Daiwa Securities Group Inc. / Material Issues of the Daiwa Securities Group

Modern society faces a wide range of issues that threaten its sustainability. These include global-scale environmental issues that threaten the survival of the human species, most well known among them being global warming; the increasing disparity of prosperity between the northern and southern hemispheres; and in Japan, the aging society and low childbirth. It will not be possible to overcome these issues without the responsible action of every sector of society, including the public sector, the private sector, and communities.
Companies with the power to influence society as a whole are key players, greatly affecting whether it will be possible to achieve a sustainable society. The financial institutions that handle society's money have a particularly important duty to society through their main business: finance. This duty includes maintaining and developing fair, active financial markets, as well as a commitment to finance from a social perspective, and the creation of monetary flows that will help achieve a sustainable society. We believe that our Group has a large role to play in this effort.

The purpose of this report is to focus on topics, indicators and issues that we believe will greatly influence the decisions of the stakeholders of the Daiwa Securities Group. For this reason, we studied the economic, environmental and social impact of the various activities of the Daiwa Securities Group, and identified material issues that should be reported.

1. Adding a Social Perspective to Investment
Signing to the United Nations Environment Programme Finance Initiative (UNEP FI)*1, Principles of Responsible Investment (PRI)*2, and the Carbon Disclosure Project (CDP)*3, the Daiwa Securities Group will fulfill our social roles as a financial institution. In our efforts to achieve a sustainable society, it is vital that we incorporate initiatives to invest from a social perspective into our securities business.

2. Commitment to the Development of a Sound Securities Market
In order to fulfill our responsibility as a company in the securities industry to maintain and develop a sound and reliable securities market, we recognize that we must have thorough compliance that lives up to the confidence of society and does not stop at mere statutory compliance.

3. Contribution to Global Environment
Recognizing global environmental issues as challenges that must be met by all companies and individuals, we thus strive to reduce the environmental impact of our businesses, while remaining fully committed to collaborating in and promoting efforts to resolve environmental issues.

4. Publishing Information for a Sustainable Society
We continue to take advantage of our characteristics as a company that handles information, including giving back the knowledge and expertise we have cultivated in the securities industry through financial and economic education, collaboration with academia, and providing the latest information on sustainability.

We also focus on initiatives to build a company worth working for, as one of the key management policies of the Daiwa Securities Group. More information on this topic can be found in the Message from the President and Human Values and Human Resource Utilization.

*1 UNEP FI: A partnership between the United Nations Environment Programme and financial institutions from around the world.
*2 PRI: A guideline indicating environmental, social, and governance (ESG) considerations for investment to institutional investors.
*3 CDP: With the support of institutional investors concerned about climate change, the Carbon Disclosure Project asks investors and corporate executives to disclose information relating to their initiatives and approaches to environmental problems.

The United Nations Environment Programme Finance Initiative (UNEP FI), which involves a partnership between the UN Environment Program (UNEP) and various financial institutions worldwide, is striving to implement activities that best take the environment and the concept of sustainability into account, based on the recognition of the major worldwide impact of the money handled by the finance industry. The initiative, whose goal is to raise awareness of efforts towards achieving sustainability, has been in operation since 1992. Financial institutions from around the world have joined this initiative.

Principles for Responsible Investment (PRI) are guidelines to promote the incorporation of environmental, social, and corporate governance (ESG) considerations into the decision-making processes of institutional investors, unveiled by UNEP FI and UN Global Compact, in April 2006. The PRI are outlined below.

1. We will incorporate ESG issues into investment analysis and decision-making processes.

2. We will be active owners and incorporate ESG issues into our ownership policies and practices.

3. We will seek appropriate disclosure on ESG issues by the entities in which we invest

4. We will promote acceptance and implementation of the Principles within the investment industry.

5. We will work together to enhance our effectiveness in implementing the Principles.

6. We will each report on our activities and progress towards implementing the Principles.

With the support of institutional investors concerned about climate change, the Carbon Disclosure Project asks global companies to disclose information relating to their initiatives and approaches to environmental problems. As of end-2006, 225 institutional investors managing a total of $US 31 trillion in assets have joined the project.

In order to identify key issues, we first analyzed the feedback we have received from our stakeholders in the form of employee surveys, customer satisfaction surveys, our Sustainability Report questionnaires, shareholder surveys, stakeholder comments and dialogs, and the views of opinion leaders from outside the Daiwa Securities Group. To this feedback we added considerations for international trends in CSR, the GRI Guideline, and other societal demands, and identified issues that the Daiwa Securities Group should consider in its CSR activities. At the same time, we verified the importance of issues recognized within the Group and externally, giving consideration to such factors as the frequency of occurrence and the impact on society. Through this process, four material issues were recognized as highly important to the Daiwa Securities Group.

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