Sumitomo Mitsui Trust Asset Management (SMTAM) established its ESG investment policy in September 2019 and identified ESG materiality in the policy. Based on this policy, we have established 12 new ESG themes with the aim of further advancing our top-down engagement activities.

Themes Closely Related to Natural Capital

Natural Capital and Resource Conservation The expansion of corporate economic activities is linked to negative impacts on natural capital and biodiversity, and the challenge is to shift to economic activities that take natural capital and biodiversity into consideration. In particular, food shortages, water shortages, and the biodiversity crisis are global issues, and reducing food waste, securing water resources, and protecting nature are material issues for corporate sustainability.
Environmental Destruction and Pollution Prevention Among the various forms of environmental destruction and pollution, deforestation and marine plastic waste issues are as material as climate change. Deforestation caused by illegal logging and agricultural land development for food reduces CO2 absorption, raising concerns over the negative effects on climate change and biodiversity. In addition, the marine plastic waste issue is a material issue with wide ranging significance, affecting efforts such as marine pollution prevention, biodiversity, and the realization of a recycling-oriented economy. We believe that it is essential to strengthen initiatives in all industries with supply chain exposure.

SMTAM selects target companies for each ESG theme from its investee companies using a top-down approach. It then sets long-term targets by ESG theme as well as interim targets by backcasting in accordance with the ESG issues and the level of ESG management of each company, and promotes engagement activities. In addition, we manage the progress of engagement in four stages by ESG theme, and monitor the implementation of measures all the way through to issue resolution. By combining this top-down engagement approach with a business-oriented bottom-up engagement approach, we carry out constructive engagement activities that are unique to SMTAM and promote medium- to long-term sustainable growth that balances corporate value with social and environmental value for investee companies.

To make this engagement more efficient, SMTAM participates as a lead manager in three major working groups (palm oil, water resources, and forest resources) organized by the Principles for Responsible Investment (PRI). Additionally, we participate in the Sustainable Protein Supply Chains program, a joint engagement program developed by fishery and livestock industry-focused engagement organization FAIRR.

Topic

Discussions with the Brazilian government and the Central Bank of Brazil on the development and management of rainforests in the Amazon basin

In June 2020, as part of the activities of the Forest Conservation Engagement Working Group of the PRI (Principles for Responsible Investment), to which asset management company Sumitomo Mitsui Trust Asset Management (SMTAM) is a signatory, and CERES, an environmental NGO, we submitted an open letter to the Brazilian government requesting that it effectively disclose information on the conservation and management of the Amazon forest and its development status, and began engagement activities with the Brazilian government. As an asset manager, SuMi TRUST Asset Management is the only company in Japan that has supported the project from the beginning, and is working as one of the lead managers of the project. In July 2020, we held a total of four meetings with the Vice President of Brazil and the Governor of the Central Bank of Brazil. In addition to the meetings held through the working group, we also had individual discussions with the Governor of the Central Bank of Brazil as well as the Brazilian Ambassador to Japan. At this meeting, SuMi TRUST Asset Management President Hishida conveyed our unique approach, which differs from European companies that have suggested the possibility of suspending investments and loans, and we had a meaningful exchange of opinions based on the history of economic exchange between Japan and Brazil.

The Amazon and Amazon biome, which covers 60% of the country’s land area, is a prominent tropical rainforest area, and environmental conservation in this region is required to address climate change and maintain biodiversity. Currently, investors are increasingly concerned about the rapid progress of deforestation due to the administration’s policy of promoting liberalization of development in the Amazon basin, specifically advocating liberalization and deregulation of agricultural development. Through this discussion, SuMi TRUST Asset Management argued that increasing the transparency and verifiability of the country’s policies will enhance the effectiveness and credibility of its policies, and received a positive response from Brazil.

SuMi TRUST Asset Management will continue discussions with the Brazilian government and its ambassador to Japan, and will support and monitor the efforts of the government to balance environmental conservation and economic development in the Amazon basin while carefully considering the government’s initiatives. In addition, a new PRI working group will be formed to continue discussions with the Brazilian government, and SuMi TRUST Asset Management will continue its discussions with the Brazilian government as a core member of the group.

Natural Capital Products and Services

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