NOMURA ASSET MANAGEMENT

Analyzing Our Portfolios Based on Financed Emission Metrics

Climate-related risks and opportunities were analyzed for the four portfolios managed by the company: Japanese equities, global equities, Japanese bonds, and global bonds, as well as our sovereign debt portfolio. Analyses were conducted in accordance with assessment and disclosure methods, including "The Global GHG Accounting and Reporting Standard for the Financial Industry" published by the PCAF, of which we are a member. Specifically, for the four asset classes-Japanese equities, global equities, Japanese bonds, and global bonds-we utilize data and analysis methods from ISS. For benchmarks, we used TOPIX for Japanese equities and MSCI ACWI ex-Japan for global equities, NOMURA-BPI (Corporate bonds only) for Japanese bonds, and the Bloomberg Global Aggregate Index ex-Japan (Corporate bonds only) for global bonds. For bonds, the scope of this analysis is corporate bonds, with a separate analysis conducted for sovereign debt.

Absolute Emissions

Emissions attributed to a financial institution's lending and investing activity.
Unit: tCO₂e(CO₂ equivalent)
GHG emissions of investee companies include Scope 1,2, and 3^*1

Carbon Footprint

Absolute emissions divided by the market value of the portfolio
Unit: tCO₂e/US$ million (investment amount)
Only Scope 1 and 2 emissions are considered for carbon footprint calculations

Carbon Intensity

Absolute emissions divided by the revenue of the investee companies
Unit: tCO₂e/US$ million (revenue)
Only Scope 1 and 2 emissions are considered for carbon intensity calculations

Weighted Average Carbon Intensity (WACI)

Weighted average of each company's carbon emissions per unit of revenue, based on their weight in the portfolio.
Unit: tCO₂e/US$ million (revenue)
Only Scope 1 and 2 emissions are considered for WACI calculations

*1 EVIC stands for Enterprise Value Including Cash. The sum of the market capitalization of ordinary shares at fiscal year-end, the market capitalization of preferred shares at fiscal year-end, and the book values of total debt and minorities' interests. No deductions of cash or cash equivalents are made to avoid the possibility of negative enterprise values.

The analysis revealed that the absolute emissions (Scope 1 and Scope 2) of our Japanese equities portfolio were lower than the portfolios of the same size, comprising the same stocks and weightings as the benchmark. Additionally, our portfolios of equities (ex-Japan), Japanese bonds, and bonds (ex-Japan) slightly exceeded the benchmark emissions. We will continue to participate in climate change-related initiatives and engage with investee companies to reduce greenhouse gas emissions.

Figure 1 Absolute Emissions

Figure 2 Ratio of Total Carbon Emissions by Industry

Figure 3 Carbon Footprint

Figure 4 Weighted Average Carbon Intensity by Industry

Scenario Analysis

Sustainable Development Scenario (SDS)

A scenario aligned with the goal of the Paris Agreement, adopted at COP21 in December 2015, which aims to limit global warming to well below 2°C above pre-industrial levels and purse efforts to limit the temperature increase to 1.5°C.

Announced Pledges Scenario (APS)

A scenario that assumes that all climate commitments made by governments around the world, including Nationally Determined Contributions (NDCs) and longer term net zero targets, will be met in full and on time.
In the APS, the faster reduction in CO₂ emissions to around 21 Gt in 2050 has little impact on the year in which 1.5 °C is exceeded, but the rise in temperature in 2100 would be restricted to around 2.1 °C.

Stated Policies
Scenario (STEPS)

A scenario that reflects current policy settings based on a sector-by-sector assessment of the specific policies that are in place, as well as those that have been announced by governments around the world.
Emissions in 2050 are around 32 Gt CO₂: if emissions continue their trend after 2050, and if there are similar changes in non-energy-related greenhouse gas (GHG) emissions, the rise in temperature in 2100 would be around 2.6°C.

