Role and Social Responsibilities of the Securities Business

At Daiwa Securities Group, we believe that our role is not only to maintain and develop a fair and dynamic financial market, but also to incorporate a social perspective in finance in order to contribute to building a sustainable society. For example, the securities business - our core operations - plays a key role in society by building a bridge between the needs of investors to manage assets and those of the private and public sectors to raise funds.
On investing in securities, we promote methods of investment that take ESG (environment, society, and governance) factors, such as environmental and social initiatives into account together with financial information.

Supporting Sound Financial and Capital Markets-Six Roles of the Daiwa Securities Group-

We support companies that need funds, from listing support to consulting.
We will continue to support social infrastructure by creating a flow of funds, contributing to the creation of a soil where innovation is easy to occur, and the creation of a more active and stable financial market.

Role 1 Fund procurement by companies, etc.

Companies issue capital by issuing securities (stocks and bonds) and use them to develop new products and provide new services. Financing using these securities will contribute to the growth of the company and the resulting economic growth.
Daiwa Securities Group advises companies and others on financing using securities.

Role 2 Support for initial public offerings

The emergence and growth of new companies is essential for economic growth. The initial listing will not only contribute to the growth of the company but also provide investment opportunities for various investors. The Group is assisting in the initial listing.

Role 3 Assistance in trading of securities

Securities such as stocks and bonds are mainly traded on markets such as stock exchanges.
Securities companies help you buy and sell securities. It is also important to ensure that the securities traded are delivered correctly.

Role 4 Assistance in asset building

The Group offers a wide range of products and services, and offers proposals tailored to customers to help with life planning and asset formation.

Role 5 Analysis and provision of information

Many economists, analysts and strategists provide a wide variety of information that combines the latest trends and in-depth analysis in an easy-to-understand format.

Role 6 Protect market trust

The market for securities is an important infrastructure of society and is built on the trust of participants. The Group strictly manages information and monitors transactions to ensure that the market is fair and fair. We are also actively working on dealing with ever-evolving trading methods and new issues.

Responsible Action as an Institutional Investor

Adoption of "Japan's Stewardship Code"

The Financial Services Agency of Japan published “Principles for Responsible Institutional Investors (Japan’s Stewardship Code)” in February 2014. The Code, which has been revised twice, encourages institutional investors to fulfill their responsibilities of enhancing 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 consideration of medium- to long-term sustainability including ESG factors consistent with their investment management strategies.
In our Group, Daiwa Securities and Daiwa Asset Management have announced their adoption of the Code.

Adoption of Principles for Responsible Institutional Investors (Japan’s Stewardship Code)

System at Daiwa Asset Management

Daiwa Asset Management became a signatory to the United Nations-supported Principles for Responsible Investment (PRI) in May 2006. It takes into account ESG initiatives taken by companies when making investment decisions, as it considers that such initiatives can lead to expanding growth capabilities over the medium to long term and reducing risks. Moreover, Daiwa Asset Management published its “ESG Investment Policy” in January 2020 to clarify its approach to ESG. In principle, the Policy applies to all investment strategies of the company.

Daiwa Asset Management has also been continuously and actively working to fulfill its stewardship responsibilities as it announced its adoption of Japan's Stewardship Code in May 2014. The company renewed the announcement of its adoption of the Code in September 2020 and has been striving to improve its initiatives. The basic idea about Daiwa Asset Management’s stewardship activities is shown in its “Stewardship Policy.”

Stewardship Activity Structure

Specifically, dialogues are led by the following three parties.

Stewardship Supervisory Committee
In January 2017, Daiwa Asset Management set up the “Stewardship Supervisory Committee” which is designed to manage conflicts of interest faced in fulfilling its stewardship responsibilities. The Committee supervises the company's overall stewardship activities and is responsible for making reports to the Board of Directors and issuing recommendations to improve stewardship activities as necessary. The Committee is composed of outside directors and the compliance officer, who takes charge of overseeing the management of conflicts of interest. In that way, independence in the stewardship activities from management and business execution is secured.

