NOMURA ASSET MANAGEMENT ("we" hereafter) stipulates the appropriate management practices of investee companies in order for investee companies to enhance corporate value and achieve sustainable growth, which is a driver of investment performance, and actively encourages investees through stewardship-related activities.

i) Proper Efforts on Environmental and Social Issues

We believe that making proper efforts on global environmental and social issues from the perspectives of risk management and the pursuit of business opportunities will lead to increase in corporate value and sustainable growth. We also see such efforts as a prerequisite for a company to be accepted as a member of the society. Examples of issues that we consider are particularly important and efforts on them that investee companies need to make are as follows:

1. (1)Basic policy: Establishment of a basic policy regarding the company's efforts on ESG issues and establishment of a system to promote and supervise the efforts;
2. (2)Key issues (materiality): Identification of key issues by the management, verification of business portfolio and promotion of technological innovation to respond to key issues, responses to and disclosure of risks that are identified as key issues (e.g., product liability, etc., as well as those listed in (3) through (8)), disclosure of business opportunities that are identified as key issues;
3. (3)Climate change: Information disclosure on governance, strategy, risk management, metrics & targets concerning the climate change issue, setting of a net zero target for medium- to long-term greenhouse gas (GHG) emissions (including approval of or commitment to science based targets (SBTs)), measurement of avoided emissions and absorption of GHG as climate change opportunities, and introduction of internal carbon pricing;
4. (4)Natural capital: Identification, assessment, and prioritization of dependencies and impacts on nature and related risks and opportunities in business activities, including the supply chain, toward achieving nature-positive outcomes; setting of targets and formulation and implementation of action plans based on the results; and information disclosure in line with international frameworks, including the recommendations of the Task Force on Nature-related Financial Disclosures (TNFD);
5. (5)Human rights: Development of a policy on human rights that is consistent with international norms, conduct of human rights due diligence or audits including the supply chain and disclosure of their results, establishment of corrective measures and remedy mechanisms, and establishment of a PDCA (Plan-Do-Check-Act) cycle to prevent and detect adverse human rights impacts at an early stage and integration of this cycle with enterprise-wide risk management;
6. (6)Human capital with diverse values: Formulation of a human capital strategy that is linked to management strategies and development of a human capital portfolio aligned with those strategies, setting a medium- to long-term target for the percentage of women among board members, senior executives, or managers, developing a personnel system to enhance diversity, equity, inclusion, and the sense of belonging (including measures to prevent employees from leaving employment due to a life event, provision of fair opportunities, employee engagement survey including the disclosure of survey results and improvement measures, etc.), and creation of a corporate culture that embraces diversity and inclusion;
7. (7)Well-being society: Formulation and disclosure of strategies that incorporate contribution to the resolution of social issues, such as access to medicine, health and nutrition, antimicrobial resistance, animal welfare, and regional revitalization, as business opportunities; measurement and disclosure of impact toward the resolution of social issues; and initiatives that take into account the needs of people in vulnerable situations, including children;
8. (8)Risk management in digital society: Implementation of organization-wide cybersecurity measures, appropriate management of data and services, responsible AI practices (design, development, deployment, use, and evaluation of AI with due consideration for its environmental, social, and other impacts), and disclosure of information on these initiatives; and
9. (9)Cooperation with stakeholders, such as participation in initiatives that are related to the issues listed above.

ii) Value Creation through Capital Efficiency

We believe that in order for investee companies to enhance corporate value and achieve sustainable growth, it is necessary for investees to create value that exceeds the cost of capital over the medium to long term by utilizing capital efficiently under proper risk management and constructing a business portfolio that has a high growth potential and is efficient. To this end, we consider that the following efforts are particularly important:

1. (1)To formulate a growth strategy and an investment plan to create value that exceeds the cost of capital and to conduct proper progress management; To determine the cost of capital in due consideration of opinions of investors obtained through dialogue with them as well as stock price levels and changes thereof;
2. (2)To verify the business portfolio against the growth strategy and replace businesses in the portfolio as necessary;
3. (3)To allocate management resources optimally; to sell assets that do not contribute to the creation of value that exceeds the cost of capital and, in particular, to reduce cross-shareholdings;
4. (4)To implement group governance to enable the actions set out in (1)-(3) above; If there is a listed company within the group, to regularly verify the reasonableness of maintaining a listed company within the group; to properly manage the conflict of interest with general shareholders; and to support the listed company's efforts to strengthen corporate governance;
5. (5)To properly manage the risks associated with businesses, etc.;
6. (6)To implement a capital structure and shareholder returns that reflect (1) through (5) above; and
7. (7)To properly disclose information about (1) through (6) above.

iii) Adequate Performance of Corporate Governance Function

We believe that it is necessary for a company to have sufficiently functioning corporate governance as a prerequisite for value creation through the efficient utilization of capital and proper efforts on environmental and social issues. We postulate the appropriate corporate governance to realize this as follows:

1. (1)The board consists of an adequate number of qualified and diverse members who have the ability and experience, including those in the areas of management, finance, and ESG, for supervising the execution of management and any conflict of interest with the management, controlling shareholder, or any other parties on behalf of shareholders and functions effectively.
2. (2)The audit committee, audit and supervisory committee or the board of auditors consists of qualified members who are capable of auditing directors' operations on behalf of shareholders and functions effectively.
3. (3)Committees relating to nomination and compensation have been established, each of which consists of qualified and independent members and adequately fulfills the necessary roles and responsibilities in (4) and (5) below.
4. (4)Standards and processes to determine whether the replacement of senior executives is required have been established, and a succession plan in case of such replacement has been formulated.
5. (5)Compensation of senior executives is appropriate as their incentive and commitment for value creation through the efficient utilization of capital and proper efforts on environmental and social issues.
6. (6)The board of directors makes appropriate judgment from the perspective of the best interest of minority shareholders on any transaction involving a conflict of interest or a fight for control of the company. In our view, as anti-takeover measures limit the rights of shareholders to buy and sell shares freely, they are unnecessary unless there is a risk that such a transaction or fight will significantly impair corporate value and common interest of shareholders.
7. (7)The board of directors monitors environmental and social issues and business and other risks and oversees initiatives by senior executives, and corporate governance systems are in place to ensure sufficient internal control in terms of compliance and internal auditing
8. (8)Business operations comply with laws and regulations, market rules, etc., and requirements of the Corporate Governance Code, etc., are properly addressed.

iv) Adequate information disclosure and a dialogue with investors

We believe that it is important for companies to fulfill their accountability for the matters stated in 1. through 3. To this end, we consider that the following efforts are particularly important:

1. (1)To disclose information appropriately on a timely basis in compliance with relevant standards, etc., based on developments in national regulators and international initiatives and to obtain third party audits or assurances as much as possible particularly for quantitative information;
2. (2)To actively hold dialogue with each investor in order to appropriately reflect investors' opinions in corporate management; and
3. (3)If a company is found to have engaged in any activity that is materially harmful to corporate value, it is important for the company to provide sufficient disclosure and explanations on investigations of cause, clarification of where responsibility lies, and the formulation and dissemination of effective recurrence countermeasures.