For our four asset integrated portfolio, we used data from ISS, and performed scenario analysis based on the three scenarios outlined in the World Energy Outlook 2021 issued by the International Energy Agency (IEA). For in our scenario analysis, in light of the specific characteristics of transition risk in each sector, we used only Scope 1 emissions for the utilities companies, only Scope 3 emissions for fossil fuel-producing companies, and both Scope 1 and Scope 2 emissions for all other companies.
In the World Energy Outlook 2023, it is estimated that the temperature rise in 2100 is approximately 1.7°C for APS and about 2.4°C for STEPS.

Figure 5 Comparison of NAM's four-asset integrated portfolio's total carbon emissions and carbon budget under each scenario

The scenario analysis confirmed that our four-asset integrated portfolio is likely to reach the total carbon emissions permitted under the Sustainable Development Scenario at around 2043. Among the four asset classes, it is particularly the case in our global equities and global bonds portfolios that the relatively high weightings of stocks and bonds in the Energy, Materials, and Utilities sectors-centered in emerging and developing countries where GHG emissions increase alongside economic growth-have significantly influenced the portfolio's overall emissions. In addition, it is believed that the significant influence on our portfolio emissions for Japanese bonds is due to the high weighting of the utility sector, which is a major source of GHG emissions.
Our analysis also indicates the importance of continuing to engage with the entire market to address climate change, as our investment portfolios, particularly in Japanese equities, include a significant number of passive investments.

Status of GHG Reduction Targets by Investee Companies

As a methodology for setting and monitoring progress toward the 2050 Net Zero Goal and the 2030 Interim Target for managed assets, the Net Zero Asset Managers initiative (NZAM), of which we are a member, recommends the Science Based Targets initiative for Financial Institutions (referred to as "SBTi for FI"). Under this framework, financial institutions monitor the percentage of investee companies that have obtained SBT approval (SBT portfolio coverage ratio) and other metrics such as temperature ratings developed by CDP and WWF. We use ISS's analytical tools to monitor the status of GHG reduction targets of investee companies within our investment portfolio, including SBT approvals.

Figure 6 Status of Portfolio Companies' GHG Reduction Targets in Four-Asset Integrated Portfolio

As of the end of 2023, the SBT portfolio coverage ratio for our four-asset integrated portfolio stood at 43.6%. Investee companies receiving approval from SBTi demonstrate that they have established GHG reduction targets with a clearly-defined path to reduce emissions in line with the Paris Agreement goals. This serves as objective evidence of our investment portfolio's progress towards decarbonization and is a critical step toward achieving a decarbonized society. Therefore, through engagement and other means, we will continue to encourage investee companies to actively commit to SBTi and obtain approval.

Transition Risk Analysis

It is important to conduct a detailed analysis of climate-related transition risks, as these risks are highly dependent on GHG emissions, which show a relatively high correlation with both stock price performance and corporate value. As we believe it is crucial to analyze GHG emissions across the entire life cycle of a company's products and services, we utilize greenhouse gas (GHG) emissions data disclosed by companies throughout the global supply chain for supplementary analysis purposes.
Our specific method for analyzing transition risks includes using ISS data to assess the power generation mix and future GHG emissions (risk of stranded assets) within the portfolio, as well as analyzing the ratio of problematic resource developments such as shale oil and gas production, Arctic drilling, and oil sands development. Additionally, we utilize ISS's proprietary Carbon Risk Rating as part of our transition risk assessment.
Furthermore, our proprietary ESG score for Japanese equities includes an environmental score that evaluates climate-related transition risks, and we also conduct financial impact analysis using internal carbon pricing based on these transition risks and GHG emissions.

