Introduction

This policy (hereinafter, the “Policy”) sets forth the basic matters related to sustainable investment at Cadira Capital Management Co., Ltd. (hereinafter, the “Company”), with the aim of clarifying the corresponding authorities and responsibilities.

Note: This is an English translation of the original Japanese version. In the event of any discrepancy or inconsistency between the Japanese version and its English translation, the Japanese version shall prevail.

1. Our Approach to Sustainable Investment

1.1 Investment Philosophy

At Cadira Capital Management, we believe that "investing for sustainability" will deliver superior risk-adjusted returns over the long term. Our belief is underpinned by the following three perspectives.

(1) Sustainability excellence drives corporate value
The quality of a company’s sustainability practices has a significant impact on its corporate value over the long term. Companies affect the global environment (including climate, biodiversity, and the circular economy) and society (including human rights, human capital, and social order) through their business activities, and in turn are affected by the global environment and society in a mutually interdependent relationship. Therefore, positive impacts generated externally will eventually return in the form of enhanced corporate value. The reverse also holds true: negative impacts are likely to manifest in the future as a decline in corporate value.

(2) Investment process rooted in sustainability leads to high-quality investment opportunities
If sustainability affects corporate value, integrating it into a traditional value-investing framework can further enhance the investment process. For example, when analyzing the fundamentals of a potential investee company, incorporating non-financial information alongside financial data allows a more accurate and high-resolution understanding of its true state. As sustainability practices are constantly evolving, keeping abreast of global developments and proactively incorporating new insights into the investment process enables the Company to capture high-quality investment opportunities at an early stage.

(3) Engagement of investors who prioritize sustainability brings about positive change in companies
For companies aiming for long-term development, the perspectives of investors who emphasize sustainability provide valuable input for management decisions. When knowledgeable investors communicate information, expectations, and proposals, this provides companies with both ideas and discipline, and can drive significant, long-term transformation across the organization. A long-term management mindset may at times conflict with the views of investors focused on short-term gains; in such cases, engagement by investors who share management’s long-term perspective gives management the courage to pursue the path they believe is right.

1.2 Scope and Definition

The Company defines sustainable investment as: “Investment that incorporates ESG factors (E: Environment, S: Social, G: Governance) and the perspective of impact creation into investment decision-making and engagement activities.” The Company applies sustainable investment across all of its investment strategies.

(1) Climate Change Policy

The Company recognizes that protecting the global environment is a universal challenge for humanity and is essential to achieving a sustainable society. To fulfill its fiduciary duty as an asset management company, the Company engages in efforts to solve environmental issues at investee companies and in society at large, thereby contributing to the realization of a sustainable economy and society.

① Contribution through investment activities
- Promote investment in companies and projects that help address environmental challenges or contribute to global environmental conservation.
- Aim to achieve a decarbonized society and take investment actions that support achieving carbon neutrality by 2050; disclose climate-related information.
② Initiatives in business operations
- Reduce environmental impact within the Company’s own operations through energy saving, resource conservation, and the promotion of the 3Rs (reduce, reuse, recycle).
- Procure environmentally conscious products and services.
③ Collaboration with stakeholders
- Work toward solving environmental issues through dialogue with stakeholders such as investee companies, clients, employees, and local communities.
④ Education and internalization
- Provide training and awareness-raising activities to deepen officers’ and employees’ understanding of environmental issues and enable them to practice environmental responsibility in their daily work.
⑤ Compliance
- Comply with environmental laws and regulations, and respect international frameworks and industry guidelines.

(2) Human Rights Policy

The Company believes that respect for internationally recognized human rights is essential to achieving a sustainable society. As an asset management company, the Company is committed to ensuring that its investment and business activities do not contribute to human rights violations, and to fostering a corporate culture that values diversity and inclusion.

