Acceptance Of Japan's Stewardship CodeAcceptanceOfJapan'sStewardshipCode

In 2016, PGIM Quantitative Solutions contractually agreed to adhere to Japan’s Stewardship Code under an investment subadvisory agreement between PGIM Quantitative Solutions and PGIM Japan. This Statement represents PGIM Quantitative Solutions' acceptance of this code and its underlying principles as outlined below. 

Principle 1: 

Institutional investors should have a clear policy on how they fulfill their stewardship responsibilities, and publicly disclose it. 

PGIM Quantitative Solutions' approach to stewardship under this code can include the following elements: 

1. Incorporation of proprietary ESG research to rank companies based on their ESG attributes to identify companies with poor or deteriorating ESG scores in our ESG-Aware and ESG-Constrained portfolios.
    
2. Use of a proprietary questionnaire that covers ESG and profitability questions, which PGIM Quantitative Solutions will use as the basis for its engagement with companies that PGIM Quantitative Solutions identifies as having poor or deteriorating ESG scores. The engagement takes the form of emails and two-way dialogues. PGIM Quantitative Solutions then monitors and reports on the results of the questionnaire it sent to these firms identified as having poor or deteriorating ESG scores. The results of this report show various metrics in the areas of 1) corporate governance (e.g., board structure, compensation), 2) environmental (e.g., emissions), 3) social (e.g., reporting, diversity) 4) vision and strategy, and 5) shareholder rights. The report also includes information on the efforts undertaken by PGIM Quantitative Solutions to engage in dialogue with selected companies. PGIM Quantitative Solutions will report on the results of this questionnaire to our clients upon their request.
3. PGIM Quantitative Solutions' proxy voting guidelines and procedures. As a responsible investor and fiduciary, PGIM Quantitative Solutions' policy is to vote proxies in the best long-term economic interests of our clients (the appreciation in value of the investment over time). We believe that strong governance leads to improved management of social and environmental issues, and we take full advantage of exercising our views and monitoring our influence through the proxy voting process.  We consider various factors, such as the following, when voting on ballot issues that may arise: board quality, including diversity, tenure, and independence; executive compensation; industry-specific SASB materiality; controversies; carbon and other greenhouse emissions; fair pay; gender equality; and other social issues. Our research shows that board diversity, independence and experience typically results in stronger, more consistent returns over time. 

Principle 2:

Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.

As part of the third element of our stewardship approach (our proxy voting policies and procedures), PGIM Quantitative Solutions' Proxy Voting Committee establishes criteria to identify any issuers which we believe may pose a potential conflict between the respective interests of PGIM Quantitative Solutions and those of our clients. These proxies will be voted in accordance with PGIM Quantitative Solutions' third-party proxy vendor's policy in order to eliminate any such potential conflicts. 

Like other investment advisers, PGIM Quantitative Solutions is subject to various conflicts of interest in the ordinary course of its business. PGIM Quantitative Solutions strives to identify potential risks, including conflicts of interest, that are inherent in its business, and conducts annual conflict of interest reviews. When actual or potential conflicts of interest are identified, PGIM Quantitative Solutions seeks to address such conflicts through one or more of the following methods: 

• Elimination of the conflict 
• Disclosure of the conflict or 
• Management of the conflict through the adoption of appropriate policies, procedures or other mitigants 

PGIM Quantitative Solutions has developed policies and procedures designed to address various conflicts of interest. Additional information about conflict of interest issues may be found in Part 2A of PGIM Quantitative Solutions' Form ADV. 

As a wholly-owned subsidiary, PGIM Quantitative Solutions is subject to PFI’s Code of Conduct. The Code of Conduct outlines the identification of conflicts of interest, including outside business activities. 

Principle 3: 

Institutional investors should monitor investee companies so that they can appropriately fulfill their stewardship responsibilities with an orientation towards the sustainable growth of the companies.

PGIM Quantitative Solutions will monitor and report on the results of the proprietary questionnaire it sent to firms identified as having poor or deteriorating ESG scores. This report will include corporate governance metrics, as well as information on the effort undertaken by PGIM Quantitative Solutions to engage in dialogue with selected companies. 

