Annual Report for the period 01 January 2021 to 31 December 2021

Conduct of Business Sourcebook rule 2.2.3R, requires Coupland Cardiff Asset Management LLP ("the Firm") to include a disclosure on its website stating the nature of its commitment to the UK Stewardship Code ("the Code") issued by the Financial Reporting Council. If a firm does not commit to the Code, it must state in general terms its alternative investment strategy.

The structure of the following report is aligned with the 2020 UK Stewardship Code to which we are a signatory.

This report has been developed and approved by its senior management and the partnership, who maintain oversight and accountability of CCAM’s approach to stewardship. The following senior individuals, representing a range of business areas, had input into this report:

• Chief Investment Officer – Asia (and investment team)
• Chief Investment Officer - Japan (and investment team)
• Chief Executive Officer
• Chief Operating Officer
• Chief Administrative Officer
• Chief Compliance Officer
• Internal legal counsel

The Partnership meets monthly and has formal responsibility for CCAM’s stewardship and environmental, social, and corporate governance (“ESG”) strategy, and for implementing these initiatives at a firm and fund level.

The Partnership recognises that the stewardship landscape is constantly evolving and is keen to ensure that all staff are educated and aware of developments across the investment universe. To that end, employees receive regular training and regularly collaboratively engage on a wide range of issues, including stewardship, ESG, sustainability, climate change and the importance of these issues and their integration into the investment decision-making process.

Principle 1: Signatories' purpose, investment beliefs, strategy, and culture enable stewardship that creates long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society. 

CCAM is a specialist Asian and Japanese fund management group, focused on managing capacity constrained, performance focussed funds.

With offices in London & Singapore, CCAM was founded in 2005 by Angus Coupland and Richard Cardiff, the partnership focuses on delivering strong performance within a risk-controlled framework.

The primary aim of CCAM is to protect and grow the real value of its clients’ capital over the long term. CCAM’s investment philosophy emphasises fundamental, proprietary research, to identify potential companies, supported, where possible, by direct company meetings conducted by the dedicated and experienced Asian and Japanese teams at CCAM. We believe that over time this will achieve superior results.  CCAM believes that it has built a very strong fund management team of experienced Asia and Japan managers, together with a first-class operational infrastructure to meet the increasingly complex international regulatory environment.

In order to best safeguard and grow our clients’ assets we believe that we must achieve excellence in all areas of the business: investment performance, operations, legal, compliance and client service, always remembering that we have, above all else, fiduciary responsibility for those assets.

With this in mind we see the below as critical to our success:

• Having a strong corporate culture to which both our staff and clients can align and which is evidenced by our high staff retention rates and long standing client relationships;
• Looking to only accept clients who share the same investment time horizon as our strategies and who understand exactly what our strategies seek to achieve;
• Working to ensure stability of AUM by actively avoiding investors who we believe are momentum trading (this is evidenced by CCAM declining new business);
• By offering only strict capacity constrained products to maximise alpha generation and to avoid dilution at the expense of quick AUM growth. We have demonstrable history in closing funds to new investors when we believe we are approaching capacity thresholds;
• Meeting with clients regularly to ensure that all parties remain aligned and informed;
• Seeking feedback from our clients to understand both their current and future requirements and acting as needed. Examples of this in practice are a) the evolution and adoption of ESG within the firm b) in 2008/9, while many managers sought to gate their funds and limit clients access to their monies, at CCAM we quickly organised shareholder votes to restructure gate provisions to offer not only greater liquidity to those that needed it, in a method that ensured protections for remaining investors, but also to act on our responsibility to aid and assist with the smooth functioning of financial markets.

Our investment team have spent a significant part of their working lives in Asia: from Singapore to Tokyo and Hong Kong to Sydney, with over 160 years combined experience in these markets.  This experience is invaluable in identifying the abundant opportunities in the region, as well as avoiding some of the many pitfalls.

Assets under management were approximately US$3.5bn, as at 31 December 2021.  

The team of 7 portfolio managers and analysts carried out over 371 scheduled company meetings and management calls in 2021 in the region (where possible), in London and by phone. Meeting notes are shared and distributed across the team, ensuring that we bring out the best thinking and experience across the various sectors and countries in a collegial fashion. All managers are incentivised to work as a team.

Non-investment personnel have a wealth of experience in managing all aspects of the back and middle office infrastructure. This allows the fund managers and analysts to spend as close to 100% of their time as possible, researching stocks and managing portfolios. Each member of the team brings different skills and areas of expertise to the process.

The product range offers Long Only strategies to investors around the world, with strategies focused on large, mid and small caps, in both Asia and Japan. We also offer a specialist Japanese equity closed ended income product and an Asian consumer focussed fund. At the time of writing, approximately 96% of our portfolio holdings are in Japan, and any disclosable positions we have are in that market. 

At CCAM we endeavour to harness the experience we have to produce high quality returns and best-of-class infrastructure, for all our clients and investors. CCAM is a fundamentally research-driven investment house with a focus on investing in stocks for an average holding period of 3-5 years.

We believe that ESG issues and sustainability risk can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time) and ESG factors may be potential indicators of management quality and operational performance. With this in mind, investee company sustainability and good governance are key inputs to the investment decision process.

We implemented our first ESG policy back in 2016 and this has constantly evolved with the business to meet the expectations of the industry and particularly our clients. During 2021 we engaged an independent ESG specialist to assess and audit and help us develop/resource our ESG policy in line with our evolving corporate culture as well as meet industry standards and client expectations. This led to a revised ESG policy being implemented in December 2021, which not only better recorded what we already had in place but also provided greater transparency around our operations and our corporate culture to our employees, clients and those interested in our company, e.g. investee companies, regulators, UNPRI etc. This is available on our website (https://www.couplandcardiff.com/esg-policy).

CCAM has a structured yet flexible approach to incorporating ESG into the bottom-up investment process. This allows us to effectively integrate the firm’s ESG efforts alongside the investment strategies and these issues are considered alongside financial and strategic issues during assessment and engagement with companies, which we believe will achieve the best long term asset growth for our investors. Aside from companies that manufacture controversial weapons such as biological and chemical weapons, cluster bombs, anti-personnel mines or nuclear weapons, as general rule we will not exclude any particular investment or industry based on standardised ESG factors and a “one size fits all” approach. We invest in multiple countries (many developing), and our assessment will take into account ESG best practice whilst acknowledging sector and individual company differences due to local laws and regulations, cultural differences and stage of national integration of ESG when making investment decisions. The ESG policy is kept under review. By voting on all resolutions in line with our policy, we believe that we have been effective in acting in our clients’ best interests to achieve the investment objectives as agreed with the clients.

Remuneration of staff is performance-related but, in addition to the performance of the individual, CCAM will also take into account the performance of the business unit concerned and the overall results of the firm.  Performance assessment will not relate solely to financial criteria but will also include compliance with regulatory obligations and adherence to effective risk management.

The Partnership meets monthly to review and discuss issues, including stewardship and ESG (which are standing agenda items) and its integration into CCAM’s investment decision-making process. During the period, we have worked on increasing our transparency and reporting to clients, including the publication of a proxy voting summary which is available on our website for all current and prospective clients, along with our Engagement and Shareholder Rights statement. CCAM meets regularly with its clients to discuss various issues, including providing updates on performance, to ensure we are aligned with their needs, expectations and best interests.

Principle 2: Signatories' governance, resources and incentives support stewardship. 

One of the material benefits of being a smaller boutique asset manager is that we have a relatively flat structure which allows for and promotes open dialogue between different functional areas of the business on all issues, including those of stewardship. This in turn ensures a cohesive approach to all matters, including stewardship, and the ability to adapt swiftly where necessary. Whilst the portfolio managers are responsible for engagement on ESG matters and the investment decision making process, the governing body of CCAM is responsible for oversight of stewardship activities. It meets monthly to review and discuss issues, including stewardship and ESG and its integration into CCAM’s investment decision-making process.

