Based on the revised “Principles for Responsible Institutional Investors”from Japan’s Stewardship Code (hereinafter, the Code), which was published in May 2017, Sumitomo Mitsui Trust Asset Management Co., Ltd. (hereinafter, the Company) revised our “Guidelines on Stewardship Responsibilities” and “Guidelines on the Principles of Japan’s Stewardship Code.” As one of Japan’s premier institutional investors, we will appropriately fulfill our stewardship responsibilities.
Our management will promote a robust conflict of interest management structure relating to asset management operations via the establishment of a Stewardship Activity Advisory Committee, (hereinafter, the Advisory Committee) the majority of whose members are composed of independent outside experts. In addition, Sumitomo Mitsui Trust Holdings, Inc., the parent company of the Bank, has committed to enhancing the corporate governance structure as it shifts to a company with nominating committee, etc., and to effectively fulfilling our stewardship responsibility.
Institutional investors should aim to enhance the medium-to-long-term return on investments for their clients (beneficiaries) by improving and fostering investee companies’ corporate value and sustainable growth through constructive engagement, or “purposeful dialogue” (hereinafter, engagement) based on in-depth knowledge of the companies and their business environment (stewardship responsibility). Based on the principles of the Code, we will enhance the corporate value and sustainable growth of the investee company through stewardship activities, including better understanding the company, engagement and the exercise of voting rights in relation to assets under management, and maximize the medium-to-long-term return on investments for our clients (beneficiaries). At the same time, we will appropriately manage conflicts of interest as part of our stewardship responsibilities.
Principle 1: Institutional investors should have a clear policy on how they fulfill their stewardship responsibilities, and publicly disclose it.
We will fulfill our stewardship responsibilities under the “Guidelines on Stewardship Responsibilities.”
We have a stewardship responsibility over our assets under management. In order to fulfill our Stewardship responsibilities, we will enhance the corporate value and sustainable growth of the investee company by gaining a deep understanding of the company and its business environment through engagement and the exercise of voting rights, and maximize the medium-to-long-term return on investments for our clients (beneficiaries).
In addition to the analysts in our Investment Research Department. who have a deep understanding of the investee company, its business structure and industry, we have assigned an experienced senior analyst to our Stewardship Development Department. as a stewardship specialist. He/She will conduct analyses of financial statements, social and environmental issues, and non-financial information such as ESG activities including corporate governance, and participate in meaningful engagement meetings and the exercise of voting rights with regards to assets under management.
As one of Japan’s premier institutional investors, we believe that our stewardship responsibility is a social responsibility that contributes to the economic growth of Japan by appropriately fulfilling our stewardship responsibilities.
Principle 2: Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.
As part of our stewardship responsibility, we will appropriately manage conflicts of interest under our “Conflict of Interest Management Guidelines”.
Under our group-wide mission of “establishing trust by practicing sound management based on a high level of self-discipline and our fiduciary spirit,” we will further advance our conflict of interest management structure for the entire group and thoroughly implement our fiduciary duties across all business lines.
On conflicts of interest arising from stewardship activities, we place our clients’ (beneficiaries) interest first, and adhere to strict management practice under our internal Conflict of Interest Management Rules, and the Investment Operation Rules. In addition, we have already disclosed the outline of policies defined in provisions on conflicts of interest in the fiduciary business.
At the Company, the executive officer in charge of the Stewardship Development Department (hereinafter, the Officer) exclusively holds all authority relating to our exercise of voting rights, independent from the authority to execute other business activities, to exclude a conflict of interest that is likely to arise in relation to exercising voting rights. We specifically define a conflict of interest as the exercise of influence, attributable to, among other factors, significance of business partners and extensiveness of business transactions, of other divisions on the investment division. We have excluded the exercise of influence, attributable to, among other factors, significance of business partners and extensiveness of business transactions, of other business activities on asset management operations, which are concrete examples, in relation to a conflict of interest, likely to arise when exercising voting rights. We have also established the “Stewardship Activity Advisory Committee” (hereinafter, the Advisory Committee), the majority of whose members are composed of independent outside experts. The Advisory Committee is a body established to make recommendations for various activities under the Code. Regarding our exercise of voting rights, the committee will make recommendations for the establishment, revision, or abolition of the guidelines for the exercise of voting rights, decisions concerning whether to support proposals not stipulated in these guidelines, appropriateness of interpretation of these guidelines for an individual proposal, and verification and improvement of the decision-making process on the exercise of voting rights on a proposal in connection with which a conflict of interest may occur. The Officer in charge of the Stewardship Development Department assigns maximum value to the recommendations of the Advisory Committee and makes decisions accordingly. Any recommendations for improvement on the exercise of voting rights received from the Advisory Committee shall be respected to the maximum extent and acted upon immediately.
Principle 3: Institutional investors should monitor and grasp the status of investee companies so that they can appropriately fulfill their stewardship responsibilities with an orientation towards the sustainable growth of the companies.
In order to appropriately fulfill our stewardship responsibility by ensuring the sustainable growth of the investee company, we will monitor and grasp the status of the investee company.
We believe that it is important to evaluate investee companies from a medium-to-long-term standpoint. Thus, we try to accurately grasp and understand the company financials, ESG-related information, effectiveness of each investee company’s management, business foundation, target market trends, effectiveness of the business strategy, and non-financial information relating to sustainable growth. By continuously monitoring and researching the investee company, we can effectively grasp the individual circumstances of that business.
In addition, we will endeavor to identify at an early stage issues that may result in a material loss in the value of investee companies by conducting research on environmental and regulatory changes, and make every effort to avoid scandals, accounting fraud and other credit risk events.
Principle 4: Institutional investors should seek to arrive at a common understanding with investee companies and work to solve problems through constructive engagement with investee companies.
