Acceptance of Japan's Stewardship Code
Sumitomo Mitsui DS Asset Management (SMDAM) hereby agrees to Japan's Stewardship Code, a set of principles for responsible institutional investors, and announces the following policies in this regard.
SMDAM will carry out responsible investment (stewardship activities and environmental, social and governance [ESG] activities) to fulfill its fiduciary responsibilities to provide customers and final beneficiaries with good quality returns on investments, as well as to contribute to the sound development of Japan's capital markets and economic expansion by playing an instrumental role in the virtuous cycle of the investment chain, thereby achieving its social mission as a responsible institutional investor.
Principle 1: Policy on fulfilling stewardship responsibilities
To fulfill its fiduciary responsibilities, depending on the status of investment assets held, SMDAM will aim to improve the value of and mitigate any damage to investee companies and J-REIT (Note 1) investment firms (Note 2) that are issuers of investment assets (hereinafter referred to as "investee companies, etc.”) by conducting evaluation and analysis incorporated into the asset management process corresponding to its investment philosophy, appropriately engaging with investee companies, etc., and otherwise conducting stewardship activities based on evaluation/analysis rooted in a medium- to long-term perspective on the sustainability and other aspects of the investee companies, etc. To this end, SMDAM will make every effort to establish and enhance systems focused predominantly on analysts and fund managers, etc. to accumulate know-how, and will make ongoing efforts to improve its capabilities to realize growth in medium- to long-term investment returns for customers and final beneficiaries.
- (Note 1)"J-REIT" refers to a Japanese Real Estate Investment Trust (REIT).
- (Note 2)"REIT investment firms" refers to investment firms that hold REIT assets.
Principle 2: Policy on managing conflicts of interest to fulfill stewardship responsibilities
For a general summary of SMDAM’s policy on conflicts of interest, please refer to “Overview of conflict of interest management policy.”
In terms of initiatives for responsible investment, SMDAM's primary concern is for the interests of customers and final beneficiaries, and SMDAM will take the measures specified below to try to avoid conflicts of interest, while appropriately managing any conflict of interest that does arise. In addition, the "Responsible Investment Committee" will oversee the management of conflicts of interest, further enhancing SMDAM's governance structure.
Commissioned by the Board of Directors, the Responsible Investment Committee consists of an outside director, the Responsible Investment Officer, and the officer in charge of the Compliance Department, and its purpose is not only to review the system established to ensure that SMDAM properly fulfills its fiduciary duties including initiatives for responsible investment and check that there is proper understanding/management of the potential for conflicts of interest, but also to make recommendations to the Board of Directors for further improvements.
- Conflicts of interest related to investment activities
Considerations of SMDAM's own interests as well as those of other companies with which it has close connections (group companies including shareholder companies, companies that sell SMDAM's investment trust products, parent companies that have entrusted their pension funds to SMDAM, etc.) will never distract SMDAM from conducting proper investment activities that should be undertaken.
- Conflicts of Interest related to the exercise of voting rights
When SMDAM exercises its voting rights in companies with which it has close ties and in affiliated parties, etc. as in 1. above, it will act in the best interests of customers and final beneficiaries and vote to improve the value of, or mitigate damage to, the investee company, etc. In general, SMDAM will itself exercise its voting rights in companies that present the potential for a conflict of interest in accordance with the "Criteria for Determining the Exercise of Voting Rights"as it does for other companies, etc., but for resolutions at SMDAM's shareholder companies and other parties for which management of conflicts of interest is especially important, SMDAM will exercise its voting rights with reference to the recommendations of an independent external proxy advisory firm (currently Institutional Shareholder Services). Furthermore, the results of voting will be periodically monitored by the Responsible Investment Committee and transparency will be further increased through the public disclosure of the results of voting (affirmative/negative) for each investee company, etc., and each proposal.
Principle 3: Policy on understanding a company's situation
SMDAM emphasizes research on investments as a source of added value and has in place a system whereby analysts and fund managers collect various types of information to allow a proper understanding of the situation of an investee company, etc. More specifically, SMDAM not only conducts a general dialogue regarding the policies, financial status, management strategy, and other aspects of investee companies, etc., but also strives to deepen its understanding and to fully grasp the situation at investee companies, etc., for the purpose of promoting sustainable growth, value enhancement, and damage mitigation.
To this end, SMDAM collects and analyzes not only financial data but also non-financial data including environmental, social and governance (ESG) information, and reflects these in its management process in line with the investment philosophy, etc. for individual products.
SMDAM’s policy of incorporating evaluations and analysis of sustainability into the investment process will apply not only to Japanese stocks, but also to J-REIT, foreign stocks, domestic and foreign bonds, and a variety of other investment assets.
Principle 4: Policy on engagement (constructive “goal-oriented dialogue”)
SMDAM will engage with investee companies, etc., in a variety of ways to contribute to the medium- to long-term improvement in the value of investee companies, etc. or, alternatively, to help mitigate damage to such companies, to provide customers and final beneficiaries with good quality investment returns.
SMDAM will work to contribute to improvement of the value of or mitigation of damage to investee companies, etc. through engagement that promotes the creation and implementation of appropriate business strategy and vision from a medium- to long-term perspective based on issues in the global business environment, the industry as a whole, a specific sector, or an individual company, and promotes disclosure.
SMDAM will promote efficient investment based on capital cost as well as appropriate financial and capital profiles, the formulation of policies on shareholder (or investor) returns, and the full disclosure of information. Furthermore, SMDAM will strive to conduct engagement pertaining to the possession of domestic securities (including J-REIT) from a perspective focused on both sustainability and the improvement of capital efficiency, while for other investment assets, engagement will be based on a sustainability perspective that considers the characteristics, legal framework, and status of the relevant assets and countries.
