We, Nissay Asset Management Corporation (hereinafter “NAM”), consider our research and investment activities, which enhance the medium- to long-term investment return of beneficiaries, as integral to our Japanese equity investment process. Specifically, our evaluations are based on our own medium- to long-term earnings forecasts that take into account our “dialogue with companies” using information such as their visions and strategies, and careful scrutiny of the assumptions.
“Dialogue with companies” is crucially important in this process. We believe fruitful dialogue leads companies to higher evaluation from the market and higher corporate value, and therefore ultimately it becomes an act of “value co-creation” between the beneficiaries and investee companies.
As an asset manager responsible for financial intermediation, NAM intends to contribute to the development of the Japanese economy and society through this approach.
We believe that this is consistent with the aims of Japan's Stewardship Code, and announced in May 2014 that we had accepted the code．Moreover, we have recently announced that we approve and accept the seven principles of Japan's Stewardship Code, which was revised in May 2017.
As a responsible investor, we will continue to enhance our capabilities necessary for carrying out our stewardship activities and annually review and update our Stewardship Code statement.
Institutional investors should have a clear policy on how they fulfil their stewardship responsibilities and publicly disclose it.
“Stewardship responsibilities” refers to the responsibilities of institutional investors to enhance the medium- to long-term investment return for their clients and beneficiaries by improving and fostering the investee companies’ corporate value and sustainable growth through constructive engagement, or purposeful dialogue, based on in-depth knowledge of the companies and their business environment.
NAM has formulated the following policies to fulfil our stewardship responsibilities in the Japanese equity investment process.
- We position “dialogue with companies” at the center of the investment process, strive to evaluate corporate value and make investment decisions from the medium- to long-term perspective.
- We focus on dialogue with senior management of investee companies to obtain deeper insight and understand corporate strategies.
- We express our opinion as a responsible investor and exchange opinions in “dialogue with companies,” which we believe create corporate value, resulting in benefits for both our beneficiaries and investee companies.
- We regard the exercise of proxy voting as one form of “dialogue with companies” to fulfil our stewardship responsibilities.
Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities, and publicly disclose it.
NAM has formulated the following policies regarding conflicts of interest in fulfilling its stewardship responsibilities.
- We always act in the best interest of beneficiaries, striving to enhance the corporate value of investee companies and/or prevent a material loss in value.
- We have identified specific circumstances that may give rise to conflicts of interest which may influence the exercise of voting rights and dialogue, and have built a mechanism to effectively eliminate the influence of such conflicts, in an effort to safeguard the interests of beneficiaries.
NAM identifies the following specific circumstances as having potential conflicts of interest within its stewardship activities.
- Circumstances with particularly high potential for conflicts of interest
Proxy voting and dialogues with interested parties (subsidiaries and affiliates of the Company and Nippon Life Insurance Company (hereinafter “Nippon Life”) and companies in which board members of NAM and/or Nippon Life have been appointed as directors and/or auditors (including nominees)
- Circumstances with high potential for conflicts of interest
Proxy voting and dialogues with NAM’s major clients and companies in which Nippon Life has a high shareholding ratio
The mechanism to eliminate the influence of conflicts in the above circumstances is as follows.
Regarding proxy voting, the director of the Investment Division determines the proxy voting guidelines, following consultation with the Supervisory Committee on Responsible Investment*1, which comprises a majority of independent outside directors. In principle, the transparency of the process of proxy voting will be ensured by making decisions according to these guidelines.
Furthermore, decisions concerning proxy voting in “circumstances with particularly high potential for conflicts of interest,” corresponding to (1) above, shall be made according to proxy advisors’ recommendations to eliminate the potential influence of the conflicts. (Decisions are also reported to the Supervisory Committee on Responsible Investment.)
In the case of making a decision that differs from NAM’s proxy voting guidelines, corresponding to (2) above, the Supervisory Committee on Responsible Investment, in principle, shall be consulted regarding the decision in advance from the viewpoint of eliminating conflicts of interest. Even when the decisions do not correspond to (1) and/or (2) above, in the case of making a decision that differs from the proxy voting guidelines, the result shall be reported to the Supervisory Committee on Responsible Investment.
Moreover, engagement with companies that correspond to (1) and/or (2) above shall be reported to the Supervisory Committee on Responsible Investment, based on the degree of importance of the relevant issues.
