Speaker 1: ESG is constantly evolving over the years. He it is
Speaker 1: shifted from socially responsible investing to impact to sustainable finance.
Speaker 1: While the terminology continues to change, what hasn't changed are
Speaker 1: the underlying science market pressures, tangible physical and financial impacts
Speaker 1: of the climate crisis, as well as increasing regulatory scrutiny
Speaker 1: and rising consumer expectations. We aim to filter out the
Speaker 1: noise by speaking with industry experts to identify what is
Speaker 1: really driving value. Welcome to ESG Currents, brought to you
Speaker 1: by Bloomberg Intelligence.
Speaker 2: Hello everyone, and welcome. I'm Homa ESG strategist and I'll
Speaker 2: be a host for today's episode. Today it will be
Speaker 2: discussing corporate governance in Japan. Since the original Corporate Governance
Speaker 2: Code was introduced in twenty fifteen, it has been revised
Speaker 2: several times to strength and shareholder value and hence invest
Speaker 2: engage meant protect minority shareholder rights and promote gender diversity.
Speaker 2: Another revision is expected in twenty twenty six, which is
Speaker 2: likely to further accelelate progress in these areas. The Japanese
Speaker 2: Exchange Group, which operates Tokyos Exchange, also plays an important
Speaker 2: role in shaping corporate governance. It has been focusing on
Speaker 2: improving communication between investors and listed companies with the aim
Speaker 2: of fostering a better mutual understanding of corporate strategies and
Speaker 2: how companies can enhance their valuations. As a result, we've
Speaker 2: seen an increase in shareholder proposals, including from activisty investors,
Speaker 2: covering topics such as diffidend increases, share by box, gender diversity,
Speaker 2: and environmental issues. With that in mind, I'm pleased to
Speaker 2: be joined by Yasunori Takeuchi, CEO and the representative director
Speaker 2: of Corporate Action Japan. We'll be discussing what the organization does,
Speaker 2: how it supports equity Issue Werk, and how it encourages
Speaker 2: both companies and investors to move toward zero society. Thank
Speaker 2: thank you very much for joining us today.
Speaker 3: Thank you Homazon having me today.
Speaker 2: Thank you to start. Could you tell us a bit
Speaker 2: about your organization. What is Corporate Action Japan and what
Speaker 2: role does it play?
Speaker 3: Yes, Corproduction Japan is a climate to relate. It a
Speaker 3: non profit organization which aims to promote the realization of
Speaker 3: the sustainable global environment for the public good. Our mission
Speaker 3: is to drive impactful actions across Japanese companies to address
Speaker 3: climate crisis with a vision of an envisioned Japan as
Speaker 3: a leader in climate solutions for the people and the
Speaker 3: planet to thrive. CJA itself is a shareholder, while our
Speaker 3: holding is just a minority shares. Our approach is that
Speaker 3: through engagement with the Japanese company in collaboration with the
Speaker 3: institutional investors, we seek credible transition to net zero from
Speaker 3: the perspective of increasing a corporate value over the medium
Speaker 3: to long term. In particular, we focus on those companies
Speaker 3: in high emitting sectors to take tangible actions to decarbonize
Speaker 3: from supply chain perspective. We also engage with the policy
Speaker 3: makers to help and enable companies to accelerate the effort
Speaker 3: with economic viability. The members of the CAJA consist of
Speaker 3: the seasoned professionals of finance and asset management, including myself.
Speaker 3: We have to solve the challenges of a climate change
Speaker 3: from a perspective of business and economic rationality, not just
Speaker 3: for environment. Different from the consultant firms which provide advice
Speaker 3: in response to the company's request on fee basis, j
Speaker 3: works from neutral standpoints. As an independent nonprofit organization. We
Speaker 3: encourage companies to address climate change not only compliance perspective,
Speaker 3: but to demonstrate leadership during that transition to a net
Speaker 3: zero society as an opportunity to enhance corporate value.
Speaker 2: Great, thank you for that overview. Let's turn to the
Speaker 2: Corporate Governance Code, which could have a significant impact on
Speaker 2: the Japanese equity market. The upcoming revision is expected to
Speaker 2: father strength and investor engagement sustainability initiatives. How do you
Speaker 2: see this revision influencing the market?
