Since its inception in 1989, the vision of SPARX has been to be "the most trusted and respected investment company in the world." With that in mind, we have worked to contribute to society by developing its core investment business model and growing its client's assets through an innovative and cutting-edge investment style.

Major advances have been made in global prosperity since the rise of the free market economy. In its backdrop, the market has helped shape new social, economic, corporate, and governance systems. As a result of rapid development of society and the consequent rising complexity of these systems, there have been inevitable disruptions, shortcomings, and misalignments in the free market model. As an investment company, we recognize our responsibility to constantly reevaluate and contribute to improving inefficient or outdated systems via capital allocation.

SPARX's objective is "to make the people of the world wealthier, healthier, and happier through investment," and aims to contribute to societal development by fulfilling our commitments.

To determine if these goals have been met, SPARX uses ESG issues as its fundamental framework of business principles (Figure 1).

To SPARX, "responsible investment" means taking part in long-term value creation processes for its investments.

SPARX does not classify responsible investment as a special investment style. Instead, we view responsible investment as an essential element that asset managers must incorporate into all of the firm's investment strategies.

SPARX uses ESG principles as its basis for choosing investments. When investing in equity, we help corporations improve ESG issues as necessary as a shareholder. When investing in real assets, we pay special heed to ESG issues while executing investments that contribute to its improvement.

At SPARX, the purpose of responsible investment is to strive to realize our corporate purpose, "to make the world wealthier, healthier, and happier (through investment) as an investment company provided that investment returns exceed the expectations of its clients.

SPARX believes that investments that contribute to the resolution of ESG issues are an effective approach to maintain high long-term investment returns. However, achieving high returns often requires making investments that are relatively unknown. Thus, we do not singularly target investments that have already-proven ESG track records by using commonly used criteria among investors or widely recognized information.

SPARX believes in producing high returns in investments through a best-effort approach, thus investments may initially appear to have subpar ESG records. We conduct independent research to identify investment opportunities that demonstrate future improvement potential or room for improvement through shareholder support.

In practicing responsible investment, SPARX believes that the most effective long-term investment approach is to invest in assets that have substantive value to society.

When examining an asset's value, it is essential to look at how it creates added value for all of its stakeholders such as employees, business partners, shareholders, customers, clients, and any others. When a company prioritizes only some stakeholders, it is challenging to sustain its business over the long-term. To bring about sustainable, long-term value-added creation for all stakeholders, companies need to perpetually innovate while maintaining excellent governance.

SPARX approaches long-term value from a global perspective, especially when considering the current international climate. We look beyond the countries where its business is conducted, and recognize contribution to society as it relates to the entire world, the changing climate, and other countries.

SPARX supports the long-term goal of Paris Agreement to limit global warming and ensure a just transition. As an investment company and a listed company, SPARX actively supports efforts to deal with the impacts of climate change. SPARX commits to work on decarbonization goals, consistent with an ambition to reach net zero emission by 2050 across all assets under management (AUM).

SPARX begins every medium- to long-term investment decision by considering its impact on sustainability of the global environment. Human activity, in the form of both corporations and consumers, has significant direct and indirect effects on the environment. Because we believe in a sustainable society, we actively pursue solutions that reduces negative influences and invests in those that enhance the positive aspects of humanity's impact on the environment.

SPARX recognizes that breaking fossil fuel dependence is one of the most promising environmental solutions. As a result, we are actively involved in building and operating renewable energy power-generation facilities throughout its funds.

SPARX recognizes the social challenges of human rights, labor, environment, and anti-corruption that are set forth in the principles of the Global Compact and is willing to tackle the issues.

SPARX addresses these issues through bottom-up approach, which is our fundamental approach since its founding. We observe the situation firsthand and take an active stance with a sense of responsibility as stakeholders.

SPARX is committed to preventing all forms of corruption with a resolute attitude regardless of the local circumstances.

In regards to human rights, SPARX works to ensure that we do not contribute to human rights violations and selects investments in companies and projects that respect human rights.

