"SPARX" is a collective term referring to SPARX Group Co. Ltd. and its affiliates. This Policy applies to SPARX Group Co., Ltd. and the following affiliates: SPARX Asset Management Co., Ltd.; SPARX Green Energy & Technology Co., Ltd.; SPARX Asset Trust & Management Co., Ltd.; SPARX Investment Co., Ltd.; SPARX Bio Fuel Co., Ltd.; SPARX Asset Management Korea Co., Ltd.; SPARX Asia Investment Advisors Limited.
Overall Approach to Responsible Investment
Since its inception in 1989, SPARX has aspired to become "the most trusted and respected investment company in the world." With this aspiration in mind, we have developed businesses centered on investment, continuously created innovative investment styles, and contributed to society through the growth of our clients' assets.
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reevaluate and contribute to improving inefficient or outdated systems via capital allocation.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 purpose 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).
Definition
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 particular attention to ESG issues and make investments that contribute to addressing those issues.
Purpose
At SPARX, the purpose of responsible investment is to fulfill our responsibilities as an investment company and contribute to our corporate purpose, "to make the world wealthier, healthier, and happier through investment," while seeking to deliver investment returns that exceed our clients' expectations.
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.
Investment Period
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 the businesses are conducted and consider the entire planet, climate change and people in other countries when assessing long-term value.
Environment
SPARX supports the long-term goals of the Paris Agreement and, as both an investment company and a
listed company, actively engages in efforts to limit the rise in global average temperatures. In
its capacity as an investment company, SPARX aims to contribute to ensuring that all investee
companies and investment projects set and pursue net-zero greenhouse gas emission targets by
2050. We also support initiatives that facilitate their progress toward achieving this goal.
SPARX considers the sustainability of the global environment to be an essential prerequisite for managing client assets over the medium to long term. Human activity, in the form of both corporate activities and consumer behavior, has significant direct and indirect effects on the environment. Because we believe in a sustainable society, we actively pursue solutions that reduce negative impacts and invest in initiatives that enhance the positive aspects of humanity's impact on the environment.
In addition to climate change, SPARX recognizes biodiversity loss and ecosystem degradation as important environmental issues that may affect corporate value through supply chain constraints, particularly in upstream activities such as raw material sourcing, as well as through evolving regulations. Taking into account both dependencies on and impacts on natural capital, we promote the integration of nature-related risks and opportunities into our investment analysis and engagement activities. In doing so, we also refer to the recommendations and framework of the Taskforce on Nature-related Financial Disclosures (TNFD).
SPARX recognizes the transition to a decarbonized society as a key priority and is actively involved, through fund structures, in the development and operation of renewable energy power-generation facilities.
Social
SPARX recognizes the social challenges of human rights, labor, and anti-corruption set forth in the principles of the Global Compact and is committed to addressing these issues.
SPARX addresses these issues through the bottom-up approach, which has been its fundamental approach since its founding. We observe conditions firsthand and address these issues proactively with a strong sense of ownership.
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 committed to contributing to the development of local communities by sharing the knowledge gained through its business activities.
Governance
SPARX pays the utmost attention to governance, as it considers governance essential to enhancing both the sustainability and performance 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 itself to maintain a first-class governance system. By leveraging our unique position as both an investment company and a listed company, we will continue to pursue better governance.
Responsible Investment Governance Structure
SPARX's purpose is to "make the world wealthier, healthier, and happier" through investment. To fulfill our corporate purpose as a company that contributes through investment to the sustainable development of society, the directors of SPARX Group Co., Ltd. are responsible for overseeing and being accountable for responsible investment.
To promote the practice of responsible investment throughout the organization, the Board of Directors of SPARX Group Co., Ltd. has established a Responsible Investment Committee1 . 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. The Group CIO serves as the committee chair as of the end of March 2026, having been appointed by the Board of Directors.
The Responsible Investment Committee meets, in principle, once each quarter. 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.
1The former ESG Committee has been renamed the Responsible Investment Committee.
Internal Reporting and Verification Related to Responsible Investment
Each investment policy committee sets objectives for Responsible Investments and monitors the progress of investment professionals, including Fund Managers and Analysts, against its responsible investment objectives, and reports the results to the Board of Directors through the Responsible Investment Committee.
External reporting related to responsible investment
SPARX discloses its responsible investing practices through the websites of SPARX Group Co., Ltd and its subsidiaries. SPARX Asset Management Co., Ltd. periodically discloses its policy for implementing Japan's Stewardship code and its self-assessments, as well as its voting policy and voting results. SPARX also reports on its basic approach to stewardship responsibilities and related activities through the SPARX Group Co., Ltd. Website and other channels.
Some strategies also disclose data on portfolio ESG scores and greenhouse gas emissions and the
status of engagement with portfolio companies in our investment reports for clients.
Responsible Investing in relation to Listed Equity
The Listed Equity Investment Strategy 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 opportunities to meet and engage directly with companies and maintain an open dialogue with them.
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 generate stakeholder value, and if so, how that value-generation leads to the creation of economic value. "Stakeholder and Economic Value Generation"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 Equity Investment 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 Equity 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 Equity 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 Equity 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.