Our senior management team combined with our investment team have almost 300 years combined industry experience in, as shown below:

	Angus Coupland (PM Asia)	Jonathan Dobson (PM Japan)	Richard Aston (PM Japan)	Andrew Draycott (PM Asia/Indian Subcontinent)	Abhinav Mehra (Analyst/Investment Advisor – Asia)	Rory Dickson (Investment Advisor – Asia)	Megumi Takayama (Analyst – Japan)
Years of industry experience/ Years at CCAM	25/17	32/16	36/11	21/14	11/6	30/12	11/4
Other relevant experience	Bachelor of Economics degree from University of Sydney	Japanese/ English speaking MA French & Italian degree from the University of Oxford	MA Engineering degree from the University of Cambridge	BA Hons Politics from Exeter University	Hindi/ English MBA (Finance) NMIMS University, Mumbai B Tech (Electronics & Telecommunication) MPSTME, NMIMS University, Mumbai	Member of Institute of Chartered Accountants of Scotland Bachelor of Commerce honours degree attained at the University of Edinburgh	Japanese/ English speaking MA Japanese studies degree attained at SOAS, the University of London MPhil European studies degree attained at the University of  Cambridge   BA Economics degree attained at the Nihon University

	Richard Cardiff (CEO)	Deborah Boyce (CFO/CAO)	Victoria Wilson (COO)	Tanya Farrell (General Counsel and CCO)
Years of industry experience/ Years at CCAM	38/17	32/17	22/14	29/8
Other relevant experience		B.Sc. Management Science degree attained at the University of Loughborough	MA Diplomatic Studies, Keele University BA (Dual Hons) History and International Politics, 2:1, Keele University	BCom (Accounting)/LLB attained at University of Auckland Admitted as a solicitor: England and Wales (1996) and New Zealand (1990) Fellow of the Chartered Institute for Securities and Investment Fellow of the Institute of Chartered Secretaries and Administrators

Employees receive frequent training and regularly collaboratively engage on a wide range of issues, including ESG, sustainability, climate change and the importance of stewardship and their integration into the investment decision-making process.  There is also engagement with professional bodies and industry groups. CCAM has an Equal Opportunities and Diversity policy in place which all employees are expected to familiarise themselves with and attest to. Employees also receive training on equality and diversity in the workplace.

During 2021, we engaged an independent ESG specialist to assess and audit and help us specifically develop and identify resource requirements to both meaningfully implement our ESG policy and to further emphasise to all our staff (front and back office) the scope of strong stewardship, including ESG issues. During the period, we have focussed on the following areas:

1. Transparency
   1. We recognise the growing importance of providing granular detail to clients and employees of our stewardship activities; as a result of this we have provided more detailed reporting, which is publicly available on our website, using the PLSA template for our proxy voting records for the most recent period and offering clients custom reports, as requested:

CCAM (2021) - https://www.couplandcardiff.com/voting-summary/2021/1033-voting-summary-coupland-cardiff-asset-management-llp-31-dec-2021/file

Funds (2021) - https://www.couplandcardiff.com/funds-voting-summary/2021-1

1. we already provide detailed engagement examples to clients on request and we are working towards providing a standardised report to all clients. These reports include not just the details of the date and topic of engagement, but also the duration of the engagement (new, 1-2 years, 2-5 years etc) along with outcomes and follow ups.

2. Training
   1. One of the things we have improved upon during the last year is ensuring everyone in the business (from senior partners to junior operations staff) implicitly understands the importance of stewardship and ESG/climate change in their roles. Together with the assistance of an external ESG specialist, we held training sessions to ensure cohesive understanding, updated our ESG policy (to which all staff were required to read and attest to) and emphasised the importance of collaboration on these issues across the firm.
3. Resourcing – people and systems
   1. An important step during the period was to engage an independent ESG specialist, as mentioned above.
   2. During assessment of our investment process, we identified a need for a recognised 3^rd party data provider to assist us in our ongoing engagement efforts. We have since engaged ISS Europe Ltd (“ISS”) to provide us with climate impact reporting, SDFR Principle Adverse Impacts (“PAI”) reporting, “norms” based research and ESG ratings, which all fund managers/research analysts now use. In addition, all senior non-front office personnel also have access to the system, to better aid oversight of engagement and its implementation.
   3. As part of the discussions held over 2021, there was acknowledgment of the ongoing need to evaluate the resourcing of Stewardship/ESG matters, both from a technical and human capital perspective. This has therefore become a standing agenda item at the monthly management meetings. We are also in the process of initiating a stewardship/ESG committee during 2022.
4. Industry initiatives

In addition to being a signatory of the UNPRI, we are now also the public supporters of the Paris Agreement and the Task Force on Climate Related Disclosers (“TCFD”), reflecting our commitment to greater transparency, in line with our corporate culture (please see: https://www.couplandcardiff.com/climate-support ). All CCAM’s policies and procedures, including those on Stewardship, Responsible Investing - Environmental, Social and Governance (ESG) and Engagement and Shareholder Rights are reviewed at least annually and updates made as and when necessary. These are also publicly available on our website: https://www.couplandcardiff.com/legal-disclosures. CCAM uses a 3rd party proxy voting service which provides us with holdings information, the ability to view company management recommendations and provides reports detailing the required elections and cast votes. The system also allows us to record historical decisions and voting statistics, many of which we share with our clients. We provide a proxy voting summary on our website (see links above).

As we are a fundamental bottom-up investment house where we intimately know the stocks in our portfolios with all research undertaken in house, we do not take voting recommendations. Our propriety research incorporates company-specific data and analysis as well as information from third party research providers. We also have a propriety system which allows us to record and track engagements and assists us in reporting this activity to our clients.

CCAM’s investment philosophy emphasises this fundamental, proprietary research, to identify potential companies, supported, where possible, by direct company meetings conducted by the dedicated and experienced Asian and Japanese teams at CCAM. As well as review and assessment of third-party research and engagement with country and industry experts, members of the investment team engage in one-on-one meetings and telephone calls with senior management or Investor Relations representatives of companies. The purpose of such engagement includes:

• understanding key drivers of growth;
• understanding competitive positioning;
• assessing the alignment of management goals and strategy with those of shareholders;
• assessing corporate governance; and
• assessing the environmental, social, governance and sustainability risk profile

Remuneration of staff is performance-related but in addition to the performance of the individual, CCAM will also take into account the performance of the business unit concerned and the overall results of the firm.  Performance assessment will not relate solely to financial criteria but will also include compliance with regulatory obligations and adherence to effective risk management. Part of the formal year end evaluation process considers adherence to policies and procedures, including our Responsible Investing - ESG policy.

CCAM’s relatively flat structure and small size has been effective in encouraging open dialogue between teams with input from different functional areas given equal weighting. This collaborative approach results in policies which have a firm-wide buy-in alongside practical and feasible implementation. CCAM personnel are asked to read and attest to the firm’s policies and procedures on a semi-annual basis and any queries or clarification over their content and implementation can be sought from the Legal & Compliance team.  

Principle 3: Signatories manage conflicts of interest to put the best interests of clients and beneficiaries first. 

The objective of CCAM’s Conflicts of Interest policy is to ensure that CCAM works in the best interests of its clients and appropriately manages any conflicts of interest that may arise in connection with its business. A copy of CCAM’s Conflicts of Interest Policy can be found here https://www.couplandcardiff.com/legal-disclosures.  

Treating customers fairly is central to the core values of CCAM. There is an embedded culture that understands what constitutes acceptable and unacceptable behaviour. As such, conflicts of interest and the identification / management / mitigation thereof are central to this philosophy and culture.

CCAM takes all reasonable steps to identify conflicts of interest that arise in the course of managing their funds between:

• CCAM, including its managers, employees or any person directly or indirectly linked to it by control, and the clients managed by CCAM or the investors in those clients;
• the clients managed by CCAM or the investors in those clients, and another client or the investors in that client.

All employees are asked to disclose any actual or potential conflicts of interest by completing a form on our online Compliance system. This is then reviewed and assessed by the Compliance team (and other senior management if necessary) and a record is maintained. Similarly, conflicts are reviewed upon the start of any new business relationship. If any further action is required on the basis of the identification of a conflict (e.g. from a staff disclosure or from due diligence), then we have various mitigations in place depending on the scale and nature of the conflict.  The following examples illustrate where we have identified conflict of interest may arise and what mitigations CCAM would take:

1. Where the interests of two of CCAM’s clients’ conflict. In this case, any potential conflicts between clients will be considered at the outset of any potential client relationship and during the course of the relationship. Any potential conflicts identified will be discussed at a meeting of the governing body of CCAM and an appropriate course of action agreed to ensure that CCAM acts in the clients’ best interests at all times. This may involve declining business or terminating an existing relationship.

