Sustainability
ESG Investment
ESG Policy
As a leading Japanese and Asian investment manager, Tokio Marine Asset Management (TMAM) takes its responsibilities as an investor very seriously. Embedded in our management philosophy is our aim to contribute to the promotion of a prosperous society and spur economic development through responsible investment and asset management. As such, we carefully consider not just the financial aspects of a company but also its Environmental, Social and Governance (ESG) policy when making investment decisions. In addition, we aim to improve the longer-term investment return of clients by taking an active role in pushing for continued growth in our investee companies.
Please note that TMAM refers specifically to Tokio Marine Asset Management Co., Ltd., the investment manager in Japan, in all information on ESG and responsible investment below.
Our Commitment to Responsible Investment
1. Signatory to the UN Principles for Responsible Investment (PRI)
The UN Principles for Responsible Investment initiative, based on a proposal by then UN Secretary-General Kofi Annan in 2006, was set up by the United Nations Environment Programme Financial Initiative (UNEP FI) and the UN Global Compact (UNGC). The principles require that institutional investors incorporate ESG issues into investment analysis and decision-making processes, with the aim of improving clients’ longer-term returns.
TMAM endorses the UN Principles for Responsible Investment and became a signatory in March 2011.
For more information about these principles, please see below.
2. Signatory to the Principles for Financial Action towards a Sustainable Society (Principles for Financial Action for the 21st Century)
The Principles for Financial Action for the 21st Century are based on a proposal made by the Central Environment Council (part of Japan’s Ministry of the Environment) to widen the scope of environmental finance initiatives, and were drafted by a committee drawn from a large number of financial institutions. The principles aim to encourage domestic financial institutions to push for progress on the best initiatives relating to ESG policy and other key issues for the future.
TMAM endorses the Principles for Financial Action towards a Sustainable Society (Principles for Financial Action for the 21st Century) and became a signatory in February 2012.
For more information about these principles, please see below.
3. Signatory to the Access to Medicine Foundation Investor Statement
Since its establishment in 2003, the Foundation’s mission has been to improve access to medicine in in low- and middle-income countries, through proprietary research and comprehensive assessments of pharmaceutical companies, published as the Access to Medicine Index. Signatory investors can integrate scores and rankings from this index into the investment decision-making process, encouraging pharmaceutical companies in their efforts to improve access.
TMAM became a signatory to the Access to Medicine Foundation Investor Statement in November 2018. This index gives us greater insight into what the industry is doing to improve access to medicine, and feeds into constructive dialogue with pharmaceutical companies.
For more information about the Foundation, please see below.
4. Alignment with the Task Force on Climate-related Financial Disclosures
The TCFD (Task Force on Climate-related Financial Disclosures) was established in December 2015 by the Financial Stability Board, in response to a request from G20 Finance Ministers and Central Bank Governors. Information disclosure based on the TCFD recommendations empowers investors to better evaluate corporate value and further improve the accuracy of investment decisions, by monitoring and analysing how companies assess climate change risks and opportunities and respond to their potential impact on business. TCFD also works to engage investee companies in constructive dialogue on issues regarding climate change in order to promote continued growth.
TMAM announced its support for the Task Force in April 2019, and will press the companies in which we invest to disclose environmental information in line with the TCFD recommendations, as part of our commitment to company stewardship and increasing the long term investment returns of our clients.
For more information about the Task Force, please see below.
5. Signatory to the Montréal Carbon Pledge
The Montréal Carbon Pledge was launched by the United Nations Principles for Responsible Investment (PRI) network in September 2014 as an initiative for reducing greenhouse gas emissions. The pledge is a commitment by institutional investors to measure and disclose the carbon footprint of some or all equity portfolios.
TMAM became a signatory to the Montréal Carbon Pledge in February 2019. We take our fiduciary duties very seriously, and dialogue on efforts to reduce carbon emissions is part of our longer-term approach to assessing the companies in which we invest.
For more information about the Montréal Carbon Pledge, please see below.
6. Signatory to the CDP (Carbon Disclosure Project)
Formerly the Carbon Disclosure Project, the CDP was established in 2000 as an international NGO working with institutional investors around the globe to encourage corporations and cities to disclose environmental information. The CDP requests disclosure each year on climate change, water security and deforestation, the results of which are analysed and assessed to create the most consistent, comprehensive and measurable global environmental dataset for investors.
