Nikko Asset Management (Nikko AM) adopts the “Principles for Responsible Institutional Investors”, also known as “Japan's Stewardship Code”, in relation to our investments in publicly traded Japanese stocks.

Acceptance of the Stewardship Code

“Japan's Stewardship Code” was established under the auspices of the Financial Services Agency in February 2014 as a guide for institutional investors to “promote sustainable growth of investee companies and enhance the medium- and long-term investment return for clients and beneficiaries.” Nikko AM takes a global approach to the Code, focusing on the core components of stewardship.

Nikko AM's primary mission is to fulfill our fiduciary duty to clients and beneficiaries and this is our perspective in adopting Japan's Stewardship Code. We aim to increase medium- and long-term returns on the assets investors entrust to us by analysis of and appropriate engagement with investee companies and the exercising of voting rights.

Nikko AM offers its clients a range of pooled equity investments, including active strategies such as value, growth and concentrated portfolios, as well as long-short, enhanced index, and also passive strategies. Nikko AM does not offer its clients “activist” investor strategies where investors directly intervene in the management of investee companies or seek to influence management in the setting and implementation of corporate strategy.

Notably, Japan's Stewardship Code adopts established international practices in its “Principles-Based Approach” (as opposed to Rules-Based), and its “Comply or Explain” provision allowing institutional investors to explain why they may not comply with some aspects of the Code. Moreover, the fact that “constructive dialogue” with investee companies can be based on public information (Guidance 4-3) is a practical measure, in our view.

Views and Policies on the Stewardship Code

1. Institutional investors should have a clear policy on how they will fulfill their stewardship responsibilities, and publicly disclose it.

Nikko AM is a global multi-asset manager providing clients with various investment strategies. For Nikko AM’s main activities to fulfill its stewardship duties, using publicly available information, it ascertains the statuses of the firms it invests in, engages with them and exercises voting rights in their shareholder meetings in the case of its active and passive management strategies, while in the case of its other management strategies, it exercises voting rights in firms’ shareholder meetings.

The sustained growth of a company is influenced by various factors, such as company culture, management vision, business and financial strategies, corporate governance and relationships with stakeholders. The degree of influence of each factor differs depending on the company's growth phase. Through appropriate engagement and analysis, Nikko AM has an investment management process with which it makes decisions on corporate value. With regard to medium- and long-term management strategies, shareholder return policies and ESG* strategies, Nikko AM engages in corporate research appropriate to each company's growth phase. As an opportunity to express its opinion to investee companies, Nikko AM emphasizes the exercising of voting rights after first establishing whether or not the proposed agenda items will contribute to medium- to long-term growth in corporate value, based on its Guidelines on Exercising Voting Rights issued by the Stewardship and Proxy Voting Committee.

* “ESG” means Environment, Social and Governance. An ESG Investment Strategy is a strategy that evaluates corporate value by taking into account ESG factors.

Guidelines on Exercising Voting Rights

2. Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.

When conducting analysis, appropriate engagement or exercising voting rights, for example, if Nikko AM invests in an affiliated company, an investee company or a client (including companies with connections to a client), the possibility of conflicts of interest cannot be ruled out.

Nikko AM has established appropriate risk management and compliance frameworks to ensure that the interests of clients and beneficiaries are the top priority and that such conflicts of interest are appropriately managed if they arise. Portfolio managers, research analysts and governance specialists aim to avoid the occurrence of any conflicts of interest in compliance with Nikko AM's internal regulations. With regard to Nikko AM's exercising of voting rights, if there exists the possibility of a conflict of interest arising pursuant to Item 4 of Article 3 of the Company's Guidelines on Exercising Voting Rights, steps are taken to ensure that Nikko AM's decision making is objective and based on the advice of an independent third party.

Guidelines on Exercising Voting Rights - Article 8

3. Institutional investors should monitor investee companies so that they can appropriately fulfill their stewardship responsibilities with an orientation towards the sustainable growth of the companies.

Portfolio managers, research analysts and governance specialists endeavor to accurately assess investee companies by utilizing public information. They also make investment decisions based upon the sustainable growth of investee companies by analyzing financial information, such as earnings trends and capital structures, as well as non-financial information like management strategies, corporate governance, social responsibilities and risk. Such data is acquired by accessing disclosure material, holding regular meetings and appropriately engaging with investee companies.

4. Institutional investors should seek to arrive at an understanding in common with investee companies and work to solve problems through constructive engagement with investee companies.

Portfolio managers, research analysts and governance specialists endeavor to enhance corporate value through interaction with management and IR representatives of investee companies in respect of public information. For its investment decisions, in active and passive management strategies Nikko AM uses only publicly available information on the universe of companies including public disclosure documents, information obtained in one-on-one or group investor relations meetings and other information obtained through publicly available sources. For active equity investment strategies, Nikko AM enters into constructive engagement with investee companies with the intention to not become a recipient of undisclosed material facts. It engages with investee companies through Q&A in IR meetings, casting votes in shareholders' meetings, and in the case of active management strategies, buying, holding or selling stocks. For other equity investment strategies, Nikko AM exercises voting rights in shareholder meetings.

Governance specialists also endeavor to exchange opinions in-house where appropriate on the corporate governance of investee companies. The results of these activities are shared where appropriate between portfolio managers, research analysts and governance specialists and can be useful in assessing corporate value when making investment decisions. Interaction with investee companies aimed at enhancing corporate value is continuously implemented. Nikko AM has a policy to avoid receiving any undisclosed material facts and takes the utmost care to ensure that it does not receive any undisclosed material facts through its stewardship activities. Nikko AM continuously implements education and training to prevent the acquisition of undisclosed material facts. In the unlikely event that undisclosed material facts are acquired, countermeasures are immediately implemented to prevent insider trading from occurring in accordance with Nikko AM's internal rules for the management of insider trading.

5. Institutional investors should have a clear policy on the voting and disclosure of voting activity. The policy on voting should not be comprised only of a mechanical checklist; it should be designed to contribute to the sustainable growth of investee companies.

Nikko AM exercises its voting rights in line with the Guidelines on Exercising Voting Rights determined by the company's Stewardship and Proxy Voting Committee. Based on the rationale that increased corporate value in the medium- to long-term from sustained growth of investee companies will lead to increases in assets that Nikko AM manages for clients and beneficiaries, Nikko AM votes in favor of agenda items that support this rationale, but will vote against agenda items that do not. Every year, Nikko AM publicly releases the results of voting in investee companies on its website.

Results of Exercise of Voting Rights

6. Institutional investors in principle should report periodically on how they fulfill their stewardship responsibilities, including their voting responsibilities, to their clients and beneficiaries.

Nikko AM's Stewardship Policy is regularly reviewed. In addition to publishing the results of its exercised voting rights on its company website, Nikko AM will disclose to individual clients information on voting for stocks held as assets if requested, and the reasons for voting decisions in respect of those stocks.

7. To contribute positively to the sustainable growth of investee companies, institutional investors should have in-depth knowledge of the investee companies and their business environment and skills and resources needed to appropriately engage with the companies and make proper judgments in fulfilling their stewardship activities.

In order to appropriately and efficiently implement stewardship activities, Nikko AM has established a Stewardship and Proxy Voting Committee. This committee is mainly comprised of employees in management positions in Nikko AM's fund management and compliance departments and is charged with formulating and periodically reviewing Nikko AM's policy on stewardship activities and the use of voting rights.