Speaker 3: Thank you. The Corporate Governance Code was introduced in Japan
Speaker 3: in twenty fifteen. It has been revised twice so far,
Speaker 3: in twenty eighteen in the twenty twenty one. This revision
Speaker 3: in twenty twenty six is the third revision. In this revision,
Speaker 3: stream raining and simplifying the code and the redisseminate the
Speaker 3: purpose of the principle based and a comply or explain
Speaker 3: approach are the key directions. The direction was set out
Speaker 3: in the Action Program twenty twenty five, which was published
Speaker 3: by the Japan FSA as an outcome of preparation work.
Speaker 3: The purpose of this revision is to materialize corporate governance.
Speaker 3: The proposed draft is a simpler structure than the current
Speaker 3: corporate Governance Code. By the implication of the supplementary principle
Speaker 3: and the establishment of the new forward. It is a
Speaker 3: commendable that the revised Code set out the substantive implementation
Speaker 3: of a corporate governance through aggressive governance, not just a
Speaker 3: defensive governance which is limited to formality. Strengthening the function
Speaker 3: of the Board of Director's Secretary art and the substantiating
Speaker 3: of the independent outside directors are required in addition to
Speaker 3: appropriate allocation of the management resources and strengthen the function
Speaker 3: of the Board of Directors in order to realize substantive
Speaker 3: corporate governance under the revised Code. We believe that the
Speaker 3: dialog with the investors based on the trust relationship with
Speaker 3: the tenth is essential. Meaningful dialog with the investor will
Speaker 3: truly contribute to the sustainable growth of the company and
Speaker 3: the enhancement of the corporate value over the medium to
Speaker 3: long term is important. CJA places a great importance on
Speaker 3: dialog with the directors on sustainability issues related to climate change.
Speaker 3: We hope that the revision of the Corporate Governance Code
Speaker 3: we have strengthen the function of the independent outside directors.
Speaker 3: As a result, we expect that the discussion on the
Speaker 3: sustainability at the board of directors will be more.
Speaker 2: Active, wonderful or merva follow up question, do you expect
Speaker 2: both of directors have knowledge on austainability issues on top
Speaker 2: of general corporate management?
Speaker 3: Well, both of directors expected to have a knowledge that
Speaker 3: topics such as finance and the accounting and their business strategy. First,
Speaker 3: disclose your information on the climate change and the human
Speaker 3: resources sometimes called non financial information, but I think it
Speaker 3: should be yet to be financial information or future financial information.
Speaker 3: Accounting for Sustainability or a FOS. In the UK which
Speaker 3: was established by King Charles when he was Prince, the
Speaker 3: concept of integrated reporting was introduced. There is an integrating
Speaker 3: ESG element into a financial decision and the reporting and
Speaker 3: the contributing to the resilience and the growth of the
Speaker 3: business of the medium to long term. CJ has been
Speaker 3: working with the FOS to support its activity in Japan
Speaker 3: for three years and it provides various opportunity for discussion
Speaker 3: for companies and the investors. I think this kind of
Speaker 3: a new concept of the financial reporting of financial disclosure
Speaker 3: is important to the board of director and also climate
Speaker 3: change is a medium to long term risk and it
Speaker 3: is important to understand the physical and the transition risks
Speaker 3: from the long term perspective, not just a three years term,
Speaker 3: which is a typical term of the mid term strategy
Speaker 3: by many Japanese companies. As McConney pointed out in his
Speaker 3: speech titled The Tragedy of Horizon, it must be said
Speaker 3: that it is difficult to respond appropriety to sustainabrity as
Speaker 3: long as the dicsion makers remain in a short term perspective.
Speaker 3: This is another skill set for the board of director
Speaker 3: to be expected. It is appropriate for the board of
Speaker 3: director to thoroughly discuss these important business matters related to
Speaker 3: climate change. Independent outside directors who are appointed by shareholders
Speaker 3: are expected to supervise management independently from business execution and
Speaker 3: as a representative of the common interest of the shareholders.