2. Where an employee of CCAM is a director of an investee company. This is mitigated by the fact that no employee may engage in any additional occupation without the consent of the governing body of CCAM. Employees must not accept personal fiduciary appointments (such as trusteeships or executorships other than those resulting from family relationships) without first obtaining written approval from senior management and the Compliance Officer.

3. All staff must also disclose any outside business interests to the Compliance Officer upon joining the firm, and seek written consent from the Compliance Officer prior to taking on any further outside business interests so that any potential conflicts of interest can be considered (this would include any positions as trustee/partner/director/significant shareholder, i.e. 5% holding or greater). Further, all staff are required to disclose whether they or their connected persons have or have had any material connection to a present service provider of the firm for the past six months. Employees are not permitted to act as a director or retain a shareholding in an investee company.

All approved outside interests and conflicts of interests are recorded in the Conflicts Register.

As we manage a number of strategies in a limited geographical area, we have identified the possibility that two or more funds we manage may hold the same stock and the subsequent potential conflict that may arise.  We recognise the importance of ensuring clients are treated fairly and that any such conflicts are easily and quickly identified. To address this we have:

1. an Order Aggregation and Allocation policy and a Conflicts of Interest policy in place to ensure clients are treated fairly where a conflict may potentially arise;

2. a requirement that all staff must read, understand and attest to these policies bi-annually;

3. ensured that these policies contain procedures which require sign off from non-investment personnel (i.e. operations), to ensure independent real-time oversight and visibility. One example of this is where there is an IPO that multiple funds want to participate in. To ensure fair allocation between clients, the allocation would be calculated based on AUM and by non-investment staff. Any non-standard allocations would require senior non-investment staff sign-off. These policies are reviewed and updated on at least an annual basis; and

4. to better aid transparency, monitoring and ownership, ensured access to portfolio holdings is available to both investment and non-investment personnel.

In the year under review, we have two items on the Conflicts of Interest register, both relating to members of staff personal relationships. These cases have been assessed and it was determined that they did not pose a material conflict of interest and they remain recorded on the Conflicts of Interest register.

Due to the non-complex nature of our business, we expect conflicts to arise rarely across strategies. We have several portfolios which run similar (but not identical) strategies, and we have identified this as an area where a conflict could most likely arise. We therefore have in place pre-trade compliance rules which flag and remind staff of the need to ensure appropriate consideration is given to any allocations. In addition, a checklist must be completed and signed off for any proposed IPO/placing participation, and this includes a record (and sign-off) of any non-standard allocations and/or compliance with any client specific investment guidelines.

During the period, no actual conflicts (aside from those mentioned above on the register) were identified.

Principle 4: Signatories identify and respond to market-wide and systemic risks to promote a well-functioning financial system.

At CCAM, we believe we have a strong, experienced team and a first-class operational infrastructure to ensure we can meet both our fiduciary responsibilities to our clients and our obligations to promote a well-functioning financial system in what is an increasingly complex international regulatory environment.

From an investment perspective, in our bottom-up investment analysis, we consider all relevant risks and opportunities that may impact an investment over the investment term, including market-wide and systemic risks and also ESG factors. CCAM maintains a risk management function separate to the portfolio management functions and this function is mandated to implement and maintain adequate risk management systems in order to identify, measure, manage and monitor appropriately all risks relevant to the firm and to each fund investment strategy and to which the firm and each fund is or may be exposed.

We monitor liquidity, concentration of holdings and investor concentration and we perform frequent stress tests based on a variety of market conditions, including historical events and hypothetical scenarios. This is recorded formally on a monthly basis and is reviewed frequently.

However, creating and sustaining a strong risk culture that can identity and respond to market-wide or systemic risk is critical to the CCAM’s success and safe-guarding our clients assets requires more that strong portfolio management. A robust risk culture is embedded in CCAM’s business operations:

• We operate an effective governance structure;
• We have effective ownership and management of risk by all employees as part of their day-to-day activities through prompt identification, analysis and escalation of risks;
• We expect management to lead by example, acting with integrity and encouraging proactive debate and thorough challenge and promoting awareness of CCAM’s strategy and risk appetite;
• We actively encourage identification and reporting of risk events to ensure that lessons learned are implemented and disseminated promptly;
• Each individual is accountable for behaving ethically, treating customers fairly and supporting the long-term interests of customers, employees and other stakeholders.

Our risk Management Process represents the widely accepted four fundamental actions of risk management: identification, assessment, mitigation and reporting/monitoring.

Risk categories are arranged into two levels:

• Level 1: highest level categories. These do not stipulate specific risk items, but function as useful groupings of various risk items at Level 2.
• Level 2: specific risk items. At this level, specific risk items are defined.

Level 1 Risk categories	Level 2 Definitions and examples of specific risks
Strategic	Adverse strategic decisions, improper implementation of strategic decisions, a lack of responsiveness to industry changes or exposure to economic, market or demographic considerations that affect our viability e.g. Business becomes uncompetitive; Failure to respond to Brexit uncertainty
Business and investment	Failure to meet expected returns for defined objectives and risk (i.e. under-performing the stated objectives and/or relevant benchmark) and not meeting general stakeholders’ expectations. e.g. poor fee income; being criticised or penalised due to ESG (environmental, social and governance) issues
Significant external events	Failure to make coordinated response to sudden but significant external events e.g. market crashes, pandemic, geopolitical event
Financial	Poor financial management leading to inaccurate accounting, inappropriate exposures, weak cash flows and inadequate capital. e.g. Credit Risk, Market Risk, Liquidity, Capital adequacy, Accounting errors etc.
Fund administration	Funds are inappropriately administered by the clients’ third party service providers leading to reputational risk e.g. incorrect fund administration, NAV errors; Transfer Agency issues
Third party	Outsourced service vendors failed to deliver services as expected under compliant agreements. e.g. Contracts not aligned to FCA rules.  Vendors breaching SLAs.
IT and systems	Failure of the IT and other operational systems to function as planned. e.g. cyber attack, failed upgrade
Information security	Failure to comply with confidentiality, data protection and any other information security requirements e.g. confidentiality breach, Data loss or corruption
People	Exposure to changes in personnel, including an inability to attract and retain quality and appropriate people. Inadequate succession planning strategy. e.g. key man risk, incompetence, poor employment practice, Health and Safety issues
Legal	Legal and commercial rights and obligations are not clearly defined or understood. Commercial interests not adequately protected by legal agreements.
Regulatory and compliance	Violation of, non-conformance with, or inability to comply with rules, regulations, prescribed practices, internal policies and procedures or ethical standards and client mandates e.g. Breach of FCA rules
Business practices, clients and products	Conduct risk in connection to poor business practices / product design and harm to customers e.g. Inappropriate marketing techniques
Dealing, Operations  and any others	Inadequate or failed internal processes, people and systems, or from external events.  These are the remaining items which have not been covered by any previous categories. e.g. Fraud, failed change / project management

One of the roles of the risk management function is “horizon scanning”; keeping a close eye on ongoing and upcoming actual and potential systemic and market-wide risks to the business (and in turn, clients’ interests). To assist with the identification of such risks, CCAM uses a combination of external legal firms and compliance consultants, as well as in-house proprietary research together with our collective experience and knowledge. This feeds into our Risk Register, which is updated monthly and covers both micro (internal) and macro (external) risk factors.  

The management of the risks is overseen by the governing body of CCAM which regularly reviews (not less than annually) the effectiveness of the controls and takes remedial action to address any deficiencies. The key risks are also reviewed, on a monthly basis, by the governing body of CCAM.

In general, where CCAM might have concerns over any market-wide or system risks or where it deems it necessary to protect its clients’ interests, it would not invest, and, if already invested it would consider engagement with any relevant investee companies or, depending on the seriousness and nature of the risk(s), seriously consider disposing of its position.  This approach would not differ between clients, assets (as we only invest in equities) or geographies. However, we acknowledge sector and individual company differences due to local laws and regulations and cultural differences, which we take into account.