ESG Impact on Valuation
SPARX believes that ESG factors play a crucial role in predicting future revenues and profits and reflects them in its long-term earnings forecasts. ESG factors may also be reflected in the assessment of investment risks and used in valuations.
(E) Environment
The impact a business has on the global environment represents both a long-term risk factor and a potential investment opportunity.
As a general principle, SPARX does not invest in companies that continue to have a significant negative impact on the global environment. However, we do not exclude the possibility of investing in energy-related companies or companies engaged in highly energy-intensive activities if they are making meaningful efforts to improve their environmental performance and contribute to a more sustainable future.
SPARX continually researches companies, industries, and investment opportunities that contribute to reducing environmental burdens and considers them as priority investment candidates. We believe that environmental factors are closely linked to the quality of corporate earnings from the perspective of a business's long-term sustainability. Environmental factors can have a significant impact not only as drivers of growth potential and business opportunities, but also as factors that may impede growth and create business risks.
In addition to climate change, SPARX recognizes biodiversity loss and ecosystem degradation as important environmental issues that may affect corporate value through supply chain constraints, particularly in upstream activities such as raw material sourcing, as well as through evolving regulations. Taking into account both dependencies on and impacts on natural capital, we promote the integration of nature-related risks and opportunities into our investment analysis and engagement activities. In doing so, we also take into consideration the recommendations and framework of the Taskforce on Nature-related Financial Disclosures (TNFD).
SPARX supports the long-term goals of the Paris Agreement and, as an investment company, actively engages in efforts to limit the rise in global average temperatures. In its capacity as an investment company, SPARX aims to contribute to ensuring that all portfolio companies set and pursue net-zero greenhouse gas emission targets by 2050. We also support initiatives that facilitate their progress toward achieving this goal.
To achieve this goal, SPARX believes that it is desirable for all companies in the portfolios to establish and implement greenhouse gas emission reduction plans in accordance with the Paris Agreement. To ensure the transition, it is important to support companies that are likely to implement GHG reduction measures in the foreseeable future rather than investing only in companies that already have low GHG emissions and that have implemented GHG reduction measures based on the Paris Agreement.
Therefore, as an interim goal, SPARX aims to contribute to ensuring that, by 2030, more than 40% of portfolio holdings across all Japanese equity investment strategy funds have declared net-zero targets and are advancing initiatives toward achieving them.
(S) Social
Growing inequality in wealth is an unfortunate reflection of the current global social
climate. Respect for human rights as well as recruiting, hiring, and optimizing the
utilization of a high-quality workforce is one of the most vital organizational priorities
within management teams. We believe that it is extremely difficult for companies that have
unequal or unfair working conditions to survive over the long-run. In this way, an important
factor in analyzing the state of corporations over the long term is to take a look at their
social contributions and activities. The impact that potential investments have on their
local communities has great correlation to their long-term investment returns. Worldwide,
there is an emphasis placed on corporate roles in society, and whether companies are able to
fulfill their social responsibilities heavily influences corporate competitiveness.
SPARX Listed Equity Investment Strategy is based on the idea that a key condition for
investment is whether a company is protecting human rights, meeting its social
responsibilities and providing appropriate working conditions.As part of our research on individual companies, we confirm whether they have established a human rights policy and encourage those that have not done so to establish one. Moreover, SPARX actively
considers investments in corporations that formulate strategies focused on social
responsibility and ones that have a positive impact on their local communities and society.
From a social perspective, the quality of corporate earnings is a direct result of upholding
stakeholder value in its supply chains, workforce, and productivity. Even in the analyses of
the quality of corporate managers, the way that management teams view social contribution
and where they position their business in society has a significant impact on the evaluation
of the quality of management.
(G) Governance
Governance is the most important factor in evaluating the quality of corporate managers.
We believe that managers are a crucial factor to corporations maintaining their long-term
competitiveness. Since its founding, SPARX has operated under the belief that speaking with
management teams and analyzing their qualities is a crucial process when deciding whether to
make an investment. Every year, we conduct more than 2,500 research activities (2,749 in FY2025) and strive to improve our capacity to analyze management
Governance policy is a crucial point of discussion when speaking with corporate managers.
Governance is a core function of a social system that realizes a functional differentiation
between management and capital in a capitalist society. Managers being aware of and
executing this role is essential, not only for corporate shareholders but for all
stakeholders. It is vital that decision-making processes, strategy formulation, and monitoring, are conducted appropriately, including from the perspective of diversity, such as gender diversity and relevant skills.
Valuation
After evaluating companies based on the three major qualitative factors mentioned
above, we position them as investment candidates. Since it is a comprehensive qualitative
factor-based investment evaluation, including ESG, we do not automatically invest in companies with
high ESG ratings. We evaluate ESG from the perspective of growth and risk factors in long-term
company evaluations and use them to calculate the company's value.
Stewardship Policy in relation to Listed Equity
Active Ownership is adopted to Listed Equity Investment Strategy. The Listed Equity Investment Strategy is managed by SPARX Asset Management Co., Ltd.; SPARX Asset Management Korea Co., Ltd.; and SPARX Asia Investment Advisors Limited.
