andbiological weapons)

Share of investments in investee
companies involved in the
manufacture or selling ofcontroversial weapons (antipersonnel mines, cluster munitions,chemical weapons, biologicalweapons)

0.00%

N/A

Data was collected for 95.4% of
the holdings. Impact figure wasscaled back to 100%.

Exlcusion

Adverse sustainability indicator
Environmental 15. GHG intensity

SocialIndicators applicable to investments in sovereigns and supranationals
ImpactImpactMetric[year nExplanation[year n]1]
GHG intensity of investee countries

547.02 TCO2e/$m GDP
Nominal16. Investee countries subject Number of investee countries
0.37%
to social violations
subject to social violations (absolute
number and relative number divided
by all investee countries), as
referred to in international treaties
and conventions, United Nations
principles and, where applicable,
national law

Actions taken, and actions
planned and targets set for the
next reference period

N/A

Data was collected for 90.6% of
the holdings. Impact figure wasscaled back to 100%

Integrated in the sustainable
investment risk management ormonitoring process. Can be usedwithin binding risk limits/processesof some Article 8 or 9 Sub-Funds.

N/A

Data was collected for 91.0% of
the holdings. Impact figure wasscaled back to 100%.

Integrated in the sustainable
investment risk management ormonitoring process. Can be usedwithin binding risk limits/processesof some Article 8 or 9 Sub-Funds.

Other indicators for principal adverse impacts on sustainability factors
Environmental 4. Investments in companies
without carbon emission
reduction initiatives

Share of investments in investee
22.17%
companies without carbon emission

N/A

Data was collected for 95.4% of
the holdings. Impact figure wasscaled back to 100%

Integrated in the sustainable
investment risk management ormonitoring process. Can be used

reduction initiatives aimed ataligning with the Paris Agreement

Social9 Lack of a human rights
policyShare of investments in entities
without a human rights policy

within binding risk limits/processesof some Article 8 or 9 Sub-Funds.

55.35%

N/A

Data was collected for 95.3% of
the holdings. Impact figure wasscaled back to 100%.

Integrated in the sustainable
investment risk management ormonitoring process. Can be usedwithin binding risk limits/processesof some Article 8 or 9 Sub-Funds.

Description of policies to identify and prioritise principal adverse impacts on sustainability factors (PAIs)
Identification of principal adverse sustainability impacts and indicators
NAML shall systematically consider principal adverse impacts of investment decisions on sustainability factors. The approach through which this impact will be assessed shall take
into account nature and scale of the relevant product activities as further defined below.
NAML will be monitoring the following principal adverse impacts of investment decisions on sustainability factors through the indicators that are described in Appendix I ofCommission Delegated Regulation 2022/1288 as well as third-party developed indicators that may be based on third party vendors and NAM own research.
Whenever coverage obtained through third party vendors or investee company is insufficient NAML may define proxies or use third party proxies to the extent it considers thatit provides a fair representation of the relevant PAIs.
Prioritization of PAIs
The indicators retained and prioritized by NAML in order to assess the PAIs of investment decisions will depend on:••••

the specific environmental and social characteristics promoted by the productthe severity of the adverse impact on the sustainability factor
the probability of re-occurrence of the adverse impact
the coverage ratio (indicators which can be assessed a large number of companies may be favored amongst those that lacks comparability)

As a general rule, PAIs indicators will more specifically prioritized in line with:•••

NAML Sustainability Risk Policy
NAML Engagement Policy
NAM external commitments as further described under: https://sustainability.nikkoam.com/investment-management.