- *1Supervisory Committee on Responsible Investment
The committee was established with the aim of ensuring appropriate stewardship activities and other operations from the viewpoint of supervising conflicts of interest. It consists of two independent outside directors and one director of the Compliance and Risk Management Division.
Institutional investors should monitor investee companies so that they can appropriately fulfil their stewardship responsibilities with an orientation towards the sustainable growth of the companies.
NAM views the utilization of non-financial information*2 alongside financial information as indispensable*3 in evaluating corporate value since non-financial information is based on the medium- to long-term financial forecast.
Investment professionals forecast medium- to long-term financial performance after exerting efforts to collect non-financial information through “dialogue with companies,” and after taking into account the Company’s medium- to long-term management vision and external factors such as structural changes in the industry. When evaluating the appropriateness of a business strategy which is a particularly important aspect in this process, we would carry out SWOT (strengths, weaknesses, opportunities and threats) analysis and suchlike, which take into account our dialogue with senior management, to examine the industry’s life cycle analysis and competitiveness. Furthermore, we would visit sites such as factories or conduct research on stakeholders such as business partners or competitors as necessary.
A growing number of companies in Japan have adopted a reporting format that integrates both financial and non-financial information*4. We therefore carefully examine these reports to further increase our conviction in our medium- to long-term financial forecasts.
Moreover, since the launch of Japan’s Corporate Governance Code, we have gradually felt a spread in companies that provide additional non-financial information such as those on corporate governance and thus we actively pursue this opportunity in an attempt to better understand the situation of each of our investee companies.
Furthermore, NAM regards ESG assessment as a vital element in measuring the sustainability of investee companies. For this reason, NAM integrates our own proprietary ESG assessment into the investment process, and leverages it to increase our conviction in our medium- to long-term financial forecasts.
ESG assessments are conducted based on the following perspectives, and we have created a framework that provides adequate monitoring, i.e. evaluation of the companies from a research standpoint on an ongoing basis (at least once annually).
- Have their initiatives on environmental issues led to improvements in corporate value? (E: environmental perspective)
Have they established relationships with stakeholders (employees, customers, business partners, and so forth) that would lead to the enhancement of corporate value? (S: social perspective)
- Have they established a governance mechanism, structure or suchlike that would improve their corporate value? (G: governance perspective)
NAM has endorsed and been a signatory of the United Nations Principles for Responsible Investment*5 (PRI), which advocates the importance of ESG assessment, since its enacted year (2006).
Furthermore, NAM has a monitoring system in place which allows it to promptly grasp an investee company’s situation and reflect views, e.g. constantly monitor necessary financial information and news flow on each company, and incorporates their impact in its medium- to long-term earnings forecast or corporate value at the daily morning meeting of investment professionals.
We also make active use of the information we have obtained through our proxy voting (composition of directors, amendments to the Articles of Incorporation, and so forth) when holding “dialogue with companies.”
- *2Non-financial information
Information such as a company’s medium- to long-term management vision, business model, external factors including structural changes in the industry as well as corporate strategies for the changes, and governance structure.
- *3NAM does not attempt to obtain information on undisclosed material facts in our dialogues with investee companies. If we were to receive such information, we would suspend trading of the company’s stock to prevent violation of regulations concerning insider trading.
- *4Integrated reporting format
A reporting format that uses non-financial information as well as financial information to make a report that presents the process of creating medium- to long-term corporate value to investors and other stakeholders. This kind of reporting is usually referred to as integrated reporting.
- *5Principles for Responsible Investment
This initiative aimed at the financial industry was launched in 2006 by the then UN Secretary-General, Mr. Kofi Annan. The principles state that ESG issues should be incorporated into an institutional investor’s investment decision-making practice in ways that are consistent with their fiduciary responsibilities.
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.
NAM exchanges opinions with investee companies about corporate strategy and governance structures from a medium- to long-term perspective to enhance corporate value, and makes all efforts to achieve shared recognition on the material issues, while expressing its opinion as a responsible investor and holding constructive dialogue when differences arise regarding the approach of the parties. Moreover, we will endeavor to hold dialogues after taking into consideration the degree of materiality of the issues regarding the companies held only in passive investment. In active investment, the decision to divest the stock always remains a viable option.