1. Conflicts of Interest
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)
2. National Stewardship Code
SPARX Asset Management Co., Ltd. has established a policy in alliance with Japan's
Stewardship code published and updated by the FSA in 2017.
SPARX's active ownership policy applies to all Listed Stock Investment Strategies.
SPARX believes that engaging in dialogue and shareholder voting is a tool of value creation over the
mid- and long-run.
4. Expectations and Objectives
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 Equity 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 Equity 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.
5. Engagement Approach
ESG
SPARX conducts engagement activities to build good relations with listed companies.
Through discussion, we are dedicated to understanding a company's priorities and strategies of ESG
in a case-by-case basis and voicing our opinion accordingly. When voicing an opinion, we focus on
qualitative strategies instead of strictly financial numbers. We believe that the sustainability of
the relationships of all stakeholders of the listed company is important, including but not limited
to; shareholders, employees, customers, partners, local communities, and the environment.
Prioritization of Engagement
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 the Paris Agreement and actively engages in efforts to limit the rise in global average temperatures. Over the long term, SPARX supports investee companies through dialogue in developing and implementing greenhouse gas emission reduction plans in accordance with the Paris Agreement.
SPARX Listed Equity Investment Strategies recognize the social challenges of human rights, labor, and anti-corruption set forth in the principles of the Global Compact and supports investee companies through dialogue in addressing these issues proactively.
Methods of Engagement
Through numerous discussions with corporate management teams since the company's
inception, SPARX has worked to acquire expertise not only in a financial context but also a deep
understanding of the operations and strategic priorities of these companies. SPARX actively supports
activities that promote corporate value growth through investment in such companies. We
simultaneously provide constructive criticism to encourage changes in those companies that we
believe have room for improvement. In addition to conducting dialogue independently, we also view
"collaborative engagement" with other institutional investors as an important means of enhancing the
effectiveness of our stewardship activities. When determining the form and content of such dialogue,
we consistently prioritize ensuring that it is constructive and contributes to the sustainable
growth of the investee company.
Transparency of Engagement Activities
SPARX reports on its engagement activities and provides basic policy on stewardship
responsibilities through its investment management reports, discussions with clients, various types
of seminars, and websites. When describing the state of investment management, we strive to fully
disclose proprietary information gained through our bottom-up research approach, as well as our
thoughts on corporate value and our efforts to support corporate sustainable growth. 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.
Due diligence and Monitoring Process
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 also monitor investee companies' responses to climate change. For all funds managed under SPARX Asset Management Co., Ltd.'s listed equity investment strategies, we measure greenhouse gas emission intensity monthly and review the results at the Investment Policy Committee. We also use ESG risk scores provided by an external vendor to assess potential long-term impacts on corporate value.
Insider Information
SPARX's insider information compliance structure prohibits all securities trading
activity based on material non-public or insider information in accordance to the Securities and
Exchange Surveillance Commission. In principle, SPARX agrees in advance with investee companies that no information containing material non-public facts will be exchanged during dialogue. If SPARX nevertheless becomes aware of material non-public information in the course of a more in-depth dialogue, the information is immediately registered and managed in accordance with internal rules, and appropriate measures, including trading restrictions, are implemented.
Escalation Strategies
SPARX proactively invests in companies where management strategy is improving
corporate value. In contrast, to protect the interest of beneficiaries, a disinvest decision is made
if management employs policies which inhibits sustainable growth. Separately, SPARX operates
specialized strategies in which funds actively promote change to corporations by exercising
shareholder rights.
6. Voting approach
ESG Issues
SPARX aims to increase shareholder returns through the enhancement of mid- to long-term corporate value by exercising proxy voting appropriately. Each proposal is individually assessed by the Investment Professionals, taking into account whether the investee company's ESG initiatives contribute to corporate value enhancement.
Prioritization and scope of voting activities
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 Equity 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:
Financial Statements and earnings distribution
Capitalization
Reorganization including mergers, acquisitions, and transfers of business
Board of Directors elections
Auditors elections
Executive compensation
Executive stock options
Amendments to articles of incorporations
Poison pill plans
Shareholder proposals
Methods of Voting
SPARX takes a fully active approach to managing listed equity investments, with Investment Professionals researching all investee companies and investing only after gaining a thorough understanding of each company's management and business conditions. Leveraging this unique approach, we do not establish external or quantitative voting criteria for exercising shareholder voting rights as a part of the Listed Equity Investment Strategy. Instead, Investment Professionals make an individual assessment of every proposal taking into account the specific circumstances of the company and whether the proposal contributes to the enhancement of corporate value.
Transparency of Voting Activities
Since disclosing all voting activities is equivalent to disclosing a full investment
portfolio, SPARX discloses only votes of oppositions to company proposals and votes in favor of
shareholder proposals. SPARX Asset Management Co., Ltd.'s voting record can be found on our website.