Governance and actions on PAIs
NAML Risk Management Function is in charge of monitoring PAIs and reports its findings to NAML ESG & Stewardship Oversight Committee, NAML ComEx and NAML Board on aregular basis.
NAML will engage with the relevant investment manager whenever it considers that a PAIs may have a material impact of the product sustainability risk level, is not coherent
with the defined PAI prioritization or creates a risk that is not in line with the defined Product Risk Profile.
NAML will more specifically take actions by:
•
•
•
•
•
•

engaging with investment managers to assess how material PAIs are affecting product sustainability risk
ensuring that NAML product strategies have integrated sustainability investment risk in their investment process, have respected the environmental or social
characteristics promoted and their sustainable investment objectives
ensuring that the NAML engagement policy has been implemented as required
ensuring that PAIs level and evolution are coherent with NAM external commitments
seeking to reinforce product specific ESG policies
supporting the development of products that have promote environmental or social characteristics or have a sustainable investment objective.

Specific care will also be taken to understand and report PAIs of events that are likely to cause an irremediable impact on a specific sustainability factor.

Engagement policies
NAML has established and keeps up to date an Engagement Policy as referred to in Article 3g of Directive 2007/36/EC of the European Parliament and of the Council. This policy
is part of the more general framework of the Nikko Asset Management Group Engagement and Stewardship Strategy.
NAML Engagement Policy
Pursuant to the Luxembourg law, NAML has developed and publicly disclosed an engagement policy that describes how it integrates shareholder engagement in its investment
strategy. This policy describes how NAML (i) monitors investee companies on relevant matters, including strategy, financial and non-financial performance, risk, capital structure,social and environmental impact and corporate governance. (ii) conducts dialogues with investee companies, (iii) exercises voting rights and other rights attached to shares, (iv)
cooperates with other shareholders, (v) communicates with relevant stakeholders of the investee companies and (vi) manages actual and potential conflicts of interests in relation
to its engagement. The NAML engagement policy sets out 12 principles which aim at describing the above-mentioned points.

NAML has delegated the exercise of voting rights to the Investment Managers of the managed Funds, and it ensures that the exercise of voting rights is done in accordance with
the investment objectives and policies of the relevant Sub-Funds. The Investment Managers notably expect from the investee companies that they ensure strong environmental
and social performance and disclosures.
The portfolio managers of the Investment Managers consider the investee company’s management strategy, financial standing and market environment when voting on
resolutions relating to the issuing of capital. Specifically on climate change the portfolio managers analysis will consider the physical, liability and transition risks associated withthe changing climate.
Nikko AM Group Engagement and Stewardship Strategy
At the level of Nikko Asset Management Group, the Engagement and Stewardship Strategy outlines our global corporate engagement approach and should be read in conjunction
with Nikko AM’s Commitment to Responsible Investing. We believe that the environmental, social, and governance (“ESG”) factors are inherent to long-term value creation.
Incorporating them in the investment process is consistent with the Nikko AM’s fiduciary duty.
Nikko AM became an UN Principles for Responsible Investment signatory in 2007 and is dedicated to all six Principles, where consistent with its fiduciary responsibilities. In 2016,
Nikko AM established an ESG Steering Committee which governs the fulfilment of ESG commitments. This Committee is responsible for evaluating effectiveness and maximizing
Nikko AM’s approach to ESG and the Principles.
Adverse impact sustainability indicators
The NAML Engagement Policy and the Nikko AM’s Engagement and Stewardship Strategy do not specifically cover the indicators for adverse impacts. The management of these
indicators for our article 8 or 9 funds is the responsibility of the Investment Managers. Each investment manager retains the ability to consider principal adverse impacts as
defined within the prospectuses of the Funds. The Investment Managers review the indicators for adverse impact on an ongoing basis, before investing in a specific investee, andpost investment. They will take relevant actions where required, including when exercising voting rights.
Engagement policy for Nikko AM Global Green Bond Fund (Article 9 fund)The portfolio management team (“PM team”, which includes Sustainable Investment staff) sees the value of engagement. Nikko AM Global Green Bond Fund assets are fully
invested in sovereign, supranational and agencies issuers and while the PM team maintains an active dialogue, this engagement is used as a mean of building insight and market
intelligence rather than as a form of influence that might change the behavior of these issuers. The PM team does however engage with all issuers that are held in the Sub-Fundto incite them to develop the processes that will lead to the systematic production of the ESG metrics that are required by the PM team to monitor the attainment of the Funds
sustainability objective. The PM team also stresses the importance of continually improving reporting data within the SSAs annual impact reports by providing data at an
aggregated approach at a project level for each bond that is hold in the Sub-Fund.
Adverse impact sustainability indicators are reviewed by the PM Team to ensure investments are performing in line with the depicted proceed uses. A specific focus is performedon the following indicators:•

