Basic Policy on Exercise of Voting Rights
January 4, 2024
1. Fundamental ideas on the exercise of voting rights
In fulfilling its stewardship responsibilities, Sumitomo Mitsui DS Asset Management (SMDAM) will exercise voting rights with the aim of raising value in, or mitigating damage to, investee companies and REIT investment firms, etc. (see *1 & *2) (hereinafter referred to as “investee companies, etc.”) for the benefit of customers and final beneficiaries.
Voting rights are important rights that can impact corporate management and REIT management, and change the value of an investee company, etc., depending on exactly how they are exercised. SMDAM strives to exercise voting rights so as to prevent management, etc. from damaging shareholder (or investor) interests and to motivate management, etc. to create the greatest value by making effective use of the resources available within the company or REIT properties.
When managing assets, SMDAM invests in assets that are expected to have higher investment returns and, rather than simply continuing to hold assets, it believes that it is possible to promote sound development and improved value in investee companies, etc. through goal-oriented dialogue (engagement) and the assertive exercise of voting rights.
SMDAM utilizes voting rights in an assertive manner to ensure that good governance systems are established in investee companies, etc. and that capital markets are soundly managed, and also to develop desirable conditions for investors, taking the shareholder's (or investor's) position into account.
| (*1) | "REIT" refers to Real Estate Investment Trust; and "J-REIT" to Japanese REIT. |
|---|---|
| (*2) | "REIT investment firms, etc." refers to investment firms that hold REIT assets, as well as asset management companies sub-contracted by investment firms to manage assets. |
2. The structure and process followed in the exercise of voting rights
SMDAM's in-house regulations, which form the basis for the Basic Policy on Exercise of Voting Rights, are either determined by resolution of the Board of Directors or deliberated on by the Management Committee, which is composed of directors and executive officers, and then finalized by the CEO.
In accordance with the finalized in-house regulations, the Stewardship Committee deliberates on the formulation of the Basic Policy and specific criteria for the exercise of voting rights (hereinafter referred to as "Criteria for Determining the Exercise of Voting Rights"), the development of practical execution processes, and the creation of a structure, etc. to handle instructions for the exercise of voting rights, whereupon the matter is then approved by the Responsible Investment Officer.
The decision on whether to vote in favor or against individual proposals on Japanese stocks/J-REIT is made by the officer in charge in accordance with the Rules on Instructions for the Exercise of Voting Rights, etc., Practical Guidelines on the Exercise of Voting Rights for Japanese Stocks, Practical Guidelines on the Exercise of Voting Rights for J-REIT, and Criteria for Determining the Exercise of Voting Rights, whereupon the decision is approved by the head of the Responsible Investment Office. The Stewardship Committee deliberates on proposals that are not easy to judge. In principle, SMDAM never issues a blank proxy and it will choose to either vote for, against, or to abstain from all agenda proposals and then issue the appropriate voting instructions. SMDAM carefully examines agenda proposals from investee companies, etc. based on the belief that voting rights are important rights for shareholders (or investors) and that they are a key means of improving value in, or mitigating damage to, an investee company, etc.
When SMDAM exercises its voting rights in companies with which it has close ties and affiliated parties, etc. (such as a shareholder company), it will act in the best interests of customers and final beneficiaries and vote to improve the value of, or mitigate damage to, the investee company, etc. In general, SMDAM will itself exercise its voting rights in companies that present the potential for a conflict of interest in accordance with the Criteria for Determining the Exercise of Voting Rights as it does for other companies, etc., but for resolutions at SMDAM's shareholder companies (Sumitomo Mitsui Financial Group, Daiwa Securities Group, and MS&AD Insurance Group Holdings) and other parties for which management of conflicts of interest is especially important, SMDAM will exercise its voting rights with reference to the recommendations of an independent external proxy advisory firm (currently Institutional Shareholder Services). Furthermore, the results of voting will be periodically monitored by the Responsible Investment Committee and transparency will be further increased through the public disclosure of the results of voting (affirmative/negative) for each investee company, etc., and each proposal.
SMDAM will undertake particularly detailed research and analysis before deciding how to vote if there has been an act affecting social credibility, or if an investee company, etc. has any agenda proposals that are considered likely to have a significant impact on value such as proposals to be raised at an extraordinary general meeting, shareholder (or investor) proposals, capital reductions, capital increases allocated to third parties or mergers/business transfers, etc.
Note that when exercising voting rights in investee companies, etc. that have participated in the engagement, SMDAM will consider the content of the dialogue and apply the Criteria for Determining the Exercise of Voting Rights more flexibly, making judgments from a medium- to long-term perspective based on individual circumstances.
In principle, for foreign stocks and foreign REITs, SMDAM exercises voting rights in line with conditions pertaining to the fund and the issuing country. However, to exercise voting rights more efficiently, SMDAM may commission an external company to study the agenda proposals or use the services of an external proxy advisory firm.
SMDAM's "Criteria for Determining the Exercise of Voting Rights" are as follows:
PDF "Criteria for Determining the Exercise of Voting Rights"
3. CSR (Corporate Social Responsibility) and the Exercise of Voting Rights
SMDAM believes that investee companies, etc., need to fulfill their social responsibilities to improve their value or mitigate damage in the medium to long term. In addition to complying with laws and statutory regulations, SMDAM believes that sound management contributes to the value of investee companies, etc., i.e. management that respects cooperative relationships with stakeholders besides shareholders (or investors) such as consumers, business partners, local communities, and society in general. Moreover, SMDAM takes the view that any acts affecting social credibility have significant potential to damage the value of investee companies, etc., regardless of whether such acts are short term or long term.
SMDAM takes a tough stance on any acts affecting social credibility and takes into account whether or not the value of the investee company, etc. will improve, or damage to the investee company, etc. will be mitigated, when exercising voting rights.
SMDAM believes it is also important in terms of fulfilling CSR that an outside director (in the case of stocks) or an executive officer/supervisory director (in the case of J-REIT) who fulfills the Criteria for Determining the Exercise of Voting Rights be appointed to carry out supervisory and monitoring functions with regard to the decision-making, management and operations of an investee company, etc., from the shareholder's (or investor's) standpoint.
4. Disclosure of voting results
On its website SMDAM publishes how it votes on all proposals as well as aggregated results by proposal category. The voting results are compiled at three-month intervals, in principle on the last day of March, June, September and December, and the aim is to make them public around two months after the respective month end.