Filing / Co-filing Resolutions
SPARX recognizes collective engagement as an effective part of the Listed Equity Investment Strategy, especially in terms of having dialogue with companies and shareholders. When
other institutional investor shareholders request assistance with companies held within SPARX's
portfolio, we carefully examine the importance and appropriateness of these discussions as part of
the strategy. If or when SPARX has determined engaging in dialogue with investee companies would be
more effective in collaboration with other shareholders, then we may ask other shareholders to
participate in collective engagement.
Decision Making Processes
Shareholder voting is finalized by an internal investment committee at SPARX Asset
Management Co., Ltd. The investment committee is constituted by division heads of investment and
research, risk, legal, and compliance, appointed by the board of directors. The investment committee
creates guidelines for voting, while also monitoring and finalizing votes that investment managers
propose. All voting is proposed by the investment manager that is invested in each firm. This allows
for flexibility in the decision in a case-by-case basis by the most knowledgeable individual.
Securities Lending Processes
While SPARX does engage in securities lending as per request from clients, securities
are recalled prior to proxy voting to exercise voting rights.
Responsible Investing in relation to the Alternative Equity Investment Strategy
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 incorporating stock index futures and other derivatives.
In line with SPARX Group's purpose, "To make the world wealthier, healthier, and happier," our Alternative Equity Investment Strategy practices responsible investing with the aim of providing clients with maximum investment returns over the medium to long term, regardless of market direction. We believe that responsible investing is closely integrated with achieving this objective.
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 applied to long positions in the Alternative Equity Investing Strategy are the same as those of the Listed Equity Investment Strategy. Accordingly, our approach to responsible investing for long positions is as described in "Responsible Investing in relation to the Listed Equity Investment Strategy."
However, on the short-book of the Alternative Equity Investing Strategy, differences exist from the
long-only principles, and we short individual companies based on the principles outlined below.
Short Investing
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.
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
a company.
Valuation
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.
How short investing differs from long investing:
We do not create a specific exclusion list for short investing.
We do not engage with short investment companies.
Short investing is not limited to ESG-negative companies.
Responsible Investment Policy for the SPARX Renewable Energy Investment Strategy
For the purposes of this Policy, the "SPARX Renewable Energy Investment Strategy" (the "Strategy") refers to SPARX's renewable energy investment strategy. Power generation consulting for the Strategy is provided by SPARX Green Energy & Technology Co., Ltd., while asset management is provided by SPARX Asset Management Co., Ltd. and SPARX Asset Trust & Management Co., Ltd.
Through the following principles, the Strategy seeks to contribute to the development of energy, financial and capital markets in Japan and other countries.
1. Increasing Japan's energy self-sufficiency ratio and reducing the environmental burden through the expansion of renewable energy (Environment)
Considering Japan's extremely low energy self-sufficiency ratio, alongside the environmental burden of fossil fuel consumption, we see the expansion of renewable energy power generation facilities as one of Japan's most crucial investment needs. However, achieving the goal of supplying 20% of Japan's energy demand via renewable energy will require enormous funding. The Strategy aims to address this funding gap: supplying financing to areas where the demand is the greatest, while expanding renewable energy power generation facilities. We aim to contribute to the stability of electricity supply in Japan and other countries around the world, a higher energy self-sufficiency ratio in Japan, and the realization of a decarbonized society.
2. Revitalizing local communities through renewable energy (Society)
Renewable energy sources can be found in abundance all over the world. SPARX believes that precious natural resources, such as land and forests, should benefit the local community in which they are located. Solar and wind power generation have the advantage of short development periods. Additionally, geography and climate conditions make it easy to estimate the scale of projects. On the other hand, biomass power generation can be expensive and time consuming to set up, however, it has the advantage of job creation and less exposure to economic fluctuations. We aim to skillfully combine the distinctive characteristics of different types of renewable energy to maximize the benefit to the local area. In advancing renewable energy projects, we place importance on dialogue with local residents, local governments, landowners and other stakeholders, and strive to operate projects based on adequate information sharing and mutual understanding. Through local sourcing, job creation and other initiatives, we seek to contribute to regional economic development and foster harmonious coexistence with local communities.
3. Contributing to the improvement of investment efficiency in Japan
(Governance)
In Japan, owners of physical assets, or "infrastructure-related assets," have traditionally been governments and businesses, and such assets were maintained on their respective owners' balance sheets. However, going forward, the paring down of these asset heavy balance sheets will be a key component of the Japanese government's strategy. Similarly, the private sector carrying long-term infrastructure-related assets prevents new investments and slows money velocity. The use of a fund for infrastructure-related investments can address this liquidity need and ensure transparency through disciplined operations and disclosures, while pursuing reasonable returns.
Furthermore, the Strategy fulfills its accountability to investors, local communities and other stakeholders through compliance with applicable laws and regulations, fair business practices, appropriate management of conflicts of interest, and transparent disclosure of information. The Strategy also seeks to prevent bribery, corruption, money laundering and other forms of misconduct, while maintaining an appropriate risk management framework and aiming for sustainable enhancement of asset value.
4. Practicing Responsible Investment through ESG Considerations
The Renewable Energy Investment Strategy considers environmental, social and governance (ESG) factors as important evaluation criteria in investment decision-making and asset management, in addition to financial considerations.