Engagement will also focus on issues with the exercise of voting rights, such as increasing awareness of climate change risks, the permeation of the sustainable development goals (SDGs), and other ESG issues that affect sustainability.
Note that SMDAM will participate in cooperative engagement under appropriate conditions if, in dialogue with investee companies, etc., collaboration with other institutional investors is deemed effective.
In dialogue with investee companies, etc., SMDAM will make every effort to avoid receiving unpublished material information. In the rare event that SMDAM is the recipient of insider information, SMDAM will encourage the investee company, etc. in question to publicly disclose the information as soon as possible, and SMDAM’s designated person in charge of information management will ensure that the information is properly managed and that no improper transactions are made. SMDAM will not engage in illicit investment decision-making or transactions based on insider information, etc.
Principle 5: Policy on exercise of voting rights, disclosure of voting results
For details, please see the "Basic Policy on Exercise of Voting Rights."
SMDAM considers the role of executive boards that are properly equipped with the capacity to supervise/monitor corporate management (such as the Board of Directors) to be important, and it will engage in dialogue on the composition of executive boards, compensation and incentives and establishment of education/screening/succession plans for top management, as well as appropriate ESG risk control and dialogue on internal controls, etc. to prevent any improprieties. The way that SMDAM exercises its voting rights will then properly reflect these factors.
Further to this, SMDAM publishes how it votes on all proposals on its website, along with aggregated results by proposal category. Voting results and the reasoning behind votes are compiled at three-month intervals, in principle on the last day of March, June, September and December, and the aim is to make them public around two months after the respective month end.
Note that, in light of its management process, SMDAM believes there to be no issues with so-called "empty voting" (whereby votes are simply exercised with no economic benefits or risk assumed, usually as a result of stock lending operations or similar).
Principle 6: Policy on reporting the status of initiatives regarding stewardship activities
SMDAM will amass a database of the necessary records on the details and status of its stewardship activities, including its dialogue with investee companies, etc. and the exercise of its voting rights, which will be made available to customers and final beneficiaries in the form of reports and similar in order to work towards more constructive and effective dialogue.
In principle, SMDAM will publish its reports on responsible investing activities that include examples of such engagements on its website once per year.
In addition, SMDAM will report to bodies such as pension funds in an efficient and effective format.
Principle 7: Policy on maintaining and improving SMDAM 's capabilities to fulfill stewardship responsibilities
In order to properly fulfill its stewardship responsibilities, SMDAM believes it is crucial to conduct analysis and evaluations from a medium- to long-term perspective that includes the sustainability of investee companies, etc., and to reflect those analysis and evaluations in investment asset and product management strategies that also consider market conditions.
To that end, SMDAM has established a specialized “Responsible Investment Section” focused on engagement and sustainability analysis to properly strengthen such systems by increasing personnel and other measures. Further to this, SMDAM will hold the “ESG Board” and the “Stewardship Board” meetings every month that consist of chief personnel from the Responsible Investment Section, the Corporate Research Department, and various investment management departments to share good practices, exchange opinions on analysis and evaluations of investee companies, etc., and create policies to direct the exercise of voting rights, thereby working to build the organization’s capacity for conducting dialogue.
SMDAM has accumulated asset management know-how over many years and has personnel with a wealth of experience. SMDAM’s Board of Directors, which includes three external directors, is diverse, with a range of skills and experience, having sufficient independence and providing strong oversight. It is believed that the consolidation of the responsible institutional investors' management resources required to create value will also make a significant contribution to improving the company’s capacity to fulfill its stewardship responsibilities. SMDAM aims to be a top-tier asset management company that contributes to “quality of life,” and to that end works continuously to strengthen its systems by “continually striving ahead to new challenges as true professionals.” In the Responsible Investment Committee and the Board of Directors, SMDAM strives to test the effectiveness of its stewardship activities in continually improving the value of investee companies, etc., and strengthen its preparedness by conducting regular self-evaluations on how each principle of this code is being implemented and the results will generally be published once a year on its website.
Principle 8: Policy on Service Providers for Institutional Investors
As specified in Principle 2 above with respect to domestic securities, SMDAM will make use of an independent external proxy advisory firm to help eliminate conflicts of interest.
SMDAM will assess the suitability of the contracting independent external proxy advisory firm from the perspective of whether it is contributing to the improved functioning of the entire investment chain, conducting an investigation when doubts arise regarding the firm’s understanding of guidelines governing the exercise of voting rights.
SMDAM will continue to promote the proper fulfillment of stewardship responsibilities by contracting independent external proxy advisory firms in the future.
Japan's Stewardship Code - Principles for Responsible Institutional Investors
So as to promote sustainable growth of the investee company and enhance the medium- and long-term investment return of clients and beneficiaries,
- Institutional investors should have a clear policy on how they fulfill their stewardship responsibilities, and publicly disclose it.
- Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.
- 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.
- 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.
- 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.
- Institutional investors in principle should report periodically on how they fulfill their stewardship responsibilities, including their voting responsibilities, to their clients and beneficiaries.
- To contribute positively to the sustainable growth of investee companies, institutional investors should develop skills and resources needed to appropriately engage with the companies and to make proper judgments in fulfilling their stewardship activities based on in-depth knowledge of the investee companies and their business environment and consideration of sustainability consistent with their investment management strategies.
- Service providers for institutional investors should endeavor to contribute to the enhancement of the functions of the entire investment chain by appropriately providing services for institutional investors to fulfill their stewardship responsibilities.