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 Approach to Responsible Investment
Development of Organisational Frameworks
Our Responsible Investment Committee, consisting of the heads of investment in each asset class, creates the basic policies upon which our organisational frameworks are built. The committee also discusses how investee companies approach corporate governance, and oversees shareholder voting policies, guidelines and processes.
As an institutional investor, we have a duty to consider and deepen our understanding of ESG issues. We will be tireless in our efforts to strengthen our responsible investment framework and capabilities and live up to the high expectations of our clients – and of the wider society at large.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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, including outside directors. 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. 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. 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 organisational capabilities.
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.
Tokio Marine Asset Management (TMAM) has, from the viewpoint of fiduciary responsibility, established this basic policy on Japanese equity shareholder voting. The purpose of this policy, and voting guidelines based hereon, is to seek to maximise shareholder value. We have strict controls in place to manage conflicts of interest and fulfil our fiduciary responsibility by ensuring independence when voting on companies with which we have direct or indirect capital, personal or business ties.
Basic Philosophy on Shareholder Voting
Purpose of shareholder voting: TMAM exercises its voting rights for the purpose of contributing to the interests of our clients – pension funds and investment trust beneficiaries.
Maximising long-term shareholder value: We believe that companies should not be managed solely in pursuit of short-term shareholder value, but in balance with the interests of employees, business partners, regional communities, and other stakeholders; building a cooperative relationship with stakeholders is what best creates long-term shareholder value.
Our Expectations of Investee Companies
Information disclosure: Ensuring transparency in corporate management is an important factor in improving shareholder value, and we expect active disclosure.
Improving corporate governance: Shareholders and capital markets alike require companies to maintain a clear focus on corporate governance, and we expect active efforts to improve corporate governance.
Sustainability initiatives: We expect companies to limit risks and create opportunities with regards to ESG and sustainability issues.
Preventing unlawful or unethical behaviour: We expect companies to abide by the rule of law and standards of public order and decency and to be unremitting in their efforts to prevent unlawful or unethical behaviour.
Shareholder Voting Guidelines
Voting decisions are made on a case-by-case basis, pursuant to our basic policy and guidelines. While the following specifically refers to how we exercise shareholder voting rights on Japanese equities, we follow essentially the same policy in voting on Asian and other global equities, subject to local customs and regulations in each country.
Where the exercise of voting rights may have an impact on our management due to capital ties, business relationships or other such reasons, we will take advice from a proxy advisory firm and vote in accordance with the Responsible Investment Committee’s decisions in order to avoid any conflict of interest.
Company performance is a key area of focus in making voting decisions. Our basic principle is to respect management decisions in companies performing well and to seek improvement in management in underperforming companies. In this context, underperforming means operating loss, net loss, no dividend payout, low ROE level, or poor stock price performance relative to sector average over the past three consecutive years.
All holdings are subject to shareholder voting. Proposals for companies held in active products are scrutinised by investment research analysts, equity portfolio managers, and responsible investment analysts. Proposals for companies other than those held in active products are as a general rule scrutinised by responsible investment analysts, except where deemed subject to further examination by investment research analysts, equity portfolio managers, and responsible investment analysts for reasons including unlawful or unethical behaviour, corporate governance issues, exceptions from these voting guidelines, and shareholder proposals.
Voting activity is reported each quarter to the Responsible Investment Monitoring Committee. Voting results are disclosed for each invested company and proposal on a quarterly basis.