Fortifying unity: Japan's revised governance seeks to amplify cooperation
The Japanese financial market is gearing up for an exciting proxy season, with the proposed changes to the Stewardship Code set to have a lasting impact. Given the rising participation of institutional investors in Japanese boardrooms, these changes could significantly shape the future of corporate governance in the country.
The Japanese Financial Service Agency (FSA) has proposed a reform of the Stewardship Code, which has not been revised for five years. The proposed changes aim to strengthen climate-related shareholder engagement and collaborative engagement within Japan's financial market.
Valerie Kwan, director of stewardship & corporate engagement at the Asia Investor Group on Climate Change (AIGCC), welcomes the emphasis on financial materiality aspects in the proposed changes. The draft revision does not explicitly mention 'climate', but it reinforces the foundation for stewardship activities that include sustainability-related dialogue.
One of the key impacts of the reformed Stewardship Code is the improvement of stewardship quality. The FSA plans to upgrade stewardship activities by setting clearer expectations for institutional investors regarding engagement on environmental, social, and governance (ESG) matters, including climate change. This includes following up on dialogues and sharing best practices through a discussion forum for companies and investors.
Another significant impact is the promotion of collaborative engagement. The revisions encourage institutional investors to collaborate more actively in pushing companies toward sustainable business practices, including adopting climate-related disclosures and actions aligned with global standards. Such collaborative efforts can drive more effective corporate responses to climate risks and opportunities.
The reforms fit within the broader context of Japan’s efforts to position its asset management sector as a leader in ESG and sustainability, supporting climate action consistent with initiatives like the Paris Agreement. Enhanced disclosure and transparency are also key aspects of the reform, with the FSA emphasizing corporate disclosure norms in line with stewardship expectations.
Japanese investors currently lead the region on proxy voting guidelines that incorporate climate change (vs the overall Asia investor average of 34%). Norges Bank Investment Management (NBIM), which manages the Norway's Government Pension Fund Global, holds equity in over 1400 of Japan's listed entities. The Japanese proxy season could be one to watch out for, as the reformed stewardship code might affect the tone, channel, and quality of the conversations about the happenings.
Shiritori Takuya, the head of IRSR consulting at Sumitomo Mitsui Trust Bank, stated that the revision of the code reduces legal uncertainties and encourages collaborative engagement among institutional investors in Japan. The change in the stewardship code in Japan encourages more proactive investor behavior through collaborative engagement. Institutional investors are playing a more prominent role in Japanese equity markets, with rising voting participation rates and growing influence over corporate decision-making.
In summary, Japan’s Stewardship Code reform is designed to facilitate more robust and collaborative shareholder engagement on climate issues, integrating sustainability deeply into investment decision-making and corporate governance processes in the Japanese financial market.
The Japanese Financial Service Agency's proposal to reform the Stewardship Code focuses on strengthening climate-related shareholder engagement and collaborative engagement within the financial market. Valerie Kwan, director of stewardship & corporate engagement at the Asia Investor Group on Climate Change, welcomes the draft revision's emphasis on financial materiality aspects, even though it does not explicitly mention 'climate.'
One of the key impacts of the reformed Stewardship Code is the improvement of stewardship quality, as the FSA plans to upgrade stewardship activities by setting clearer expectations for institutional investors on ESG matters, including climate change. This includes following up on dialogues and sharing best practices through a discussion forum for companies and investors.
Another significant impact is the promotion of collaborative engagement, as the revisions encourage institutional investors to collaborate more actively in pushing companies toward sustainable business practices, including adopting climate-related disclosures and actions aligned with global standards.
Japanese investors currently lead the region on proxy voting guidelines that incorporate climate change. As the Japanese proxy season approaches, the reformed stewardship code might affect the tone, channel, and quality of the conversations about corporate governance, particularly regarding climate issues.
The reformed Stewardship Code is part of Japan’s broader efforts to position its asset management sector as a leader in ESG and sustainability, supporting climate action and enhancing disclosure and transparency in corporate governance processes. Institutional investors are playing a more prominent role in Japanese equity markets, with rising voting participation rates and growing influence over corporate decision-making.