TMAM became a signatory to the CDP in April 2019. Dialogue with the companies we invest in on their efforts to deal with climate change, water security and deforestation issues is one more example of how we work tirelessly to fulfil our commitment to responsible, sustainable investment and to integrate this further into our investment practices.
For more information about the CDP, please see below.
Stewardship
Adherence to Japan’s Stewardship Code
Tokio Marine Asset Management (TMAM), a member of the Tokio Marine Group, is a global asset management company headquartered in Tokyo, with subsidiary offices in New York, London, and Singapore.
TMAM endorses Japan’s Stewardship Code and declared its acceptance of the Code’s seven principles in May 2014. This endorsement was renewed in accordance with the revisions of the Code in June 2017 and May 2020.
The Code encourages institutional investors to engage investee companies in constructive dialogue to raise corporate value and encourage sustainable growth, thereby improving clients’ longer-term investment returns.
The principles outlined in the Code are closely aligned with our own management philosophy; we aim to contribute to the promotion of a prosperous society and spur economic development through responsible investment and asset management, and thereby improve the longer-term investment return of clients. As a responsible institutional investor, we do our utmost to uphold the principles set out in the Code and press for further improvements.
For more information about the Code, please see below.
Principles for Responsible Institutional Investors
The following statement has been prepared to demonstrate TMAM’s agreement to each of the seven principles for institutional investors.
Principle 1 Fulfilling our stewardship duties
As part of our management philosophy, we aim to contribute to the promotion of a prosperous society and spur economic development through responsible investment and asset management. As such, we carefully consider not just financial information about a company but also non-financial information when making investment decisions. In addition, we aim to improve the longer-term investment return of clients by taking an active role in pushing for continued growth in our investee companies.
At TMAM, we aim to fulfil our stewardship duties through engaging investee companies in constructive dialogue and exercising shareholder voting rights.
We consider sustainability based on what we call future financial information – ESG and other key longer-term factors in how investees create value. This future financial information refers to an investment’s less visible aspects, which we expect to yield financial results in the longer term; to this end, we continue to conduct proprietary research into investees, and engage them in constructive, meaningful dialogue. We expect our investees to address both the risks and the opportunities associated with sustainability issues, as important factors in achieving long-lasting growth and adding value. We assess the ability of investees to respond to sustainability issues, using ESG information to gain a longer-term perspective on our investment decisions and improve client returns.
We take our fiduciary duties very seriously, and recognise the importance of corporate governance in improving longer-term investment returns; we use our position as shareholders to engage with investee companies, and share our views and concerns with them at the senior management level. Engaging investee companies in constructive dialogue is an effective means of encouraging longer-term growth, and greater engagement is core to our stewardship duties.
We strive for productive and open dialogue with the senior management (including independent outside directors) and investor relations departments of investee companies, with a longer-term focus on improving corporate value and capital efficiency, thus encouraging sustainable growth. Whether through private meetings, small meetings with management, or results briefings, we use every opportunity to actively engage with investee companies. Our analysts and portfolio managers work to ensure this dialogue is constructive by building a body of research on each company, sharing examples of effective engagement, and strengthening organisational capabilities in this area through regular review.
Our Engagement Working Group, consisting of the heads of departments involved in engaging with investees, is responsible for ongoing qualitative improvement in dialogue. The Engagement Working Group monitors and oversees dialogues with investees, sharing information and examples with the rest of the Investment Division to ensure effective engagement throughout the organisation. Analysts leading dialogue give their own assessment at the time of engagement, and report regularly to the Engagement Working Group on progress in dialogues with companies, including how companies respond, and any new or revised items on the agenda.
Principle 2 Our approach to conflicts of interest
Building and retaining customer trust is of paramount importance; it is laid out in TMAM company policy and incorporated into every aspect of our business. We prioritise the interests of our clients to ensure that we are a trusted and indispensable partner, be it when managing assets entrusted to us, when providing solutions or when entering into any agreement. TMAM has established the following policy for managing potential conflicts of interests with clients.
Preventing conflicts of interest with clients and handling potential conflict of interest transactions
We have independent decision-making and oversight structures to prevent any external interference, be it from Tokio Marine group companies or from our own sales divisions, and ensure that we are a trusted and indispensable partner to our clients.
