Sumitomo Trust's SRI China Funds for Japanese Retail Investors

The Sumitomo Trust & Banking

Company Profile & Asset Management Business

The Sumitomo Trust & Banking

Company Profile & Asset Management Business

<Contact>The Sumitomo Trust & Banking Co., Ltd.Global Product Management Office (Tokyo)Tel: +81-3-6256-3449Fax: +81-3-6256-3446Email: [email protected]

The Sumitomo Trust & Banking Co., Ltd.

This presentation booklet is provided to you for use in a private and confidential meeting and not for any other purpose. This presentation is not an advertisement and is not intended for public use or distribution.

This material contains our subjective judgment as well as objective information, and we shall advise you to make your final investment decision at your own risk, referring to detailed information relating to the products. Any contents of this material including performances, investment objective, and distribution charts showing risk/return of the products do not guarantee that the performance will go up. Furthermore, please be aware of preconditions sufficiently as data showing simulation and back test is created under certain conditions.

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Company Overview – Who We Are

The Sumitomo Trust & Banking Co.,Ltd. (“STB”)- one of the largest asset managers in Japan

AUM: USD 296 Billion (31st Dec 2009) Established in 1925, started asset management business in 1962 6,061 employees (30th Sep 2009) Registered with Kinki Local Finance Bureau, Ministry of Finance A winner of Mercer MPA Award 2008 Japan

(Five Years) Fundamental Value Strategy(Three Years) Fundamental Value Strategy,

Fundamental Growth Strategy Focus on institutional investors


SRI in Asia=New Horizon

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Chinese Government policy is aiming “a harmonious society”, a balanced society with “the Scientific Outlook on Development” and environmentally sustainable growth as its mantra, and has growing

commitment to CSR in general.

China

South Korea

Global environmental issues, such as climate change and deforestation, have emerged as new challenges to people throughout the world. In the face of such challenges, President Lee Myung-bak announced in 2008 “Low Carbon, Green Growth” as Korea‘s new

vision for national development. Korea aims to become a low-carbon society through green growth achieved via green technologies and green industries which enhance eco-efficiency while minimizing adverse environmental impacts. The Republic of Korea will also

constructively contribute to global efforts to combat climate change. 　　　　　　　　 Source: Korea.net


The growth of the SRI market in Japan

($ mil)

Source : SIF-Japan(data), Sumitomo Trust & Banking

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SRI universe candidatesSRI universe candidates

SocialSocial

scorescore

EnvironmentalEnvironmental

scorescore

GovernanceGovernance

scorescore

Distributing the questionnaire to about 2,000 companiesDistributing the questionnaire to about 2,000 companies

(Analyze the response to the questionnaire and CSR reports)(Analyze the response to the questionnaire and CSR reports)

SRI universe (300-350 stocks)SRI universe (300-350 stocks)

(SRI universe selection meeting)(SRI universe selection meeting)

Overview of investment process

Corporate ratingCorporate rating Corporate profileCorporate profile

Portfolio Construction (50-100 stocks)Portfolio Construction (50-100 stocks)

Stock selection & Weight assignmentStock selection & Weight assignment

Based on the bottom-up research by in-house analysts and stock price evaluation

GSEJapan Japan

ResearchResearch

InstituteInstitute

SumitomoSumitomo

TrustTrust

ESG excellent company

Evaluation of Materiality

STB Japan SRI

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Overview of investment process

CSR questionnaire research by JRI

and Chinese local researchers

China A Share Hong Kong H Share ・ Red Chip

Universe ： 1,600 ～ 1,700 Universe ： 200 ～ 300

SRI Universe ： 100 ～150

SRI Universe ： 200 ～300

100 ～ 150 50 ～ 70

Liquidity and credit risks

Stock selection based

on bottom-up research

A Share portfolio30-40 stocks, $50mil

H Share ・ Red Chip portfolio

20-30 stocks, $50mil

Final portfolio

The investment process of the Japanese-domiciled fund to be launched

STB China SRI

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Research Platform for the China SRI

Number of ｌ isted companies on CSEs （ A 、 B 、 H Shares ） ≒ 1600 Companies

Chinese research company

Japan Research Institute

Surveys Survey Responses Press Releases Media Information

Company Reports （ Company Profiling ）

SRI Universe Screening

SumitomoTrust Asset ManagementInvestment Manager

Investment Advice

① ② ③

⑦

Integrated Stock Screening

⑤

Non FinancialResearch

RCM（ Hong Kong ）

Research

BSR④

⑥

Negative Screening Information and materials

Research Activities by Fund

Managers

Financial / Non-financialInformation

③

STF（ Hong Kong ）

Investment Advice

Sumitomo Trust Finance

Sumitomo Trust & Banking GroupStock Selection ・ Portfolio Construction

Investment Advice


Questionnaires for Chinese listed companies

Environmental Performance(18)