Over the course of the reporting period there have been various specific market-wide risks which we have identified, such as:

• The impact of the Covid pandemic and the market instability that brought as well as the changes in the nature of working due to lockdowns. One example of the impact being that, pre-Covid, our portfolio managers travelled frequently to visit investee companies in person. With the travel restrictions brought about by the pandemic, this effectively ceased and we had to implement efficient remote methods of working whilst still maintaining our high level of investee company contact.
• Growing technology risks and disruption (such as cyber-attacks). In response to this we implemented increased cyber security measures, maintained our Cyber Essentials Plus certification and moved to a new IT support provider to provide us with more comprehensive assistance in this area; and
• The ever-changing regulatory environment. Some specific examples over the period have been the increased involvement by the Chinese government in education and technology stocks and the impact on our portfolios, as well as the ongoing recognition of the increasing importance of non-fossil fuel dependency and the opportunities that this may create within our strategies.

We generally engage with companies on an individual basis but, subject to any regulatory considerations/constraints, once an investment is made CCAM may participate in collective engagement with other institutional investors/stakeholders over material matters which could have a material impact on shareholder value, when required. However, we did not undertake any such collaborative engagement in 2021.

As discussed in this report, CCAM has integrated stewardship and consideration of governance and ESG issues into our investment process, however as a smaller firm we have limited resources to actively engage with industry initiatives. We do however believe that participation in industry bodies demonstrates our commitment to responsible investing, helps us to be more active and responsible shareholders, promotes appropriate ESG disclosures and helps us to learn and enhance our effectiveness in relation to ESG issues. To this end, CCAM is affiliated with the following organisations and initiatives:

• PRI

CCAM became signatories of the UN-supported Principles for Responsible Investment (PRI) on 6 December 2018. The PRI is fast becoming a global standard for investment managers’ ESG alignment. As a signatory to the Principles, we publicly commit to adopt and implement them, where consistent with our fiduciary responsibilities:

- Principle 1: We will incorporate ESG issues into investment analysis and decision-making processes.

- Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.

- Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.

- Principle 4: We will promote acceptance and implementation of the Principles within the investment industry.

- Principle 5: We will work together to enhance our effectiveness in implementing the Principles.

- Principle 6: We will each report on our activities and progress towards implementing the Principles.

We also commit to evaluate the effectiveness and improve the content of the Principles over time. We believe this will improve our ability to meet commitments to beneficiaries as well as better align our investment activities with the broader interests of society. CCAM reports annually to the PRI on the firm’s responsible investment initiatives, activities and achievements and seeks to meet the standards expected by the PRI in doing so.

• Association of Investment Companies (AIC)

CCAM is a member of the AIC. The AIC was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment. Today, the AIC represents a broad range of investment companies, incorporating investment trusts, VCTs and other closed-end funds.

• Alternative Investment Management Association (AIMA)

CCAM is a member of AIMA, the global representative of the alternative investment industry. AIMA promotes best practices in the industry, providing education through white papers, conferences, seminars and webinars.

• Japan Stewardship Code

The firm is also a signatory to the Japan Stewardship Code, and this is published on our website (https://www.couplandcardiff.com/japan-stewardship-code).

• TCFD Support

We believe in taking action to build a more resilient financial system through climate-related disclosures. We support the recommendations of the Task Force on Climate-Related Climate Disclosures in this regard. (https://www.fsb-tcfd.org/)

• Paris Agreement Support

We support the primary goal of the Paris Agreement – to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.

During 2021 we also became part of the AIMA Responsible Investment Working Group and provided feedback for the FCA DP 21/2 Diversity and Inclusion consultation.

We also discuss wider market issues in industry media. For example, we published a piece in July 2021 in Wealth DFM magazine discussing Japan’s corporate governance reforms.

Portfolios are concentrated with typically between 25-40 stocks, which are normally held on a medium to long term basis. Understanding and appreciating the longevity and sustainability of an investee stock is therefore paramount to the investment process. Companies that do not adhere to strong governance codes or who have no awareness of global developments would not align with our investment criteria.

We believe that our role is not only to grow their assets, but to protect them. With that in mind, market-wide and system risk are key considerations when making any investment decisions and we believe it is important that our clients can access their money at all times should they need it returned and the liquidity of the portfolios is managed in line with the redemption policy to ensure this is the case.

In addition to looking at direct stock risk, we also monitor counterparty risk and diversification and have historically ceased trading with counterparties who have provided poor operational services or where we have had concerns about their creditworthiness. 

During the period we identified the need to greater resource our non-core financial horizon scanning of investee companies. We recognised that our existing investment teams could significantly benefit from a 3^rd party data provider that could offer climate impact and PAI reporting, “norms” based research and ESG ratings. We evaluated several different systems, with full engagement from both front and back office, and engaged ISS as our preferred provider. This appointment will enable us to improve our monitoring of investee companies going forwards, which can in turn lead to greater engagement on key issues and encourage greater transparency by these companies. 

A key component to our stewardship/ESG process is this engagement. Engagement serves three distinct purposes for us:

1. Due Diligence – conducting due diligence and understand potential risks and opportunities relating to the investment.

2. Education – though our engagement with companies, we are able to share best practices, expectations and provide insights into stewardship/ESG practices of peers (e.g. disclosures, targets, and benchmarking).

3. Action – we engage with companies to encourage transparency, accountability and target setting.

Based on the above, we improved our reporting to clients this year on engagement, and continue to improve this, as we recognise the systemic impact that increased transparency in this area can have. For example, although not legally required, we are committed to providing reporting based on TCFD principles in 2022.

Principle 5: Signatories review their policies, assure their processes and assess the effectiveness of their activities 

All policies and procedures are reviewed and updated at least annually, including on Stewardship, Responsible Investing - Environmental, Social and Governance (ESG) and Engagement and Shareholder Rights.  They are initially reviewed by our internal legal and compliance team, with relevant input and sign-off obtained from other internal (cross functional) teams and are also reviewed at least annually by our external compliance consultants. This review includes consideration of any legal and/or regulatory developments and any issues arising out of the Compliance Monitoring programme (see below). They are then reviewed and approved by the governing body of CCAM. All staff are required to read and attest to policies and procedures annually and/or as and when there are material updates.  

In addition, we share many of our policies with clients/prospective clients as part of the due diligence process and we seek feedback and welcome discussion on these policies.

A Compliance Monitoring Programme is undertaken on a quarterly basis which monitors the effectiveness of the policies and procedures in place and ensures any issues can be picked up and dealt with on a timely basis.

The monthly Partners meeting is also a forum where stewardship and ESG issues are standing agenda items. This ensures a senior level recognition of importance of these issues as well as maintaining an open dialogue on how policies and processes can be improved or updated where necessary.

In terms of reporting, we report annually on our activities and progress on implementing the PRI according to the PRI reporting framework.

In relation to voting, CCAM aims to vote all shares where it has its clients’ authority to do so, assuming there are no conflicts of interest. All voting decisions are made in consultation with, and approval by, the portfolio managers. Once the proxy votes are submitted, they are recorded by CCAM. Proxy voting records are available at www.couplandcardiff.com.

The review process set out above ensures that CCAM’s policies and processes relating to stewardship are regularly monitored, reviewed and updated.  

During 2021, the proxy voting process was reviewed by senior non-investment personnel a) to establish if we could better record relevant information, and b) to identify where we could make efficiencies in this process, including checks and oversight.

We were pleased to discover three fields in our proxy voting system that allowed us to record our reasons for voting (historically we had just recorded how we voted). It is now our policy that completion of this field is compulsory for all and any significant votes. This increase in granularity has been embraced by our front office, who are now actively utilising this data in meetings with investors as well as enabling more efficient transparency across our stewardship activities.

The management team review the voting statistics on a quarterly basis, alongside other engagement data, and any questions are referred to the COO and CIO for follow up. This scrutiny and oversight aims to ensure that every single vote is voted on or there is a recorded explanation for why we don’t vote.