TMAM has also established the following practices for transactions where there is potential for a conflict of interests with clients.
TMAM’s Board of Directors regularly revises the definitions of transactions where there is reason to believe a conflict of interest may arise, and practices for dealing therewith.
- 1. Potential conflicts of interest in shareholder voting
In some cases, equities held in portfolios of entrusted assets may include TMAM’s parent company, other companies with capital ties, or companies that have business ties with the Tokio Marine Group, including with TMAM itself. In such cases, to ensure these affiliations cause no impediment to the exercise of voting rights, the Responsible Investment Committee follows clearly stipulated internal guidelines to ensure the following situations are handled appropriately.
When exercising shareholder voting rights with regard to our parent company or major business partners, our Responsible Investment Committee shall refer to recommendations provided by a proxy advisory firm in order to avoid any conflict of interest.
When exercising shareholder voting rights with regard to investee companies other than our parent company or major business partners, decisions shall be made within investment departments in order to avoid any conflict of interest.
Shareholder voting results shall be reported each quarter to the Responsible Investment Monitoring Committee, the majority of which consists of outside directors. We shall also publish voting results for each invested company and each proposal, along with our rationale for decisions subject to potential conflict of interest review and other case-specific factors.
Persons in charge of shareholder voting (Responsible Investment team members, research analysts, and portfolio managers) shall make voting decisions independently, without the influence of any information, advice, or explanation from persons inside or outside TMAM, with the exception of issuers, shareholders making proposals, proxy advisory firms and similar.
- 2. Potential conflicts of interest in purchasing securities issued by our parent company
As a general rule, we do not invest in securities issued by our parent company in client portfolios. An exception to this rule is where not investing in these securities will disadvantage our clients; in such cases, we have internal rules and procedures to confirm and approve maximum holding ratios and reasons for individual trades on a case-by-case basis.
- 3. Potential conflicts of interest when launching new products
In order to ensure that management fees set at product launch do not unfairly affect client interests, we have established a process for making rational decisions in accordance with TMAM’s Basic Policy on Setting Investment Management Fees.
- 4. Potential conflicts of interest in real estate investment
As a general rule, where other group companies are involved in selling or managing real estate and similar assets, transactions are discussed and approved by TMAM’s Property Investment Compliance Committee, which includes outside members, to ensure reasonable and transparent pricing.
- 5. Potential conflicts of interest regarding group companies
Internal TMAM rules prohibit the sharing of client information with group companies for marketing or other purposes, except where expressly agreed.
- 6. Potential conflicts of interest in execution of trades
We ensure that trades executed in the course of managing assets entrusted to us go through brokers satisfying specific criteria and offering best execution, with no consideration given to business relationships with TMAM. Key execution factors include price, total cost, speed, order volume, and market liquidity. We also ensure fairness is maintained in terms of timing and suchlike where the same security is to be held simultaneously in the entrusted assets of different clients.
- 7. Matters regulated under the Financial Instruments & Exchange Act and other applicable laws and regulations in Japan
We have detailed guidelines on personal trading, broken down by job function, to prevent any misuse of trading information relating to assets entrusted to us. We also have internal rules and monitoring mechanisms in place regarding transactions between funds under management, covering acts prohibited or restricted under the law.
Conflicts of interest management framework and monitoring
The Compliance Committee and the Responsible Investment Monitoring Committee are among a number of internal organisations responsible for the ongoing handling of cases not otherwise explicitly restricted under TMAM rules where there is a potential conflict of interests with clients.
Internal controls regarding structures for managing possible conflicts of interest are checked by TMAM’s internal audit department, and are subject to monitoring and regular review by the Board of Directors, including independent outside directors.
Principle 3 Monitoring of companies we invest in
TMAM takes into account both financial and non-financial information when assessing company value and making investment decisions. We use a proprietary approach to evaluate longer-term growth potential and confirm the competitive edge of a company’s business model by analysing the business strategy and growth drivers contributing to any increase in its corporate value. We then continue to monitor for sustainable growth after investing. Ongoing monitoring includes longer-term earnings trends, business environment, corporate and financial strategies, and ESG factors, with the aim of capturing any signs of change or possible challenges in a timely manner.
We believe that comprehensive ongoing monitoring of the above factors allows us to identify early signs of issues which could detract from corporate value, and of any challenges affecting longer-term growth potential.