SPARX supports the abolition of forced and child labor and engages in activities to promote their elimination.

Along with engaging in dialogue with its clients and investment targets, SPARX engages in dialogue with governments and local communities when necessary. Based on the information gleaned from these discussions, we determine investment opportunities that can generate both economic and social value.

SPARX actively engages in educational activities throughout Japan to communicate with local communities. In addition to publishing books, holding seminars, and providing complete management reports with the goal of improving investment literacy, we hold educational events concerning renewable energy. SPARX is dedicated to supplementing the development of local communities with the knowledge gained through its research and operation activities.

SPARX commits the utmost attention to governance, as it believes it is crucial in both achieving high investment performance and the sustainability of its investment activities

When considering governance, we place more importance on substance than form and continuously question ourselves about what is best for all stakeholders from a medium to long-term perspective. Among the numerous factors for assessing governance, we focus specifically on the quality of the management teams who are responsible for maintaining and improving the value of its assets. Through in-depth conversations and in-person meetings with these teams, we gauge their vision, level of sincerity, and logic to determine the condition of the governance systems. When necessary, SPARX takes part in creating new governance systems.

To successfully conduct these activities, SPARX recognizes the need for itself to maintain a first-class governance system. Being both a public and investment firm makes us unique in our position. We not only strives to achieve these internal controls, but also strives to lead the dialogue of governance and stakeholder harmony.

SPARX's mission is to "make the world wealthier, healthier, and happier" through investment. To fulfill our corporate mission to make positive impact, through investments, to society's sustainable growth, the directors of SPARX Group Co., Ltd. are responsible for overseeing and being accountable for our responsible investing.

To promote the practice of responsible investment throughout the organization, the Board of Directors of SPARX Group Co., Ltd. has established a Responsible Investment Committee. The committee consists of the representative director, directors, group executive officers, and the head of the Legal and Compliance Department of SPARX Group Co., Ltd., with the Group CIO as the committee chairman as of the end of March 2022, appointed by the Board of Directors.

The Responsible Investment Committee is held quarterly as a general rule. The committee receives reports on the implementation status of responsible investment from each investment policy committee of SPARX Group and approves changes to responsible investment policies and the annual report on responsible investment implementation. In addition, external advisers attend the committee meetings and provide advice on the reports and deliberations from an independent standpoint, sharing the latest trends related to responsible investment.

Each investment policy committee regulation specifies the practice of responsible investment, and investment managers (fund managers and analysts) are responsible for integrating ESG issues into their investment activities.

The Responsible Investment Committee promotes the review and self-assessment of responsible investment policies once a year for each investment policy committee and summarizes the results.

The Listed Equity is managed by SPARX Asset Management Co., Ltd.; SPARX Asset Management Korea Co., Ltd.; and SPARX Asia Investment Advisors Limited.

Since its inception, SPARX has worked to develop innovative investment methods under the investment philosophy that "Macro is the Aggregate of Micro," and offer investment intelligence derived from its thorough bottom-up research methodology. Our approach for listed stocks refers to a process that emphasizes research on individual companies.

In addition to ascertaining past corporate performance from numerical data and written information, we also arrange to speak and engage directly with companies and management teams at opportune times, and maintains an open dialogue with these companies.

SPARX uses a consistent process to measure the actual value of companies, which involves qualitative analysis using three perspectives: Quality of Management, Quality of Earnings, and Market Growth Potential, as well as quantitative analysis with a focus on ROE (Return On Equity) and cash flow.

SPARX analyzes whether the target companies a) generate stakeholder value, and if so, b) how that value-generation leads to the creation of economic value. "Stakeholder and Economic Value Generation (Figure 2)" refers to whether the company makes all its stakeholders healthier, wealthier, and happier, in accordance to our company motto. Accordingly, SPARX does not invest in companies that pursue only short-term profits.

In order to reduce the possibility of significant loss of stakeholder value, companies that hold a certain level of problematic businesses from the ESG perspective are excluded from the investment universe based on exclusion criteria.