While we implemented our first ESG policy back in 2016 and this has constantly evolved with the business to meet the expectations of the industry and particularly our clients. During 2021 we engaged an independent ESG specialist to assess and audit and help us develop/resource our ESG policy in line with our evolving corporate culture as well as meet industry standards and client expectations. This led to a revised ESG policy being implemented in December 2021, which not only better recorded what we already had in place but also provided greater transparency around our operations and our corporate culture to our employees, clients and those interested in our company, e.g. investee companies, regulators, UNPRI etc. This is available on our website (https://www.couplandcardiff.com/esg-policy).

We are committed to providing transparency of our stewardship activities and as such voluntarily produce the PLSA template for all of our funds, for any managed accounts that request them, and also for the firm as a whole. We publish these publicly on our website (both at firm level (https://www.couplandcardiff.com/voting-summary/2021) and fund level (https://www.couplandcardiff.com/funds-voting-summary).

The changes we have implemented over the last period have also meant we can produce custom reports on request for clients more easily. Whilst we are happy with the progress made in the last year, we believe this is a process we can continue to build upon.

At CCAM, we are a fundamental bottom-up investment management company, investing in concentrated portfolios of typically 25-40 stocks, typically held 2-5 years (or more), over a medium to long term investment horizon. Therefore the dialogue with our investee companies develops over a number of years and we seek open and constructive engagement with management and board members, in order to broaden our knowledge of the company’s strategy, operations and corporate culture. Risk identification and risk management (not only financial but also systemic risks and wider market impact) are key to effective stewardship and as such regular interaction with investee companies is essential to ensure that any concerns CCAM might have are addressed. Where we identify specific concerns with management’s strategy, company performance (financial and non-financial), and risk profile, or where we deem it necessary, we will attempt to escalate to senior management for clarification/resolution, and finally, if necessary, dispose of our position. The concentrated nature of our strategies combined with our medium-long term investment horizon demonstrates, in the vast majority of cases, high conviction in management. As such we would expect in most situations to vote with management, however this is not a firm policy, and we do and have on occasion voted against or abstained.

The PLSA template we use requires the 10 most “significant votes” to be reported on. CCAM defines a “significant vote” as one where we vote against management or abstain. When we have no votes meeting our internal criteria for a “significant vote”, we rank votes based on a material vote hierarchy using the size of holding as a % of NAV (as at voting date) and resolution types identified by the investment team as key for ensuring strong Corporate Governance. We then look to also provide transparency on these material votes.  This hierarchy is reviewed on at least an annual basis. The PLSA template, once completed, is then reviewed by senior management (both investment and non-investment personnel) and the relevant portfolio manager, before publication, to ensure the reporting is fair, balanced and understandable.  We have also sought feedback from clients on our reporting.

Principle 6: Signatories take account of client and beneficiary needs and communicate the activities and outcomes of their stewardship and investment to them. 

As stewardship forms an integral part of the investment process, our approach to corporate governance and broader ESG factors in relation to our investee companies is incorporated into our client reporting as well as discussed with clients at investment review meetings. We provide all our clients with annual reports detailing our engagement and voting activities. While there is an element of anonymisation on our public website, full transparency is available to all investors on request. Where clients request us to adhere to their own stewardship policies these are reviewed and discussed with the client, noting deviations from our investment and stewardship policies and we will implement them where appropriate.  

We provide a high level of transparency to our clients and produce a monthly factsheet containing information covering our top positions, an extensive exposure summary, and commentary on what has worked and what has not, as well as future strategy. Full disclosure of the portfolio is available on a monthly basis to investors.  We also publish our voting records on our website using the PLSA (Pension and Lifetime Savings Association) Vote Reporting Template, together with information on our policies and procedures. We have often discussed these policies and procedures with clients, and this has led to their evolution over the years.

Whilst clients come to us for a strategy and would therefore rely on our expertise in stock selection, voting decisions and general areas of governance and stewardship (as we have an intimate knowledge of our portfolio holdings), we have seen a greater interest from our clients in gaining an understanding of our general approach and requests for greater transparency. We have regular engagement and review meetings with our clients where we actively seek their views and feedback to ensure that we are not only meeting their current needs but also working towards their future expectations. A good example of this is the PLSA template reporting, which was originally requested by a single client, but which we have since progressed to provide this for all our clients. In anticipation of our clients’ needs for greater transparency, we are also intending to produce TCFD reporting during 2022 (even though there is currently no regulatory requirement to do so). Another result of active dialogue with our clients over the last few years has been the increasing desire to understand how we integrate quantitative and qualitative ESG risk into our investment process (even though we solely manage Article 6 funds).

To assist us with effectively responding to client’s needs, we engaged an external ESG specialist during the period, which resulted in an updated ESG policy in December 2021 (which is publicly available on our website (https://www.couplandcardiff.com/esg-policy), appointed ISS as a 3^rd party data provider to assist the managers, and provided ESG training to our staff. We continue to develop in this area and solicit feedback from our clients and investor base to assist us in doing so.

We are also seeing clients undertake their own ESG screening of stocks held within our portfolios. Occasionally such standardised screening highlights “potential” anomalies. In these instances, we actively work with our clients to assist them with a greater understanding of the investee companies and provide further resources where necessary. Common requests for further information are on carbon emissions on portfolio stocks.

We regularly complete detailed Due Diligence Questionnaire’s covering, inter alia, such topics as ESG, stewardship and climate change and actively seek feedback from our clients to benchmark ourselves against our peer group to ensure we are continually building out our offering and aligning ourselves with our clients’ interests.

CCAM has a demonstrable history of long-term relationships with our clients, built on the alignment of their corporate culture and values with our own, including strong governance, transparency and two-way communication. We have declined business in the past where we did not feel the potential client held the same principles as ourselves. CCAM remains committed to maintaining this approach and views business stability as more important than quick asset gathering.

We manage regulated funds domiciled in the following geographical areas (approximate % of total AUM as at year end 2021):

• Ireland (UCITS) (39%)
• UK (Investment trust) (9%)

Investment Advisory/delegated investment management services:

• Middle East (21%)
• EEA (10%)
• Cayman Islands (7%)
• Other (incl. Australia and US) (14%)

Our direct clients are all institutional investors.

We consider an investment horizon of 3-5 years appropriate to delivery of our clients’ needs, in accordance with our primary aim which is to protect and grow the real value of our clients’ capital over the long term. We are a fundamental bottom-up investment management company, investing in concentrated portfolios of typically 25-40 stocks. We do not seek to replicate indices, rather we seek investment opportunity through a variety of routes, e.g. via (i) under-valued growth stocks that offer compelling risk-reward opportunities, (ii) large caps which we believe have good growth prospects, (iii) opportunities in the small and mid-cap sector, taking advantage of the lack of coverage in that space; and (iv) where we identify potential for change in management attitudes towards shareholders.  We believe that the implicit commitment to shareholder return identified through our in-depth analysis of individual companies should allow investors to benefit from a combination of capital appreciation and rising income, where appropriate.

Principle 7: Signatories systematically integrate stewardship and investment, including material environmental, social and governance issues, and climate change, to fulfil their responsibilities. 

CCAM is an asset management company that specialises in the management of Asian and Japanese equity portfolios and we do not manage any other asset classes. The primary aim of CCAM is to protect and grow the real value of its clients’ capital over the long term. CCAM’s investment philosophy emphasises fundamental, proprietary research, to identify potential companies, supported, where possible, by direct company meetings conducted by the dedicated and experienced Asian and Japanese teams at CCAM. We believe in treated all clients equally and fairly, therefore our engagement approach and voting policies is consistent across all clients, assets (equities) and geographies.  

CCAM will always endeavour to act in the best interests of its clients as stewards of their capital. Although it does not aspire to be an activist investor, it recognises the importance of regular and responsible engagement with companies in which it invests.

As well as review and assessment of third-party research and engagement with country and industry experts, members of the investment team engage in one-on-one meetings and telephone calls with senior management or Investor Relations representatives of companies. The purpose of such engagement includes:

• understanding key drivers of growth;
• understanding competitive positioning;
• assessing the alignment of management goals and strategy with those of shareholders;
• assessing corporate governance; and
• assessing the environmental, social, governance and sustainability risk profile

In relation to ESG factors, we invest in multiple countries (many developing), and our assessment will take into account ESG best practice whilst acknowledging sector and individual company differences due to local laws and regulations, cultural differences and stage of national integration of ESG when making investment decisions.