At each stage of asset selection, development, operation and eventual disposal, the Strategy evaluates the risks and opportunities that climate change, biodiversity, other nature-related issues, human rights, occupational health and safety, community relations, legal compliance and corporate governance may have on asset value and business operations. Through this approach, the Strategy seeks to support long-term value creation while contributing to the realization of a sustainable society.
To identify and assess financially material sustainability and governance issues, the Strategy has established Sustainable Procurement Guidelines that define priority issues, standards expected of suppliers and other business partners, and exclusion criteria.
These issues are addressed through a governance framework led by the Business Development Committee and are continuously monitored through information gathering, stakeholder engagement and periodic reviews relating to investee assets, business partners and supply chains.
The results of assessments relating to identified sustainability and governance issues are reviewed by the Business Development Committee and incorporated into investment decision-making.
Where material sustainability or governance risks are identified and are deemed incapable of being adequately managed through mitigation or remediation measures, the Strategy may decide not to proceed with an investment.
In addition, where significant violations of environmental, social or governance-related laws and regulations, misconduct, human rights abuses, occupational health and safety issues, environmental incidents or other similar matters are identified, the Strategy assesses their impact and, where appropriate, engages in dialogue, requests improvements and monitors the implementation of corrective actions.
To ensure the effectiveness of these initiatives, the Strategy places importance on engagement with stakeholders and seeks to continuously identify, improve and mitigate ESG-related risks.
5. Promoting a Sustainable Supply Chain
The Strategy recognizes that the sustainability of renewable energy generation projects depends on efforts throughout the entire supply chain involved in the development, construction, operation and maintenance of power generation facilities.
Accordingly, the Strategy collaborates with suppliers, contractors and other business partners to promote:
Reduction of greenhouse gas emissions
Consideration of the natural environment and biodiversity
Respect for human rights
Assurance of occupational health and safety
Fair business practices and prevention of corruption
Where significant ESG-related risks are identified, the Strategy seeks to encourage corrective action through dialogue with suppliers and other business partners and requests for improvement, thereby supporting the development of a sustainable supply chain.
Giving back to local communities
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.
The Children's Energy Summit
This program aims to foster children's creativity to solve society's future energy needs through understanding the renewable energy plants operated by SPARX's Renewable Energy Investment Strategy and other renewable energy ideas and examples around the world.
Tour
Look and listen
Participants will begin with a tour of a mega solar facility to learn about its role
and how it works.
Quiz competition
Learn
Participants will learn about energy from various perspectives through a fun quiz
game.
Easy-to-understand "food for thought" examples will be outlined and form the basis
of thinking about energy and energy solutions for later.
Power generation
Hands-on experience
Participants will try out various methods of generating power themselves. The
interaction-based examples of power generation will be fun while highlighting
educational energy material.
Creative time
Think
Participants will have an opportunity to come up with their own creative solution to
power the future.
A number of participants are asked to present their ideas.
Stewardship Policy for the SPARX Renewable Energy Investment Strategy
For purposes of this Policy, the "SPARX Renewable Energy Investment Strategy" or the "Strategy" refers collectively to all SPARX investment strategies that invest in renewable energy generation projects. Power generation consulting services for the Strategy are provided by SPARX Green Energy & Technology Co., Ltd., while asset management services are provided by SPARX Asset Management Co., Ltd. and SPARX Asset Trust & Management Co., Ltd.
1. Conflicts of Interest
SPARX Group Co., Ltd. is an independent company that is not affiliated with any banking, securities, insurance, or other corporate group. As Japan's first listed company whose subsidiaries are primarily engaged in investment management, SPARX Group seeks to maintain standards of conduct that merit a high degree of trust from the market. Half of its Board of Directors consists of independent outside directors, providing a governance structure that supports the appropriate management of conflicts of interest. SPARX Group also maintains controls over its subsidiaries to ensure transparency.
As a general principle, SPARX seeks to prevent conflicts of interest with beneficiaries by prohibiting investment activities that could give rise to such conflicts. Furthermore, since SPARX Asset Management Co., Ltd. is registered as a 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).
2. Alignment with National Stewardship Codes
SPARX Asset Management Co., Ltd. has accepted Japan's Stewardship Code and has published its policy setting out its approach to the principles of the Code.
This Policy applies to all SPARX investment strategies that invest in renewable energy power generation projects. SPARX considers engagement to be an indispensable component of its investment activities and an important means of supporting strong investment performance over the medium to long term.
4. Expectations and Objectives
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. This disciplined research and analytical approach is also applied to the management of renewable energy generation assets, ensuring consistency with SPARX's established approach to equity investment.
Under the Strategy, we engage in constructive dialogue with stakeholders associated with invested assets and conduct ongoing monitoring, with the aim of enhancing long-term asset value and supporting sustainable business operations.
When considering potential investments in renewable energy generation assets, we conduct site visits and review applicable laws and regulations, weather data, and other relevant information to determine whether a potential asset should proceed to further due diligence. We make an investment where we determine that the asset has potential for long-term value enhancement.
