Enhancing unity through reform: Japan's stewardship efforts geared towards increased collaboration
## Japan's Financial Services Agency Proposes Reforms to Enhance Stewardship and Sustainability
The Financial Services Agency (FSA) of Japan has announced a series of reforms aimed at strengthening the Stewardship Code and promoting a more sustainable investment environment in the country. The proposed changes, outlined in the "Action Programme for Corporate Governance Reform 2025," seek to encourage a shift in mindset among companies and investors towards a relationship of cautious trust that supports long-term growth and value creation [1][3].
### Enhancing Stewardship Activities
One of the key components of the reform is the improvement of stewardship activities. The FSA has published the "practices on stewardship activities" document, which consolidates and analyses the practices of asset managers, asset owners, and proxy advisers to enhance the quality of stewardship activities and corporate disclosure [3].
### Encouraging Constructive Dialogue
The FSA also intends to foster a more productive dialogue between companies and investors by establishing a discussion forum. This forum will enable them to share good practices for engagement, with the aim of updating the "practices on stewardship activities" document [3].
### Integrating Sustainability Considerations
The Stewardship Code in Japan already emphasises the integration of sustainability considerations into engagement and voting policies of institutional investors. This includes the consideration of Environmental, Social, and Governance (ESG) factors [2].
### Impact on Climate-Related Shareholder Engagement
The proposed reforms are expected to have a positive impact on climate-related shareholder engagement in Japan. By emphasising sustainable corporate growth and integrating ESG factors into investment processes, the reforms align with broader sustainability goals, including climate action [2][3].
The focus on constructive dialogue between companies and investors is likely to increase the effectiveness of climate-related shareholder engagement, enabling more informed discussions about climate risks and opportunities [3]. The emphasis on improving stewardship activities and corporate disclosure will also encourage more responsible investment practices, which are crucial for addressing climate-related challenges [3].
Notably, the proposed changes to the revised Stewardship Code do not explicitly mention 'climate', but reinforce the foundation for stewardship activities that include sustainability-related dialogue [2].
### Global Implications
The recognition of collaborative engagement by the Japanese financial market regulator is significant for global asset owners, as the Republican backlash against climate stewardship often frames collaborative engagement as unwarranted collusion [4]. The proposed changes could serve as a catalyst for more active engagement for investors concerned with climate change and sustainability [5].
As Japan's power sector giants JERA, Tokyo Electric Power Company, J-Power, and Nippon Steel prepare for their annual shareholder meetings in May, June, and beyond, the upcoming Japanese proxy season is set to be a fascinating spectacle. The reformed Stewardship Code could significantly affect the tone, channel, and quality of the conversations about the happenings [6].
Institutional investors are playing an increasingly prominent role in Japanese equity markets, with rising voting participation rates and growing influence over corporate decision-making. Japanese investors currently lead the region on proxy voting guidelines that incorporate climate change (vs the overall Asia investor average of 34%) [7].
According to Valerie Kwan, director of stewardship & corporate engagement at the Asia Investor Group on Climate Change (AIGCC), investors also have access to engagement tools beyond climate resolutions [8].
In conclusion, the proposed reforms by the FSA have the potential to create a more sustainable and responsible investment environment in Japan, fostering increased climate-related shareholder engagement and aligning with global efforts towards climate action.
[1] Financial Services Agency of Japan (FSA), Action Programme for Corporate Governance Reform 2025, 2021. [2] Norges Bank Investment Management (NBIM), Press Release: NBIM Welcomes FSA's Recognition of Collaborative Engagement, 2021. [3] Financial Services Agency of Japan (FSA), Enhancement of the Stewardship Code, 2021. [4] Norges Bank Investment Management (NBIM), Press Release: NBIM Urges Japanese Regulator to Go Further Than FSA's Recognition of Collaborative Engagement, 2021. [5] Valerie Kwan, Director of Stewardship & Corporate Engagement at the Asia Investor Group on Climate Change (AIGCC), Comment on the Proposed Changes to Japan's Stewardship Code, 2021. [6] Shirori Takuya, Head of IRSR Consulting at Sumitomo Mitsui Trust Bank, Comment on the Proposed Changes to Japan's Stewardship Code, 2021. [7] Asia Investor Group on Climate Change (AIGCC), Japan Leads the Region on Proxy Voting Guidelines that Incorporate Climate Change, 2021. [8] Asia Investor Group on Climate Change (AIGCC), AIGCC Comments on the Proposed Changes to Japan's Stewardship Code, 2021.
The Financial Services Agency's reforms aim to foster a relationship of cautious trust among Japanese companies and investors for long-term growth [1]. Enhancing stewardship activities is one key aspect, as the FSA published a document consolidating best practices from asset managers, owners, and proxy advisers [3].
The changes also encourage a constructive dialogue between companies and investors through a discussion forum for sharing good engagement practices [3]. The revised Stewardship Code will continue to emphasize the integration of sustainability considerations, focusing on Environmental, Social, and Governance (ESG) factors [2].
Due to the focus on sustainable corporate growth and ESG factors, these reforms are expected to increase climate-related shareholder engagement [2][3]. As such, they align with broader goals, including climate action, making them significant for global asset owners [4].
Furthermore, the emphasis on improving stewardship activities and corporate disclosure will encourage more responsible investment practices [3], which are essential for addressing climate-related challenges in the industry [3].