Stewardship Committee
To conduct stewardship activities, Daiwa Asset Management has established the Stewardship Committee within its Fund Management Division from the perspective of separating management from investment. The Committee is chaired by the chief investment officer (CIO) and composed of personnel in the Fund Management Division who are involved in stewardship activities. The responsibilities of the Committee include formulating basic policies related to stewardship activities, such as criteria for the exercising of voting rights and ESG investment policy; conducting deliberations and determination on individual cases when exercising voting rights, as well as external announcement of the results of exercising of voting rights and the details of stewardship and other activities; and implementing initiatives to enhance stewardship activities.

Stewardship & ESG Section
Daiwa Asset Management established a special section within the Investment Planning Department in October 2018 to help show the company’s specific ESG initiatives and approach to parties within and outside the company. In October 2020, the section was named the Stewardship & ESG Section. The Stewardship & ESG Section is mainly responsible for overall stewardship activities, such as the exercising of voting rights in, and engagement with, investee companies, and promotion of integration of ESG into investment processes.

Education and Training

Daiwa Asset Management provides all executives and employees with internal training designed to share knowledge of stewardship activities that should be undertaken by an asset management company as well as overall knowledge of ESG. As ESG, in particular, is a field where new initiatives are being taken daily, the company provides training aimed at the updating of specific themes as needed.

Engagement in Relation to ESG Issues and Policy on Exercising of Voting Rights

The three teams that lead engagement activities hold dialogue on important ESG issues as shown in the “Policy to Hold Constructive Dialogues with Companies” according to respective objectives and investee companies. Dialogue on ESG issues held by the three teams accounted for approximately 30% of overall engagement activities conducted in 2020, and this percentage is trending upward.
Daiwa Asset Management also established a new criterion on female officers when making partial revisions to its “Policy on Exercising of Voting Rights (Domestic Stocks)” in March 2021. Under the new criterion, Daiwa Asset Management requires companies that make up the TOPIX 100 Index to appoint at least one female officer (directors and corporate auditors). Moreover, it has specified business and human rights as a future issue to be addressed in the Policy on Exercising of Voting Rights, recognizing that encouraging corporate human rights initiatives and information disclosure is an important engagement theme and issue.

Specific Initiatives for Dialogue

Regarding dialogues with investee companies, based on the Policy to Hold Constructive Dialogues with Investee Companies announced in June 2014, Daiwa Asset Management has conducted engagement activities aimed at accurately understanding the conditions of investees and sharing such assessments. Later, in September 2020, the company announced the “Policy to Hold Constructive Dialogues with Companies,” which includes the ESG issues the company focuses on, after making revisions as needed.
Daiwa Asset Management recognizes that it also has duties regarding engagement for passive investment. Based on this recognition, since 2018 it has been sending its “Policy on Exercising of Voting Rights” and information on its stewardship activities to the investee companies incorporated in its domestic stock index funds. In 2020, the company sent information on Daiwa Securities Group’s IR activities and thoughts on diversity and inclusion.

Corporate Research Team

・Composed of analysists in the Research Department. Meetings are held along with research activities on corporate value, business strategies, ESG, and other themes.

The analysts in the Research Department engage in stewardship activities to contribute to enhancing corporate value and sustainable growth as part of their activities as analysts. They held engagements with approximately 300 companies in FY2019 (from January 2019 to December 2019; hereinafter the same). As fundamental tools for dialogues, Daiwa Asset Management has prepared and utilizes (a) the Analyst Handbook, which summarizes the fundamental stance and knowledge that serves as a basis for the analyst activities; (b) the Business Strategy Reference Book that analyzes companies’ management strategies; (c) the Qualitative Evaluation that evaluates companies from a medium- to long-term standpoint; and (d) the Long-term Corporate Value Model that determines the medium- to long-term fair value of companies.