Throughout this process, we maintain ongoing dialogue with relevant authorities, power companies, landowners, neighboring residents and other stakeholders. By incorporating the issues identified through such dialogue into the development, management and operation of renewable energy generation projects, we seek to support the long-term enhancement of asset value.
5. Engagement
ESG Issues
We conduct dialogue-based engagement to build constructive relationships with stakeholders involved in renewable energy generation projects. The content and frequency of engagement are tailored to the circumstances of each stakeholder. We place importance on maintaining direct, face-to-face relationships and engage in dialogue regarding the sustainable and environmentally responsible operation of renewable energy generation facilities and their coexistence with local communities.
Engagement Techniques
Since 2012, we have developed, managed and operated numerous renewable energy generation facilities. We visit each renewable energy site at least once a year and maintain ongoing dialogue with relevant stakeholders. Through these activities, we seek to enhance our knowledge of the management and operation of renewable energy generation projects and support the long-term enhancement of asset 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 organize the Children's Energy Summit at locations across Japan to provide children with opportunities to consider why renewable energy is necessary and to familiarize them with the renewable energy that will be vital to future generations. Through visits to renewable energy generation facilities operated under the Strategy and opportunities to learn about different forms of energy, the program seeks to foster children's creativity in thinking about the future of energy.
Supply Chain Engagement
We believe that appropriate management of ESG issues throughout the entire supply chain involved in the development, construction, operation, and maintenance of renewable energy facilities is essential to achieving sustainable value creation in renewable energy businesses.
SPARX Green Energy & Technology Co., Ltd. promotes constructive dialogue with EPC contractors, equipment manufacturers, O&M providers, and other key suppliers in accordance with its Sustainable Procurement Guidelines. In particular, where appropriate, we encourage the establishment of objectives and key performance indicators (KPIs) for material sustainability issues, including greenhouse gas emissions, biodiversity, human rights, occupational health and safety, community relations, and business continuity arrangements, and promote the monitoring of progress and continuous improvement.
Through supplier questionnaires, interviews, site visits, and other engagement activities, we seek to identify ESG-related risks within the supply chain. We also support capacity building and continuous improvement throughout the supply chain through training programs, information sharing, and other initiatives.
Where significant ESG concerns are identified, we undertake engagement and request corrective actions, while continuously monitoring progress toward improvement. Through these efforts, we aim to foster a sustainable supply chain and contribute to the long-term enhancement of asset value.
Engagement Transparency
We report on our stewardship policy and activities through investment management reports, meetings with clients and the SPARX Group website. In reporting on the management of renewable energy assets, we seek to provide distinctive and informative disclosure, including our assessment of renewable energy generation asset value and our activities to support the communities in which the relevant power generation facilities are located.
Due Diligence and Monitoring Processes
Through dialogue with stakeholders involved in renewable energy generation projects, we seek to understand the condition and operating environment of the assets in which the Strategy invests, from the perspective of enhancing asset value over the medium to long term. Applying our bottom-up approach, we review not only publicly available information but also information obtained through direct and ongoing dialogue with stakeholders. This enables us to assess whether the relevant assets are being managed and operated in a manner appropriate to their business environment. We also regard the supply chain involved in the management and operation of renewable energy assets as a key stakeholder group.
In accordance with its Sustainable Procurement Guidelines, SPARX Green Energy & Technology Co., Ltd. conducts supplier due diligence, ongoing monitoring, and capacity-building support. Where appropriate, ESG-related KPIs are established and regularly evaluated. Through these efforts, we seek to enhance sustainability across the supply chain and contribute to the long-term value creation of our invested assets.
Responsible Investing in relation to the Private Equity Investment Strategy
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. We also use an ESG checklist in discussions with the management of potential investee companies to assess:
whether management and the organization have examined ESG-related opportunities and risks, including those relating to climate change and respect for human rights;
whether they proactively address material ESG issues and have practical strategies for doing so; and
whether those strategies can contribute to sustainability and the creation of economic value.
After investment, we use the ESG checklist in discussions with portfolio company management to develop short-, medium- and long-term action plans and support their ESG initiatives.
1. Management with a high awareness of solving social problems
that creates a prosperous future without compromises
2. Management with a long-term vision that does not neglect
the present
3. Companies with excellent fully-committed management teams
4. Companies with a culture of hiring and valuing good
employees, and committing to the growth of employees and management personnel
5. Management that rationally considers its use of funds (on
reinvestment in development, employee returns, and shareholder returns)
6. Honest companies/management that can face harsh reality
without hiding inconvenient truths, and can consult and deal with any issues that may
arise
7. Companies that do not claim an unjustified high valuation
(business valuation)
② Quality of Earnings
8. Companies that pursue appropriate profit margins
9. Companies that are simple yet unique
③ Market Growth Potential
10. Companies that have been in business for a certain length
of time and have achieved a certain level of sales (Seed and start-up companies with
a concrete image of their sales strategy)
Investment Exclusion Criteria
The following are the criteria for exclusion from investment from an ESG perspective in the Investment Guidelines:
We will not acquire investment securities, etc. of portfolio companies that have or may have compliance problems that are deemed difficult to rectify.
