ESG

Our ESG approach

As an asset management specialist, we have fiduciary duty towards pension and investment fund beneficiaries. As part of this, we have a clear sense of social responsibility in developing a sustainable society, increasing corporate value and developing a healthy capital market. We feel that addressing issues concerning the E (Environment), S (Society) and G (Corporate Governance) in our investment research and decision-making will not only lead to the improvement of our long term investment plan but ultimately fulfill our social responsibility. Below are our policies to approach ESG.

Recognition of ESG issues

From the perspective of long term investment and risk management, we will strive to understand ESG related issues and the affect it will have on the value of our investment asset.

Considering ESG in the Investment Process

From our fiduciary duty perspective, we will attempt to consider ESG related issues in our investment process.

Taking ESG into account in the development of financial products

Developing products which take ESG related issues into account in order to respond to the needs of our clients in contributing to a sustainable society through investment.

Dialogue with companies

To address ESG related issues including the enhancement of corporate governance and increasing corporate value in the long term, we will actively dialogue with companies and use our voting rights accordingly.

ESG investment approach by asset class

Equity

• In light of our social responsibilities as a responsible investor, we will integrate an ESG perspective into equity investment and consider ESG issues in researches and investment decisions of investee companies.
• For the evaluation of the corporate value of investee companies, which is the basis of investment decisions in equity investment, it is not sufficient to analyze only financial information, and we recognize that it is important to analyze and evaluate investee companies from an ESG perspective to understand the sustainable growth potential of companies.
• To address various ESG issues surrounding companies, we will urge their sustainable growth through constructive dialogue.
• We believe that by utilizing ESG analysis and engaging in constructive dialogue with companies, it will be possible not only to improve long-term investment returns but also to create a sustainable society. We will continue to accumulate and evolve our expertise in ESG analysis and engagement.

Fixed Income

• In light of our social responsibilities as a responsible investor, we will integrate an ESG perspective into fixed income investment and consider ESG issues in researches and investment decisions of investee companies.
• In determining the credit risk of investee companies, which is the basis of investment decisions in credit investments, it is not sufficient to analyze only financial information, and we recognize that it is important to analyze and evaluate investee companies from an ESG perspective to understand the sustainable growth potential of companies.
• To address various ESG issues surrounding companies, we will urge their sustainable growth through constructive dialogue.
• We believe that by utilizing ESG analysis and engaging in constructive dialogue with companies, it will be possible not only to reduce the downside risk of bond prices but also to create a sustainable society. We will continue to accumulate and evolve our expertise in ESG analysis and engagement.

External fund investment (Equities, Fixed income, etc.)

• In light of our social responsibilities as a responsible investor, we also consider ESG issues in the area of External fund investment*.
• When selecting and monitoring external managers and products, it is important to check the status of ESG initiatives (Investment process, voting, constructive dialogue, etc.) at each company based on the characteristics of each product.
  • Entrusting investment management, etc. to a third party (mainly overseas) investment managers.

The Concept of Negative Screening in ESG Investment

• In light of our social responsibility as a responsible investor, and as part of integrating an ESG perspective into our investment, our active funds of equity and corporate bond will not, in principle, invest in companies involved in the productions of Biological Weapons, Chemical Weapons, Cluster Munitions, and Antipersonnel Landmines, which are deemed to be of major humanitarian concern and whose production is prohibited by international treaties to be ratified by Japan (However, this does not apply to passive funds and external investments.).
• We will also evaluate countries where serious problems (civil wars, state repression, etc.) from an ESG perspective have occurred or are continuing, and exclude them from the list of eligible countries for inclusion in government bonds, depending on the fund's investment policy.

NAM’s definition of ESG funds

At NAM, we define “ESG funds” as active funds that actively utilize ESG factors to build their portfolios. In the active funds, active utilization of ESG factors refers to asset management that selects investee companies with relatively high ESG evaluations, or selects investee companies with the potential to generate an impact from the perspective of ESG^*1. Other classifications include funds where ESG factors are systematically incorporated into the asset management process, those where ESG factors are considered through negative screening, etc., and those where ESG factors are not considered (excluding index funds).

We designate ESG funds that build portfolios of investee companies that are outstanding from the perspective of achieving the SDGs, in particular, as “SDGs funds.” We designate ESG funds that attempt to generate an environmental and social impact, and report those impacts, as “impact funds.”

• In the Index Funds, ESG funds are those that are linked to indexes that we believe are composed of funds that actively utilize ESG factors.

NAM’s definition of ESG-related fund classification

About NAM’s proprietary ESG ratings

At NAM, we believe that ESG is an element that impacts all of a company’s activities. By analyzing a company’s initiatives related to ESG, we believe it is possible to understand the company’s medium- and long-term sustainability and corporate image. Moreover, companies that engage in outstanding initiatives from the perspective of ESG and can build sustainable relationships with their stakeholders generally possess a platform for sustainable growth in the medium and long term.
Our analysts evaluate sustainability (and assign ESG ratings*) through the selection of ESG factors that impact corporate value. We reflect these evaluations in medium- and long-term earnings forecasts and creditworthiness evaluations and use them as the foundation for our investment decisions.

• Our ESG ratings
  For each evaluation item, we evaluate the effect of companies’ ESG initiatives on medium- and long-term corporate value, in terms of a three-level rating scale: “positive,” “neutral,” and “negative” (where a rating of 1 is the highest and 3 is the lowest).
  When a company is expected to significantly damage corporate value due to its ESG initiatives, we usually exclude it from our investment universe and cease to assign it an ESG rating. However, a rating of 4 may be assigned to companies where there are reasons for retaining such companies within the investment universe, such as large market capitalization.

Classes and description of NAM’s ESG ratings

This description might not apply to the ESG approach and rating method used for external investment managed by a third-party asset management company.
We may review our definition, etc. of ESG funds in the future, based on factors such as circumstances and trends related to ESG.

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