Strengthening Unity: Japan's Stewardship Overhaul Focuses on Enhancing Collaboration
In a significant move, the Financial Services Agency (FSA) of Japan has proposed a reform of the country's Stewardship Code, marking Version 3.0 of the Code [1][3]. The update emphasises promoting collaborative engagement and enhancing transparency among institutional investors.
The reform is expected to have a significant impact on climate-related shareholder engagement, encouraging institutional investors to take more active and collaborative roles in dialogues with investee companies [1][3]. This includes discussions about medium- to long-term value creation that incorporates environmental, social, and governance (ESG) factors, such as climate risk.
The stewardship code reinforces principles that require investors to clarify investment objectives, manage risks including those related to sustainability, and report transparently on their stewardship activities [2]. The reform aligns with broader government initiatives aimed at fostering Japan as an asset management nation, where institutional investors, including pension funds and insurers, adopt sophisticated practices to support corporate growth and generate social impact, including climate goals [2].
Key aspects of the reform include enhanced expectations for investors to proactively engage companies on climate strategies and related disclosures. The introduction of the Asset Owner Principles guides institutional investors to embed sustainability and climate considerations into their fiduciary duty [2]. There's also a regulatory push for transparent reporting and risk management that incorporates climate-related risks and opportunities within investment processes [1][3].
Shirori Takuya, the head of IRSR consulting at Sumitomo Mitsui Trust Bank, stated that the revision encourages more proactive investor behavior [1]. Notably, Japanese investors currently lead the region on proxy voting guidelines that incorporate climate change [1]. Norges Bank Investment Management, which holds equity in over 1400 of Japan's listed entities, welcomed the FSA's recognition of collaborative engagement in the proposed changes [1].
The annual shareholder gatherings of JERA, Tokyo Electric Power Company, J-Power, and Nippon Steel are scheduled for May 16 (next month) and an unknown date respectively. These events could provide opportunities for investors to engage in discussions about the reform's implications and the role of climate-related shareholder activism in Japan.
Valerie Kwan, director of stewardship & corporate engagement at the Asia Investor Group on Climate Change (AIGCC), welcomes the emphasis on incorporating financial materiality aspects into investors' investment strategies [1]. Kwan notes that investors have access to engagement tools beyond climate resolutions [1].
The 2025 proxy season is almost here, and the proposed changes could have a lasting impact on the Japanese equity markets, given the rising institutional investor participation. The change in the stewardship code encourages more proactive investor behavior and supports a more constructive dialogue with companies [1][2][3].
The draft revision of the stewardship code does not explicitly mention 'climate', but reinforces the foundation for stewardship activities that include sustainability-related dialogue. It's suggested that the FSA explain why collective engagement is an important option for investors [1]. Norges Bank Investment Management suggested that the Japanese regulator should go a step further in the reform of the stewardship code [1].
In conclusion, the 2025 reform to Japan's Stewardship Code mandates more collaborative and transparent engagement by investors, encouraging them to incorporate climate issues rigorously in stewardship activities. This is expected to accelerate climate-related shareholder activism in Japan, fostering corporate responsibility and advancing climate risk integration into investment decisions [1][2][3].
- The reformed Stewardship Code in Japan will emphasize collaborative engagement and transparency among institutional investors, with a significant focus on climate-related shareholder engagement.
- The update to the Stewardship Code aims to align with broader government initiatives, fostering Japan as an asset management nation, where institutional investors focus on corporate growth, social impact, and climate goals.
- The key aspects of the reform include enhanced expectations for investors to proactively engage companies on climate strategies and related disclosures, as well as transparent reporting on these activities.
- Valerie Kwan, director of stewardship & corporate engagement at the Asia Investor Group on Climate Change (AIGCC), appreciates the emphasis on incorporating financial materiality aspects into investors' investment strategies.
- The 2025 proxy season is approaching, and the reformed Stewardship Code is expected to encourage more proactive investor behavior, accelerate climate-related shareholder activism in Japan, and foster corporate responsibility.