Speaker 3: In the UK, Chapter Zero Alliance has published its guiding
Speaker 3: Principle on Climate Governance. CJA is working to spread this
Speaker 3: principle as an effective tool to strength the climate governance. So,
Speaker 3: in answer to your question, I think the bord of directors,
Speaker 3: especially outside directors, expected to hold the various skill sets
Speaker 3: and the activate the discussion at the boardroom.
Speaker 2: Great, thank you, let's move on. We've seen major banks
Speaker 2: such as the mets BCU Financial Group, Misuhole Financial Group
Speaker 2: and submitle MIDSI Financial Group, as well as power companies
Speaker 2: receive shareholder proposals on climate change here after year. How
Speaker 2: do you view these proposals and what are your expectations
Speaker 2: for the upcoming shareholder meetings this year?
Speaker 3: Thank you. At CJ Co Production Japan, we focus on
Speaker 3: high emitting sectors which are so called how to avate
Speaker 3: industry sectors. We are not engaging with the financial sectors,
Speaker 3: but we understand that the financial sector has an important
Speaker 3: role to play to realize transition to net zero. In
Speaker 3: that sense, we welcome the progress of a climate action
Speaker 3: by Japanese banks if they take a voluntary or in
Speaker 3: response to the shareholder proposal. In our engagement work at
Speaker 3: the CEJA, shareholder resolution is an escalation option when engagement
Speaker 3: dialog gets stuck or not progressing as we expect it.
Speaker 3: Our focus is to bring out outcome as a result
Speaker 3: of the engagement work. We pter significant importance on constructive
Speaker 3: dialog and we try to look into every other option
Speaker 3: before escalating to shareholder proposal. As for contents of a
Speaker 3: climate change related shareholder proposal in Japan. It has been
Speaker 3: mainly related to the disclosure such as disclosure of a
Speaker 3: reduction target, disclosure of the action plan in line of
Speaker 3: the Parsagreement, disclosure of the lobbying activities, et cetera. Last
Speaker 3: year there was a proposal focusing on the competency of
Speaker 3: the Directors for Climate Change. In the recent years in Japan,
Speaker 3: there have been poor CY advancement such as a mandatory
Speaker 3: disclosure of the SSBJ sustain repety information disclosure and the
Speaker 3: launch of the GXTS which is japan Budgie on the
Speaker 3: carbon price. This poor c requires the further disclosure, so
Speaker 3: I think many Japanese company will make a progress in
Speaker 3: the area of the disclosure. Against this backdrop, we believe
Speaker 3: that there will be more discussion on the actions such
Speaker 3: as implementation aspect of the net zero credibility of the
Speaker 3: transition plan, integration of the risk assessment and the financial planning,
Speaker 3: and the climate relay did a governance including incentives and
Speaker 3: the accountability system. When I attend the International Conference on
Speaker 3: the Climate Change recently, I feel that a key message
Speaker 3: such as from disclosure to action or from commitment to
Speaker 3: action stands out. Although the number of the companies and
Speaker 3: the institution that's about. The TCFD in Japan was almost
Speaker 3: about oney five hundred, which account for nearly one third
Speaker 3: of the award's total number. It is not necessarily in
Speaker 3: astiation that Japan is leading the world in actual emission
Speaker 3: reduction or the carbonization in the future. I think those
Speaker 3: companies that have made a promise and the commitment and
Speaker 3: a disclosure but do not take action will be regarded
Speaker 3: more strictly than ever. At COJA, when we engage with
Speaker 3: the company in Japan high making sector, we do not
Speaker 3: simply encourage disclosure, but we also discuss spisk transition plans
Speaker 3: and there are tangible actions including a capture locasion based
Speaker 3: on the steation and the strategy of the individual companies.
Speaker 2: Thank you, that's wonderful. Let's move on to government policy.
Speaker 2: Under the current administration, there is a push to restart
Speaker 2: nuclear power generation and invest in new technologies such as
Speaker 2: peroviskuid sol ourselves. The government is also planning to fully
Speaker 2: implement a gxts W Green Trust Information Emission treating system
Speaker 2: this fiscal year. As you just touched upon, what are
Speaker 2: your thoughts on these policies and the Japan's approach to
Speaker 2: achieving net zero emissions. Do you think these airports are sufficient?
