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 stewardship activities to fulfill its fiduciary responsibilities to provide customers and final beneficiaries with good quality returns on investments.
Principle 1: Policy on fulfilling stewardship responsibilities
To fulfill its fiduciary responsibility to provide customers and final beneficiaries with good quality returns on investments, SMDAM
will carry out stewardship activities as required depending on the status of stocks held; such activities include appropriately engaging with investee companies and REIT investment firms (see Notes 1 & 2) (hereinafter referred to as "investee companies, etc.”) to improve the value of investee companies or mitigate any damage thereto. 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.
SMDAM is committed to achieving its social mission as a responsible institutional investor by engaging with investee companies, etc. and effectively exercising its voting rights in such companies to (i) fulfill its fiduciary responsibilities to customers and final beneficiaries, and (ii) 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.
- (Note 1)"REIT" refers to Real Estate Investment Trust, and "J-REIT" to Japanese REIT.
- (Note 2)"REIT investment firms, etc." refers to investment firms that hold REIT assets as well as asset management companies sub-contracted by investment firms to manage 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 stewardship activities, 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 it fiduciary duties including initiatives for responsible investment (stewardship and ESG activities) 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. SMDAM will 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., ensuring that voting decisions are in no way biased, and to further enhance its objectivity in a case of conflict of interest, SMDAM may exercise its voting rights in line with decisions made by an independent external proxy advisory firm. Moreover, to ensure that SMDAM acts properly with regard to conflicts of interest, and to further increase transparency in the exercise of voting rights, the results of voting will be publicly disclosed.
Principle 3: Policy on understanding a company's situation
As a responsible institutional investor, SMDAM
emphasizes research on investee companies, etc. 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
strives to deepen its understanding and to grasp the situation of investee companies, etc. for purposes of medium- to long-term investment, through a process of dialogue ranging from general conversations about the full range of management strategy to how to sustain growth, to deep dialogue (Note 3) about how to enhance value/mitigate damage.
Furthermore, 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.
- (Note 3)"Deep dialogue" indicates dialogue that includes not only short-term performance and business strategy but also sustainability of growth and improvement of value in (or mitigation of damage to) the investee company, etc. from a medium- to long-term perspective, as well as the exercise of voting rights, etc. to support these objectives.
Principle 4: Policy on engagement (constructive “goal-oriented dialogue”)
will conduct various acts of engagement 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 improve the value of (or mitigate damage to) investee companies, etc. in the medium- to long-term through engagement that promotes the creation and implementation of appropriate medium- to long-term business strategy and vision for investee companies, etc., based on the medium- to long-term issues faced by the industry as a whole, a specific sector, or an individual company, and promotes disclosure.
Furthermore, to improve return on equity (ROE), which is a representative indicator from an investor's point of view, SMDAM will promote efficient investment based on capital cost as well as appropriate financial and capital profiles (including ideas for strategic stock holdings), the formulation of policies on shareholder (or investor) returns, and the disclosure of information.
In addition, SMDAM will discuss stability and sustainability of the investee companies, etc. against the background of changes in the global business environment based on the sustainable development goals (SDGs) and similar, as well as ESG issues that affect stability and sustainability.
Moreover, 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 in terms of the common interests of shareholders (or investors), and it will engage in dialogue on the composition, compensation and incentives of executive boards as well as dialogue on internal controls, etc. to prevent any improprieties. The way that SMDAM exercises its voting rights will then properly reflect these factors.
Note that SMDAM will also consider collective engagement under appropriate conditions if, in dialogue with investee companies, etc., collaboration with other institutional investors is deemed effective.
In advancing dialogue with investee companies, it is an important obligation that information be properly managed. 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 the 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."On its website SMDAM
publishes how it votes on all proposals, as well as aggregated results by proposal category. The voting results 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
will create 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 principle, once a year SMDAM
will publish examples of its engagements on its website.
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
interprets the capability to fulfill stewardship responsibilities as "the ability to realize medium- to long-term growth in investment returns for customers and final beneficiaries." SMDAM
believes it is crucial to have an in-depth understanding of the social responsibilities and legal systems required of a responsible institutional investor, and to enhance the communication skills required to build a relationship of trust with investee companies, etc., analytical skills to identify current circumstances and an image of the future, and the skills needed to make effective suggestions on how investee companies, etc. can improve value or mitigate damage. It will strive to develop/strengthen its structure with the focus on analysts and fund managers, etc. as it makes ongoing efforts to improve its capabilities. In addition, the Responsible Investment Committee will not only supervise stewardship activities and the management of conflicts of interest but will also enhance SMDAM
's governance system by making recommendations to the Board of Directors in a bid to make further improvements.
SMDAM is a company created by the merger of two institutional investors in April 2019, with each of the former companies having accumulated asset management know-how over many years and both having personnel with a wealth of experience. The consolidation of the responsible institutional investors' management resources required to create value will also further increase these advantages and will, it is believed, make a significant contribution to improving the company’s capacity to fulfill its stewardship responsibilities.
Furthermore, SMDAM records the details of dialogue held with each of the investee companies, etc., and by periodically checking progress and sharing information among the relevant departments, it aims to improve the dialogue skills of analysts and fund managers.
Moreover, SMDAM will conduct 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. This will allow it to reflect on how it has fulfilled its stewardship responsibilities and clarify the issues and support strategies needed to carry out stewardship activities more appropriately 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 fulfil 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 the 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 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.