We will not acquire investment securities, etc. of portfolio companies that are or may be related to antisocial forces, terrorists, or money launderers.
After making an investment, we strive to understand the situation of the investee company from the perspective of improving corporate value over the medium to long term, and support the company as a shareholder in improving its value through dialogue. Our basic policy is to support good management and strive to build a relationship where advice can be sought.
This responsible investment policy is reviewed annually for better investment execution.
ESG Analysis in the Investment Process
We believe that analyzing a venture company's stance on ESG issues is important in determining the company's potential for sustainable growth. When considering an investment, we compile the results of our research into a report and share it with limited partners, and reflect them in our long-term performance forecasts. We also reflect the impact of ESG factors on investment risk and use them to evaluate valuations.
ESG Analysis of individual stocks up to an investment decision
The Pre-Steering Committee, shown in the diagram above, meets on a weekly basis, while the Steering Committee, Advisory Board, and Investment Policy Committee meet once a month to review and report on ESG issues. By the time the Advisory Board meets, a Due Diligence Report is prepared, which summarizes the results of the analysis based on a checklist of management, business, financial, shareholder, risk, equity story, and ESG factors for the issuing company, and is shared with the main limited partners. In addition to the investment decision flow for individual issues, SPARX's Responsible Investment Committee meets once a quarter, and members of the Private Equity Investment Strategy Committee attend and report on their activities.
The ESG checklist used in the investment review process is based on the TCFD recommendations, the GRI Standards, and the SASB Standards.
(E) Environmental
While issues related to global environmental sustainability present significant risk factors, they also represent business opportunities for venture companies.
Under the SPARX Private Equity Investment Strategy, we will identify, invest in, and support venture companies with a view to solving environmental problems from a wide range of themes, such as reducing energy consumption by making society more efficient and smart, reducing greenhouse gas emissions through the use of hydrogen, and developing new materials that will help prevent the depletion of natural resources.
We will also analyze whether or not the venture company itself has the ability to understand and control the direct and indirect impact it may have on the environment, and whether or not its management has an environmental conservation mindset.
SPARX supports the long-term goal of the Paris Agreement and as an investment company actively engages in efforts to limit the rise in global average temperatures. In its capacity as an investment company, SPARX aims to contribute to ensuring that all portfolio companies and projects set and pursue net-zero greenhouse gas emission targets by 2050. We also support initiatives that facilitate their progress toward achieving this goal.
As part of this process, investment professionals managing this strategy aim to serve as a guide for portfolio companies in disclosing both financial and non-financial information related to climate change. We engage with portfolio companies even at the pre-IPO state to help them maximize efforts towards climate- related disclosures, including participation in discussions on the assessment of climate-related risks and opportunities and their potential financial impacts.
(S) Social
In SPARX Private Equity Investment Strategy, we consider that important requirements for investment include whether the company being considered for investment has any problems with human rights issues, and whether the company provides appropriate working conditions and fulfills its social responsibilities. We also intend to positively consider investing in companies that formulate strategies that emphasize social responsibility and that have a positive impact on the surrounding community and society.
(G) Governance
One of the most important factors that can make the difference between the success and failure of a venture company is its management. When a company's management is at the center of the governance system, and the company works together to ensure proper governance, we believe that the company's risk is reduced, and its corporate value is expected to increase over the long term.
The SPARX Private Equity Investment Strategy seeks to assess management's vision, rationality, and integrity through dialogue, while reviewing governance structures and supporting their development where necessary.
Post-Investment Monitoring
Following an investment, we engage in purposeful dialogue with management, seek to understand the circumstances of the portfolio company, and support improvements with the aim of enhancing corporate value over the medium to long term. Through participation in board and management meetings, access to professional networks, recruitment support, and assistance in establishing and maintaining governance structures, we obtain timely information on company management and use the resources of the Private Equity Investment Strategy to support sustainable corporate value creation. In line with our basic policy of supporting strong management teams, we seek to build trust and contribute to corporate value enhancement by providing candid opinions and support when companies face challenges.
SPARX Private Equity Investment Strategy Stewardship Policy applies to all strategies that invest in unlisted equity securities at SPARX. The Private Equity Investment Strategy is managed by SPARX Asset Management Co., Ltd.
1. Conflicts of Interest
SPARX Group Co., Ltd. is an independent investment company that does not belong to any
corporate group such as a bank, securities company, or insurance company. At the same time, as the
first listed investment company in Japan whose subsidiaries are primarily engaged in the investment
management business, we strive to establish a Code of Conduct that is worthy of high market trust.
Half of our Board consists of independent outside directors, and we have established a governance
structure that enables us to appropriately manage conflicts of interest. We also ensure that our
subsidiaries are managed in a manner that promotes transparency.
In principle, SPARX prohibits investment activities that may cause conflicts of
interest with beneficiaries before they occur. In addition, taking into consideration the fact that
we are also engaged in Type I Financial Instruments Business, we have established a Conflict of
Interest Management Policy that defines the types of transactions with conflicts of interest that
should be managed and the methods of management, and have published a summary of the policy on our
website (see Note).
