Materiality Management for Creating Shared Value at SuMi TRUST GroupJAPANESE

In an effort to engage seriously with the highest priority issues (materiality) we identified in fiscal year 2015, we have stepped up "creating shared value," going from the rollout of department-level programs up to management-level initiatives. Specifically, we have initiated "internal engagement" exercises to integrate ESG issues into operations from a long-term investor perspective. In particular, directors have put important ESG themes on the agenda for meetings of the Board of Directors and debated them from a broad-based, long-term perspective.

Identifying Materiality and Implementing Internal Engagement

STEP1 Selecting Themes for Identifying Materiality from a Long-term Investor Perspective

We emphasize the views of ESG investors who pursue corporate value from a long-term perspective. Based on reporting guidelines such as GRI and SASB, we select bank materiality themes emphasized by ESG research companies that provide information to investors. Taking into consideration case studies from the world's most innovative financial institutions, risks SuMi TRUST Holdings has always tracked, and ESG risks unique to Japan, we selected 28 themes from which to identify materiality.

STEP2 Interviewing Internal and External Officers and Experts

We asked the ESG Risk Response Project Team (see page 93) and all our external directors and external corporate auditors ("external officers") of SuMi TRUST Holdings and SuMi TRUST Bank to score in points how much influence each theme identified in STEP 1 is likely to have on the Group's medium- and long-term corporate value. We asked 18 external experts and external officers to score in points how much influence these themes are likely to have on the Group's stakeholders. We tabulated these scores and calculated the average score of each theme.

STEP3 Materiality Map Enables Shared Recognition of ESG Themes at Management Level

The average point scores for the themes from STEP 2 are plotted out on the materiality map (scatter diagram) showing the relationship between the "degree of impact of each theme on the Group's medium- and long-term corporate value" (x-axis) and the "degree of the Group's impact on society (stakeholders) via each theme" (y-axis). The themes that fall into the highest materiality zone of the map are designated the highest priority ESG issues at the Executive Committee, and then reported to the Board of Directors.

Sumitomo Mitsui Trust Group's Materiality Map

STEP4 Internal Engagement Exercises

In fiscal year 2016, our internal engagement exercises focused on four themes, shown below, with high investor interest selected from among our high materiality themes.

Theme1: Corporate Governance

Department heading engagement: Corporate Administration Dept.
In view of the corporate governance reforms adopted in Japan, investor interest in the governance themes of board composition and compensation for directors and officers is exceptionally high. This department notified others of this strong interest and offered them information on how to strengthen their governance systems.

Theme2: Bolstering Human Capital and Corporate Value

Department heading engagement: Human Resources Dept.
Reflecting human capital evaluations into investment decisions is a trend that is gaining adherents in Japan and overseas. This department notified others of the growing calls for disclosure on the connection between personnel policies and corporate value and initiated discussions on how to shed light on the connection between bolstering human capital in the Group and increasing our corporate value.

Theme3: Preventing Bribery and Corruption Overseas

Department heading engagement: Compliance Dept.
Starting with the U.S. Foreign Corrupt Practices Act (FCPA), nations around the world are stiffening regulation against corruption and bribery overseas. This department notified others about growing investor interest in this trend and initiated discussions on what in our Group's anti-corruption, anti-bribery initiatives should be double-checked.

Theme4: Climate Change

Department heading engagement: Wholesale Business Planning Dept.
In the wake of the adoption of the Paris Agreement on climate change, this department notified others about the swift rise to prominence of climate change risk among international financial authorities, financial institutions, and institutional investors and initiated discussions on how our businesses would be affected.

What is "Internal Engagement"?

CSR departments are cast into the role of "in-house ESG investor" that initiate constructive dialogue with departments responsible for matters relevant to high materiality themes. This "internal engagement" process is expected to lead to improvements in operations and information disclosure.

STEP5 Initiatives for Increasing Corporate Value in Long Term

The high materiality themes identified are not only put into practice through the internal engagement program but we regard them as "environmental and social issues linked to sustainability the Board of Directors ought to address,"as prescribed in Article 3-4 of the Group's Basic Policy on Corporate Governance. At meetings of the Board of Directors, directors held wide ranging discussions on high materiality themes across their multiple aspects and determined the direction the Group should take.

Items Implemented
In fiscal year 2016, the Board of Directors discussed high urgency ESG topics such as climate change problems

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