Speaker 3: Thank you that TA page Cabinets Economic Growth Strategy published
Speaker 3: recentry is based on the two pillars, which are crisis
Speaker 3: management investment and the growth investment. It focuses on investment
Speaker 3: in seventeen strategic areas, but the priorities for each sector
Speaker 3: and the expected time schedule for the economic impact in
Speaker 3: each area are not necessarily clear. Japan pays twenty to
Speaker 3: thirty yen annuary for the import of a fossil fuel.
Speaker 3: More than ninety percent of the crude oil is dependent
Speaker 3: on Midile East. Concerning that these points are currently a
Speaker 3: severe chockpoint for Japanese economy, the development of their technology
Speaker 3: that contribute to the elimination of a fossil fuel is
Speaker 3: the most important strategic area that will greatly contribute to
Speaker 3: the Japan's national interest. Among them, I believe that new
Speaker 3: the governors technology such as the nuclear technology and the
Speaker 3: peruble skite solar cell just as you mentioned, the area
Speaker 3: in which Japan can take a leading position. This is
Speaker 3: also in line with the basic energy policy by the
Speaker 3: MET Minister of Economy, Trade and the Industry, which is
Speaker 3: called the s plus three E memory, safety, energy security,
Speaker 3: economic efficiency and the environment. Important thing is the speed
Speaker 3: and a scale up in implementation to industry. Japan was
Speaker 3: a leading technological or department in various fields such as
Speaker 3: a solar panel and a storage battery in the past,
Speaker 3: but Japan does a leading position to China in the
Speaker 3: phase of the implementation and the commerceization. Reflecting the background,
Speaker 3: it is a important to promote advanced technology into operation
Speaker 3: with a commercial scale, not just the research and the development.
Speaker 3: We are entering into an era in which tariffs and
Speaker 3: the critical mineral are openly used as a strategic card
Speaker 3: in the trade and the economic negotiation. We need to
Speaker 3: be conscious of the risk of the supply chain disruption
Speaker 3: which may affect economic and the industry system. At the
Speaker 3: national rebel, strategic autonomy and the strategy indispensability are emphasized
Speaker 3: in the context of the geoeconomics. Given that the outstanding
Speaker 3: government debt as a percentage of the GDP continue to
Speaker 3: exceed two hundred percent, and that that long term interest
Speaker 3: rate of Japanese yen have been rising recently, there will
Speaker 3: be a limit of Japan's ability to provide a comprehensive
Speaker 3: physical support even if governments intend to promote economic laws.
Speaker 3: In addition, considering the trend of the weakening of the
Speaker 3: Japanese m in foreign exchange market and the rise of
Speaker 3: their living costs, immediate strategic priority should be given to
Speaker 3: the areas such as an input substitution or export an expansion.
Speaker 3: As a national economic strategy. Gx ETS, which is a
Speaker 3: japan burgion of the carbon price, had just launched in
Speaker 3: April twenty twenty six. It remained to be seen how
Speaker 3: effective it would be in reduction of the carbon emission.
Speaker 3: While individual company make an effort to reduce a carbon emission,
Speaker 3: there are situations where barriers cannot be overcome by the
Speaker 3: effort of an individual company alone. For example, even if
Speaker 3: company want to invest in manufacturing a green products, it
Speaker 3: may not pay off because of the lack of the
Speaker 3: reception to demand at the reasonable cost premium. We see
Speaker 3: this kind of a chicken and xetation in various levels
Speaker 3: of the supply chain. This is an area where pricingmakers
Speaker 3: can step in to promote creation of the green products market.
Speaker 3: Considering the fossil fuel elimination and the decogonization or in
Speaker 3: Japan's national interest, it can be said that those companies
Speaker 3: adopting strategies of our optimization rather than suboptimal strategy will
Speaker 3: lead to accelerating the transition to the carbonization industry system.
Speaker 3: It will also bring benefit to the Japanese economy as
Speaker 3: a whole, in the sense prisymakers can do more not
Speaker 3: only list up gross strategy in the respective seventeen individual areas,
Speaker 3: but to go further to the industry system level as
Speaker 3: a whore. I believe that enhancing the strategic autonomy of
Speaker 3: the economy through that the commendation should be a peer
Speaker 3: of the economic laws strategy. Specifically, it is possible to
Speaker 3: support effort to corporate on the combondation in supply chain
Speaker 3: so that the collectible action such as a joint purchasing
Speaker 3: of the green products can create green products market.