Power Generation Mix Analysis (Portfolio, Benchmark, SDS)

The graph below compares the power generation mix of our portfolios, the benchmarks, and the SDS on power generation volume. The SDS, based on IEA forecasts, illustrates the power generation mix that is likely to keep the temperature increase in 2030 and 2050 to less than 1.5°C above pre-industrial levels. The power generation exposure of our Japanese equities and Japanese bonds portfolios is almost identical to their respective benchmarks. Meanwhile, the ratio of fossil fuel power generation in our global equities and global bonds portfolios is lower than the benchmarks.
Additionally, the fossil fuel power generation exposure in all asset classes is higher than the power generation mix projected for 2030 and 2050 under the SDS.
Through engagement with investee companies, we aim to increase the ratio of renewable energy in our portfolios, thereby striving to reduce the transition risk associated with fossil fuels and promoting the reduction of total carbon emissions and weighted average carbon intensity in our portfolios.

Figure 7 Power Generation Exposure

Physical Risk Analysis

In recent years, hurricanes, cyclones, heavy rains, floods, heat waves, forest fires, and droughts-believed to be influenced by climate change-have been occurring with increasing frequency around the world. The impact of these events on the businesses and assets held by investee companies can no longer be ignored, making the analysis of physical risks increasingly critical.
In analyzing the physical risks of investee companies, we employ ISS's risk analysis and physical risk scores, categorized by industry and region. Additionally, we utilize the portfolio's Value at Risk (VaR), which calculates the potential negative impact on the portfolio's value due to the loss of business assets owned by investee companies, caused by abnormal weather events resulting from climate change, projected through 2050.

Physical Risk Analysis by Sector and Region

We utilize ISS data to conduct physical risk analysis by industry and region. The graph below illustrates the sectoral composition of Value at Risk (VaR) related to physical risks due to climate change through 2050 for our Japanese equities, global equities, Japanese bonds, and global bonds portfolios. The higher the ratio, the greater the potential negative impact of physical risks due to climate change on the value of companies within that sector.

Figure 8 Value at Risk by Sector

Figure 9 Portfolio Value at Risk (%)

Physical Risk by Region

The map below illustrates the physical risk by region for our four asset integrated portfolio. We use this map in conjunction with industry ratios as a reference when considering industry and regional allocations. These analysis allow us to identify sectors and regions with relatively high physical risks.

Figure 10 Physical Risk by Region

Climate Change-related Engagement with Investee Companies

Through engagement with investee companies, we are actively promoting the following initiatives. This proactive approach not only helps mitigate climate-related risks in our portfolio but also encourages investment in climate-related opportunities.

Nomura Asset Management

Through engagement with investee companies, we are actively promoting the following initiatives. This proactive approach not only helps mitigate climate-related risks in our portfolio but also encourages investment in climate-related opportunities.
Active participation in climate change initiatives such as PRI, NZAM, and PCAF, including collaboration with other investors and stakeholders and sharing of best practices.
Further advance ESG integration related to climate change, including the analysis of climate-related risks and opportunities in the investment portfolio.
Develop financial analysis and corporate valuation methods utilizing internal carbon pricing and GHG absorption.
Develop financial products related to climate change that contribute to realizing a decarbonized society, in alignment our 2050 Net Zero Goal and 2030 Interim Target.

Investee Companies

Enhance the transparency of our climate change initiatives through disclosure.
Disclose climate-related financial data, including scenario analysis, transition plans and GHG reduction targets.
Disclose Scope 3 emissions and GHG absorption data to enable assessment of GHG emissions across the life cycle of products and services and throughout the supply chain, and encourage GHG reductions by suppliers, customers and other business partners.
Encourage the adoption of internal carbon pricing by investee companies and the disclosure of price levels.
Incorporate climate change countermeasures and external evaluations into KPIs for executive compensation.
Obtain approval for science-based targets (SBT) or commit to SBT.

Analysis of Sovereign Debt Portfolio Emissions

In December 2022, the second edition of PCAF's "The Global GHG Accounting and Reporting Standard for the Financial Industry" was published, which introduced the sovereign debt asset class into the methodologies for calculating and disclosing GHG emissions for investment and loan portfolios. Following the release of the new standard, we measured the emissions of our investment portfolio for both domestic and overseas sovereign debt held as of December 31, 2023.

