At Nikko AM, we believe that actively addressing ESG issues is essential for companies to grow sustainably. We have a long track record of identifying the ESG issues that are important for different companies’ sustainable growth and using that information in investment decisions. We have established the below key ESG themes that we believe are common to many companies. We believe that focusing on these themes drives growth in medium- and long-term investment returns by helping to enhance the corporate value of companies through stronger analyses and assessments (integration) and engagement.

E: Action for a Decarbonized Society

The shift toward a decarbonized society is creating growth opportunities for companies with environmentally friendly technologies. At the same time, decarbonization and other such changes put companies at risk of potential cost rises, while their brand power may be damaged if they fail to take sufficient action. This is making decarbonization increasingly important as a driving force behind future corporate value. We use our engagement to urge firms to address these changes, for example by allocating business resources to related fields and preparing for the associated risks. Our analyses of companies’ actions in this area are pivotal to our assessments of their corporate value.

S: Human Capital and Productivity

The way companies use human capital is clearly important to their medium- to long-term earnings and corporate value, and it will become increasingly crucial as populations age further and birth rates continue to fall. Following the COVID-19 pandemic, reconsiderations of working styles and the need for flexible responses to similar environmental changes have also driven improvements in corporate sustainability. Deepening our engagement and analyses with a focus on companies’ personnel strategies and systems as well as their labor productivity is another way in which we are helping to enhance corporate value.

G: Effective Governance

Thanks in part to the Corporate Governance Code, Japanese companies have made great strides in developing their governance frameworks. We continue to urge companies to increase their corporate value even further through sustained development and enhancement of their governance frameworks. Our engagement covers the appropriateness of their long-term visions and management strategies, their ability to put these plans into practice, and the effectiveness of their oversight and advisory functions.

*As of 31 Mar 2021