Speaker 2: Thank you understood. So I also like to get your
Speaker 2: perspective on investors. What do you think are the most
Speaker 2: important considerations for investors aiming to support the zero transition?
Speaker 2: Should they prioritize companies that are already making strong progress
Speaker 2: on decombanization or those with higher emissions that are actively
Speaker 2: working to reduce them now.
Speaker 3: Thank you. I believe that both asset managers and the
Speaker 3: asset owners should focus on the maximum interests of the
Speaker 3: ultimate benefitaries which are people and the indevidutors and the
Speaker 3: artimate investors. To answer your question whether investors should prioritie
Speaker 3: that are already making a strong progress on the carbonization
Speaker 3: or those with higher emission that are actively working to
Speaker 3: reduce them, we believe that it is reasonable to invest
Speaker 3: not only the current station of the emission reduction, but
Speaker 3: also in how each initiative will lead to the increase
Speaker 3: of the corporate value in the medium to long term
Speaker 3: in the future. In both example, some companies are using
Speaker 3: the combonization as a business opportunity, while some others are
Speaker 3: at risks of the stranded asset due to the lack
Speaker 3: of the alignment to enhancement of the corporate value. On
Speaker 3: top of that, I believe it is more important to
Speaker 3: engage investee companies so that they can improve their corporate
Speaker 3: value through the carbon relagion effort. So not just a
Speaker 3: selection of the investee company, but the engagement through the
Speaker 3: dialog is very important. This is so called engagement to alpha,
Speaker 3: aiming the access revenue of the individual companies in addition
Speaker 3: to the enhancement of the corporate value on a specific
Speaker 3: investee companies. It is also important to enhance total value
Speaker 3: of the entire portfolio in the medium to long term,
Speaker 3: which is directly related to the interest of the end
Speaker 3: the investors such as the public and the individual. For
Speaker 3: universal investors who diversify their investment across many stocks, it
Speaker 3: is neither practical nor effective to engage with the old
Speaker 3: investing companies equally, but it will be a practical in
Speaker 3: the effective to focus on the companies which the conversation
Speaker 3: effort have a broader impact through supply chain and the
Speaker 3: enhancement of the corporate varrie as a portfolio is expected.
Speaker 3: This is an appl cover as well for passive investors
Speaker 3: whose portfolio is linked to the market index. This is
Speaker 3: so called the better engagement aiming at the rising the
Speaker 3: value of the over market. CJA believe that accelerating the
Speaker 3: transition to net zero through their supply chain by concrete
Speaker 3: effort to reduce carbon emission by company in high emitting
Speaker 3: sectors is critically important. It will reduce the risk of
Speaker 3: the climate change and the enhance their resilience of supply
Speaker 3: chain by increasing a corporate value and the transforming the
Speaker 3: Japan's industrial system in the medium to long term. As
Speaker 3: a result, we believe that this will contribute to improving
Speaker 3: the overall performance of the investor's portfolio.
Speaker 2: Excellent, Thank you so much. Finally, let's look at the US.
Speaker 2: The Trump administration has moved away from the Paris Agreement,
Speaker 2: which contrasts with the direction taken in other regions. Given
Speaker 2: this divergence, how should Japan government, work, corporations and investors respond,
Speaker 2: particularly in the context of global decabalization airport.
Speaker 3: Since Trump two point zero started last year, it is
Speaker 3: certain that there has been a backlash which affect to
Speaker 3: the transition to net zero. US government has withdrawn from
Speaker 3: the Paris Agreement, many banks, insurance companies have left Defense Initiative,
Speaker 3: and ESG related activities blagerly disappeared. This is not the
Speaker 3: first time, as we have seen the same movement in
Speaker 3: Trump one point zero, which started in twenty sixteen. We
Speaker 3: should understand that these movements are based on the good
Speaker 3: business reason, such as avoiding the risks of being sued
Speaker 3: for anti trust viration, avoiding the risk of the being
Speaker 3: excluded from doing business with the public sectors. It's et cetera.