Principle 4 Constructive dialogue with companies
TMAM actively engages investee companies in constructive dialogue centred on improving corporate value and capital efficiency, with the goal of encouraging sustainable growth. In addition to monitoring investee companies, we strive to reflect the results of constructive dialogue with corporate management into our investment decisions for more accurate company valuations.
In evaluating a company’s value, we look at whether the company is capable of providing longer-term returns greater than cost of capital and equity spread (ROE – cost of equity). The understanding we gain through this process allows us to accurately identify issues related to the longer-term growth potential of investee companies from the perspective of corporate value creation. Where we identify issues that could damage corporate value, or ways in which the company should further add value under favourable business conditions, we will relay that information to the company and communicate with them on how best to move forward.
We share information both through our Engagement Working Group and within the Investment Division to ensure dialogue is effective.
We recognise that cooperative engagement with investee companies may at times be a more effective form of engagement than one-on-one dialogue; we will adopt a flexible approach to working with other institutional investors as necessary.
Discussions will generally be held with members of the senior management team. Whether through private meetings, small meetings with management, or results briefings, we will use every opportunity to actively engage with investee companies.
Given fair disclosure rules, we neither request nor receive non-public corporate information when conducting these dialogues, and consider this information unnecessary for our purposes. If we do receive non-public corporate information, we handle it in accordance with our internal guidelines.
Principle 5 Objectives in exercising voting rights
TMAM exercises voting rights based on the investment team’s judgement of investee companies from constructive engagement and day-to-day research. We believe that voting appropriately will lead to an enhancement of governance structures resulting in longer-term improvements in shareholder value.
All holdings are subject to shareholder voting. Shareholder voting is overseen by our Responsible Investment team, who are also involved alongside research analysts and portfolio managers in scrutinising individual proposals. The Head of Responsible Investment reports voting results to the CIO and the Head of Investment Research in a timely manner. Discussions on shareholder voting involve our Responsible Investment team sharing information and exchanging opinions with investee companies, with research analysts also participating.
Furthermore, we receive reports from a proxy advisory firm (ISS: Institutional Shareholder Services Inc.) based on their specific guidelines. ISS reports are used as a reference, with investment teams making final voting decisions. When exercising shareholder voting rights with regard to our parent company or major business partners, our Responsible Investment Committee shall refer to recommendations provided by ISS in order to avoid any conflict of interest.
As a general rule, clients are provided with periodic reports about our voting decisions. We also disclose our basic policy and guidelines on shareholder voting. Voting results and rationale for each invested company and proposal are also published to ensure greater transparency on how our voting aligns with our guidelines.
Principle 6 Regular reporting to clients
In addition to reporting on engagement and voting decisions, as a general rule we report to clients at fixed intervals on our stewardship activities, and post information on our website. We strive to improve reports to clients on investee company engagement, based on what information would be most beneficial from the client’s perspective.
Principle 7 Organisational learning
TMAM recognises the importance of our management team’s role and obligations in effectively fulfilling our stewardship duties, and strives to enhance our companywide capabilities and operations. Directors and executive officers are appointed to (or dismissed from) TMAM’s management team by a Nomination Committee chaired by an independent outside director in order to strengthen corporate governance as an investment manager.
As a responsible institutional investor, TMAM recognises the importance of stewardship training and development for key investment decision makers to ensure that engagement with investee companies is constructive, and contributes to said companies’ sustainable growth.
Portfolio managers, research analysts and our responsible investment team make significant efforts to ensure dialogue with investee companies is meaningful. On an organisation-wide basis, we continue to bolster the underlying stewardship support framework by holding in-house study sessions on stewardship activities, as well as holding regular stewardship meetings attended by analysts, portfolio managers, and our Responsible Investment team. We believe that enhancing our abilities to engage in dialogue with investee companies is an important factor in stewardship activities; the Engagement Working Group and stewardship meetings are used to share activities deemed effective in enhancing the value and sustainable growth of investee companies, accumulating effective case studies to improve our knowledge.
We also participate in initiatives as a means to acquire external knowledge and communicate our thinking, with the aim of making our stewardship activities more appropriate and effective.
With the aim of continually strengthening our stewardship capabilities, we regularly assess the state of our own governance framework and our conflict of interest management, as well as our policies and guidelines regarding the stewardship code itself, and publish an overview of these.