In addition to the investment exclusion criteria that apply to all listed stock strategies, stricter criteria than company-wide criteria may be applied to some investment strategy or funds to follow the guideline given by asset owners and investment styles of the strategies.

The Listed Stock Investment Strategy focuses on stakeholder value generation because of its relevance to being a leading indicator of corporate economic value. It is our belief that generating economic value is essential for sustainability, thus investment decisions are not made in any companies that produce high stakeholder value but not economic value.

When considering corporate value as part of the Listed Stock Investment Strategy, SPARX takes a best effort approach, focusing on the likelihood of future improvements based on information acquired through investment research, whereas ESG compliance ratings are used for reference only.

Accordingly, the Listed Stock Investment Strategy includes investment candidates that may currently have low absolute levels of stakeholder and economic value, as those companies may exhibit a course toward improvement. Moreover as a shareholder, we aid in corporate value-growth through its post-investment dialogue with companies.

After executing investments, SPARX strives to ascertain the state of its investee companies from the perspective of medium- to long-term corporate value growth. We monitor ESG incidents which may significantly deteriorate stakeholder value on regular basis. We leverage the unique features of our bottom-up approach by speaking directly with companies and management teams, while also looking at public information. Then, we carefully examine 1) whether companies are adopting effective management strategies that suit the business environment and 2) whether or not they have appropriate corporate governance structures.

SPARX's policy is to perform qualitative analyses from three perspectives when evaluating companies for stock market investment: Quality of Management, Quality of Earnings, and Market Growth Potential (Figure 3). ESG compliance ratings are used for reference purpose.

SPARX Group Co., Ltd. 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. Half of SPARX Group's Board of Directors is occupied by independent outside directors, giving the firm a governance structure that allows for the proper management of conflicts of interest. SPARX thoroughly manages its subsidiaries to ensure the utmost transparency.

In principle, we prohibit a priori investment activities that could lead to a conflict of interest with our investors. Furthermore, conscious of the fact that we operates a type-1 financial instruments business, SPARX has 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 (see note) are available on SPARX's website
(https://www.sparx.co.jp/ins/stewardship.html)

After researching current conditions of medium- to long-term business prospects for investee companies and investment candidates, we conduct on-site company inquiries as part of our Listed Stock Investment Strategy. We execute investments in companies if they are deemed to have rational operations and the potential for improved corporate value.

The engagement process is aimed at providing support for improving corporate value. SPARX speaks with management teams to understand management issues, and voices its opinion. These conversations are aimed not only at companies in which we invest in, but also potential investments. Discussions about ESG-related topics are meant to resolve both current and potential future issues.

SPARX's bottom-up approach in the Listed Stock Investment Strategy contributes to increased value in investee companies, while also improving investment returns over the medium- to long-term. SPARX has a policy to adequately meet its stewardship responsibilities in order to qualitatively improve and enhance its bottom-up approach.

Engagement activities have two purposes and two effects. The first purpose is to research listed companies. Discussion allows for the exposure of key knowledge that is often unavailable from presentations or the company's website. The second purpose is to share opinions as a shareholder and management expert such that the listed company can consider an outside perspective of itself.

The first effect of engagement is improved fundamentals, such as the business model or ESG. Since these aspects are deeply rooted in overall company strategy, this engagement strategy is effective in both encouraging top management to change strategy, or supporting and further justifying its current strategy. The second effect of engagement is to shrink a company's value gap. Listed companies often trade at a discounted value to its true intrinsic value for a multitude of reasons such as bad disclosures of strategy, business model, or ESG.

SPARX supports the long-term goal of Paris Agreement to limit global warming and ensure a just transition. As an investment company, SPARX actively supports efforts to deal with the impacts of climate change. SPARX commits to work on decarbonization goals, consistent with an ambition to reach net zero emission by 2050 across all assets under management (AUM).

To achieve this goal, SPARX supports companies in the portfolio through dialogues so that the companies formulate GHG reduction plan and implement measures.