Sovereign debt portfolio emissions

Sovereign debt portfolio Production emissions intensity

Sovereign debt portfolio consumption emissions intensity

Scope 1	Domestic GHG emissions from sources located within the country territory
Scope 2	GHG emissions occurring as a consequence of the domestic use of grid supplied electricity, heat, steam and/or cooling which is imported from another territory
Scope 3	Emissions attributable to non-energy imports as a result of activities taking place within the country territory
Consumption emissions	GHG emissions on a consumption basis within the country (Scope 1 + Scope 2 + Scope 3 - exported emissions)

The methodology for measuring sovereign debt portfolio emissions differs from that used for listed equities and corporate bonds, particularly in the definitions of emission scopes and the calculation of investment ratios. For the supply chain emissions of sovereigns, Scope 1 is defined as domestic GHG emissions from sources within the country, Scope 2 as energy-related GHG emissions from imports, and Scope 3 as GHG emissions from non-energy imports from other countries. In addition, measuring consumption-based emissions is also required.
For calculating the attribution factor of sovereigns, the ratio of the invested amount to PPP (Purchase Power Parity)-adjusted GDP is used, in contrast to the ratio of the amount invested to EVIC used for equities and corporate bonds.
The measurement of emissions from our sovereign debt portfolio is based on the currently available data, despite ongoing challenges such as data lag and scarcity. For Scope 1 emissions, we primarily use GHG data from the UNFCCC (Annex I countries), while for Scope 2 and 3 emissions, we primarily use CO₂ data from the OECD. Consumption-based emissions are measured using CO₂ data only.
Due to significant variations in the latest data available for non-Annex I countries, the UNFCCC's Scope 1 data for these countries have not been reflected in the measurement results presented in the graph. However, we are separately monitoring the measurement results for non-Annex I countries using the most recent data, which is noted as reference information.
Our sovereign debt portfolio has a significant exposure to U.S. and Japanese sovereign debt, which greatly influences the portfolio's overall emissions. Data for emerging countries remain insufficient, leaving some gaps in our current measurements. However, as data availability improves, we expect the quality of our disclosures to enhance further.
We will continue to monitor the emissions of our sovereign debt portfolio, and proactively pursue initiatives aimed at achieving a decarbonized society.

Figure 12 Sovereign bond portfolio emissions (Units: ktCO₂ e (in the case of GHG), ktCO₂ (if CO₂ only))

Figure 12 Sovereign bond portfolio emissions (Units: ktCO2 e (in the case of GHG), ktCO2 (if CO2 only))

* LULUCF: Land Use, Land Use Change and Forestry
* Production emissions Scope 1 use 2020 UNFCCC Annex 1 country's GHG data and 2021 PPP-adjusted GDP announced by the World Bank.
* Scope 2 and Scope 3 use the OECD's CO₂ data for 2018 and 2021 PPP-adjusted GDP announced by the World Bank.
* For consumption emissions, Scope 1 emissions use 2020 UNFCCC Annex 1 country CO₂ data, while Scope 2, Scope 3 and exported emissions use the OECD's CO₂ data for 2018 and 2021 PPP-adjusted GDP announced by the World Bank.
* When measured including the most recent data released by each UNFCCC Non-Annex 1 country, Scope 1 emissions were 12,599ktCO₂e (GHG, excluding LULUCF) and 11,542ktCO₂e (GHG, including LULUCF), while consumption emissions were 12,732ktCO₂ (CO₂ only, excluding LULUCF) and 11,586ktCO₂ (CO₂ only, including LULUCF).

Figure 13 Breakdown of Consumption Emissions (CO₂ only, excluding LULUCF / Including LULUCF)

* When measured including the most recent data released by each UNFCCC Non-Annex 1 country, Scope 1 emissions (CO₂, excluding LULUCF) were 10,403ktCO₂, while consumption emissions (CO₂ only, excluding LULUCF) were 12,732ktCO₂.

* When measured including the most recent data released by each UNFCCC Non-Annex 1 country, Scope 1 emissions (CO₂, including LULUCF) were 9,250ktCO₂, while consumption emissions (CO₂ only, including LULUCF) were 11,586ktCO₂.