2. Alignment with Stewardship Code requirements in each country
SPARX Asset Management Co., Ltd. accepts the Japanese version of the Stewardship Code
and has published its policy on the various principles of the Code.
SPARX Private Equity Investment Strategy Stewardship Policy applies to all strategies
that invest in unlisted equity securities at SPARX. We believe that engagement activities and the
exercise of voting rights are essential components of investment activities to produce high
performance over the medium to long term.
4. Expectations and Objectives
In SPARX Private Equity Investment Strategy, we conduct an analysis based on 10
investment principles from three major standpoints: Quality of Management, Quality of Earnings, and
Market Growth Potential to measure the actual value of the company, followed by a consistent process
of investment execution. After investment execution, we engage in purposeful dialogue with
management with the aim of improving corporate value over the medium to long term, strive to
understand the situation of the investee company, and provide support to improve problems.
Specifically, we obtain real-time information on company management through participation in board
of directors meetings, participation in management meetings, provision of human networks,
recruitment support, and support for building and maintaining governance structures. Furthermore, we
support sustainable corporate value enhancement by utilizing the resources of the Private Equity
Investment Strategy. Through engagement, we aim to identify and adjust project risks with the
objective of maximizing returns.
SPARX Private Equity Investment Strategy also provides regular opportunities for information exchange and discussion with the beneficiary limited partners and actively reports on its day-to-day activities, including how it fulfills its stewardship responsibilities. This ensures highly transparent investment activities for the beneficiaries.
5. Engagement
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 portfolio companies after developing a thorough understanding of the available information.
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.
Engagement Transparency
With regards to SPARX Private Equity Investment Strategy, we report on its stewardship
policies and activities through client interviews, quarterly reports, advisory board meetings, and
our website.
Monitoring Process
SPARX Private Equity Investment Strategy is to accompany portfolio companies in their
efforts to sustainably increase their corporate value. We strive to build relationships of trust in which we support portfolio company management and are regarded as a trusted source of advice. We monitor not
only financial indicators, but also whether the investee company has adopted effective management
and human resource strategies that match the business environment, whether there are any problems
with relationships with customers, employees, and all other stakeholders, and whether the company
has an appropriate corporate governance structure. The investment managers present constructive
opinions based on the information obtained in real time during our meetings.
Insider Information
SPARX Private Equity Investment Strategy may continue to hold shares in a
portfolio company after it has gone public. Dialogue with portfolio companies after listing is
conducted primarily through publicly disclosed information. In principle, it is agreed in advance
that information including undisclosed material facts will not be exchanged. In the event that
undisclosed material facts become known in the course of dialogue for the purpose of contributing to
the enhancement of corporate value, we will immediately register and manage such information in
accordance with our internal rules, and take appropriate measures such as imposing necessary
transaction restrictions.
6. Prioritization and Scope of Voting Activities
SPARX Private Equity Investment Strategy aims to increase shareholder returns through
medium and long-term improvements in corporate value by exercising voting rights appropriately. Each
proposal is considered individually by the investment manager, who includes in his or her
decision-making process whether or not ESG responses will lead to an increase in corporate value.
Prioritization and Scope of Voting Activities
In exercising voting rights, the criteria for judgment is whether or not each proposal will
contribute to the enhancement of corporate value over the medium to long term, while taking into
account the management policy, growth potential, business model, corporate governance, and other
factors of the target company.
SPARX Asset Management Co., Ltd. has established exercise guidelines and operational processes in
its internal rules for each type of agenda item of the listed companies in which it invests, and its
basic policy (Note) is published on its website.
Also note that, with regard to the following proposals, our Guidelines for the
Exercise of Voting Rights stipulate specific policies and instructions:
Financial statements and proposals for the appropriation of profits
Capital policy
Restructuring, including mergers, transfers of business, and acquisitions
Board of Directors and appointment of directors
Board of Corporate Auditors and appointment of corporate auditors
Officer remuneration
Stock options
Changes to the Articles of Incorporation
Hostile takeover defense measures
Shareholder proposals
Methods of Exercising Voting Rights
SPARX Private Equity Investment Strategy primarily invests in unlisted companies. We invest in these companies based on a relationship of trust with the management and other key personnel and a thorough understanding of their detailed management conditions, business models, personnel and organizational structures, governance systems, and other aspects of their operations. We do not set any external or quantitative criteria for the exercise of voting rights, but we do make decisions on all proposals based on whether or not they will contribute to the enhancement of corporate value, taking into account the situation of the company in question
Transparency in Exercising Voting Rights
In line with the policies of the Financial Services Agency's Stewardship Code and in order to support the trend of strengthening corporate governance in the market, SPARX Asset Management Co., Ltd. has disclosed the results of voting rights for each company since its fiscal years ending in or after March 2017. However, for SPARX Private Equity Investment Strategy where we invest in unlisted stocks, we have decided not to disclose the voting results of all invested unlisted companies, because we believe that disclosing the voting results of all invested unlisted companies would interfere with the management and business strategies of the investee companies and is undesirable in terms of our clients' returns first and foremost.