Furthermore, we have assigned a corporate governance officer who is a specialist on ESG and proxy voting matters within the Investment Division since September 2007. Considering the global trends in governance, ESG issues and CSR, the officer provides advice and collaborates with our investment professionals in holding dialogues with investee companies as the need arises.
Our “dialogue with companies” is usually held in individual, one-on-one meetings with senior management or IR managers. When requested by the companies, we hold a meeting to exchange opinions with the whole management team.
The following outlines perspectives of dialogues when holding “dialogue with companies.”
- Are the corporate philosophy, management vision and detailed business strategies leading to sustainable medium- to long-term growth and improvement in corporate value?
Is the business portfolio being managed in a way to improve corporate value, and so forth?
- Is the capital policy, etc., appropriate for executing business strategies?
Are shareholder returns being carried out appropriately from a long-term perspective and so forth?
- Is adequate information being disclosed for investors to evaluate the Company appropriately?
Is IR adequately conveying the Company’s business strategies and management vision to investors and so forth?
Governance and Risk Management
- Is the Company in a state where the governance structure is functioning properly?
Is there an adequate structure in place to prevent any risk related to scandals, etc., including societal and environmental issues, antisocial behavior, misconduct, and so forth, by disseminating the management philosophy?
In addition to the aforementioned purposeful “dialogue with companies,” NAM actively advocates its investment philosophy and process of Japanese equity management by publishing reports and presenting at seminars, meetings and other venues attended by candidate investee companies. We also emphasize the importance of integrated reporting.
Through these efforts, NAM encourages a better understanding of its Japanese equity investment process among companies, to hold smooth purposeful dialogues and to arrive at a more in-depth common understanding at an earlier stage.
Among dialogues with companies, we hold dialogues independently (as mentioned above) and in collaboration with other institutional investors (collaborative engagement). The decision about whether or not to conduct collaborative engagement is made after comprehensively considering whether the agenda and approach of the collaborative engagement are consistent with our perspectives which put emphasis on the aforementioned ESG issues.
In addition to the method of holding a dialogue by collaborating with other institutional investors who have the same purpose, there is also a method that aims to enhance corporate value by participating in investor-led organizations and suchlike as a means to promote market rules together with good practices of corporate behavior and disclosure. NAM has joined the following investor-led organizations, and is vigorously active in them.
・ International Corporate Governance Network (ICGN)
・ Principles for Responsible Investment (PRI)
・ Asian Corporate Governance Association (ACGA)
・ Japan Sustainable Investment Forum (JSIF), etc
Institutional investors should have a clear policy on 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.
NAM has set out the following policies regarding “Status of Proxy Voting Results by Agenda” and “Overview of Proxy Voting Activities.”
Proxy Voting Policy
- We consider the exercise of proxy voting rights as one form of “dialogue with companies” to fulfil our stewardship responsibilities.
- In making decisions regarding the exercise of proxy voting, we not only make use of a mechanical checklist, but also use our dialogue with investee companies on a daily basis to examine individual agendas based on the investee’s current situation, with improvement in corporate value in mind.
- Furthermore, in making decisions regarding the exercise of proxy voting, we always act in the best interest of beneficiaries, striving to enhance the corporate value of the investee company or prevent destruction of that value, thereby preventing conflicts of interest.
NAM makes decisions regarding exercising proxy voting rights on individual agenda items within the Equity Investment Department, in accordance with the proxy voting guidelines decided by the director of the Investment Division, following consultation with the Supervisory Committee on Responsible Investment. As described in Principle 2, in order to eliminate the influence of the conflicts in the “circumstances with particularly high potential for conflicts of interest,” decisions shall be made according to the proxy advisors’ recommendations. In making decisions regarding the exercise of proxy voting rights in other aspects, we not only make use of a mechanical checklist, but also use our dialogue with investee companies on a daily basis to examine individual agendas based on the investee’s current situation, thereby making accurate decisions about the exercise of proxy voting. (Please refer to Principle 2 regarding how to respond to conflicts of interest.)
Policy Regarding Disclosing the Status of Proxy Voting Results
- Regarding the results of voting activities, the “Status of Proxy Voting Results by Agenda,” “Overview of Proxy Voting Activities” and “Results of Proxy Voting by Individual Investee Companies/Agendas” will be regularly disclosed on our website.