Protection of the right of employees(14)

Protection of Suppliers, Customers and

Consumers(12)

Communication with Local Community (8)

Governance （ 18 ）The bracket means the # of the questions of the questionnaire

E

S

S

S

G

8


ESG Points of Evaluation and Criteria

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Key issues to evaluate Background Specific items

Corporate Governance

Due to recent occurrences of corporate scandals and issues , companies are required to abide by stricter laws, rules and regulations, as well as social norms. Issues raised to monitor execution of businesses to raise the standard of corporate governance.

• Establishment , execution and monitoring of ethical guidelines .• Auditing of compliance. • Standard of execution of businesses.

Fair Trade

Free and fair economic environment is difficult to maintain, as balance of power between participants varies, such as between corporations and consumers, large and smaller companies. Companies should avoid any unfair trade and competition, and abide by the rules to restrict behavior such as cartels to hinder competition .

• Antitrust laws, subcontract rules• Fair trading

Sincerity and Client Satisfaction

In the mature markets, consumers have more power than suppliers. Safe goods and services, rights to know , and expression of ideas would nurture consumer royalty . There would be serious consequences if consumers lose confidence or credibility towards services or products provided.

• CS Management • Client Relationship • Supplier Management

Labor StandardsCompanies are required to plan a working environment that reflects various employee needs, safety standards, health, and flexible career designs. Particularly, a balance of working environment between full time and part time workers.

• Efficient Human Resources • Safety and Health Management • Job Availability and work sharing

Balance between Labor and Living

Due to declining birth rates, companies are expected to support both child raising and elderly care for employee families. Design a working environment to balance between labor and living.

• Work / Life Balance• Family Supporting

Attentive to Global Issues

Corporate activities have global exposure. Particularly, businesses related to developing countries should be considered not only from social issues such as poverty, but also local employment, attractive work environment and systems, in order to grow their global businesses.

• Labor management in local offices.• Global Supply Chain Management.

Involvement in Social Contribution

Activities

Corporate social activities shall be managed in effective way with long term vision, particularly responsible for activities in developing countries.

• Managing Social Contribution• Long term Social Contribution Activities. • Relationship with NGO ・ NPO ・

Educational Institutions

Businesses related to Solving Social Issues

Creating businesses to solve social issues and “main-streaming” of CSR into companies core activities.

• Providing Services and Products to Solve Social Issues.

:Legal and Social Responsibilities STB Japan SRI


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ESG Points of Evaluation and Criteria

STB China SRI

Key issues to evaluate Background Specific items

CorporateGovernance Management

Currently, government owned Chinese companies are introducing management method practiced in privately owned companies, and undergoing governance reform. As many privately owned companies are rapidly growing their businesses, there are cases where management structures lag behind business growth rates. As a result, companies are required to take action to abide by the rules and social guidelines imposed by the government and the society . The execution of businesses is examined to monitor the management for the improvement of governance standard.

Prevention of illegal competition , Appropriate capital management, Internal monitoring, Shareholder response, Anti-corruption, Respect for intellectual assets

Protection of Employee Rights

Employer- employee relationship has emerged due to the social reform movement away from communal possession of production system such as Peoples Commune . Abundant labor population has masked the importance of protection of employee rights, but after severe labor accidents, human rights recognition, activities of NGO to support employees, improvement in information technologies have changed the working environment significantly. Because of single child policy, the labor market is becoming sellers market and the industries are expected to become more intelligence intensive than labor intensive. Companies with good protection of employee interests are able to find good labor force.

Welfare benefit , Reduction of restructuring Labor disputes, Health and safety, Equality in job opportunities, Human resource development

Supplier, Client, Customer,ConsumerProtection

Stakeholders such as consumers, local residents, and counterparties of businesses have not given priority under the rapid growth of the reform. However, as product quality issues, preservation of environment, construction of factories and facilities become a focus after serious incidents arousing criticism toward companies, consideration of these stakeholders is now taken as a “permit”. The government is monitoring companies from these perspectives, and from competitiveness of Chinese export point of view, stakeholder interests shall be increasingly needed to be taken care of.

