Self-Assessment of Stewardship Code Compliance in FY2025
SPARX Asset Management ("SPARX") conducted a self-assessment of its stewardship activities in fiscal 2025 (April 2025-March 2026). The following report covers the results of this assessment.
Principle 1: Institutional investors should formulate and publish a clear policy on fulfilling their stewardship responsibilities.
The Company created a responsible investment policy to clarify our approach which is available on the SPARX Group website. (Link: https://www.sparxgroup.com/sustainability/pri.html )
To promote responsible investment practices across the Group and to ensure the long-term soundness and appropriateness of its operations from the perspective of climate-related risks and opportunities, as well as nature-related issues including biodiversity, the Board of Directors of SPARX Group convenes the Responsible Investment Committee on a quarterly basis. The committee, consisting of the representative directors, directors, group executive officers, and the head of the Legal & Compliance Office, is chaired by the Group CIO as of the end of March 2026, appointed by the Board of Directors. An external advisor attends the Committee meetings to provide advice on reports and deliberations from an independent perspective and to share the latest developments in responsible investment. During the fiscal year, the Responsible Investment Committee met five times. At these meetings, reports on the status of responsible investment implementation from each Investment Committee, a review of the Responsible Investment Policy, and the annual report were presented and approved.
SPARX Group's initiatives based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) are disclosed on the SPARX Group website.(Link: https://www.sparxgroup.com/sustainability/tcfd.html )
Principle 2: Institutional investors should formulate and publish a clear policy on managing conflicts of interest, as required to fulfill their stewardship responsibilities.
In addition to managing funds that invest in listed stocks, the Company also manages funds that invest in renewable energy and venture companies, among others, by accepting capital from external clients, including business corporations. As a result, there are instances where a listed company, which is a client and beneficiary of one of our funds, is also an investment target of another fund managed by the Company. In such situations, there is a risk that voting rights may not be exercised appropriately due to excessive consideration of client relationships with the listed company, potentially harming the interests of our clients and beneficiaries. Therefore, recognizing the importance of managing such conflicts of interest appropriately, we have continued to perform our operations in accordance with our "Rules for Managing Conflicts of Interest" to prevent conflicts of interest transactions. To mitigate conflicts of interest in the exercise of voting rights, we ensure that any investment targets with potential conflicts undergo thorough deliberation by the Committee for Managing Conflicts of Interest before voting rights are exercised.
Principle 3: To fulfill their stewardship responsibilities, institutional investors should accurately assess the circumstances of portfolio companies so that these investments can achieve sustainable growth.
During the fiscal year, the Company continued its bottom-up approach to conducting company research. We held a total of 2,749 meetings, visits, and dialogues, including interactions with both investee companies and other entities. Specifically, we engaged in dialogue with 350 investee companies and carried out 370 engagements. Key themes addressed most frequently through these engagements included capital efficiency, climate change, and health and safety. In addition to utilizing publicly disclosed information from these companies, we also drew on data provided by external information vendors. For companies with limited disclosure or unclear data, we sought to understand their actual conditions through dialogue, using this information to identify new investment opportunities and potential risks.
Furthermore, the Responsible Investment Committee shares engagement case studies across various asset classes and works to enhance the quality of activities within SPARX Group.
Principle 4: Institutional investors should seek to share perspectives with portfolio companies and work to remedy problems through constructive, purposeful engagement.
The Company has always placed a high priority on individual meetings with companies, engaging in dialogue aimed at sustainable growth and enhancing corporate value. If concerns arise regarding the management situation or business environment of a company, we seek to address these issues through meetings. During these discussions, we strive not only to express opinions or concerns but also to create value in collaboration with companies. This year, as in the previous year, we have focused on enhancing and improving communication with companies. We have had in-depth discussions on improving investor relations (IR), enhancing ESG disclosures, optimizing financial strategies, and strengthening management structures (see below for dialogue examples). Additionally, through seminar presentations and articles on social media, we have communicated our expectations for management improvements to listed companies. We believe that these information dissemination activities contribute to the realization of management practices that are conscious of capital costs and stock prices, not only for our investee companies but also for a wide range of companies.
Engagement Examples:
- Environment - Pollution, Resource Use and Waste Management
We engaged with Company A, a manufacturer of packings, gaskets, mechanical seals, and related products. The company's flagship products include fluoropolymer fittings used in semiconductor cleaning equipment, and it has been actively expanding its production capacity in anticipation of growing demand for semiconductor manufacturing equipment.
We discussed the environmental initiatives implemented at the company's new manufacturing facility, which commenced operations in 2024, and exchanged views on the effectiveness of these measures. Compared with its existing facilities, the new plant has reduced the use of hazardous substances by replacing solvent-based cleaning processes with pure-water cleaning. The company has also introduced measures to reuse waste materials generated during the molding process, thereby promoting resin recycling. We view these investments as meaningful efforts to reduce environmental impact.
At the same time, we discussed PFAS (per- and polyfluoroalkyl substances), which have attracted increasing attention due to concerns regarding environmental and health impacts. Fluoropolymers, the company's primary product material, fall within the broader PFAS category. Although fluoropolymers are generally regarded as chemically stable and less toxic than certain other PFAS substances and are not currently subject to regulation, we encouraged the company to enhance disclosure regarding its response strategy, including the development of alternative materials and preparedness for potential future regulatory developments. - Social - Human Rights, Communities and Diversity
We engaged with Company B, a systems integrator specializing in project management support services, to discuss its organizational initiatives aimed at improving employee engagement and promoting diversity at the management level.