Previously, we disclosed the “Status of Proxy Voting Results by Agenda” (a summary of proxy voting results for major proposal types including the appropriations of surplus and the election of directors and auditors) and the “Overview of Proxy Voting Activities” (a summary of our proxy voting activities). From this year, we will also disclose the “Results of Proxy Voting by Individual Investee Companies/Agendas” (including reasons for voting against proposals), in addition to the proxy voting guidelines.
By disclosing the proxy voting guidelines and our exercise results, we believe that investee companies will come to understand our views on corporate value enhancement.
Institutional investors in principle should report periodically on how they fulfil their stewardship responsibilities, including their voting responsibilities, to their clients and beneficiaries.
Each year, NAM has disclosed an “Overview of Stewardship Activities” on its website, which covers dialogues with companies, and the results of proxy voting.
In the section titled “Overview of Dialogues with Companies,” we describe our external communication activities, including presentations and publications to facilitate investee companies’ understanding of our stewardship activities, providing specific examples of our perspectives and dialogues with companies. Moreover, past “Overview of Stewardship Activities” reports are publicly available as a reference of our stewardship activities.
From fiscal 2017, corresponding to revised Principle 7 of the code, we will expand the “Overview of Stewardship Activities,” and disclose it in the form of the “Review of Stewardship Activities and Self-Evaluation.” (For details, refer to Principle 7)
In order to accurately conduct the above reporting activities and enhance the effectiveness of its stewardship activities, NAM keeps track of its dialogues with investee companies and the details of its decisions on proxy voting.
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.
NAM considers its research and investment activities, which aim to enhance the medium- to long-term investment return of beneficiaries, as integral to its Japanese equity investment process. This investment process necessitates us having a deep understanding of the business structure, business environment and corporate strategy of investee companies, through “dialogue with companies” held with extremely sincere attitudes. We believe that by repeatedly putting into practice stewardship activities such as “dialogue with companies” and always keeping an awareness of the importance of our investment process in mind, we can at the same time enhance our capabilities to conduct stewardship activities.
Based on this belief, in 2004, NAM introduced the Shareholder Value System (SVS), which necessitates medium- to long-term financial forecasts in the equity investment process, and since 2008, we have been incorporating material ESG factors in order to visualize the future of investee companies.
We have been continuing to incorporate global knowledge about ESG, e.g. signing the PRI in 2006, and in 2007, we also joined the International Corporate Governance Network*6 (ICGN), an international organisation promoting corporate governance globally. In order to evolve the investment processes that have incorporated ESG factors, we established the ESG Investment Promotion Office in March 2016. We conduct ESG research globally, and hold ESG Research Meetings for our investment professionals so that they can share and deepen their ESG knowledge.
In addition, we promote improvement of dialogue capabilities throughout the entire organization, including by means of sharing specific examples of dialogue, and by enabling senior analysts to provide advices to junior analysts.
Implementing these initiatives promotes a deeper understanding of corporate activities among us, and leads to better insight and dialogue capabilities regarding corporate analysis and evaluation, all of which will contribute to improving the skills required for stewardship activities.
(Our Effort on Compliance)
The Company’s officers and employees rigorously comply with such compliance matters as observing insider trading rules and preventing conflicts of interest, by means of regular in-house compliance training and the “Compliance Manual” that all officers and employees are required to have in their possession.
The Company’s top management team consists of human resources that possess the appropriate capabilities and experience to effectively fulfil their stewardship responsibilities. Furthermore, two independent outside directors have been invited to join the Board of Directors to improve the independence and transparency of the governance structure.
This management team is engaged in a variety of tasks, including establishing the organizations and training the human resources that are necessary for conducting effective stewardship activities.
(Review of Stewardship Activities and Self-Evaluation)
In order to further deepen the initiatives described in the section titled “Acceptance of Japan’s Stewardship Code,” we regularly review and conduct a self-assessment of our own governance framework and management of conflicts of interest, together with the implementation status of each principle of the code.
We disclose the contents of these reviews and self-assessments on our website in “Review of Stewardship Activities and Self-Evaluation.”
- *6International Corporate Governance Network
This investor-led organization facilitates the exchange of information and opinions on governance and inspires and promotes effective standards of corporate governance to advance efficient markets and economies worldwide. Organizations and individuals from around the world, such as institutional investors, regulatory authorities, scholars, attorneys, and consultants, are members of ICGN.