Governance

In the "Governance", the TCFD recommends disclosure on the role of the board of directors and management in overseeing climate-related risks and opportunities. The Group is proceeding with disclosure of information in line with this.

Overview of Governance for Climate Change

In the Group, the Sustainability Promotion Committee discusses business related to sustainability, including climate change, as well as the Group policies. The Group Risk Management Committee, a subcommittee of the Executive Management Committee, analyzes climate-related risks and holds regular discussions. The content of these discussions is reported to the Executive Management Committee as appropriate, where deliberation and decision-making take place. If necessary, the Board of Directors receives reports on climate-related issues and responses that have been deliberated by the executive side. Matters that are deemed core to management or important by the Board of Directors, as well as matters specified as resolution items in the Board of Directors regulations, are decided by the Board of Directors. Thus, the response to sustainability issues, including climate change, is overseen by the Board of Directors through a system of deliberation and decision-making by the executive side, as shown in Figures 2-1 and 2-2.

Figure 2-1 Governance structure for climate change (As of April 1, 2023)

Figure 2-2 Roles and main deliberation topics of each meeting body

	Meeting Body	Composition	Role Related to Climate Change	Main Deliberation Topics
Oversight	Board of Directors	Chairman: Chairman of the Board 7 Outside Directors 7 Internal Directors	Receive appropriate reports from the executive regarding climate-related issues and responses (including responses to TCFD) and supervise	Formulation of Vision 2030 Formulation of Net Zero Carbon Declaration Status of response to TCFD Revision of environmental and social policy framework Status of response to ESG evaluation agencies Risk appetite framework and top risk items
Oversight	Compensation Committee	Chairman: Outside Director 5 Outside Directors 2 Internal Directors	Consideration of policies related to executive compensation	Decision on executive compensation system linked to sustainability KPIs
Execution	Executive Management Committee	Chairman: Representative Executive Officer, President, and CEO	Deliberation and decision-making on important business and policies related to climate issues Reporting to the Board of Directors	Formulation of Vision 2030 Formulation of Net Zero Carbon Declaration Status of response to TCFD Revision of environmental and social policy framework Risk appetite framework and top risk items
	Group Risk Management Committee	Chairman: Representative Executive Officer, President, and CEO	Monitoring of climate change risk response Reporting to the Executive Committee	Management status of climate change risk (quantitative analysis results based on scenarios)
	Sustainability Promotion Committee	Chairman: Representative Executive Officer, President, and CEO Internal members (including those in charge of sustainability) External experts	Discussion and consideration of important matters related to climate change	Formulation of Vision 2030 Actions toward achieving Vision 2030 Progress toward achieving carbon neutrality Status of response to TCFD Participation in TNFD forum Revision of environmental and social policy framework Status of response to ESG evaluation agencies

Board's Oversight

The Board of Directors

The Board of Directors includes both internal and outside directors with deep knowledge of sustainability, enabling effective oversight of efforts to address sustainability issues. The Board has made decisions regarding initiatives such as "Vision 2030", the "Environmental and Social Policy Framework" and the "Daiwa Securities Group Net Zero Carbon Declaration". In addition, the Board has decided to add climate change to the top risks listed in the Risk Appetite Statement. The Board also receives reports and discusses topics such as information disclosure in line with TCFD recommendations (including climate change scenarios) and non-financial information disclosure to improve ESG evaluations by external organizations. The Board confirms the progress of sustainability KPIs (as shown in Figure 2-6) when making decisions on financial statements and reviewing the medium-term management plan (as shown in Figure 2-2).

Compensation Committee

The Compensation Committee, one of the three committees, deliberates on policies related to executive compensation. For example, in FY2021, it resolved to incorporate sustainability KPIs into the evaluation system for executive performance-based compensation (see Figures 2-2 and 2-6).