The ESG factors considered vary by the country, industry and company under review though in all cases we consider where the following factors are relevant and can have material impact on stock performance:

Environmental: Pollution, site management/consideration, greenhouse gas emissions, climate change, habitat protection, recycling, water

Social: Human/employee rights, working conditions, health and safety, firm-employee relations, child/forced labour, conflict zones

Governance: Board composition, independence, transparency, compensation and accountability, shareholder rights and relations, cyber security, protection of personal data, corruption.

We believe that ESG related issues can affect both the performance and sustainability of an investment portfolio and that ESG factors can be potential indicators of management quality and operational performance; companies with strong, sustainable profiles will, we believe, have greater potential to grow and survive in all market conditions. The primary objective of incorporating ESG factors into investment analysis and decisions is to manage potential risks and opportunities which may have a financial impact and maximise returns. CCAM has a structured yet flexible approach to incorporating ESG into the investment process. Our fundamental, hands-on research approach allows us to seamlessly integrate our responsible investing efforts alongside with our investment strategies in an effective manner, which we believe will achieve the best long-term outcomes for our clients.

CCAM’s dialogue with companies has developed over a number of years and it seeks open and constructive dialogue with management and board members, in order to broaden its knowledge of the company’s strategy, operations and risk identification and management, and to ensure any concerns CCAM might have are addressed. The ESG factors are integrated into the firm’s bottom up investment process and these issues are considered alongside financial and strategic issues during assessment and engagement with companies. The Portfolio Manager is responsible for engagement on ESG matters and monitoring is carried out via investment reviews. Whilst we do not use proxy advisors or other external service providers, we do aim to ensure our custodians provide us with comprehensive and timely voting information, together with efficient systems in place to support the service. Regular review meetings are held with custodians so any issues with the service would be raised in this forum. . We have also recently engaged ISS as an ESG data provider and will be working with them to ensure the service meets our needs and is appropriately integrated into our stewardship and investment process. Where CCAM might have specific concerns with management’s strategy, company performance (financial and non-financial), and risk profile, or where it deems it necessary to protect it clients’ interests, it will consider escalating this to senior management or seriously consider disposing of its position.

In addition, once an investment is made, CCAM will engage with other institutional investors over material matters impacting all shareholders, when required.

CCAM Firm ESG Procedures

In addition to the ESG approach deployed within the investment process, CCAM believes it is important to operate its own business in line with good ESG practices. As such, CCAM has implemented the following business initiatives across the three pillars of Environmental, Social and Governance. The Partnership is responsible for ESG initiatives at the management company level and is constantly seeking to improve and enhance CCAM’s own ESG culture.

• Commitment to Carbon Neutrality

CCAM is currently assessing third-party companies to calculate and assess our own global carbon footprint. These companies make recommendations of ways we can reduce carbon emissions over time, and in the shorter term, identify carbon offset projects that we can support to neutralise our carbon footprint. We are proud to be working towards becoming a carbon neutral organisation.

• Waste Management

CCAM has taken steps to reduce paper usage to a bare minimum through the following initiatives:

• Electronic signing tools are used (where permitted) to avoid the need to print and sign in hard copies.
• In-person meeting attendees are offered soft copies of presentations rather than printing presentation decks on paper.
• No plastic cups, crockery or cutlery are available in the office. Staff use reusable crockery, cutlery, and glasses, removing the use of single-use plastics from the office.
• Recycling bins are provided throughout the office to encourage recycling. Shredded waste paper is recycled by a third-party provider.
• Filtered tap water is provided to reduce plastic water bottle waste.

• Energy Efficiency

Energy efficient heating has been installed into the office and secondary glazing is on most windows to reduce heat loss. - Office lighting has been replaced with more energy efficient LED lighting. Lights in certain rooms turn off automatically when there is no activity. All other lights are switched off at the end of each day. - Staff computers are set to enter standby state when unattended or locked

• Travel Practices

• Whilst some business travel is required to perform certain functions, it is kept to a minimum, with trips requiring a business reason prior to booking. Trips are organised efficiently, grouping together meetings in nearby locations where possible.
• Trains are used where practical as an alternative to flying (e.g. UK travel or use of the Eurostar).
• CCAM is looking into installing video conferencing facilities into its offices to support more virtual meetings where possible.
• Staff are encouraged to walk or cycle to work where possible. Shower facilities are provided onsite to support cycling/running/walking to work. CCAM supports hybrid working where staff are encouraged to work from home part of the week, reducing the carbon footprint from commuting.

ESG Training

The ESG landscape is constantly evolving, and CCAM is keen to ensure that all staff are educated and aware of ESG developments across the investment universe. To that end, employees receive regular training and regularly collaboratively engage on a wide range of issues, including ESG, sustainability, climate change and the importance of stewardship and their integration into the investment decision making process. Additionally, at each quarterly meeting, the Partnership assesses whether the investment team has the required responsible investment capabilities to conduct necessary ESG research and determines whether additional training and/or resources are required.

Principle 8: Signatories monitor and hold to account managers and/or service providers. 

We conduct service reviews with our service providers annually or more frequently depending on the nature of the service/relationship and the quality of the service received. This helps to ensure we receive a high quality service from all our service providers. For our most significant relationships, we carry out an initial due diligence which is refreshed periodically. Research providers are reviewed throughout the period and formally reviewed at least once a year when contracts are renewed. We have service level agreements in place with our key service providers who regularly report their performance as against agreed Key Performance Indicators.

Market reviews are carried out periodically to ensure that the service provided is still in-line with market best practice. The outcome of the performance reviews may result in more frequent interactions with our service providers or a discontinuance of the relationship where performance continues to fail to meet expectations. For example, we recently made the decision to change our IT Administrator. Historically we have changed custodians and we have also ceased trading with brokers due to poor service levels e.g. late confirmations/reconciliation reports.

During assessment of our investment process over the last year, we identified a need for a recognised 3^rd party data provider to assist us in our ongoing engagement efforts. We have since engaged ISS to provide us with climate impact reporting, SDFR PAI reporting, “norms” based research and ESG ratings and all fund managers/ research analysts now use this. In addition, all senior non-front office personnel also have access to the system to better aid oversight of engagement and implementation.

The proxy voting system is subject to the custodian's Third Party Risk Management Reviews and their Outsourcing Risk Management Program. A formal third party due diligence assessment is carried out every 2 years and monitored by the custodian's Outsourcing Risk Management team as well as Procurement. Any issues would also be raised in the regular review meetings with custodians, to ensure we are provided with comprehensive and timely voting information in order to effectively discharge our voting obligations.

Principle 9: Signatories engage with issuers to maintain or enhance the value of assets. 

As part of our investment process, we aim, on a regular basis, to ideally engage in one-on-one meetings and telephone calls with senior management or Investor Relations representatives of all companies that we are invested in. Whilst our engagement and voting approach does not differ between clients, assets (we only manage equity portfolios) or geographies, for smaller funds it is sometimes difficult to gain direct access and in these instances we participate in broker or investee company organised multi-investor group meetings. For example in India, over the course of the last year we have noted that the local regulator is increasingly encouraging this method of group engagement to further aid transparency of discussions. Whilst this form of engagement can have additional benefits of investor collaboration and therefore could have more impact for smaller shareholders, there are limitations with respect to restricted time with investee companies to fully discuss all issues. We therefore encourage our portfolio managers and research analysts to utilise a mixture of one-to-one meetings (where possible) alongside group engagements. 

The purpose of such engagement includes:

• understanding key drivers of growth;
• understanding competitive positioning;
• assessing the alignment of management goals and strategy with those of shareholders;
• assessing corporate governance; and
• assessing the environmental, social, governance and sustainability risk profile

We aim to speak with every company we own in our portfolios at least 1-3 times a year, where we discuss, inter alia, corporate stewardship and governance. Where specific key issues arise we will more formally engage (especially where a vote is involved) to ensure a) we fully understand the company’s strategy and aims, and b) that the company has effectively considered shareholder’s views. These engagements are tracked and recorded to ensure continued oversight to either resolution or potential disposal of the position. Some of the issues identified are resolved quickly and others may take several years of discussions. In these latter cases we look for positive progress in order to maintain the position.