We will share a common understanding with investee companies and resolve issues through constructive engagement.
We will have our analysts conduct regular contacts with management, planning and finance officers of investee companies and consider the actual status of each company. Thereby, we will endeavor to reach a common understanding with each investee company with the view of enhancing its corporate value through engagement in light of its sustainable growth.
If any act that disregards the interests of shareholders, misconduct by an investee company or its management occurs, or its corporate value is damaged due to problems such as poor medium-to-long-term performance, we will deem such act to be a material issue in the investee company’s corporate governance, and we will conduct engagement and exercise voting rights in a way that would improve the investee company’s corporate governance. We require investee companies that have engaged in misconduct to provide a full explanation of the recurrence prevention measures, progress of improvement measures, and efforts towards improvement of its corporate governance.
A thorough analysis of non-financial information is necessary for effective engagement. We believe that enhancing analytical capabilities of non-financial information will lead to more productive engagement. We will fulfill our stewardship responsibilities by solving problems through highly effective dialogue based on mid- and long-term perspectives, and by the appropriate exercise of our voting rights.
In principle, we engage in an independent dialogue with investee companies. However, occasionally we may invite other institutional investors to the meeting for effective engagement which can lead to more beneficial results. In such case, we may conduct joint engagements with other institutional investors.
We are mindful not to obtain any undisclosed material information during our dialogue with investee companies. However, if we receive such information, or where there are risks of exposure, we will abide by our internal guidelines accordingly, and strictly manage such information.
Principle 5: Institutional investors should have a clear policy on the exercise of voting rights and disclosure of the results thereof. The policy on the exercise of voting rights should have criteria that are not based merely on formality, but rather it should be designed to contribute to sustainable growth of investee companies.
As an institutional investor whose goal is the sustainable growth of the investee company, we exercise our voting rights through the “Basic Policy on the Exercise of Voting Rights,” and publicly disclose the results of voting every quarter.
As a responsible institutional investor, we consider the exercise of voting rights an important part of our stewardship activities.
Our exercise of voting rights must aim to contribute to the sustainable growth of investee companies, thereby maximizing medium-to-long-term investment returns for our clients (beneficiaries). Based on investee companies’ conditions and details of engagements with those companies, we will exercise voting rights not only pursuant to the formal criteria for decision making, but after comprehensively considering the extent to which our exercise of voting rights would contribute to the sustainable growth of investee companies (and to maximize the medium-to-long-term investment returns for our clients (beneficiaries)). Furthermore, if a proposal has several interchangeable options, we will make our decision to exercise the voting rights by prioritizing the option that would contribute most to sustainable growth.
On guidelines for the exercise of voting rights, we disclose our numerical standards and qualitative judgment scores, which makes it possible to improve visibility for making decisions on the exercise. We review our guidelines at least once a year, and implement revisions and elimination reflecting the advice and recommendations from Advisory Committee.
We publicly disclose how we voted on each issue for each company every quarter by explicitly indicating the relationship with us based on objective information intended for all investee companies. As always, we make public disclosures through our website by aggregating the results of all investee companies every quarter.
As a general rule, we do not receive advisory services from proxy advisory companies. Provided however, we employ proxy advisory services in the cases there might be a conflict of interest in exercise of proxy voting of shares such as our treasury shares (shares in Sumitomo Mitsui Trust Holdings, Inc.) and have the proxy advices assessed by Advisory Committee from a perspective of the appropriate management of conflict of interest before we exercise the proxy voting rights.
On stock lending transactions, we set a lending limit when obtaining voting rights.
Principle 6 - Institutional investors in principle should report periodically on how they fulfill their stewardship responsibilities, including their voting responsibilities, to their clients and beneficiaries.
In order to fulfill our stewardship responsibilities, including their voting responsibilities, we will periodically report to our clients and beneficiaries.
As part of our stewardship responsibilities,we will make periodic reports via our website and other means, on our voting records, dialogue with investees, and minutes of the Advisory Committee meetings. We will maintain all records such as the status of exercising voting rights and dialogue cases. On the reporting format and contents, we will reflect our clients’ (beneficiaries’) needs therein and make changes as necessary.
Principle 7 - 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.
To make dialogue with investee companies constructive and beneficial, and to contribute to the sustainable growth of the companies, we will develop the skills and resources needed to appropriately engage with investee companies and to make proper judgments based on in-depth knowledge of the companies and their business environment.
We will fulfill our stewardship responsibilities through constructive dialogue with investee companies in order to achieve sustainable growth. For this, we believe that skills and knowledge required for appropriate stewardship activities are important.
We are truly convinced that the management of investee companies should have adequate competence and experience. To fulfill our stewardship responsibility, we will continue to commit ourselves to the advancement of our capabilities. Furthermore, the management of our company understands that it has an important role to perform in implementing its stewardship activities, constructing the appropriate organizational structure and training its staff. The Officer of the Fiduciary Services Business will make every effort in this respect.
We set up our “Stewardship Office” (Currently, Stewardship Development Department) in December 2016. Stewardship activities are part of our fund management business, enhancing the medium-to-long-term enterprise value of the investee companies through the said activities, which leads to the fulfillment of our social responsibility. The Stewardship Development Department. conducts planning, public relations and client services in addition to fund management activities. With the formation of the Stewardship Development Department. we will further solidify and enhance our sophistication in the exercise of voting rights and engagement.
We believe that it is vital as a fiduciary to make incessant efforts in improving our stewardship activities, and enhancing our corporate governance structure and the management of conflicts of interest so that we can fulfill our stewardship responsibility. As a responsible institutional investor who will comply with stewardship responsibility, we will periodically review and evaluate our activities and adherence to the principles of the Code, advise Advisory Committee, and publicly disclose our evaluation in order to promote transparency.