Voting Rights Exercising Team

・Composed of personnel responsible for exercising voting rights. Meetings are mainly themed on corporate governance and the exercising of voting rights.
・Engagement for passive investment

Personnel in charge of corporate governance collect information on investee companies required for exercising voting rights. In dialogues with investee companies, they explain their policies on exercising voting rights and what they expect from companies with respect to corporate governance, thereby sharing their knowledge with the investee companies. They conducted engagements with approximately 60 companies in FY2020. They also disclose how they exercised their voting rights for individual proposals from shareholder meetings held from April 2017 onwards.

Engagement Team

・Composed of fund managers and analysts. In-depth meetings are held with investee companies mainly incorporated in active investment funds for medium- to long-term investment.

The engagement team held engagement with approximately 30 companies in FY2020, focusing on small- to medium-cap issues mainly incorporated in active investment funds for medium- to long-term investment.
In meetings, the team places emphasis on discussions that incorporate a medium- to long-term perspective and holds dialogue with the president and other top management of investee companies as much as possible.
When holding dialogue, the engagement team creates the agenda and clarifies the purpose of dialogue.
Daiwa Asset Management also conducts ES meetings—dialogues specializing in environmental impact and social responsibility. In FY2020, it held a number of dialogues with investee companies regarding the importance of ES in considering medium- to long-term corporate value.
Daiwa Asset Management has released a Report on the Status of Stewardship Activities on its website (only available in Japanese). The report includes the status of engagements, such as policy, structure, and the number of engagement times by theme, as well as ESG investment, the status of exercising of voting rights, and measures to improve stewardship activities.

ESG Exchange Meeting

Daiwa Asset Management places importance on investee companies’ ESG initiatives as it considers that such initiatives can lead to expanding growth capabilities over the medium to long term and reducing risks. On the other hand, it became aware during dialogues with investee companies that the investees were struggling with appropriate methods for ESG disclosure and collection of information. The company therefore invited multiple investees and held an ESG-related information exchange meeting based on the idea that investees’ sharing their initiatives and exchanging information with each other will not only be beneficial to the company but also to future initiatives of the investees.

Incorporation of ESG Factors into Investment Processes

Daiwa Asset Management takes into account companies’ ESG initiatives when making investment decisions as it considers that such initiatives can lead to expanding growth capabilities over the medium to long term and reducing risks. Sharing qualitative evaluations by analysists in the Research Department and fund managers, and quantitative analysis and evaluations by quants analysists, has enabled corporate evaluations from a comprehensive perspective that integrates financial information with nonfinancial information. Daiwa Asset Management also calculates unique ESG scores based on the above information and Daiwa Securities Group’s approaches to ESG, and takes the scores into account when selecting companies and grasping risks to the portfolio.

Fund’s Investment Process

Performance of ETFs Tracking MSCI, FTSE, and Other Indices

In July 2017, Government Pension Investment Fund (GPIF) selected and announced three ESG indices for Japanese equities and commenced approximately 1 trillion yen worth of passive investment that tracks these indices. Since then, GPIF has expanded its ESG investment in stages while adding indices. As of March 31, 2021, the scale of GPIF’s passive investment tracking ESG indices reached approximately 10.6 trillion yen.(End of March 2021)

Immediately after GPIF’s first announcement of ESG indices, Daiwa Asset Management newly established and listed the following three ETFs aimed at tracking the indices: Daiwa ETF MSCI Japan Empowering Women Index (WIN), Daiwa ETF MSCI Japan ESG Select Leaders Index, and Daiwa ETF FTSE Blossom Japan Index. These ETFs are used by a broad range of investors, from individual to institutional, as convenient tools for helping to increase risk tolerance that does not appear in financial information and aiming for long-term improvement of returns.

Involvement in Joint Initiatives Related to ESG Investment

Daiwa Asset Management has signed and supports the following external initiatives.

Name Timing
PRI Signed in May 2006
ICGN Joined in April 2021
TCFD Showed support in December 2020
ClimateAction 100+ Signed in August 2021
Investor Agenda August 2021
30% Club Japan Investor Group Participated in May 2020
Principles for Financial Action for the 21st Century November 2011
Statement on Fiduciary Duty and Climate Change Disclosure Signed in August 2014