① Contribution through investment activities
- Promote investment in companies and projects that are committed to respecting human rights.
② Initiatives in business operations
(a) Human rights initiatives
- Do not tolerate any discrimination based on race, nationality, gender, sexual orientation, gender identity, disability, beliefs, or similar attributes.
- Do not tolerate child labor, forced labor, or any form of harassment.
- Respect workers’ freedom of association, the right to organize, and the right to collective bargaining.
(b) Healthy workplace environment
- Maintain a workplace where employees can work safely and with peace of mind, in good mental and physical health.
- Support work–life balance and create an environment where diverse personnel can fully demonstrate their capabilities.
③ Dialogue with stakeholders
- Engage in constructive dialogue with stakeholders and respond appropriately to human rights issues.
- Promote respect for human rights throughout the entire supply chain.
④ Education and awareness
- Provide education and training to all officers and employees to instill respect for human rights.
⑤ Compliance
- Comply with human-rights-related laws and regulations, and respect international frameworks and industry guidelines.

1.3 Governance

The Board of Directors bears ultimate responsibility for supervising the implementation of this Policy and for accountability in ensuring that its objectives and goals are achieved. The Board of Directors delegates the implementation and oversight of this Policy to the Chief Investment Officer (hereinafter, the “CIO”).

The CIO conducts an annual review of this Policy and reports the results to the Board of Directors. The review confirms whether the existing investment processes and new initiatives are aligned with this Policy. The report also includes proposals for improvements regarding any items deemed inconsistent with this Policy or problematic in practice. The CIO periodically assesses investment staff’s practical capabilities in sustainable investment and the extent to which ESG factors are incorporated into actual investment processes, reports the findings to the Board of Directors, and takes steps to drive improvements based on these assessments.

The Company reflects KPIs (Key Performance Indicators) related to sustainable investment in the remuneration of its officers and employees, based on their quantitative and qualitative contributions to the Company’s performance. Taking into account the Company’s current size, the direct outcomes of sustainable investment are used as KPIs in evaluating executive performance. Details of the direct outcomes of sustainable investment are, in principle, clarified in annually issued reports or equivalent publications.

As the Company’s “investing for sustainability” approach generates superior long-term returns, it contributes to maximizing clients’ long-term interests. In engagement activities, the Company also identifies in advance those types of investment activities that may give rise to conflicts of interest with clients or related companies. Situations where conflicts of interest may arise refer to cases in which the Company has business or capital relationships with investee companies.

The Company provides regular training, including the use of external resources, so that directors can acquire the specific skills necessary to oversee the Company’s sustainable investment.

The Investment Management Department is responsible for administering this Policy. This Policy will be revised as necessary in response to changes in laws, instructions from supervisory authorities, or other needs. Any amendments to this Policy require a resolution of the Board of Directors.

1.4　Team Structure and Implementation Guidelines

The Company adopts an integrated structure in which the Investment Management Department conducts investment management, ESG analysis, and engagement.

When constructing portfolios, the Company applies sustainability considerations through a combination of screening and integration.

(1) Screening
Based on the “Exclusion Policy” described below, the Company designates as excluded investments those companies whose primary businesses cause significant adverse impacts on society or whose sustainability practices are deemed questionable, and removes them from the investable universe. The Investment Management Department prepares an ESG exclusion list for such excluded names.

(2) Integration
To enhance risk management and returns, the Company explicitly and systematically incorporates sustainability considerations into its corporate valuation framework.

As an active owner, and in accordance with the “Engagement Policy” described below, the Company also encourages investee companies to improve their sustainability-related risk management and to develop more sustainable businesses through engagement tools such as dialogue and proxy voting, thereby contributing to enhanced sustainability at investee companies.

(3) Dialogue
Under the “Dialogue Policy in Investment Activities” described later, the Company engages with investee companies on ESG issues and encourages improved practices, including enhanced information disclosure. Such dialogue may be conducted solely by the Company or jointly with other investors.

(4) Proxy Voting
Based on the “Proxy Voting Policy” described below, the Company expresses support or opposition through voting on resolutions related to specific ESG issues or by submitting proposals at shareholder meetings.

1.5 Reporting and Transparency

The Company discloses information on its sustainable investment activities once per year.