Figure 2-3 The composition of the three committees and attendance status at the board of directors' meetings (results for FY2022)

		Nominating Committee	Audit Committee	Compensation Committee
Takashi Hibino	Chairman of the Board	5/5		4/4
Seiji Nakata	Director/President and CEO	5/5		4/4
Sachiko Hanaoka	Internal Director		13/13
Hiromasa Kawashima	Internal Director		13/13
Michiaki Ogasawara	Outside Director	5/5	13/13
Hirotaka Takeuchi	Outside Director	5/5		4/4
Ikuo Nishikawa	Outside Director		13/13	4/4
Eriko Kawai	Outside Director	5/5	13/13
Katsuyuki Nishikawa	Outside Director	5/5	13/13
Toshio Iwamoto	Outside Director	5/5		4/4
Yumiko Murakami	Outside Director		13/13	4/4

Execution Framework

Sustainability Promotion Committee

The Sustainability Promotion Committee, chaired by the President and CEO, holds regular discussions (four times a year in FY2022) to promote sustainability. The committee includes the Head of Sustainability (established in FY2020) who oversees sustainability promotion, several executive officers including one outside director who is not involved in day-to-day operations, and external experts with specialized knowledge in sustainability themes including climate change (Figure 2-4). The committee has provided advice and conducted studies on various topics such as the formulation and revision of the "Environment and Social Policy Framework" and the formulation of the "Daiwa Securities Group Net Zero Carbon Declaration" (Figure 2-2).

Figure 2-4 Expertise and experience of external experts in climate-related matters

Name	Affiliation/Title	Main areas of expertise in climate-related issues
Toshihide Arimura	Professor, School of Political Science and Economics, Waseda University Faculty Fellow,The Research Institute of Economy, Trade and Industry	Environment Economics Energy Policy Carbon Pricing
Arisa Kishigami	Independent consultant, En-CycleS (Engagement Cycle for Sustainability)	Trustee, Japan Sustainable Investment Forum (JSIF)
Daisuke Takahashi	Attoney at Law, Shinwa Law	Business and human rights Environmental law compliance Global compliance

The Group Risk Management Committee

Regarding policies and measures related to risk management, including climate change, they are discussed at the subcommittee of the executive committee, and the Chief Risk Officer (CRO), who is responsible for risk management, attends the Group Risk Management Committee. The committee reports annually on quantitative analysis results based on climate-related scenarios. The contents of the report are also discussed in the Sustainability Promotion Committee as part of the information disclosure proposal in line with the TCFD recommendations.

Group-Wide System

As a system to promote sustainability across the Group, sustainability managers are appointed in each major group company and department of Daiwa Securities to promote business that contributes to sustainability and manage the progress of sustainability KPIs. In addition, these contents are regularly reported to the Sustainability Promotion Committee and the executive committee. Furthermore, several group-wide working groups (WGs) have been established (see Figure 2-5). The contents discussed in these WGs are coordinated with the Sustainability Promotion Committee as appropriate.

Figure 2-5 Overview of the main working groups related to climate change risk

Name	Description
ESG Response Working Group	Expands and strengthens ESG response based on external evaluations of ESG for our group (investors and rating agencies). The main members are practical personnel in the head office department.
Sustainable Business Working Group	Under the Sustainability Officer, monitors KPIs, understands the progress of SDGs/ESG-related businesses, identifies issues, and plans and implements measures to address them. The main members are practical personnel at each headquarters, group company, and major overseas base.
Sustainability Advisory Group (Internal Experts Working Group)	Experts in sustainability gather to exchange opinions on our group's issues and future responses. The main members are practical personnel in the sustainability field at each headquarters and group company.
Sustainability Disclosure Working Group	A cross-departmental organization aiming to expand sustainability information disclosure from the perspective of integrated reporting. The main members are practical personnel in the disclosure-related departments of sustainability.
Scope 3 Emissions Monitoring Team	Performs measurement and goal setting of emissions related to investment portfolios. The main members are practical personnel including asset management departments, investment departments, think tanks, and other banks.

Executive Remuneration System

We have incorporated a performance-linked remuneration that provides financial rewards based on sustainability KPIs to strengthen the efforts of executives in addressing climate-related issues since FY2022 (as resolved by the Compensation Committee in FY2021, see Figure 2-6). Specifically, climate-related KPIs include investment balance in SDGs-related businesses and SDGs bond league tables (refer to "Metrics and Targets").

Figure 2-6 Performance-linked remuneration (as of the end of March 2023)

Note 1:The reference value is determined by the Compensation Committee in consideration of the targets set in the Medium-term Management Plan.
Note 2:The consolidated total capital adequacy ratio indicates the value as of December 31, 2022.