The company has established comprehensive support programs covering childbirth, childcare, and parental leave. It also discloses various metrics related to parental leave utilization and the proportion of female managers, both of which exceed national averages. These initiatives suggest that the company has developed a supportive working environment where employees can work with confidence.
However, we noted that the company's executive management team consists entirely of male directors and highlighted the need for greater gender diversity in management decision-making. In response, management stated that it is positively considering the appointment of female directors, including candidates from outside the organization, with the aim of improving diversity at the board and executive levels.
SPARX believes that enhanced diversity can contribute to better decision-making and governance, while continued efforts to support employees can further strengthen workforce engagement. We expect these initiatives to enhance the company's long-term business growth potential. - Governance - Board Composition and Evaluation, Capital Efficiency and Corporate Governance
We engaged with Company C, a manufacturer and distributor of premium motorcycle helmets. We believe there remains scope for improvement in the company's capital policy and have therefore maintained an ongoing dialogue with management over several years.
Given concerns that the company's current level of cash holdings and dividend payout ratio could lead to a decline in return on equity (ROE), we discussed capital allocation measures and presented a paper containing share buyback simulations. Based on information obtained through previous engagements, we estimated an appropriate minimum cash balance and demonstrated the potential capacity and effectiveness of share repurchases.
The company currently discloses only annual business plans, and its medium- to long-term ROE trajectory is not clearly visible to investors. Against this backdrop, management agreed to utilize our analysis as a reference in its internal discussions regarding longer-term management and capital strategy.
We also raised questions regarding the appointment process for a newly elected independent outside director from the perspective of board independence. The company explained that the appointment formed part of its efforts to increase the proportion of independent outside directors and strengthen its governance framework.
Principle 5: Institutional investors should have clear policies on publishing their exercise of voting rights and the outcomes of their votes. They should also design policies on exercising voting rights that go beyond merely outlining decision-making criteria and that contribute to sustainable growth in their portfolio companies.
In principle, the Company conducts a fundamental analysis of all its equity holdings, a process that includes interviews before and during the investment period, to understand the entire picture of a company. When exercising voting rights, the fund managers who conduct company research and investment assessments, make individual decisions on each proposal based on their research and meetings. We have established a process where our fund managers evaluate the rationale of each proposal based on basic criteria, considering the circumstances of each company after reviewing previous research and meeting discussions, rather than relying on detailed formal standards or advisory firms.
This year, our fund managers exercised voting rights based on individual judgments in line with this policy. Additionally, we strive to engage in dialogue with companies and consider their requests before exercising voting rights on significant proposals, aiming for better decision-making. We also encourage companies to consider detailed management improvements.
We publish aggregated voting results by proposal type on our website. For individual proposals, we disclose the company name and proposal details only when we oppose company proposals or support shareholder proposals. Our voting policy and results are available on our website: https://www.sparx.co.jp/ins/ourfirm/sustainability/proxy.html
Principle 6: Institutional investors should periodically report to their clients and beneficiaries on how they are fulfilling their stewardship responsibilities, including on how they exercise their voting rights.
The Company continued to uphold stewardship responsibilities by publicly disclosing our self-assessment of stewardship responsibilities and voting results on our website. Through making disclosure on climate change via website, we aimed to communicate information not only to our clients and beneficiaries but also to a wide range of stakeholders, ensuring transparency in our activities. We report our activities to clients and beneficiaries through written materials and meetings, responding to increased requests for disclosure by enhancing our disclosures, similar to last year.
Principle 7: Institutional investors should be capable of making appropriate decisions about their engagement and stewardship activities with their portfolio companies. These decisions should be based on a deep understanding of the portfolio companies and their business environments to ensure that institutional investors help these companies achieve sustainable growth.
To enhance organizational effectiveness in engaging with corporations and stewardship activities, the following initiatives were undertaken during the fiscal year:
- The Investment Committee, which serves as an advisory body for managing client assets, has monitored implementation of responsible investment following the establishment of its Responsible Investment Policy, which addresses climate-related risks and opportunities as well as nature-related issues including biodiversity. As a part of these efforts, proprietary ESG ratings continue to be incorporated into internal reports. The Committee also monitors restricted investment lists, greenhouse gas emissions at the fund level, the proportion of portfolio companies supporting net-zero initiatives and coverage of ESG risk scores by external information vendors. In addition, fund managers and analysts continuously enhance their knowledge and understanding of ESG-related issues through regular participation in seminars and events organized by industry associations, securities firms, and other external organizations. Furthermore, the SPARX Group Responsible Investment Committee facilitates the sharing of responsible investment initiatives across departments and asset classes, promoting information exchange and continuous improvement in the quality of responsible investment activities throughout the Group.
- The Company exchanged information among its overseas branches in Hong Kong and South Korea.
- To enhance the quality of discussions, fund managers and analysts engaged in exchanges not only among themselves but also with other internal departments and external stakeholders.
- To enhance overall knowledge about ESG, SPARX Group organized internal workshops with ESG as the central theme.