2. Exclusion Policy

2.1 Criteria for Excluded Companies

The Company excludes from investment those businesses that have significant negative impact on the global environment (including climate, biodiversity, circular economy, etc.) or society (including human rights, human capital, social order, etc.), or whose main businesses are deemed unsuitable from the standpoint of stakeholder value, economic value, or both. Accordingly, companies that fall under the following revenue-based criteria are excluded:

Adult entertainment
Companies deriving 5% or more of revenue from businesses related to the sex industry or pornography.

Alcohol
Companies deriving 5% or more of revenue from the manufacture of alcoholic beverages, and retailers deriving 5% or more of revenue from the sale of products containing alcohol.

Conventional oil and gas companies
Companies deriving 5% or more of revenue from oil and gas activities. Oil and gas activities refer to companies engaged in exploration, production, refining, transportation, and storage of oil and gas assets.

Gambling
Companies deriving 5% or more of revenue from operating gambling businesses, manufacturing gambling equipment, or producing gambling-related components.

Power generation
Companies engaged in power generation from non-renewable energy sources. 
(Note: The Company invests with the purpose of supporting companies engaged in contributing activities, which are defined as those included in the EU Taxonomy. Where data has not yet been published, or for activities not covered by the EU Taxonomy, the reference framework is economic activities that contribute to the environmental or social objectives set forth in the Sustainable Development Goals (SDGs).)

Coal mining
Companies deriving 5% or more of revenue from the exploration, transportation, distribution, or refining of thermal coal, or from providing dedicated equipment or services. Regardless of this threshold, companies that are expanding their thermal coal mining operations are excluded.

Tobacco
Companies that manufacture tobacco products; companies deriving 5% or more of revenue from the production of components related to tobacco; and retailers deriving 5% or more of revenue from the sale of tobacco products.

Non-conventional oil and gas
1. Oil and gas companies actively engaged in non-conventional extraction. Types of non-conventional extraction considered include:
- Arctic drilling
- Shale oil/gas
- Oil sands
2. Thresholds:
- Revenue share from such activities is less than 5%
- No expansion plans are in place

Weapons
1. Controversial weapons
Companies engaged in activities related to the production of controversial weapons that may cause disproportionate and indiscriminate harm to civilians, such as anti-personnel landmines, cluster munitions, depleted uranium weapons, and biological or chemical weapons. This includes direct or indirect involvement in the production, manufacture, or sale of such weapons.
2. Military contracting and small arms
Companies deriving 5% or more of revenue from military contracts or small-arms manufacturing. This includes involvement in the manufacture, research and development, management/services/maintenance, integration or customization, testing, and sale/trading of weapons subject to export controls.

2.2 Exclusion Based on Corporate Conduct Assessment

This criterion excludes investments in companies involved in serious controversies. It is aligned with the UN Global Compact (UNGC) principles and the OECD Guidelines for Multinational Enterprises and focuses on assessing corporate conduct.

If an investee company falls under any of the following and the severity of the controversy is confirmed, the Company sells all related holdings. If the severity is low, the Company monitors the company, engages through dialogue, and requests improvements.

For companies with past issues, the Company will invest only after confirming that the issues have been fully resolved and that there is no risk of recurrence, and will continue engagement to promote further improvement during the investment period.

Exclusion applies to companies that:
- Are critical of human rights protection or are complicit in human rights violations.
- Restrict the formation of labor unions or collective bargaining, or engage in forced labor, child labor, or discrimination in the workplace or in employment.
- Are critical of preventive approaches to environmental issues, or obstruct the dissemination of environmental technologies.
- Engage in coercion or corruption.
- Sacrifice biodiversity.
- Adversely affect water resources.
- Engage in intentional tax evasion.
- Operate under a dictatorial governance system.

3. Engagement Policy

The Company emphasizes engagement activities in the selection and monitoring process of portfolio companies and have established the following policies.

3.1 Purpose of Engagement
The purpose of the Company’s engagement activities is to support investee companies in enhancing corporate value while generating positive impacts for the world. Improving each individual investee company contributes to building a sustainable society and enhances the medium- to long-term performance of the Company’s strategies.