Scope 1, Scope 2 and Total GHG emissions

•
•
•
•
•
•
•
•
•

Carbon Footprint
GHG Intensity
Amount of non-renewable energy consumption and non-renewable energy production
Violations of the UN Global Compact principles or the OECD Guidelines for Multinational Enterprises
Absence of policies to monitor compliance with the UN Global Compact principles or the OECD Guidelines for Multinational Enterprises
Water consumed and reclaimed
Water recycled and reused
Investments not certified as green
Bonds not certified as green

Principle adverse impacts on sustainability factors (“PAIs") are taken into account by the PM Team in two ways:••

The PAIs indicators are reviewed to assess whether they are coherent with the sustainable investment objective of the relevant bond issue (ensuring for example for a specificbond that the share of recycled water or renewable energy production has increased over time/as proceeds were invested);
The PAIs indicators are also reviewed to assess whether they are not harming other sustainability factors in a way that is significant with regards to the benefits achieved andthe mitigating measures that could have been taken.

The information on these principal adverse impacts on sustainability factors will be disclosed in the audited annual report of Nikko AM Global Umbrella Fund.
Engagement policy for Nikko AM Global Equity Fund (Article 8 fund)
The Sub-Fund’s strategy involves portfolio managers, analysts and Sustainable Investment staff engaging with issuers as part of the investment process, both before and during
the period of investment. This engagement would cover investee companies alignment with the Investment Manager’s Future Quality, good governance criteria andenvironmental and social characteristics. Should a company, at any point, not fulfil the Investment Manager’s Future Quality criteria, the Investment Manager would engage withmanagement. The Investment Manager will seek commitments from companies to address any concerns raised by the portfolio managers. Subsequently, the Investment Manager
monitors these issues and company progress. All engagements are recorded within the Investment Manager’s research platform.
The environmental and social characteristics of the Nikko AM Global Equity Fund involve managing targets and limits that are set against several principle adverse impact onsustainability factors (“PAIs”) and ensuring that:••

The Sub-Fund carbon intensity remains at least 20% lower than the MSCI ACWI Total Net Return Index carbon intensity.
No investments are made in companies exposed to controversial weapons, contravening to the UN Global Compact Principles or to the Organisation for Economic Cooperation and Development Guidelines for Multinational Enterprises

In addition, the Sub-Fund will not invest in securities that belong to the tobacco GICs sector.

The following PAIs are used to measure the attainment of each of the environmental or social characteristics promoted by the Sub-Fund:••••Scope 1 Greenhouse gas (‘GHG’) emissions
Scope 2 GHG emissions
Violations of UN Global Compact principles and OECD Guidelines
Share of investments in investee companies involved in the manufacture or selling of controversial weapons

Engagement policy for Nikko AM ARK Positive Change Innovation Fund (Article 8 fund)
The investment manager will focus on innovative technologies and companies that are likely to have a positive impact on the environment and our society by assessing how they
could accelerate progress towards the United Nations Sustainable Development Goals (‘UN SDGs’) categorized into four categories: economic convergence, healthy economic
growth, environmental action and infrastructure for the future.
Engagement is not specifically performed in the context of Nikko AM ARK Positive Change Innovation Fund environmental or social investment strategy.
The extent to which environmental or social characteristics of the Sub-Fund were met and the UN SDGs to which the selected companies and technologies have aimed tocontribute to will be disclosed in the audited annual report of Nikko AM Global Umbrella Fund.