Supply chain management, Product and service management concerning quality and safety, Respecting clients needs, Protection personal information

Communication with Local Community

In China, companies are expected to be active and responsible for the rescue of socially weak people and in natural disasters. Companies do not take them as a burden , but rather as an investment to win credibility from the society. This is a good example of Responsible corporate society, where companies take a role of patriarch. This system is said to be a source of support towards companies from the public.

Collaboration with related institutions, Communicating , contribution to local community, Social contribution management

Environment Performance

Reducing and solving the environmental problems are the critical issues that the Chinese society faces. The country has the largest population in the world, and if it continues to grow its economic activities without any consideration of the environment, natural destruction, resource depletion, and pollution will be harmful to health and livelihood of human being as well as hinder its rates of growth. The government is taking environment policy as highest priority , and encouraging companies to abide by the strict rules and to engage in environmentally friendly activities . Further, in the developed countries, some people are concerned with the impact on environment from Chinese products. Green consumers in China is not gaining their share in the society at the moment, but the environment consideration has won support within the government and become important management issues concerning the competitiveness in the global market.

Monitoring performance, Waste disposal, Green supply management, Environmentally friendly products, Products assessment, Environment management, Product Assessment, Recycling

:Legal and Social Responsibilities


70 Questions

1. Governance1 Guidelines of fair competition2 Monopoly or diversion of the company money by its major shareholder3 Accountability of investment to the shareholders4 Auditing for compliance5 Disclosure by shareholder meetings, Board of Directors, Board of Supervisors6 Fair information disclosure to all the investors7 Independency of independent external directors8 Inhabitant of stock exchange by management class9 Promoting shareholder’s dialogue at shareholder’s meeting10 Anti-corruption guidelines11 Violation of national laws12 Specialized education for the staff in the Public-sector related department13 Criteria and examining system for preventing bribery to governmental personnel14 Criteria for Entertainment expenses15 Guidelines for usage of other company’s Trademark, intellectual property rights and patent16 Lawsuit for intellectual property rights in past 3 years17 Preparation of CSR reports or Environmental reports18 Internal control and auditing system or guidelines

1. Governance1 Guidelines of fair competition2 Monopoly or diversion of the company money by its major shareholder3 Accountability of investment to the shareholders4 Auditing for compliance5 Disclosure by shareholder meetings, Board of Directors, Board of Supervisors6 Fair information disclosure to all the investors7 Independency of independent external directors8 Inhabitant of stock exchange by management class9 Promoting shareholder’s dialogue at shareholder’s meeting10 Anti-corruption guidelines11 Violation of national laws12 Specialized education for the staff in the Public-sector related department13 Criteria and examining system for preventing bribery to governmental personnel14 Criteria for Entertainment expenses15 Guidelines for usage of other company’s Trademark, intellectual property rights and patent16 Lawsuit for intellectual property rights in past 3 years17 Preparation of CSR reports or Environmental reports18 Internal control and auditing system or guidelines

2. Protection of the rights of employees19 Usage rate of paid holidays for past 3 years20 Rate of laid-off employees for past 3 years21 Guidelines for remuneration social securities22 Number of lawsuit for labor issues23 Percentage of Proper, contracted, part-time and temporary employees24 Equal treatment to peasant class employees25 Measures for safety and health of employees26 Treatments regarding mental healthcare27 The rate of female managers and the highest position of female managers in the past28 Support system for female employees29 Explicit guidelines and measures for avoiding abuse such as physical punishment, physical or mental threat,

verbal insult30 Target of training programs31 Support for laid-off employees in hunting a new job32 Structures of supervisory Board and directors board

2. Protection of the rights of employees19 Usage rate of paid holidays for past 3 years20 Rate of laid-off employees for past 3 years21 Guidelines for remuneration social securities22 Number of lawsuit for labor issues23 Percentage of Proper, contracted, part-time and temporary employees24 Equal treatment to peasant class employees25 Measures for safety and health of employees26 Treatments regarding mental healthcare27 The rate of female managers and the highest position of female managers in the past28 Support system for female employees29 Explicit guidelines and measures for avoiding abuse such as physical punishment, physical or mental threat,

verbal insult30 Target of training programs31 Support for laid-off employees in hunting a new job32 Structures of supervisory Board and directors board