3.2 Engagement Process
Through engagement activities such as dialogue, proxy voting, and written opinions from portfolio managers, the Company supports investee and potential investee companies in creating virtuous cycles in their activities. Engagement activities are documented, and progress is monitored, including company responses. Examples of engagement activities are disclosed in periodic reports and on the Company’s website. The Company also collects opinions and requests from asset owners and other stakeholders and uses them to improve its engagement activities.

3.3 Response to Corporate Misconduct
In the event of corporate misconduct or situations where stakeholders suffer disadvantages, the Company will work to ensure that such situations are promptly resolved. In addition, in accordance with the Investment Risk Management Policy, comments on investment decisions made by the Investment Management Department shall be reported to the Board of Directors and retained as records.

3.4 Conflict of Interest Management in Engagement
The Company identifies in advance the types of activities that may give rise to conflicts of interest with clients or related companies. Situations where conflicts of interest may arise refer to cases in which the Company has business or capital relationships with investee companies.

3.5. Insider Information
As a matter of policy, the Company does not receive undisclosed material information in our dialogue with portfolio companies. If the Company does receive undisclosed material information, it will manage the information appropriately in accordance with its Insider Trading Management Policy and deal with it by imposing trading restrictions on the relevant stock.

4. Dialogue Policy

The Company establishes the following guidelines for dialogue with investee companies under its Japanese listed equity strategies.

4.1 Constructive Dialogue

We seek to ensure that meetings with investee companies provide opportunities for constructive dialogue. Constructive dialogue refers to dialogue aimed at enabling both investors and companies to gain insights and strengthen mutual trust.

4.2 Mutual Exchange of Views

We welcome opinions and questions from companies. Rather than merely collecting information, we aim to create long-term value through mutual exchange of views.

4.3 Interest in IR Frameworks

We pay close attention not only to management structures but also to IR frameworks. We believe that it is essential for corporate development that the IR department both discloses information appropriately and serves as a channel through which market perspectives are communicated to management.

4.4 Emphasis on Sustainability

We place equal or greater emphasis on sustainability relative to financial information in our investment process. To support integrated financial and non-financial thinking at companies, our investment professionals also engage in sustainability-related dialogue.

4.5 Reporting of Activities

As part of our stewardship responsibilities, we report our engagement activities externally. When referring to specific dialogue content, we exercise the utmost care to ensure that such disclosure does not impede the company’s business operations.

5. Proxy Voting Policy

5.1 Basic Policy

In exercising voting rights, the Company aims to contribute to the creation of a sustainable global environment (including climate, biodiversity, and the circular economy) and society (including human rights, human capital, and social order), and thereby to the long-term interests of its clients, by issuing voting instructions that take into account the interests of shareholders and stakeholders of the investee companies.

Because the Company invests in companies after agreeing with their management policies through its selection process, it generally respects management’s policies. However, if a proposal is deemed contrary to the interests of shareholders or stakeholders and lacks a clear explanation, the Company will vote against or abstain.

5.2 Structure

The Board of Directors serves as the final decision-making body with responsibility for voting instructions.

For individual agenda items, the Board of Directors, in principle, delegates its authority to the Investment Management Department responsible for the relevant client assets. The Investment Management Department reviews each proposal in accordance with the Proxy Voting Policy and determines whether to support or oppose it.

5.3 Voting Guidelines

The Company evaluates each proposal individually in accordance with the Basic Proxy Voting Policy. Particular care is given to proposals that:
- May impair shareholder or stakeholder interests
- May hinder the effectiveness or revitalization of the Board of Directors
- May contribute to management entrenchment
- May encourage excessive risk-taking by management
- Are submitted by other shareholders

5.4 Disclosure of Results

To ensure transparency in its proxy voting activities, the Company, in principle, discloses proxy voting results on its website once a year. The disclosure covers individual proposals, and when the Company votes against management proposals or supports shareholder proposals, it also discloses the reasons for those decisions.