Corporate Missions and Fiduciary & ESG Principles

[JFSA’s Principles for Customer-Oriented Business Conduct: Principle 2]

Nikko Asset Management Co., Ltd. (“Nikko AM”), as an asset management company, acts as a fiduciary on behalf of its clients and is firmly committed to putting its clients’ best interest first. It places fiduciary and ESG principles at the highest guiding theme of its corporate value and actions.
Nikko AM strongly believes that investments by considering environmental, social and governance (“ESG”) are inherent to long-term corporate value creation, and contribute to the realization of sustainable economic growth. As such, Nikko AM views ESG issues as an integral part of its fiduciary duty and endeavors to incorporate ESG principles in all its investment processes.

Nikko AM, for the realization of high-quality financial services that truly meet clients’ needs, always endeavors to act in the spirit of the fiduciary & ESG principles, and continually makes effort toward further improvement with the ideas of innovation.

Code of Conduct Regarding Fiduciary & ESG Principles

21 July, 2021

[Principle 2]

Fiduciary & ESG Principles are at the heart of Nikko AM’s asset management business, and the highest guiding theme behind Nikko AM’s management philosophy for pursuing clients’ best interests.

Nikko AM will continue to ensure that all of its officers and employees have high expertise and business ethics as asset management professionals, and that they work faithfully and fairly to help clients accumulate and manage assets.

1. Higher-Quality Investment Management

[Principle 2]

Basic Guidelines

  • High-quality asset management services provided by true investment professionals
  • Efforts to enhance the governance structure and activities as an institutional investor fulfilling ESG, the Stewardship Code, and other responsibilities

Detailed Measures

  • In relation to exercising voting rights in investment-target companies, setting up a supervisory committee with a majority of outside members, and monitoring to ensure that voting rights are exercised in line with true investor interests
  • Taking measures to attract, grow and retain skilled investment management professionals to provide high-level investment management techniques and analytics, and to pursue investment opportunities
  • Having a middle office structure in which monitoring, performance and risk assessment of investment management is conducted by departments that are separate from the Investment Fund Management Division, and to optimize investment management by providing constant feedback, etc. to the Investment Fund Management Division
  • When engaging external investment management companies, ensuring strict monitoring and evaluation of performance and operations via a department specialized in monitoring of external investment managers
  • Investment is executed with full consideration of the risk return profile of each asset class to maximize client’s best interests.

2. Product Development and Easy-to-understand Information Delivery that are Always Aimed at Maximizing Investor Interests

[Principle 2 & (Note), Principle 4, Principle 5 & (Note 1), and Principle 6 (Note 3)]

Basic Guidelines

  • High-quality product development that maximizes investor interests and responds to diversifying and changing investor needs
  • Creation and delivery of easy-to-understand important information such as fees

Detailed Measures

  • Preparing documents for customers and providing explanations to investors, with emphasis on easy-to-understand investment policies, product risk characteristics and fee transparency, etc. [Principle 4, Principle 5 & (Note 1)]
  • Providing easy-to-understand information for all products, including complex products, about the risks (including potential losses and other risks), characteristics, basic return profile, and fund structure such as FoFs [Principle 6 (Note 3)]
  • Identification of expected clients for each fund based on product characteristics and risks, and related information delivery to fund distributors [Principle 5 (Note 1)]
  • Having a product development process that includes a system of rigorous checks from all appropriate angles, including risk analysis, compliance, and operations
  • Ensuring strict screening processes that reflect changes, etc. in relevant domestic and international laws, regulations, and market environments, etc.
  • Leveraging Nikko AM's investment management knowhow and international network of group companies to provide a customer-focused, solutions-based business

3. Stronger Corporate Governance

[Principle 2, Principle 3 & (Note), and Principle 7]

Basic Guidelines

  • Fostering and deepening a strong compliance culture and establish rigorous compliance processes
  • Implementing appropriate mechanisms to motivate employees

Detailed Measures

  • Constantly working to have an organization that is structured around prioritizing client’s best interests and to have the highest standard governance in the industry [Principle 2]
  • Managing conflicts-of-interest related to asset management of clients (Conflict of Interest Control Policy - Link to global site)[Principle 3 & (Note)]
  • Encouraging early escalation and continuous information delivery
  • Developing IT infrastructure for front office departments, using IT to improve business efficiency and guidelines as well as to eliminate administrative errors, and unifying database development and report creation
  • Ensuring appropriate management independence among group companies, and using outside directors to ensure the function of controls on management and management transparency
  • Continued efforts to further strengthen corporate governance of overseas subsidiaries
  • To act with highest priority on clients’ interests and to achieve continuous business success through fair business transactions, employees are trained including OJT, and goal setting and performance evaluation are carried out. [Principle 7]
  • Regarding each principle set forth in "Principles for Customer-Oriented Business Operation", the contents that are to be implemented, or the revised contents if an alternative plan is to be taken, should be disseminated to the employees engaged in the business, and a system to support and verify the work of said employee should be established. [Principle 7 (Note)]

4. Others

Given that Nikko AM does not directly sell or recommend funds to individual investors, the following items in the Principles for Customer-Oriented Businesses will be conducted by the distributors to which Nikko AM outsource sales. As the originator of investment trusts, Nikko AM will continue to provide support to distributors by taking appropriate actions on each item.

Principle 5: Easy-to-understand provision of important information to clients

(Note 1)
  • Reasons for selecting financial products/services to be sold and recommended to clients
  • Details of conflicts of interest between distributors and clients regarding financial products and services to be sold and recommended to investors, if applicable
(Note 2)

Provision of important information if multiple financial products and services are sold and recommended in packages

(Note 3)

Provision of true information that is clear, simple, and not misleading in view of clients’ trading experience and financial knowledge

(Note 4)
  • Provision of information that commensurate with the complexity of financial products and services, and easy-to-understand explanations
  • In particular for complex and high-risk products, use of materials and that allow easy comparisons with similar products
(Note 5)

Provision of information in accordance with its importance, and raising client attention by emphasizing particularly important information

Principle 6: Providing service suitable for investors

Principle 6

Understand the status of clients’ asset, trading experience, knowledge and trading purposes before selling and recommending financial products and services that are appropriate for them

(Note 1)
  • After confirming clients’ intentions on life plan, determine the target asset amounts and appropriate asset allocation between safe and investment assets
  • Comparison with similar or alternative products when proposing specific financial products and services
  • Appropriate follow-up from a long-term perspective based on clients’ intentions after financial products and service are sold
(Note 2)

When selling and recommending multiple financial products and services as packages, reconsider whether the entire package is suitable for the client

(Note 4)

Careful examination of the appropriateness of sales and recommendations are needed especially when offered financial products are particularly complex or high-risk, or when clients are vulnerable to financial damage

(Note 5)

Appropriate education to distributor sales representatives, and information provision in accordance with clients’ attributes, experience, and risk tolerance level

Implementing Fiduciary & ESG Principles

Fiduciary & ESG Principles are Nikko AM’s highest guiding themes as an asset management company, and resolutions, reports, deliberations relating to them are all carried out at meetings of the Board of Directors.
(Stewardship and Voting Rights Policy Oversight Committee consists of a majority of outside members, including the Chairman)

Initiatives for a Business Management Structure that Pursues the Best Interests of Cusomters(FY2021)
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