Institutional investors should formulate and publish clear policies to fulfill their stewardship responsibilities.
As an asset management company, we will act with the highest priority on the interests of our clients. As part of this effort, we recognize the importance of improving corporate governance and other sustainability factors, and appropriately fulfill our responsibilities as trustees.
Through constructive "purposeful dialogue" (engagement) with investee companies and the exercise of voting rights, we will encourage investee companies to act responsibly on issues such as the environment, society, and corporate governance (ESG), and strive to improve and maintain shareholder profits.
Institutional investors should formulate and publicly announce clear policies regarding conflicts of interest that should be managed in fulfilling their stewardship responsibilities.
The Company will not incorporate securities issued by the Company's affiliated companies into the Trustee Assets in the course of its operation. In addition, there are no affiliated companies of the Company in Japan, and it is not assumed that sales activities using business relationships with affiliated companies will be conducted. With regard to possible conflicts of interest, we have established internal rules concerning the avoidance of such conflicts. In addition, with regard to the management of conflicts of interest arising when exercising voting rights, we have established a policy on the exercise of voting rights.
When we make decisions to exercise our voting rights, we use services provided by Institutional Shareholders Services (ISS), a leading corporate governance and voting service provider. The ISS investigates individual companies for which we hold voting rights and makes recommendations for the exercise of voting rights. We avoid conflicts of interest by exercising voting rights based on the recommendation of the ISS, an independent, third-party organization.
Note that portfolio managers may make proposals to vote for or against a different from the ISS recommendations. In this case, the Compliance Department of Principal Global Investors (PGI) confirms and approves that there is no conflict of interest, such as the exercise of voting rights for shares issued by the customer (or the customer's affiliate) who has concluded a discretionary investment agreement with the Company. In some cases, we will also exercise our voting rights in consultation with PGI's senior management, legal department, external counsel, etc.
Institutional investors should accurately grasp the situation of investee companies in order to appropriately fulfill their stewardship responsibilities for the sustainable growth of the companies in which they invest.
We take a bottom-up approach to judging the future potential of an individual company based on its performance and trends. We also employ an investment process that combines quantitative and qualitative analysis to uncover the most attractive investment opportunities from the investment universe. At each stage of the process, we focus on finding companies with sustained fundamentals on an upward trend, improving investor expectations and attractive valuations.
In addition to financial information, we also consider non-financial information, including ESG factors, when analyzing investee companies. Our analysts and portfolio managers regularly analyze and continuously monitor investee companies through research materials obtained from securities firms, information from other third-party organizations, annual reports, disclosure materials to authorities, participation in general meetings of shareholders, interviews with companies, etc., and strive to grasp fundamental changes at an early stage. In considering sustainability factors such as ESG factors, in addition to ratings from external organizations, we will focus on companies that have shown improvement efforts.
Institutional investors should share awareness with investee companies through constructive "dialogue with a purpose" with investee companies and strive to improve problems.
We position constructive "purposeful dialogue" (engagement) with investee companies as an important factor that leads to maximization of shareholder value. Engagement encourages companies to take action to increase shareholder value, and contributes to a comprehensive evaluation and analysis of investee companies in our investment processes.
In our engagement with investee companies, we encourage analysts to raise issues related to ESG and other issues. We will strive to contribute to the realization of a better society by encouraging investee companies to take responsibility for the sustainable development of natural resources, human resources, and economic resources. Based on the response from the engagement, the analyst understands the outlook for the stock, and the portfolio manager makes a decision on whether to buy, sell or continue holding. In addition, we regularly review and record our relationships with investee companies.
In addition, when conducting dialogue with investee companies, we will respond flexibly as necessary, not limited to dialogue with our own company, and with the recognition that it may be beneficial to engage in dialogue in cooperation with other institutional investors (collective engagement).
In the course of engagement, we will take care to accept as few undisclosed material facts as possible. In order not to become an insider, we have created internal regulations concerning the management of insider information and manage it appropriately.
Institutional investors should have a clear policy on the exercise of voting rights and the publication of the results of their exercise, and should devise a policy for exercising voting rights so that they contribute to the sustainable growth of investee companies, rather than merely on formal judgment criteria.
We regard the exercise of voting rights as an important means of achieving the maximization of long-term shareholder profits, and have established a policy on the exercise of voting rights. We use services provided by Institutional Shareholders Services (ISS), which goes beyond the framework of core fiduciary responsibility and makes sustainability-conscious recommendations. Normally, the pros and cons of an agenda item will follow the ISS recommendations, but the final decision and responsibility will belong to us. In addition, as a supervisor of the ISS, we regularly check whether the company's voting advisory policy is in line with our policy, and also check the quality of the services provided by the company.
We will organize and aggregate the results of the exercise of voting rights for each main type of agenda item and publish it. However, since the publication of the results of the exercise of voting rights by individual investee companies means that the status and trends of the portfolio managed by the Company for the benefit of the client is not necessarily limited to the benefit of the customer, disclosure of individual proposals will be made to the customer in principle.
In principle, institutional investors should regularly report to their clients and beneficiaries on how they are fulfilling their stewardship responsibilities, including the exercise of voting rights.
We record our voting and engagement activities to the extent necessary to meet our stewardship responsibilities and report them individually to our customers and beneficiaries. In addition, if there is an important change in the policy regarding the fulfillment of stewardship responsibilities and the exercise of voting rights, it will be announced on the website etc.
In order to contribute to the sustainable growth of investee companies, institutional investors should have the ability to appropriately make judgments related to dialogue with the investee companies and stewardship activities, based on a deep understanding of the investee companies and their business environment, etc., as well as consideration of sustainability in accordance with investment strategies.
The Group has several hierarchical teams of executives and employees across departments on ESG and sustainability initiatives. The top-level teams develop the strategy for the entire group, and the lower-level teams ensure the alignment of the management of customer assets with the corporate strategy. These teams share best practices with each operations organization within the group and help them effectively incorporate ESG and sustainability elements into their operational processes.
In order to continuously improve stewardship activities, we will periodically self-evaluate our own governance system, the status of conflict of interest management, and the implementation status of each principle (including guidelines) of this Code, and will publish an outline of it.
Results of Self-Assessment of Stewardship Activities (2021)
