Policy on the Japanese Stewardship Code
Since its founding, SPARX Asset Management Co., Ltd. (hereinafter "the Company") has adhered to a consistent investment philosophy: " Macro is the Aggregate of Micro." This philosophy is rooted in a thorough bottom-up approach to investment activities, centered on dialogue with the management of our investee companies. The basic principle of Japan's Stewardship Code, which aims to promote the sustainable growth of investee companies and expand the medium- to long-term investment returns for beneficiaries, aligns with our investment philosophy. Therefore, we actively embrace this code and hereby disclose our policy for addressing its principles as follows.
The timing of our "constructive engagement" with investee companies, as well as the extent of our engagement during such dialogues, may vary depending on our investment strategy and the specific circumstances of the investee companies.
Principle 1. Institutional investors should have a clear policy on how they fulfill their stewardship responsibilities, and publicly disclose it.
Since its founding, the Company has adhered to a consistent investment philosophy: "Macro is the Aggregate of Micro." Guided by this philosophy, we strive to provide investment intelligence generated through a thorough bottom-up approach and to develop innovative investment methods.
Furthermore, we believe that understanding companies through research activities and engaging in constructive dialogue with their management is integral to fulfilling our stewardship responsibilities. We evaluate investee and prospective companies by conducting interviews and dialogues based on research using publicly available information about their current status and medium- to long-term business development. Throughout this process, we engage in ongoing dialogue with the management of our investee companies, aim to share management challenges, and express our opinions based on these discussions to support the enhancement of corporate value. Since our founding, we have adhered to a bottom-up approach that not only contributes to the improvement of investee companies' value but also translates into increased medium- to long-term investment returns for our beneficiaries. We also maintain a framework within the Responsible Investment Committee to oversee the implementation of responsible investment practices. To ensure effective stewardship, we continue to focus on further strengthening and enhancing the quality of our bottom-up approach.
SPARX Group also places significant emphasis on the importance of ESG factors in corporate activities and strives to integrate this awareness into our investment practices. Reflecting this commitment, we became a signatory to the Principles for Responsible Investment (PRI), supported by the United Nations, in February 2018. Furthermore, we aim to contribute, through its investments, to the realization of a society where the global environment and humanity can coexist. In January 2020, we expressed our support for the recommendations published by the Task Force on Climate-related Financial Disclosures (TCFD).
Principle 2. Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.
SPARX Group Co., Ltd., our parent company (hereafter "SPARX Group") is an independent company without capital ties to any other financial group. We are also Japan's first listed company whose subsidiaries operate mainly asset management businesses, so we have completed numerous efforts to establish a code of conduct sufficient to earn a high degree of trust from the market. SPARX Group. has a governance structure in which half of the Board of Directors consists of independent external directors, enabling proper management of conflicts of interest. We also ensure thorough management to maintain transparency for our subsidiaries, including the Company and other group companies.
In principle, we prohibit any investment activities that could lead to a conflict of interest with our investors. Furthermore, conscious of the fact that we operate a type-1 financial instruments business, we have stipulated the types of transactions involving conflicts of interest that need managing, and how they will be managed as a part of our policy for managing conflicts of interest. An outline of these rules is published on our website. (https://www.sparxgroup.com/pri.html)
Principle 3. Institutional investors should monitor investee companies so that they can appropriately fulfill their stewardship responsibilities with an orientation towards the sustainable growth of the companies.
We pursue to understand corporate strategy to maximize value over the medium- to long-term. Through bottom-up research, we analyze not only public information, but also actively engage in discussion with top management to determine the appropriate corporate strategy and governance. When assessing the status of investee companies, the Company does not focus solely on financial metrics. We also pay close attention to the relationships between these companies and all their stakeholders, including customers, employees, suppliers, business partners, and local communities, to ensure these relationships support the companies' medium- to long-term growth.
Principle 4. Institutional investors should seek to arrive at an understanding in common with investee companies and work to solve problems through constructive engagement with investee companies.
The Company primarily engages in active management through a bottom-up approach, where fund managers and analysts make investment decisions based on a deep understanding of the investee companies. Throughout this process, since our founding, we have strived to gain insights into the management of these companies beyond just financial information by engaging in numerous dialogues with their management. The goal of our engagement activities is to contribute to our investee companies' sustainable growth by sharing issues that contribute to enhancing corporate value and working towards resolving them.
