Asset Management One Stewardship Report 2020/2021 Contents Chapter1: Our approach to ESG investment and stewardship 2 投資の力で未来をはぐくむ Creating a sustainable future Chapter2: Governance, processes and resources 8 through the power of investment Chapter3: How we manage conflicts of interest 11 Chapter4: Addressing market-wide and systemic risks 14 お客さまとの信頼関係に裏付けられた「投資の力で」 Chapter5: Review of policies and processes 28 地球と社会の、お客さまと私たちの、すべての世代にとって豊かな「未来を」 情熱をもって大切に「はぐくむ」 Chapter6: Stewardship reporting and communications 31 "Creating" with passion and respect. Chapter7: Our approach to ESG integration 33 "A sustainable future" for the planet, society, our clients and future generations. "Through the power of investment" as a trusted steward of our clients’ assets. Chapter8: Monitoring of service providers 42 Chapter9: Engagement for sustainable value creation 44 Chapter10: Collaborative engagement for effective stewardship 55 Chapter11: Escalation of stewardship activities 60 Chapter12: Exercising rights and responsibilities 62 1 Chapter 1: Our approach to ESG investment and stewardship Introduction to Asset Management One Ltd. and Shinko Asset Management Co., Ltd. to developing and defining our purpose, the integrate their asset management functions, management and employees at Asset Headquartered in Tokyo, Asset Management One effective from 1 October 2016. As of 31 Management One have debated and discussed Co., Ltd. (Asset Management One “AMO”) is a December 2020, AMO's assets under extensively about key challenges and issues leading asset manager of Japanese institutional management are approximately US$526bn facing the economy, environment and the society assets and offers a broad and diverse range of (please refer to Chapter 6 of this report for the (such as climate change, social inequality, bespoke investment strategies to some of the AUM breakdown by asset class). diversity & inclusion and etc.), and reconfirmed world’s largest institutional investors. Our portfolio the critical importance of the sustainability managers are supported by one of the largest and Corporate Message and Philosophy perspective as a core part of our investment most experienced research teams. As a long term business and stewardship activities. investor, AMO considers our proprietary research Asset Management One is one of the first in capabilities a cornerstone for generating higher Japan to establish a dedicated Responsible After long deliberations on our purpose, we risk-adjusted returns and solid long-term Investment Group when the firm was formed in published “Creating a sustainable future through performance. October 2016, and has been actively discharging the power of investment” as our corporate our stewardship responsibilities. In April 2020, message, which reflects AMO’s existing reason Asset Management One is owned jointly by AMO newly created a Corporate Sustainability for being. Rooted in economics and competitive Mizuho Financial Group Inc. (51%) and Dai-ichi Office (CSO) reporting directly to the CEO, which advantage of our business model, this also the Life Holdings Inc. (49%) which provides a strong led a firm-wide initiative and intensive result of rethinking the value we add as a base that is long-term in outlook and financially discussions on corporate purpose. A series of committed long-term investor, with the aim of able to support Asset Management One’s long- meetings, discussions and workshops were held contributing to a sustainable society and the well- term business strategy. Asset Management One across the entire firm in 2020, including the being of our clients: was created following an integration agreement participation of all members at AMO’s executive signed between DIAM Co., Ltd., Mizuho Trust & management committee. We also invited external Banking Co., Ltd., Mizuho Asset Management Co., experts to host a seminar on the UN SDGs. In 2 Chapter 1: Our approach to ESG investment and stewardship "Creating" with passion and respect. Our Corporate Message drives our vision and With the strong commitment from the top mission, and defines our values as well as the management, the exercise across the firm in 2020 "A sustainable future" for the planet, society, our culture of the organisation. AMO puts the of rethinking our purpose is instrumental in clients and future generations. Corporate Message at the core of its strategy. We defining our value proposition, and also inspiring are committed to achieving sustainable value the employees at Asset Management One to work "Through the power of investment" as a trusted creation and solutions for key societal challenges, altogether towards the shared purpose and goals. steward of our clients’ assets. acting as what we expect from our investee companies to perform. Our approaches to ESG investing and Corporate Philosophy stewardship responsibilities AMO is a signatory of the PRI (the UN Principles for Responsible Investment). We have also been a signatory of Japan’s Stewardship Code since it was first introduced in April 2014. We believe it is our fiduciary duty and responsibility to help our clients and beneficiaries achieve their financial and non-financial objectives, to maintain a decent standard of living when they retire and to contribute to a sustainable economic growth through efficient allocation of capital. AMO is strongly committed to acting and performing as a good steward, to preserve and enhance value for the assets entrusted by our clients. Through 3 Chapter 1: Our approach to ESG investment and stewardship integrating material ESG considerations in the ESG integration and active engagement and return profiles and their long-term investment process and actively conducting performance prospects. The investment analysts purposeful engagement with investee companies, We believe that active and constructive and portfolio managers at AMO are committed to we aim to achieve the risk-adjusted return engagement with investee companies plays a vital adding value through a bottom-up approach to objectives for our clients over the medium and role in driving positive changes for value creation forming an in-depth understanding of company- long-term, while at the same time contributing to and sustainable growth. We focus more on the specific financial and ESG performance including the environment, economy and the wider society. quality and effectiveness of our engagement their direction of travel, using quantitative ESG dialogues. Meanwhile, in addition to the investee data as well as qualitative insights from The three key principles that underpin AMO’s companies, we also proactively engage with engagement. Meanwhile, some of our investment ESG & sustainable investment and stewardship policymakers, regulators, industry associations strategies adopt a negative screening approach. activities are: and other stakeholders, in policy advocacy to And in principle, AMO does not invest in promote best practices. Where appropriate, we companies that are involved in manufacturing of We aim to achieve higher investment returns collaborate with other investors in order to cluster munitions, anti-personnel mines, chemical for clients over the mid- and long-term, by enhance the effectiveness of engagement. We and biological weapons. integrating material ESG analysis and regard voting as a part of the engagement conducting active engagement process, and in exercising our voting rights, we Following the Japan’s Stewardship Code intend to reflect the progress and results of our recommendations, we publish a self-assessment We contribute to the solutions and engagement as well. on our stewardship approaches, activities and achievement of the UN’s Sustainable outcomes each year, to review the effectiveness Development Goals (SDGs) We integrate considerations for material ESG of stewardship performance with an aim for factors in our investment process across all continuous improvement. The results are We put a focus on the upside potential strategies and asset classes. AMO approaches to available at: http://www.am- opportunities, not least from the risk ESG as an enhanced analysis of companies, on one.co.jp/img/company/36/20190528_stewardsh management perspective top of conventional financial analysis and ip_details.pdf (in Japanese). evaluation, to better understand companies’ risk 4 Chapter 1: Our approach to ESG investment and stewardship AMO puts client interests first, and always seeks to act in the best interests of clients and beneficiaries. We therefore have put a robust governance structure and process in place (for details, please refer to Chapter 2 of this report in relation to Principle 2 of the UK Stewardship Code). Given the ownership and group structure of Asset Management One, we have also implemented a robust policy and established procedures to identify, prevent and manage conflicts of interest that may arise in our stewardship activities. With regards to how we manage conflicts of interest, more detailed explanations are provided in Chapter 3 (in relation to Principle 3 of the UK Stewardship Code). 5 The CEO’s Message Addressing environmental and social companies for solutions to address the key issues becomes ever more vital environmental and social challenges, and to accelerate transitions towards a more resilient Covid-19 has had a significantly adverse effect on and sustainable society. public health and economy in Japan as well as in other countries. We are still facing unprecedented Committing to ESG investment and challenges in transforming into a new society stewardship