* For countries for which Scope 1 data cannot be obtained, even if Scope 2 and Scope 3 data are available, Scope 2 and Scope 3 are excluded from the final calculation of the consumption emissions. Therefore, the values for (Scope 1 + Scope 2 + Scope 3 - exported emission) and consumption emissions do not match.

Figure 14 Sovereign Bond Portfolio Emissions Intensity (Carbon Intensity)

* Scope 1 data above are used for production emissions. For GDP, 2021 PPP-adjusted GDP announced by the World Bank is used.
* When measured including the most recent data released by each UNFCCC Non-Annex 1 country, the above values are 212.7tCO₂e/US$ million (GDP) (excluding LULUCF) and 193.9tCO₂e/US$ million (GDP) (including LULUCF).

* Consumption emissions are defined the same as above. For populations, 2021 World Bank data are used.
* When measured including the most recent data released by each UNFCCC Non-Annex 1 country, the above values are 12.1tCO₂/capita (population) (excluding LULUCF) and 10.9tCO₂e/capita (population) (including LULUCF).

Participation and Collaboration in Climate Change Initiatives

In March 2019, we declared our support for the Task Force on Climate-related Financial Disclosures (TCFD), and since the Responsible Investment Report 2019, we have been disclosing information in line with the TCFD recommendations, including monitoring and reporting on GHG emissions for individual funds across our Japanese equities, global equities, Japanese bonds, and global bonds portfolios.
We have participated in the TCFD Consortium since its establishment in Japan in May 2019. We have continued to engage with investee companies to disclose climate-related financial information in line with TCFD recommendations and to integrate climate-related risks and opportunities into their business strategies. Although the TCFD was disbanded in October 2023. The FSB has asked the IFRS Foundation to take over the monitoring of the progress of companies' climate-related disclosures.
In August 2021, we joined PCAF and NZAM, which is part of the Glasgow Financial Alliance for Net Zero (GFANZ). In November of the same year, we independently signed on to CDP. In December 2022, PCAF announced standards for measuring and disclosing Financed Emissions (FE) of sovereign debt. Since April 2023, in addition to our traditional stocks and bonds, we have been publishing FE and carbon analysis results for our government bond portfolio.
Furthermore, in order to promote the measurement and disclosure of sovereign debt emissions, as well as the expansion of avoided emissions, we established two subcommittees within the PCAF Japan coalition in fiscal year 2023. These subcommittees are focused on the measurement and disclosure of sovereign debt emissions and reduction contributions.
Our company assumed the role of lead in both working groups, overseeing operations and leading knowledge-sharing among domestic participating institutions.
Nomura Holdings signed on to CDP in June 2015 and joined the Net-Zero Banking Alliance (NZBA), a member of GFANZ, in September 2021. We are responsible for responding to the asset management-related questions on Nomura Holdings' CDP questionnaire.
Furthermore, in September 2022, Nomura Holdings, along with six other lead companies (led by Nomura Holdings) and 73 member companies established the GX Business Working Group as a part of the GX (Green Transformation) League's key initiative to develop rules for market creation.
The GX Business Working Group aims to build a framework to properly evaluate the opportunities for Japanese companies to contribute to climate change mitigation-such as emission reductions from the products and services they offer to the market-towards achieving a carbon-neutral society.
In addition, the GX Business Working Group engages in developing guidelines and forming initiatives related to climate opportunities through discussions and studies conducted by leading and member companies. As a key member, we contributed to the formulation of the "Basic Guidelines for Disclosure and Evaluation of Climate-related Opportunities" published by the GX Business Working Group in March 2023, and the "Leveraging Avoided Emissions: Financial Institution Case Studies" published in December of the same year by the Working group.
Through our engagement with companies, we will continue to promote the disclosure of climate-related financial information by investee companies and the integration of climate-related risks and opportunities into management strategies, actively working towards the realization of a decarbonized society.

Climate-Related Analysis for Our Portfolio