Speaker 3: But we should notice these movements are rooted in the
Speaker 3: American political system in which various issues become political issues.
Speaker 3: It is uncertain whether this trend will continue in the future.
Speaker 3: Regardless of this trends, there are many voices saying that
Speaker 3: the decobs national effort are proceeding as before. In the US,
Speaker 3: there is a non federal climate coalition called the America
Speaker 3: Is All In. This is a coalition formed by merging
Speaker 3: the Climate Action Coalition called that We Are Still In
Speaker 3: and the Climate Action Initiative called the America's Pledge, which
Speaker 3: was formed when the United States announced its withdrawal from
Speaker 3: Paris Agreement during that Trump one point zero America Is
Speaker 3: All In has thousands of members, consists of the non
Speaker 3: federal organization including state governments, municipalities, tribal governments, corporation, university,
Speaker 3: medical institutions, cultural institutions, and the regous organization, et cetera.
Speaker 3: It accounts for approcasmetry sixty five percent of the population
Speaker 3: and the sixty eight percent of the GDP in US.
Speaker 3: It covers about half of the greenhouse gas emission from
Speaker 3: the entire US. This is the scale at to which
Speaker 3: the United States as a whore can advance its climate
Speaker 3: goals without a federal government moving In fact, America is
Speaker 3: all ring is based on the Blueprint twenty thirty or
Speaker 3: in climate strategy, and as a practical level, they do
Speaker 3: initiative such as an introduction of their renewable energy in municipalities, school, district, hospital,
Speaker 3: creating a clean energy job, strengthening their regional resilience through
Speaker 3: flood and the heat wave countermeasures, and supporting the implementation
Speaker 3: of the federal subsidies such as the IRA in local areas.
Speaker 3: If you look at the headline and the social media
Speaker 3: that convey that Trump administrations and narratives, I think there
Speaker 3: is a risk of misunderstanding the movements of the US
Speaker 3: as a whole. Global warming is a global program and
Speaker 3: it is a problem that can already be dealt with
Speaker 3: through mitigation or adaptation apart from the policies of the
Speaker 3: current to government. To achieve this, it is reasonable and
Speaker 3: effective for various takeholders to share awareness of a climate
Speaker 3: change risks and work together to respond to them. In Japan,
Speaker 3: extreme weather such as extreme heat, super typhoons and a
Speaker 3: record of breaking a heavy rain already becoming very common
Speaker 3: and getting severer and more frequent. The impact by those
Speaker 3: extreme weather on the economy, society and the health is
Speaker 3: becoming significant. According to the World Economic Forums Global Risk
Speaker 3: Report twenty twenty six, global rebusiness leaders rank extreme weather
Speaker 3: as the top ten risks for the next decades and
Speaker 3: how the top ten environment risk such as a climate change.
Speaker 3: Under these circumstances, I believe it is important for Japanese government,
Speaker 3: companies and investors to steady advanced effort to add the
Speaker 3: net trrot by integrating environment and economic various from mid
Speaker 3: to long term perspective, regardless of the current political movement
Speaker 3: in some market. Although some companies adjusting their strategy in
Speaker 3: response to the change of the current stitation I mean backlash,
Speaker 3: we have the impression that most of the Japanese company
Speaker 3: keeps their long term goal and the proceeding with the
Speaker 3: effort in a steady manner. As a geopolitical risks of
Speaker 3: becoming apparent in various regions including a Midiley East, it
Speaker 3: may be the great chance for Japan to transform its
Speaker 3: economy and the industrial structure more self suffcent and the
Speaker 3: more regerient by using a renewable energy and other decarbonized energy.
Speaker 3: As a corporate Japan, we would like to contribute to
Speaker 3: the overall optimization of the japan economy and the industry
Speaker 3: rather than partial optimization of the individual company. As a result,
Speaker 3: we expect Japanese company to continue to shine with their
Speaker 3: competitiveness and a contribution to the next generation. Back to
Speaker 3: your Homazon, thank you wonderful.
Speaker 2: That's all for me today. Thank you takouch Sam for
Speaker 2: giving us your insight. We really appreciate it.
Speaker 3: Thank you very much.