References to international standards
Nikko Asset Management Group, Nikko Asset Management Co., Ltd. and its subsidiaries (hereafter collectively referred to as “Nikko AM” or the “Group”) places fiduciary and
ESG principles as guiding themes behind our corporate values and actions. To support this, Nikko AM adheres to a range of responsible business conduct codes andinternationally recognised standards.
NAML is a European subsidiary of Nikko AM, to which the SFDR applies, and adheres to local Regulations as well as Group codes or standards as applicable.
Given their global nature, it is not possible to link all the codes or standards to which the Group adheres to the PAIs defined by the SFDR. To the extent applicable, the below
section will outline the codes and standards with a clear link to the PAIs which includes:••

The Net Zero Asset Managers initiative
Task force on Climate Related Financial Disclosures

Note that the above isn’t an exhaustive list of the codes or standards that Nikko AM adheres to. In addition to the above, NAML uses UN Principles for Responsible Investment tomonitor how its Investment Managers have integrated sustainability risk in their investment process and certain Sub-Funds or strategies have elected to report how they adhere
to those principles.
1. The Net Zero Asset Managers initiativePAIs that may be used to monitor the adherence to the above insternational standard••

GHG emissions (Scope 1 GHG Emissions, Scope 2 GHG Emissions, Scope 3 GHG Emissions, Total GHG Emissions)
Carbon Footprint

Methodology and data used
Nikko AM recognises climate change as one of the greatest challenges the global community faces and considers it our fiduciary duty to address it in managing our clients' assets.
Nikko AM became a signatory to the Net Zero Asset Managers initiative in 2021. As part of this, the Group has committed to achieving net zero emissions across all investments
by 2050 as well as setting an interim target for the proportion of assets to be managed in line with the attainment of net zero emissions by 2050 or sooner
The Group has committed 43% of global assets under management (“AUM”) to be managed in line with net zero emissions. In scope AUM will be expected to reduce carbon
footprint (currently Scope 1 & 2 emissions per $mn invested) by 50% by 2030 against the baseline year of 2019.
Nikko AM primary data source for this information is MSCI Inc. Although climate change considerations are integrated across asset classes, we are commencing our journey
towards net zero targets from our equity holdings, as this is the largest portion of our AUM and as the equity analysis methodologies have been more established, compared toother assets such as fixed income (especially sovereign debt). The data coverage also tends to be better for equities. Nikko AM monitors the recent developments in this space,
and will be looking to apply these methodologies and data as it becomes more widely applicable to incrementally add further AUM to our net zero targets.
Climate scenarios
IPCC scenarios are used as the basis of our target.
2. Task Force on Climate Related Financial Disclosures
PAIs that may be used to monitor the adherence to the above international standard•••

GHG emissions (Scope 1 GHG Emissions, Scope 2 GHG Emissions, Scope 3 GHG Emissions, Total GHG Emissions)
Carbon Footprint
GHG Intensity of Investee Companies

Methodology and data used
The Financial Stability Board created the Task Force on Climate-related Financial Disclosures (TCFD) to improve and increase reporting of climate-related financial information.
Nikko AM is a signatory to this voluntary code and recognises the need to continually enhance and improve its efforts in relation to climate change.

In line with TCFD recommendations, we encourage our investee companies to take the following steps:• Identify material climate change risks and opportunities in a range of scenarios, including sub-2 degree scenarios, over appropriate time horizons• Integrate material climate change risks and opportunities into their overall business strategy and risk management• Disclose their management policies and processes toward the goals, and the resultant performances based on the above activities
In 2022, Nikko AM took a further step by initiating a global project to assess and enhance its response to the recommendations of the TCFD, which includes purchase of advanced
climate analytics data. The outcomes of this work will be published in our next version of the TCFD report in 2023.
Climate scenarios
Information on forward-looking climate scenarios used within Nikko AM TCFD disclosures will be updated once these have been made.
Historical comparison – Not applicable this year