We believe that having fund managers and analysts who are involved in investment decision-making directly engage in dialogue with companies leads to effective engagement activities. At the same time, we believe that recognizing and addressing the challenges surrounding companies, identified through our research activities and dialogues, will contribute to resolving these concerns.
In the course of constructive dialogue with investee companies, we regard it as an appropriate option to disclose our level of shareholding upon request from the investee.
We recognize collective engagement as an effective method to enhance the effectiveness of dialogues between companies and shareholders. If invited by other institutional investors to engage collaboratively with an investee company held within our investment strategies, we earnestly consider the necessity and appropriateness of such engagement. When we determine that collaborative dialogue with other shareholders outside our firm would be more effective for investee companies under our investment strategies, we may encourage other shareholders to participate in collective engagement efforts.
In our dialogues with investee companies, it is our principle not to engage in conversations aimed at the exchange or acquisition of insider information.
Principle 5. Institutional investors should have a clear policy on voting and the disclosure of voting activity. The policy on voting should not be comprised only of a mechanical checklist; it should be designed to contribute to the sustainable growth of investee companies.
Through our bottom-up approach, we conduct thorough research and gain an understanding of the management policies, growth potential, business models, and corporate governance of target companies before making investment decisions. When exercising voting rights, our criterion is whether each proposal contributes to the enhancement of corporate value in the medium to long term. We have established internal rules with exercise guidelines and operational processes for each type of proposal. The basic policy is published on our website.
Policy on the Exercise of Voting Rights (https://www.sparx.co.jp/ins/ourfirm/sustainability/proxy.html)
Our investment strategies are predominantly active management, where our investment managers conduct research on all investee companies, understand their management situations, and then hold their stocks. Leveraging this characteristic, when exercising voting rights, we do not establish external or quantitative voting guidelines. Instead, our investment managers individually assess each proposal based on whether it contributes to enhancing corporate value. Regarding the disclosure of voting results, we generally disclose our opposition to management proposals and our support for shareholder proposals. For proposals where there is an apparent conflict of interest, we disclose our rationale regardless of our vote. However, we do not consider it appropriate to disclose the voting results for all investee companies and their proposals, considering the confidentiality of operational information, as we primarily engage in active management.
Principle 6. Institutional investors in principle should report periodically on how they fulfill their stewardship responsibilities, including their voting responsibilities, to their clients and beneficiaries.
The Company reports our fundamental policies, the actual implementation of our stewardship responsibilities and activities through various channels such as investment reports, client meetings, seminars, and the Company website. When explaining our investment performance, we strive to enhance our disclosure by providing unique insights gained from our bottom-up approach, including discussions on corporate value and our support for sustainable growth of companies. Additionally, we annually report the results of our voting decisions on the Company website.
Principle 7. To contribute positively to the sustainable growth of investee companies, institutional investors should develop the skills and resources needed to appropriately engage with the companies and to make proper judgments in fulfilling their stewardship activities, based on an in-depth knowledge of the investee companies and their business environment, and a consideration of sustainability consistent with their investment management strategies.
To deepen our understanding of investee companies' businesses and achieve shared perceptions through dialogue with management, our fund managers and analysts need to possess sufficient knowledge, experience, and strong analytical skills. To this end, since our establishment, the Company has ingrained the fundamental principles and operational norms of research and investment activities based on a consistent bottom-up approach. We systematically leverage accumulated knowledge and experience, fostering their developmental and organizational use, and actively engage in personnel development and mentoring. Furthermore, our management team has extensive experience in the asset management industry, including with the Company, and shares the founding principles and investment philosophy of the Company. They strive to embody the ideal vision of the asset management industry in their leadership. To ensure that our dialogue with investee companies is meaningful, we recognize the need to develop the ability to analyze companies from a comprehensive value creation perspective that includes not only the shareholders' viewpoint but also the perspectives of all stakeholders involved with the company, such as management, employees, customers, suppliers, business partners, and the local community. Our entire organization is committed to continuous learning and improvement in this regard.
We conduct a self-assessment of Stewardship Code Compliance, including our dialogue with investee companies, on an annual basis. The results of this assessment are reported to our Board of Directors and subsequently disclosed publicly.
In July 2020, SPARX Group established Responsible Investment Committee (formerly ESG Committee) with the aim of enhancing transparency and strengthening governance in our stewardship activities. The committee monitors and supervises our stewardship activities to ensure they are conducted properly in line with their intended purpose of faithfully fulfilling fiduciary responsibilities.