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SuMi TRUST
CORPORATE BROCHURE

ESG

ESG Investment Initiatives

As a responsible institutional investor, we strive to manage stocks and bonds in ways that take into account ESG information as a factor that affects corporate value via medium- to long--term business opportunities and risks, in addition to financial information such as corporate earnings that affects near-term share price trends. We regard stewardship activities such as engaging with companies and exercising voting rights as vital to addressing ESG challenges.
ESG challenges not reflected in financial information are those challenges in non-financial domains, which may have a significant impact on corporate value over time. We believe the our responses to ESG challenges lead to upside potential while limiting downside risk over the medium- and long-term, and actively responding to ESG challenges will enable us to meet our responsibility to expand investment returns for our clients, one of our stewardship responsibilities.

Milestones in Our in Our ESG Activities

We ramped up our ESG activities in earnest from 2003, when we launched a Japanese equity SRI fund. We We have been a signatory to the Principles for Responsible Investment (PRI) since PRI’s launch in May 2006. Our PRI initiatives are based on the latest trends, with policies we have formulated and put into place based on the six PRI principles.

In April 2015, as a mechanism for looking carefully at the “earnings power” of companies, we introduced MBIS®, an in-house- developed tool for analyzing and evaluating ESG and other non-financial information. We also launched a “quality growth” Japanese equity fund that, which harnesses MBIS® as a driving force of corporate engagement.

History of our ESG Activities※1

2003 Starts providing a Japanese equity SRI fund for corporate pension, the first of its kind in Japan.
Starts providing a Japanese equity publicly offered SRI investment trust for individual investors.
2004 Starts providing an SRI fund for defined contribution pension plans.
2006 Signs PRI (Principles for Responsible Investment).
2008 Starts providing an SRI fund to major public mutual aid associations.
2010 Starts providing a Chinese equity publicly offered SRI investment trust.
2014 Adopts Japan's Stewardship Code.
2015 Introduces "MBIS®," a non-financial information evaluation tool.
Starts providing a Japanese Equity Quality Growth Fund.
Starts incorporating the ESG concepts into the "business risk assessment" for corporate bond investment.
Wins the Award for Excellence in Sustainable Finance※3 at the 2015 Sustainable Finance Awards.※2
2016 Wins the Award for Excellence in Sustainable Finance at the 2016 Sustainable Finance Awards for the second consecutive year.※4
Establishes a special department for stewardship activities.
2017 Establishes an advisory body for stewardship activities.
Adopts the revised Stewardship Code.
  • ※1 Our activities up to September 2018 also include those conducted by Sumitomo Mitsui Trust Bank, Limited.
  • ※2 awarded by the Research Institute for Environmental Finance (Annualy).
  • ※3 "ESG integration into domestic active management"
  • ※4 "Global engagement activities based on international norms and rules"

MBIS®: Our Non-financial Information Evaluation Tool

To closely assess the basis for sustainable growth at investee companies, we collect non-financial information (ESG information) that does not often appear in quantitative financial information such as the scale and sustainability of value added value from services and products companies supply, their governance systems, which support the provision of added value, and their degree of impact on society and the environment, which are the foundations of sustainable growth. We tabulate this data for analysis and evaluation.
Drawing on these kinds of non-financial information, our in-house developed MBIS® tool is a framework we use to evaluate the strengths companies bring and the challenges they face in achieving sustainable growth.
M is for “management,” B is for “business franchise,” I is for “industry,” and S is for “strategy.” Evaluation of a company’s ESG initiatives is included in “M,” whereas evaluation of the net contribution to income generation and new business creation from ESG is included in “S.”
ESG initiatives are evaluated based on the seven core subjects of ISO26000, an international standard that offers guidance on social responsibility developed by the International Organization for Standardization. Through ISO26000, we strive to ensure ESG initiatives are aligned with Sustainable Development Goals (SDGs).

We have adopted SDG concepts into MBIS®R with the understanding they will facilitate sustainable growth and future business opportunities for companies. With the 17 goals in mind, we are engaging with companies.

ESG Integration

We apply our analysis to stock selection as a way to improve active returns on equity investments while reducing downside risk.

This is our approach to “ESG integration.” We commenced application of this strategy in 2015, and all our actively managed domestic equity funds now factor in ESG considerations. In addition, some of our actively managed domestic fixed income funds also apply this kind of approach.

The way ESG ratings are applied differs according to the investment style of each fund. In equity investments, for example, ESG ratings are used for screening in the selection of stock universes, or they can be used to narrow down stocks deemed investable.

Fixed Income Investment and ESG Integration

In our process of selecting corporate bonds for investment, we apply our internal ratings to form our own judgments about creditworthiness in evaluating the creditworthiness of relevant companies.
Our internal ratings determine creditworthiness based on a quantitative model that focuses on scale, financial composition, earnings power, and repayment capacity, which has high predictive power for credit ratings. In addition, we add a qualitative judgment that addresses concerns our quantitative model cannot.
We strive to implement ESG integration into fixed income investment by embedding ESG concepts into our business risk evaluations, which are an important element in qualitative judgments.

Engagement

Our analysts in the Investment Research Department are directly responsible for engagement with investee companies, reflecting our view that it is more effective for them to engage with companies in conjunction with their customary role of rigorously researching industries and companies and developing in-depth understandings of them.

The Stewardship Development Department has staff with many years of experience in asset management and investment research, involved with planning and promoting our stewardship activities in Japan and overseas as well as engagement activities with those companies outside the coverage of our analysts in the Investment Research Department.

As for engagement, we interact with companies on an individual basis as a general rule. For cases where we cannot confirm post-engagement changes at companies, issues for which institutional investors have formed a shared understanding, medium- to long-term themes, and related situations, we will look to harness collective engagement in an effective manner.

Based on this conception, we decided to join a program sponsored by Institutional
Investors Collective Engagement Forum (IICEF). For cases where we determine collective engagement would encourage changes, we will do so through IICEF activities.

For details, please visit iicef's website URL: https://www.iicef.jp/en/

ESG Engagement around the World

We conduct a variety of engagements on ESG challenges with companies around the world.
We have specialists who conduct their own engagements, and we also carries out initiatives harnessing a variety of international frameworks.

In particular, we engage on three fronts: 1) activities based on PRI, etc., 2) activities to address misconduct, etc., based on international norms, and 3) activities that call for building high-quality corporate governance structures and efficient corporate management. We participate actively in such activities, working to effectively and efficiently limit the risks facing companies in their exposures to ESG challenges by accepting, for example, the role of lead manager for working groups in some international frameworks.

Participation and Activities Based on Global Guidelines for Corporate Conduct, etc.

As a signatory to international guidelines for corporate conduct and principles, we engage with investee companies while cooperating with the United Nations, other overseas companies, NGOs, and other organizations as we implement activities in keeping with our signatory commitments.

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