We believe that strong governance leads to improved management of social and environmental issues, and we exercise our views and monitor our influence on investee companies through the proxy voting process. We consider shareholder proposals in this area carefully with a focus on adding economic value. In addition, through our collective engagement with ESG-related organizations and data providers, we advocate for greater disclosure of ESG data, which we view as essential to identifying potential sources of risk that might not be reflected in market valuations, and to the further assimilation of ESG into mainstream investment practices. 

Principle 4: 

Institutional investors should seek to arrive at an understanding in common with investee companies and work to solve problems through constructive engagement with investee companies.

Through our collective engagement and work with ESG-related and other stewardship and governance organizations and data providers, we advocate for additional reporting and accountability of investee companies. 

Consistent with the commitment PGIM Quantitative Solutions made when becoming a signatory to the United Nations-supported Principles of Responsible Investment (PRI) in 2015, we are focused on improving the quality and consistency of ESG reporting and data. PGIM Quantitative Solutions has contractually agreed to adhere to Japan’s Stewardship Code since 2016. In 2017, we became a member of the Sustainability Accounting Standards Board (SASB) Investor Advisory Group, through which we encourage companies to disclose information on their carbon emissions and other ESG-related factors. In 2018, PGIM Quantitative Solutions began supporting the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), and in 2019, PGIM Quantitative Solutions became a signatory to the Investor Stewardship Group (ISG). 

PGIM Quantitative Solutions also participates in various educational and collaborative events with other stewardship and governance organizations. We are members of the Council of Institutional Investors (CII) and we maintained membership in the International Corporate Governance Network (ICGN) through 2020. We also work with the Investor Network on Climate Risk (INCR)/CERES through memberships held by PGIM, the global investment management business of Prudential Financial, Inc. (PFI), as well as through those held directly by PFI, our ultimate parent.  

Principle 5: 

Institutional investors should have a clear policy on voting and disclosure of voting activity. The policy on voting should not be comprised only of a mechanical checklist; it should be designed to contribute to the sustainable growth of investee companies.

As discussed previously, PGIM Quantitative Solutions' policy is to vote proxies in the best long-term economic interests of our clients (the appreciation in value of the investment over time). To that end, we have adopted proxy voting guidelines that reflect our general philosophy on corporate governance matters, and our approach to governance and other issues that may commonly arise when voting ballots on securities held in client accounts. 

Our guidelines are not intended to limit the analysis of individual issues at specific companies, nor do they indicate how we will vote in every instance. Rather, they express our views about corporate governance and other issues generally, and provide insight into how we typically approach issues that often appear on corporate ballots. They are applied with discretion, taking into consideration the range of issues and facts specific to the company and the individual ballot items. Because the guidelines are not absolute, context matters and may drive different outcomes for different companies. 

While governance is the focus of many ballot items, our detailed, customized voting guidelines address a wide variety of matters, including: 

• Boards and directors 
• Audit-related issues 
• Executive compensation 
• Capital-related issues 
• Mergers, acquisitions and other financial transactions 
• Environmental issues, such as climate change 
• Social issues 
• Corporate governance issues 

We seek to actively monitor developments in the proxy voting arena based on a historical analysis of proxy issues and a continuing review of new proposals and legislative changes. Our policy and guidelines are reviewed annually and are updated as needed to address new developments. 

Our current Proxy Voting Overview statement is posted in the Stewardship & Governance section of our website: www.pgimquantitativesolutions.com.  

Principle 6: 

Institutional investors in principle should report periodically on how they fulfill their stewardship responsibilities, including their voting responsibilities, to their clients and beneficiaries.

We provide disclosure of our proxy voting policy, guidelines and procedures to our clients who authorize us to vote proxies. Any client may obtain a copy of these items, as well as the proxy voting records for that client’s securities, by contacting the client service representative responsible for the client’s account.  

We also provide customized reports to clients upon request. These reports can include corporate governance metrics, as well as information on the effort undertaken by PGIM Quantitative Solutions to engage in dialogue with selected companies, among other data. 

Our Proxy Voting Overview and proxy voting results are publicly available in the Stewardship & Governance section of our website: www.pgimquantitativesolutions.com. 

Our statement on the acceptance of Japan’s Stewardship Code is also posted in the Stewardship & Governance section of our website: www.pgimquantitativesolutions.com. 

Principle 7: 

To contribute positively to the sustainable growth of investee companies, institutional investors should have in-depth knowledge of the investee companies and their business environment and skills and resources needed to appropriately engage with the companies and make proper judgments in fulfilling their stewardship activities.