SPARX Listed Equity Investment Strategies recognize the social challenges of human rights, labor, environment, and anti-corruption that are set forth in the principles of the Global Compact and is willing to tackle the issues through engagements.

SPARX pursues to understand corporate strategy to maximize value over the medium- to long-term. Through bottom up research, SPARX analyzes not only public information, but also actively engages in discussion with top management to determine the appropriate corporate strategy and governance.

Analysis and monitoring of a company utilizes more than just financial data, and includes qualitative structures and relationships with all stakeholders including clients, employees, partners, communities etc.

We are also interested in investee companies' measure to tackle with climate change. We report greenhouse gas emissions of all portfolios by SPARX Asset Management's listed equity investment strategy and that of BMK or reference BMK to the Investment Committee every month.

SPARX executes investments after researching and understanding target companies' management policies, growth potentials, business models, corporate governance issues, and other matters through a bottom-up approach within the core of its listed stock investment strategy. When exercising voting rights, we make decisions based on whether any given agenda item contributes to corporate value-growth over the medium- to long- term. The voting guidelines and management processes for each type of shareholder vote are defined in SPARX's internal bylaws, and the basic policy is publicly available.
(https://www.sparx.co.jp/ins/proxy.html)

The SPARX stewardship code has guidelines for the following issues:

SPARX Asset Management Co., Ltd.; SPARX Asset Management Korea Co., Ltd.; and SPARX Asia Investment Advisors Limited employ the alternative equity investing strategy.

We view the alternative investment strategies as a way to reduce the risk of stock price volatility for investors. We define the Alternative Equity Investing Strategy as: The beta hedging investment strategy involving shorting only stock index futures to reduce the share price volatility risk in the overall stock market, while holding long positions in individual stocks; Or, the long-short investment strategy which mitigates risk by shorting individual stocks and incorporate stock index futures and other derivatives.

In line with SPARX Group's mission " To making the world wealthier, healthier, and happier," our alternative investment strategy practices responsible investing with the aim of providing our clients with maximum capital appreciation regardless the market direction in medium 　to long term mandates which we view as structurally intertwined.

Since being the first in Japan to commercialize the long-short investment strategy in Japanese equities in 1997, SPARX has continued to pioneer alternative investing in the Japanese stock market. In-line with the group's investment philosophy of "Macro is the Aggregate of Micro," our alternative investment strategy emphasizes a thorough, bottom-up approach to researching individual corporations and focuses on corporate value for each investment in the portfolio. In addition to ascertaining past corporate performance from numerical data and written documents, we also pursue engagement activities, in which we construct dialogue and engage with company management as necessary. In this regard, the investment philosophy and process of the long-book of the Alternative Equity Investing Strategy is the same as in our Listed Stock Investment Strategy, and is outlined in our responsible investing in relation to the Listed Stock Investment Strategy guidelines and principles.

However, on the Short-book of the Alternative Equity Investing Strategy, differences exist to the long-only principles, and we short individual companies based on the principles outlined below.

Shorting is an investment technique that reaps economic benefits by selling companies whose stock price is overvalued compared to their actual value. Just as in our long investing approach of buying and holding equities, SPARX's short investment approach uses a consistent process of measuring real corporate value from our qualitative analyses that use the three perspectives of corporate earnings quality, market growth potential, and management strategy and from quantitative analyses that emphasizes return on equity (ROE) and cash flow. Furthermore, short-investing has structural differences to long-investing in the form of stock borrowing, borrow fees and general restrictions that limit the investment time horizon.

In our investment approach, we measure economic value while simultaneously focusing on stakeholder value. "Stakeholder value generation" refers to how companies make all of their stakeholders wealthier, healthier, and happier and encompasses all ESG concerns. We believe that corporate activities that harm or hinder stakeholder value creation may be profitable in the short term, but will not be sustainable over the long-run; the unsustainable corporate activities will inevitably result in reduced economic value in the long term. Thus our corporate valuation methodology inherently encompasses the stakeholder value generation or lack-thereof of a company.

