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Key issues for Japan’s 2021 voting season

As we enter peak voting season for Japanese companies, engager Sachi Suzuki explores two key issues where Japan has been a notable laggard – gender diversity and climate change.

Fast reading

  • We have stepped up our voting recommendations, particularly on gender diversity and climate change
  • Japan ranked 121st in the Gender Gap Index in 2020, the worst performance among developed nations
  • Sumitomo and Mitsubishi UFJ Financial Group will face climate-related shareholder proposals

We are entering Japan’s annual shareholder meeting season, when the majority of Japan’s 3,700+ listed companies will hold their meetings within the space of a few weeks. On some of the peak days, hundreds of meetings will be held. Although the level of concentrated activity has eased in recent years, we have stepped up our voting recommendations at Japanese companies, particularly on gender diversity and climate change.

Gender diversity

Advancing gender equality in company leadership and throughout organisations remains critically important. There is a growing body of evidence supporting the link between more diverse company leadership and financial performance. But many companies around the world are still falling far short of equal representation. The situation is particularly dire in Japan. The country was ranked 121st in the Gender Gap Index in 2020, the worst performance among the developed nations. It also ranked 131st in terms of the proportion of women in senior and leadership positions, well below the world average, while also ranking poorly in terms of the gender pay gap.

We have accelerated our engagement with Japanese companies on diversity in recent years and in 2019 we started to incorporate this into our voting policy for Japan. We initially recommended voting against companies where there were no women among the directors or statutory auditors. This is because the majority of Japanese companies have a two-tier board system with a board of directors and a board of statutory auditors. We would recommend a vote against the chair of the nomination committee if this individual was known, but target the chair or president if the company did not have a nomination committee or identify the chair of the committee. In 2020, we raised our expectations for TOPIX 100 companies, wanting to see women account for 10% of board members. This was in line with the target set by the 30% Club Japan Investor Group 1, which we joined shortly after its launch in 2019.

In 2020, we welcomed the appointments of the first female directors at many companies including Nintendo, SoftBank Group and Suzuki Motor, following our engagements and escalations through voting in the previous year.

In 2021, we have further tightened our policy to recommend a vote against responsible directors at companies with no female directors, not counting statutory auditors as they do not have voting rights at board meetings. Our threshold for TOPIX 100 companies is 10%. As there are many companies where women feature among the statutory auditors but not as directors, we believe it is important to press for more female representation among directors.

Climate change

The breakdown of the global climate is a systemic risk to the value of our clients’ portfolios, due to the economic and political consequences, as well as the physical impacts of climate change. We strongly support the goal of the 2015 Paris Agreement – to limit global warming to well below 2°C and to try to reach no more than 1.5 °C of warming – and expect companies to publicly do the same.

In absolute terms, Japan has the largest number of companies worldwide that have committed to reporting in line with the Task Force for Climate-related Financial Disclosure (TCFD) recommendations. Following the Japanese government’s announcement in October 2020 of a target to achieve carbon neutrality by 2050, we have seen many Japanese companies committing to net zero emissions by 2050 and the number is increasing. However, this is not sufficient to keep global warming within 1.5 °C, which is why we continue to press for business strategies to be more clearly aligned to the goals of the Paris Agreement.

In addition to our ongoing engagement with companies, since 2019 we have incorporated various metrics into our global voting policies to measure how well companies are addressing climate change risks and opportunities. We have written to the chairs of companies scoring below a Transition Pathway Initiative Level 3 management rating (Level 4 for companies with a high exposure to fossil fuels), planning to recommend a vote against them if our engagement does not give us assurance about their management of climate-related risks. In 2021, we introduced additional criteria, where we would consider recommending voting against the chairs of companies deemed to be expanding their coal exposure or with high deforestation risks.

Importantly, EOS has also been supportive of climate shareholder proposals seeking alignment with the Paris Agreement goals and has co-filed such resolutions at companies in the US and Europe. Japan saw its first climate-related shareholder proposal in 2020, filed at Mizuho Financial Group. We supported the proposal, which gained significant support.

In the 2021 season, two similar proposals have been filed at Mitsubishi UFJ Financial Group and Sumitomo Corp, both asking the companies to align their business strategies to the Paris goals. These companies have been targeted for their significant exposure to fossil fuels, including coal. We have accelerated our engagements with these companies, while also seeking views from the NGOs who have filed the proposals, before making our final decisions on our voting recommendations.  

  1. 1This was a target for engagement and not a guideline for voting.

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EOS Client Service and Business Development

Amy D’Eugenio,
Head of Client Service and Business Development, EOS