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The rising wave of investor/corporate engagement in Japan
How the debate and practice of engagement in Japan has developed.
Ten years have passed since an amendment to the UK Pensions Act became the world’s first regulation to require occupational pension schemes to disclose environmental, social and governance (ESG) considerations within their investment portfolios. Its 10th anniversary was celebrated earlier this month at the House of Commons with the welcoming of Martin Clarke, executive director of financial risk at The Pensions Protection Fund as the new chair of the UK Sustainable Investment and Finance Association (UKSIF). The event was a testament to the role UKSIF has played in driving the responsible investment (RI) debate and the growing acceptance of RI across the UK investment community. Similar disclosure requirements have subsequently been adopted by countries around the world including Germany, France and Australia in 2001, and most recently Canada in 2008. In response to this growing need, a range of RI products and services have been launched in the market, including the FTSE4Good Index Series. Since the launch of the indices in 2001, FTSE’s RI Unit has entered into dialogue with many companies regarding the FTSE4Good inclusion criteria, in the process developing significant experience of the challenges they face in addressing global ESG issues and meeting investor expectations. One particular country that presented FTSE with some challenging corporate engagement was Japan. Following extensive dialogue with companies and the investment
community in Japan, it became clear that cultural and historical context played a huge role in determining communication and disclosure style. Global perceptions suggest that Japanese institutions have been slow to embrace RI. However, the debate relating to ESG and investment in Japan started over two decades ago. In 1989, a study group called ‘Val Study Group’ was created, which later formed the foundations of the Japanese Social Investment Forum: SIF-Japan. Amongst its founding members were Mariko Kawaguchi, current chief executive of SIF-Japan and head of CSR at Daiwa Securities Group, and Professor Takeshi Mizuguchi, current chair of the Sustainability Disclosure Technical Committee at the Japanese Institute of Public Chartered Accountants (JICPA). The group was named after the Exxon Valdez oil spill in Alaska, having been influenced by the US investor group, CERES Group, and its Valdez Principles of corporate behaviour. In 1991, the Val group established working groups on ‘green consumerism’, ‘SRI’ and ‘corporate environmentalism’, as well as organising overseas missions to the US and the UK to share best practice approaches. Keen to progress from research to action, the group decided to create a sample ‘green portfolio’ to demonstrate how to select Japanese stocks that were both commercially viable and environmentally friendly. To their surprise, many companies welcomed this initiative as it coincided with new environmental disclosure requirements issued by
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