Short investment decisions are made exclusively from a price gap between corporate value and stock price.

Because our investment ratings are comprehensive qualitative evaluations that include ESG considerations, we do not necessarily short-invest in companies with low ESG valuations. ESG is a perspective to calculate corporate value and evaluate risk and discount factors in long-term corporate valuations.

Accordingly, the main differences between the Responsible Investing Principles of our Long-book and Short-book are as follows:

How short investing differs from long investing:

For the Renewable Energy Investment Strategy, power generation consulting is handled by SPARX Green Energy & Technology Co., Ltd. Asset management is handled by SPARX Asset Management Co., Ltd. and SPARX Asset Trust & Management Co., Ltd.

The SPARX Renewable Energy Investment Strategy contributes to energy, finance, and capital markets in Japan and other countries around the world by upholding the following principles.

Renewable energy plants, which are likely to operate for the next twenty years, are investments for the future generation.

Accordingly, we believe that an important aspect of creating renewable energy infrastructure through the Renewable Energy Investment Strategy is community building that includes environmental education with local children.

SPARX organizes environmental education programs to discuss the benefits of renewable energy, the different forms of renewable energy needs of the future, and give children a chance to interact first-hand with renewable energy power plants.

SPARX Group Co., Ltd. is an independent organization that does not belong to any other banking, securities, insurance, or other corporate groups. As the first listed company in Japan whose subsidiaries operate asset management services, we have establish principles geared to earning a high degree of trust. A half of the board of directors is independent outside directors, creating a governance structure that allows us to manage conflicts of interest appropriately. We thoroughly manages all subsidiaries to ensure the utmost transparency.

Our basic policy is to prohibit any investment activities may cause a conflict of interests with our beneficiaries. Furthermore, since SPARX Asset Management Co., Ltd. is registered as Type-1 financial instruments business operator, we have policies for managing conflicts of interest that stipulate the types of transactions with potential conflicts of interest and the procedures for managing them. Please also refer to "Overview of Guidelines on Managing Conflicts of Interest" (https://www.sparx.co.jp/ins/stewardship.html).

SPARX has consistently championed its investment philosophy that "Macro is the Aggregate of Micro" and advocated a thorough, bottom-up approach to investments. The bottom-up approach refers to an emphasis on researching individual companies. In addition to ascertaining past business performance through numerical data and written documents, we also pursue engagement through discussions with relevant parties at the right time and in the right manner. The Renewable Energy Investment Strategy also conducts our research and analysis with a matter-of-fact perspective so our equity investment team does.

Looking at investment candidates in renewable energy, we first conduct various researches on field surveys, legal regulations, weather data, and other information to screen out. Investments are executed when we expect high medium- to long-term returns or deem its possibility of increasing value.

Our engagement puts primary focus on consecutive and interactive discussion with various parties such as the authorities, local governments, financing institutions, general contractors, electrical maintenance contractors, power companies, landholders, and neighboring residents. To achieve our ultimate goals of building trust-based relationships, supporting long-term stable operations, and encouraging the utmost value growth, the Renewable Energy Investment Strategy pursues feedback-driven development and operations.

Since 2012, the Renewable Energy Investment Strategy has invested in numerous renewable energy businesses and taken part in power station development, maintenance, and operations. We conduct physical site visits at least once a year to have consecutive discussion with relevant parties. After years of efforts, we have gained expertise in managing and operating renewable energy businesses and promote activities that enhance the value.

It is also vital for us to interact with local communities, engage in dialogue with and provide education on environmental matters for local children. We moderate the Child Energy Summit nationwide as an opportunity to encourage children to think about why renewable energy is necessary and to familiarize them with the renewable energy that will be vital to future generations. At the Energy Summits, we try to provide a program which helps them to think freely regarding the energy by understanding of our renewable energy power stations as well as learning about diverse energy use examples,.