5. Environmental Performance53 Data collection and analysis on resource/ energy consumption ( electricity, fuels, water, materials, etc) and

total amount of waste54 Targeted departments of collection and analysis on resource/ energy consumption and total amount ofwaste55 Seizure of Energy consumption and Energy efficiency

56 Seizure of Water consumption and water resource efficiency57 Measures of waste disposal58 Consideration on Green procurement when purchasing materials and machineries59 Introducing the concept of green products and service into its company's development plan or sustainable

business plan60 Evaluation on environmental features of products/ services61 Environmental management system62 Targeted range of environmental management system63 Specialized department for environmental management64 Introduction of Environmental accounting65 Reference of environmental accounting when managing decisions66 Environmental reports67 Communications on environmental issues68 Environmental education or training on employees69 Measures for strengthening resource collection or recycle70 Compliance with environmental laws

5. Environmental Performance53 Data collection and analysis on resource/ energy consumption ( electricity, fuels, water, materials, etc) and

total amount of waste54 Targeted departments of collection and analysis on resource/ energy consumption and total amount ofwaste55 Seizure of Energy consumption and Energy efficiency

56 Seizure of Water consumption and water resource efficiency57 Measures of waste disposal58 Consideration on Green procurement when purchasing materials and machineries59 Introducing the concept of green products and service into its company's development plan or sustainable

business plan60 Evaluation on environmental features of products/ services61 Environmental management system62 Targeted range of environmental management system63 Specialized department for environmental management64 Introduction of Environmental accounting65 Reference of environmental accounting when managing decisions66 Environmental reports67 Communications on environmental issues68 Environmental education or training on employees69 Measures for strengthening resource collection or recycle70 Compliance with environmental laws

3. Protection of Suppliers, Customers, and Consumers33 Collaboration with domestic suppliers for better products and services34 Measures for payment to suppliers35 Methods of providing information about qualities and safety of products or services36 Response to information of accidents and defective products37 Guidelines or principles for disclosure when finding accidents and defective products38 Procedures when finding accidents and defective products39 Measures for understanding requirements or claims by customers40 Measures for responding requirements or claims by customers41 Quality certification for products42 Survey for customer satisfaction43 Guidelines for inhibiting exaggerating or false advertisement44 Protecting privacy of suppliers, customers, consumers

3. Protection of Suppliers, Customers, and Consumers33 Collaboration with domestic suppliers for better products and services34 Measures for payment to suppliers35 Methods of providing information about qualities and safety of products or services36 Response to information of accidents and defective products37 Guidelines or principles for disclosure when finding accidents and defective products38 Procedures when finding accidents and defective products39 Measures for understanding requirements or claims by customers40 Measures for responding requirements or claims by customers41 Quality certification for products42 Survey for customer satisfaction43 Guidelines for inhibiting exaggerating or false advertisement44 Protecting privacy of suppliers, customers, consumers

4. Communication to Local Community45 Collaboration with domestic or overseas private organizations46 Collaboration with overseas private organizations to support refugees or sufferers, contribute to poverty

reductions47 Collaboration with academic or educational institutions48 Measures for promoting communication with local community49 Measures taken for producing districts50 Collaboration with employees, NGOs, Educational institutions, and local communities to operate social

contributions51 Systems of evaluating social contribution achievements into individual or department performance52 Total donation amount

4. Communication to Local Community45 Collaboration with domestic or overseas private organizations46 Collaboration with overseas private organizations to support refugees or sufferers, contribute to poverty

reductions47 Collaboration with academic or educational institutions48 Measures for promoting communication with local community49 Measures taken for producing districts50 Collaboration with employees, NGOs, Educational institutions, and local communities to operate social

contributions51 Systems of evaluating social contribution achievements into individual or department performance52 Total donation amount

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R2 = 0.139

R2 = 0.3994

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Social and Governance performance