We identify key issues in several ways:

• Investee company engagement (with e.g. senior management, specialists or the IR department)
• Our in-house research;
• Broker research;
• Publicly available information;
• Client engagement; and
• ESG data provider reports (including “norms”, PAI reporting and ESG ratings).

We maintain an audit trail of our dialogue with companies by recording engagements and voting activity in our in-house system.

Sadly, not all data providers are in agreement with ratings, and company coverage is still mainly limited to larger/medium cap stocks, with many estimates filling in the gaps. Being a small, boutique investment manager and not running any ESG specific products, we have to be both pragmatic and practical in terms of which issues to select and prioritise for investee company engagement. As stated above, corporate stewardship and governance has been and will always be our primary focus for engagement, though over the last few years we have started to identify additional themes outside these.

During 2021, in conjunction with our clients, we identified the following themes as important for follow up and engagement (where appropriate) in our investee companies:

• Governance: Board Independence
  Ensuring that management decisions are aligned with shareholders' views, that there is board independence with strong governance and control functions has become particularly important.
• Social: Diversity & Inclusion - Gender Equality
  Policies on board gender diversity, e.g. in Japan this was previously applied only to companies listed on the first and second sections of the Tokyo Stock Exchange (TSE), and we are pleased to see this has now been extended to all listed companies on Japanese stock exchanges as of February 2022.
• Governance: Sustainability Reporting & Disclosure
  We have noted that there is still a room for improvement in terms of disclosure practices across all markets. Encouragingly, new initiatives have been introduced under the 2021 CG Code for Japanese corporates.
• Governance: compensation plans
  Remuneration schemes must be appropriate and effective to ensure alignment with shareholder interests. For example, in an India stock last year we voted against a resolution to increase board remuneration, as we believed it was higher than industry standard and, despite efforts, there was lack of information available.
• Environmental: GHG emissions
  This theme has been specifically promoted by some of our clients, and consequently we have shown our public support for both the Paris Agreement and the TCFD. Specifically, whilst Japan’s ‘Green Growth Strategy’ was announced in December 2020, the environmental aspect of the ESG initiative is the area Japan has lagged most in compared to other developed countries and as such is an area we encourage transparency and continue to monitor.

In relation to our Japanese focussed funds, most leading investee companies in Japan now also produce in-depth Sustainability Reports detailing their policies for ESG initiatives along with, in some cases, practical examples and numerical data. These are consistent with global procedures such as the GRI Sustainability Reporting Guidelines and the TCFD. We would seek further clarification if a company did not produce the relevant report or chose not to support the international standards. The Japanese portfolio management team also maintain a regular dialogue with the Japan Stock Exchange, which joined the Sustainable Stock Exchanges initiative in 2017, to maintain a knowledge of the current initiatives it promotes.

Whilst we have always sought to engage with investee companies, our approach to proxy voting has evolved over the years from just voting on what we considered to be key issues, to where we are today, which is actively voting on every resolution and recording this together with our reasons for the decision. Summary data is available to our clients on our website (please see previous links).

In 2021, we engaged with over 220 companies across our portfolios on 371 occasions. Our methods of engagement are typically:

• one-to-one meetings with management or specialists from key areas of interest (either face to face or remotely);
• email correspondence;
• phone calls with IR teams;
• engagement of specialist independent research teams; and
• company seminars/conferences.

One to one meetings remain our preferred method of engagement.

As noted previously, 96% of our assets are invested in Japanese equities, therefore we are often able to have more impactful engagement with senior management often resulting in positive outcomes.

Below are some case studies from the last 12 months of where we have engaged with our Japanese holdings, how this has informed our investment decisions and the outcomes:

Case study 1

Topic	Board Independence
Rationale for engagement	Board independence is particularly important for our strategy where we invest in companies with high executive ownership. We believe there is a correlation between executive ownership and share price performance, but to ensure that management decisions are aligned with shareholders' to be made, board independence with strong governance and control function becomes particularly important.
Engagement activity	We had an 1-to-1 video call with the company Chairman in May 2021 to discuss about the board composition, specifically reflecting our concern that the audit committee chair is not sufficiently independent. Whilst the Chairman acknowledged that there is always a downside risk to allow insiders (or affiliates) to discharge the duties of audit oversight, and that this could present a potential conflict of interest, he believes the audit committee chair’s industry knowledge and experience can add great value to guide the company in the right direction.
Outcomes and next steps	Since the discussion we had in May 2021, there was a revision made on Japan's Corporate Governance Code specifically on board independence. We have kept the dialogue opened with the management, and will follow up on the issue with further engagement in the coming months.

Case Study 2

Topic	Social: Diversity & Inclusion - Gender Equality
Rationale for engagement	The policy on board gender diversity, which was previously applied to companies listed on the first and second sections of the Tokyo Stock Exchange (TSE), has been extended to all listed companies on Japanese stock exchanges as of February 2022. We believe such diversity benefits companies by providing a broad range of perspectives and insights, which may have a positive effect on investment opportunities. The engagement was connected to UN Sustainable Development Goals -  Goal 5: Gender Equality.
Engagement activity	We reflected our concern on the insufficient number of female directors on the board in November 2020 to the IR (senior director), and subsequently had an update 1-to-1 video conference call with CEO in September 2021 to discuss further on the importance of female board representation.
Outcomes and next steps	Since the initial discussion we had in November 2020, the management made a step forward to work on gender diversity on the board, with one female director being appointed as an independent audit director as of June 2021. The Company confirmed that the management had received advice to make an improvement on the gender diversity of the board from various institutional investors along with our request. (The engagement was made separately and not in the form of collaboration.)

Case Study 3

Topic	Social: Human Rights - Supply chain transparency
Rationale for engagement	We see the importance of supply chain transparency, which provides greater visibility into labour and human rights issues. Management of social risks such as human rights infringement is crucial as such risks may have a direct financial impact on investment opportunities. The engagement was connected to UN Sustainable Development Goals -  Goal 8: Decent Work and Economic Growth.
Engagement activity	We contacted the Company’s IR (senior director) by email in March 2021 to get clarification on its supply chain policy. This was triggered by a media report speculating that the raw materials (cotton) used for the company’s products may involve the factory-forced labour imposed on China's Uighur population. In response to our query, the company confirmed it regularly conducts onsite inspections via a third-party organisation to check on potential human rights infringement, working environments, and environmental preservation in accordance with the ‘Code of Conduct for Production Partners’. The evaluation reports were disclosed accordingly. In addition to the regular inspection, the company has performed due diligence specifically for local companies with indirect exposure in the  Xinjiang region, but no issues were confirmed. As a follow-up, we requested for an update on this topics during the group call with CEO in July 2021.
Outcomes and next steps	During the follow-up call in July 2021, the CEO displayed a rather dismissive attitude towards the issues raised. Whilst detailed supply chain policy was made available on-line to a variety of stakeholders, the management’s reluctance to communicate directly with investors on this particular social risk in a constructive manner was flagged as a risk. We believe it is crucial to ensure appropriate, board-level oversight of material risks to their operations. As a result of this engagement, we decided to implement an exit strategy as we assessed that there was an inherent ESG risk.