SPARX Asset Management Co., Ltd. (SAM) manages the Mirai Creation Fund.

Through the Mirai Creation Fund, SPARX creates a brighter future by investing in unlisted start-ups around the world in five core technology fields--intelligent technologies, robotics, technologies that enable a hydrogen society, electrification, and new materials--and by helping these start-ups improve their corporate value.

• SPARX helps accelerate the pace of innovation by financing companies' and projects' business development in technologies that will drive future growth.
• SPARX shows the world how it has pioneered a way to identify potential investments and combine them into a successful portfolio.

SPARX's approach to research and analysis is to use a consistent process of measuring real corporate value from qualitative analyses that focus on business models, markets, and managers, and from quantitative analyses that emphasize cash flow.

When screening investments, SPARX examines whether the target companies' managers and business models can address social problems or create new markets, and it carefully considers how these solutions or new markets can ultimately lead to economic value creation.

After investing in companies that meet these criteria, SPARX assesses the operations of its portfolio companies through the lens of their medium- to long-term growth potential in corporate value, and as a shareholder, engages with these companies to help them improve corporate value. The basic policy is to back good managers and build relationships through which they can ask for advice.

In SPARX Private Equity Investment Strategy, its Responsible Investment Policy applies to all strategies that invest in unlisted stocks at SPARX. Private Equity Investment Strategy is managed by SPARX Asset Management Co., Ltd.

Since its establishment, SPARX has been committed to providing investment intelligence derived from a thorough bottom-up approach and developing innovative investment methods based on the consistent investment philosophy that "Macro is the Aggregate of Micro."

The bottom-up approach in the Private Equity Investment Strategy places emphasis on individual company research. This means not only understanding the company's past performance from numerical data and written information, but also setting up opportunities to have timely and appropriate dialogue with the company.

Specifically, we conduct an analysis based on 10 investment principles from three major standpoints: Quality of Management, Quality of Earnings, and Market Growth Potential. Then, we measure the true value of the company to reach a consistent process leading to investment execution. We especially value the Quality of Management, and we place particular emphasis on the honesty of the management and their awareness of solving social issues. We also investigate whether the management of the target company and its business model can actually solve issues such as ESG, and scrutinize whether they can contribute to creating economic value in the long run.

SPARX Private Equity Investment Strategy is based on dialogue-based engagement activities to build relationships with portfolio companies. We visit portfolio companies, their customers, and partners to gather information, expert opinions, desktop research, past performance and forecasts of similar companies, and other available information to deepen our understanding before engaging in a dialogue with any potential portfolio candidates. We engage in dialogue with our portfolio companies based on a thorough understanding of the information available to us.

Engagement priorities include governance and management policies, as well as climate change and human rights issues. As an investment firm, SPARX supports the long-term goals of the Paris Agreement and is committed to taking an active role in limiting the rise in global average temperatures. Therefore, in our private equity investment strategy, we will continue to support our portfolio companies in the long term to develop and implement greenhouse gas reduction plans in accordance with the Paris Agreement through dialogue. In addition, we will support our portfolio companies to recognize social issues related to human rights, labor, and anti-corruption, as stated in the principles of the Global Compact, and to work proactively to resolve them through dialogue.

Engagement with portfolio companies takes place not only during board and management meetings, but also in a wide range of other settings, including regular and irregular meetings. We work with the management and key personnel of portfolio companies to discuss their policies and issues, and to express constructive opinions on their investment strategies. In order to enable such in-depth engagement, we confirm the scope and frequency of post-investment information disclosure, the possibility of obtaining the right to appoint outside directors and observer rights, and the frequency of interviews at the time of investment consideration.

In addition to discussing financial information such as business performance, we also discuss non-financial information such as management strategy, technology strategy, sales strategy, recruitment strategy, and maintenance of governance structure together. We also confirm through dialogue whether the company is building a good relationship with all stakeholders, including shareholders, customers, employees, business partners, local communities, and the global environment, and whether it is laying the foundation for sustainable growth.