As a quantitative investor, PGIM Quantitative Solutions has a disciplined investment philosophy and robust investment processes in place across our investment platform. Our processes are anchored by extensive research into the use of quantitative factors intended to capture market inefficiencies and/or capitalize on investor biases in buying behavior. We believe this will translate into consistent long-term investment performance for our clients. 

PGIM Quantitative Solutions offers varying degrees of ESG integration in all of our quantitative equity portfolios. Such differentiation allows clients to select their own levels of active ESG investment. 

The majority of our quantitative equity portfolios have long included various quality signals, which we use as a proxy for governance. Our quality factors are broadly focused on companies we expect to be fundamentally stronger in the future. We can evaluate quality through a wide range of approaches, including non-financial quality (board and management quality), and direct measures of financial quality including earnings quality, company financing, and operating and financial stability, among others. Our research has shown that better management and boards generally make better decisions, leading to better investing, financing and operating outcomes, and thus better financial outcomes for shareholders. 

For clients who wish to invest with a more direct emphasis on ESG, we can employ a quantitative technique that identifies exposure to material ESG attributes, based on industry materiality guidelines developed by SASB. We can also score companies on their level of carbon emissions, to directly address the issue of climate change. Where emissions data is not available, our proprietary data completion technique can proxy data based on known return patterns and risk factors. Our process reduces exposure to companies with significantly low ESG ratings within permissible risk bounds and investment restrictions, and typically increases exposure to companies that score well. Client-directed restrictions, which include negative screening, can also be implemented within the portfolio construction process. Our proprietary optimization algorithm can take into consideration any country, company or industry restrictions that our client may impose. 

PGIM Quantitative Solutions will continue to research the best ways to use factors that capture ESG effects and combine them with other stock selection factors to identify attractive investment opportunities. Our firm-wide research agenda supports our commitment, with a current focus on: 

• The interaction of various ESG and financial factors to maximize the potential for alpha along with ESG improvements  
• Engineering customized ESG solutions  
• Continuing to evolve our ESG framework to incorporate different ESG data sources  

PGIM Quantitative Solutions has dedicated significant resources to the oversight of fulfilling our stewardship activities. These include: 

• PGIM Quantitative Solutions' ESG Steering Council, comprised of senior firm executives, oversees all of our ESG efforts. The Council advises on our ESG and Responsible Investment policies, shapes our ESG research agenda and oversees our annual reporting as a signatory to, and/or supporter of various responsible investment-related principles and codes. 
• A Senior Governance Officer (SGO) works collaboratively across business lines to enhance PGIM Quantitative Solutions' capabilities to analyze the corporate governance of issuers of securities in which we invest, to monitor market and other developments relating to active ownership and to helping enhance our collective engagement approach. The SGO also maintains oversight of data received and available including, but not limited to, data analytics and ballot issues relating to ESG matters.  

The SGO is also responsible for coordinating PGIM Quantitative Solutions sustainability initiatives and PGIM Quantitative Solutions' adherence and reporting relating to the United Nations-supported Principles for Responsible Investment, the Task Force on Climate-Related Financial Disclosures (TCFD) and Japan’s Stewardship Code. 

• PGIM Quantitative Solutions' Proxy Voting Committee includes representatives from our Investment, Operations, Compliance, Risk and Legal teams along with our Senior Governance Officer. This committee is responsible for updating and interpreting our proxy voting policy, identifying conflicts of interest and periodically assessing the effectiveness of our policy and procedures. The committee also oversees the services provided by our third-party proxy voting facilitator by reviewing management reports and performing periodic reviews of the proxy vendor. 

Our investment and distribution teams have received, and will continue to receive, intensive training on our ESG efforts and investment integration approach. Our ongoing research underlying the approach is regularly presented at our routine research meeting. External experts are also invited to speak to our investment, sales and marketing teams from a variety of ESG thought leadership organizations, including leading academics, non-profit groups (such as SASB), our ESG data providers and other investment firms on the both the buy- and sell-side. 

In addition, our ultimate parent, PFI, maintains a robust platform of training regarding its ESG efforts, particularly around diversity, sustainability and community outreach programs. 

 

*Both PGIM Quantitative Solutions and PGIM Japan are indirect wholly-owned subsidiaries of PFI.