Envi

ronm

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form

ance

The results of the survey - distribution of the score -

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Manufacturing

Non Manufacturing

The Sumitomo Trust & Banking Co., Ltd. is licensed and registered in Japan. Outside of Japan, The Sumitomo Trust & Banking Co., Ltd. only holds a license and/or registration in the Republic of Korea and the Republic of Ireland. This material is intended solely for use by institutional investors and institutional investment industry consultants. This material has not been prepared for the purpose of soliciting any particular investment assets to which the entrusted assets may be invested, but rather for providing reference information that may be helpful in connection with investment strategies or investment decisions in regard to a discretionary investment agreement with us. Any final decision for investment should be made by you alone after careful examination of the product details. You will neither be forced to undertake an investment based on this material nor suffer any business disadvantage with us by choosing to reject it. The information provided in this material, including but not limited to the data from simulations and back-tests, and product maps by past performance and risk-return, does not in any way guarantee any performance in the future. Certain data in this material is taken from or based upon information from third party resources that we believe to be reliable. However, we do not make any representation or warranty, express or implied, with regard to the accuracy or completeness of such information contained herein. This material has been prepared based upon the information and data available as of the date of its preparation. The contents provided in this material are subject to change due to changes in circumstance, including, without limitation, changes in the financial and economic conditions and/or social conditions in the future.All copyrights regarding this material, other than the parts quoted from other companies’ materials, belong to The Sumitomo Trust & Banking Co., Ltd. This material may not be used or reproduced in part or in whole for any purpose without our express permission.Should you have any questions as to this material, please address them to our marketing department.

End of Presentation

Following is the representation based on Article 37 of the Financial Instruments and Exchange Act in Japan (and other related provisions).

<Points to Consider>

■ Risk of LossUnder a discretionary investment agreement, based on the investment guideline given by you and discussion with us regarding investment management, securities and other instruments having the nature of price fluctuations, including, without limitation, Japanese equity and fixed income, foreign currency denominated equity and fixed income, investment trusts, shares of collective investment schemes, loans, futures transactions, option transactions, swap transactions and foreign currency transactions, may be included in the investment portfolio. Price fluctuations in such investment assets may result in a loss in principal of the entrusted asset.

■ Price FluctuationsInvestment assets are subject to various risks, including, without limitation, market risk, credit risk, and liquidity risk. Price movements in investment assets may occur due to fluctuations in market and other indices, including (but not limited to) fluctuations in equity markets, interest rate markets, foreign currency markets and financial indices. In addition, price movements may occur due to other factors, such as a change in the financial and/or business conditions of security-issuing companies, counterparties to a transaction or the counterparties of the issuing companies.Furthermore, investments in hedge funds and securitized products may contain various risks related to investment approach and structure in addition to the risks mentioned above. For further information, please refer to the explanatory documents for each product.

■ Restrictions on Purchase and RedemptionDue to factors such as the nature of the underlying assets and/or investment structure, various restrictions, including, without limitation, restrictions on purchase and redemption, may be imposed in certain investment products such as investments in hedge funds and/or securitized products. In particular, redemption of such investment product may require several months. For further information, please refer to the explanatory documents for each product.In addition, due to such factors as market liquidity, size of purchase or redemption or other unavoidable reasons, redemptions of investment assets may take some time, and the timing of the purchase of such investment assets may be limited.

■ Company Name and Other Information Company Name: The Sumitomo Trust & Banking Co., Ltd.Financial Institution Registration Number: No.5 Kinki Finance Bureau of the Ministry of FinanceParticipating Associations: Japan Securities Dealers Association, Japan Securities Investment Advisors Association, and The Financial Futures Association of Japan

■ Fees and Costs (Management fees)In principle, management fees are calculated on the basis of assets under management. However, the specific method of calculation for each transaction cannot be expressed in advance, as such method is determined through discussion with you based on the contents of the investment guidelines and investment discussions to be made between you and us. When entering into a discretionary investment agreement, please be sure to confirm with our sales representatives the applicable calculation method of the management fee.(Trading costs)A commission incurred through a trade of securities, overseas custody fees and other costs will be deducted from the entrusted assets under management. When investing in Investment Trust products organized and managed by other institutions, fees may be charged by the institutions concerned. Specific amounts and/or upper limits of costs cannot be expressed in advance, as such costs are determined, along with calculation methodology, based on type and volume of investment assets.(Securities Lending)When entering into a security-lending agreement, a fee will be charged. The fee cannot be expressed in advance, as such fee will be determined based on separate discussion between you and us.(Termination fees)When terminating a discretionary investment agreement, a termination fee may be charged based on the terms and conditions set forth in such agreement.(Other expenses)In addition to the above costs, other costs related to investment products, such as tax, levy, and/or operational costs may be deducted from the entrusted assets under management or be charged to you.(Cooling off period)A cooling off period, stipulated in Article 37-6 of the Financial Instruments and Exchange Act, does not apply to a discretionary investment agreement.

Sumitomo Trust's SRI China Funds for Japanese Retail Investors

Economy & Finance

Transcript of Sumitomo Trust's SRI China Funds for Japanese Retail Investors