Case Study 4

Topic	Environmental: GHG emissions
Rationale for engagement	Whilst Japan’s ‘Green Growth Strategy’ was announced in December 2020, the environmental aspect of ESG initiative is the area Japan has lagged in compared to other developed countries. The engagement was connected to UN Sustainable Development Goals -  Goal 12: Responsible Consumption and Production.
Engagement activity	We contacted IR by email in October 2021 to discuss on the Company's climate change policy as it was highlighted by our third-party research provider that the company's carbon footprint is worse than industry median. The Company confirmed that the management addresses climate change as a key sustainability issue and it actively promotes its countermeasures across the group to reduce energy consumption and CO2 emissions. The company (including domestic and foreign entities) emitted a slight increase in tonnes of CO2 in FY6/21, from FY6/20. This was mainly due to capacity expansion in production facilities abroad – hence higher energy consumption and CO2 emissions - but the company maintained the emission level stable per unit of revenue basis at 0.69 tonnes of CO2 versus 0.68 tonnes a year ago. These figures do not look particularly alarming in our view (it does not look worse compared to peers), and the Company continues to focus on per-unit figures as its reference point for energy conservation and CO2 reduction.
Outcomes and next steps	Whilst we value the management's effort, we shared our view that there is still a room for further improvement in terms of disclosure and the management could consider incorporating some scenario analysis with achievable target which is in-line with the TCFD disclosure requirement. We have kept the dialogue open with the management, and will follow up on the issue with further engagement in the coming  months.

 Case Study 5

Topic	Governance: Sustainability Reporting & Disclosure
Rationale for engagement	There is still a room for improvement in terms of disclosure practice within Japanese corporates, where new initiatives have been introduced under the 2021 CG Code.
Engagement activity	We conducted a 1-to-1 conference call with the senior director in September 2021 to discuss on the Company's disclosure practice, namely disclosure in English and sustainability/ESG related disclosure.
Outcomes and next steps	Following the engagement in September 2021, the management has re-evaluated the company's disclosure and have changed the way data is presented to further improve transparency.  The management confirmed in December 2021 that this was directly in response to the engagement we had with the Company, and further improvement to be made under the guidance of the newly formed committee who oversees the Company's reporting activities.

Case Study 6

Topic	Governance: Equity-based compensation plan
Rationale for engagement	More companies are introducing equity-based compensation plans as an incentive but also to try to improve company performance.
Engagement activity	Ahead of the AGM, we had a 1-to-1 video conference call with the CFO to share our view on the resolution to introduce restricted stock plan as a compensation to members in the Audit & Supervisory Committee. We believe provision of restricted shares as compensation awards acts as a great incentive to improve company performance, we would however like such an instrument to contain established performance targets.
Outcomes and next steps	Following the engagement in September 2021, the management introduced a restricted stock plan with clear performance targets.

In respect of the remaining 4% of our portfolio holdings across Asia and the Indian subcontinent, we still actively engage with investee companies where possible and where companies are willing to interact with smaller investors. Some examples of engagement over the period are as follows:

• In June 2021, we held a conference call with an Indian real estate company over concerns about the construction workers and migrant labourers given the experience of the first Covid lockdown, whereby they rushed to their villages and had safety risk as well causing massive business disruption. We were reassured as the company had created residential camps on sites for the workers with dedicated healthcare facilities and vaccination camps to minimise hardship. Following these discussions, we decided to Hold the position. This was based on very proactive decisions by management to protect contract workers and it also allowed for quick business resumption to limit downside for investors.
• With a Hong Kong listed brewery company we held an initial discussion via conference call covering ESG issues and, very specifically, how the company was embracing regulatory change and investor demand in this area and how they are subsequently evolving their corporate culture around ESG issues. We followed up 6 months later to check on progress and based on these discussions we remain happy to continue to happy hold this position.
• In November 2021, we held a conference call with an Indian services company over governance issues. The company had to take a big provision hit on its employees’ pension fund (which is non-core) due to a potential future shortfall; this was the second hit in 3 years (it had lost some money on a couple of bond investments earlier) - and though after much investor persistence they had started remedial action to transfer this provident fund to the state, it was a long process because of the legacy structure. We saw the potential for further risks on this front in the interim, even though the core business is doing very well. We there took the decision to exit the position.

Principle 10: Signatories, where necessary, participate in collaborative engagement to influence issuers directly or by others on their behalf. 

We generally engage with companies on an individual basis but subject to any regulatory considerations/constraints, once an investment is made, CCAM may participate in (and have historically) collective engagement with other institutional investors over material matters which could have a material impact on shareholder value, when required. However, we did not undertake any such collaborative engagement in 2021. Strong corporate governance is one of our main investment criteria, both in the initial decision-making process and an ongoing consideration, and with that in mind we typically wouldn’t expect to participate in collaborative engagement on a regular basis due in part to our investment strategy and investment into high conviction stocks and intimate knowledge of investee companies and management.  

Whilst our engagement and voting approach does not differ for clients, assets (as we only invest in equities) or geographies, it should be noted that for smaller funds it is sometimes difficult to gain direct access and in these instances we would participate in broker or investee company organised multi-investor group meetings. For example in India, over the course of the last year we have noted that the local regulator is increasingly encouraging this method of group engagement to further aid transparency of discussions. Whilst this form of engagement can have additional benefits of investor collaboration and therefore could have more impact for smaller shareholders, there are limitations with respect to restricted time with investee companies to fully discuss all issues. We therefore encourage our portfolio managers and research analysts to utilise a mixture of one-to-one meetings (where possible) alongside group/more collaborative engagement.

Principle 11: Signatories, where necessary, escalate stewardship activities to influence issuers. 

CCAM actively engages with its investee companies where possible. How we engage depends on the circumstances and the issues being discussed. Where CCAM might have specific concerns with management’s strategy, company performance (financial and non-financial), and risk profile, or where it deems it necessary to protect it clients’ interests, it will consider escalating this to senior management and, depending on the outcome, vote against any proposals or seriously consider disposing of its position.  However, in our experience, constructive dialogue with management is most likely to result in satisfactory outcomes. Our approach to escalation does not differ between clients, assets (as we only invest in equities) or geographies. However, we acknowledge sector and individual company differences due to local laws and regulations and cultural differences which we take into account. Our practical ability to meaningfully escalate and impact outcomes varies dependant on our holding size of shares outstanding of the relevant investee company.

Please see the case studies in our response to Principle 9 which give examples where we have escalated stewardship activities to issuers, and their outcomes.

Principle 12: Signatories actively exercise their rights and responsibilities. 

We do not use proxy advisers and do not delegate or outsource our stewardship activities. Our approach is to exercise voting rights in line with our policy on behalf of clients where we have been delegated the authority to do so. CCAM does not offer clients the ability to override or direct voting decisions. However, where we have segregated mandates, we can discuss the application of a bespoke voting policy. Where clients have their own policies, they may also decide not to give CCAM voting authority and exercise their own proxies.

CCAM and its clients do not engage in stock lending.

The primary voting policy of CCAM is to protect or enhance the economic value of its investments on behalf of its clients. CCAM will vote against any agenda that threatens this position, in particular concerns over inappropriate incentives, changes in capital structure and mergers or acquisitions which are seen as detrimental to the creation of business value.  CCAM aims to vote all our clients’ shares where it has its clients’ authority to do so, assuming there are no conflicts of interest. However, there are occasions where we do not vote, principally where we have sold the shares prior the date of the meeting. All voting decisions are made in consultation with, and approval by, the portfolio managers. Once the proxy votes are submitted, they are recorded by CCAM.

In 2021, we were eligible to vote at 346 meetings in respect of 2328 resolutions. We voted on 99% of the resolutions, of which 98% we voted with management. Historically, stocks which we had sold prior to the relevant meeting date we did not vote on and these are the only resolutions that we did not participate in. After discussions with the investment team and senior management, it was decided in early Q1 2021 to amend our policy to formally abstain on stocks which we didn’t hold as at the meeting date, which is why the figure is less than 100%.

The results of our proxy voting for the firm are available at https://www.couplandcardiff.com/voting-summary. Whilst we have always sought to engage with investee companies, our approach to proxy voting has evolved over the years from just voting on what we considered to be key issues, to where we are today, which is the intention to actively vote on every resolution and record this together with our reasons for the decision.

To aid our monitoring of what shares and voting rights we have in our holdings, we use the custodians proxy voting systems to provide us with holdings information, view company management recommendations, provide reports detailing the required elections and cast votes. As part of our daily ongoing monitoring, our operations team review all outstanding/unvoted resolutions via this system and their associated deadlines. The investment team are actively chased for decisions to ensure voting policies are adhered to. Once a decision is made a record is taken of decision, together with the rationale if voting against management, as well as the outcome of the vote. A summary of this information, along with our significant/material votes is made available to investors on our website (as discussed previously in this report).