The number of climate shareholder proposals filed in Japan has grown exponentially since the first was put to banking heavyweight Mizuho in 2020 by Japanese non-profit Kiko Network, a request that secured an impressive 34 percent support.
The 2023 proxy season saw a record number of climate proposals go to the vote in Japan. Initially the preserve of domestic non-profits, Japanese companies have also started to face resolutions put forward by big European investors.
The first of these to go to the vote were filed by Amundi, Man Group and the asset management arm of HSBC last year, asking Japanese coal utility J-Power to ramp up its decarbonisation efforts. Support for these was substantial too, ranging between 18 and 26 percent for the three filings.
But this was not the first attempt by a European investor to file in the country. Ahead of them by a year, Danish pension fund AkademikerPension filed its first climate lobbying proposal at Toyota in 2021 but withdrew it after the Japanese carmaker committed to undertake a lobbying review.
Dissatisfaction with Toyota’s efforts prompted the fund to file again in 2022, but Troels Børrild, AkademikerPension head of responsible investments, claimed that was rejected as the filing missed an undisclosed deadline by a day.
“Our Japan-based lawyers […] were really furious about it,” he said.
Toyota did not reply to a request for comment from Responsible Investor.
Undeterred, AkademikerPension returned this year with Dutch manager APG and Norway’s Storebrand Asset Management. Their proposal – asking the company to report annually on how its lobbying aligns with Paris – secured support of 15 percent last month.
That tally is significant, APG’s director, responsible investment and governance, Sara Lee told RI, given that Toyota’s shareholder base includes group companies and suppliers.
HSBC and Amundi also returned this year at J-Power, with the support of Man Group and influential non-profit the Australian Center for Corporate Responsibility (ACCR). Their proposals, which asked the utility to set and disclose Paris-aligned emission reduction targets and report on how its remuneration policies incentivise progress against emissions targets, attracted 21 and 15 percent support respectively.
Prohibitively difficult
When it comes to the filing process itself, Børrild described the process as “incredibly cumbersome”.
While the threshold for shareholders to file in Japan is low, typically requiring just 100 shares, the process becomes more complex if you are a foreign investor.
“It takes local lawyers, it takes a lot of paperwork, back and forth, local language translations, original documents being sent – it is massive to the point where it’s prohibitive for many investors,” Børrild said.
The Danish fund set up an account under Japanese law, called a Foreign Indirect Account Management Institution (FIAMI), to help smooth the process in 2022.
APG’s Lee said that without the FIAMI, the preparation needed to file requires more than a month, but she thinks this can be trimmed down. However “eventually, we want to have the FIAMI”.
Although the process was challenging, Børrild told RI that it provided an opportunity to learn about the process, knowledge it has sought to pass on to other investors.
AkademikerPension has presented to investors and, along with its lawyers, co-filers and think-tank InfluenceMap, did a webinar on the process – although he made clear that such presentations were not about soliciting votes but sharing information.
Lee also said that there was outreach with local investors on the topic. “We had many conversations with local investors about the proposal because when we first publicly announced it some didn’t understand why we were looking at lobbying activities, why it is important to their businesses,” she said. “So, we attended many local stewardship forums or gatherings and presented our proposal and why we focus on lobbying activities… [as a result] understanding levels have gone up quite a lot – that’s the other achievement.”
New development
Climate proposals are still a relatively new feature of the Japanese corporate governance landscape.
When asked how Toyota responded to the proposal in 2023, Børrild said: “They took it very seriously and put in a lot of time and energy to discuss the matter, with the preference for us dropping the proposal.”
Special resolutions in Japan seek to change a company’s articles of association to enforce a shareholder’s request; as a result, they require a two-thirds majority to pass. Advisory votes can be put forward, but they are left to the discretion of the manager as to whether they are put to the vote.
Many investors, including domestic ones, are reluctant to support shareholder proposals that change companies’ articles, even if they support the topic.
Børrild told RI that it is mulling its strategy for next year, should it file again. One idea is that the fund would put forward both a binding and advisory proposal, with the former being used as a bargaining chip for the latter.
“If we can negotiate that they accept the advisory resolution, but we take away the one that would change the articles of incorporation, then I’d be interested in seeing the numbers because that would allow more investors to support,” he said.
Growing trend
In addition to European investors, NGOs have also continued to put pressure on Japanese companies this year.
In the last two weeks alone, climate resolutions went to the vote at country’s so-called “mega banks”, calling on them to issue and disclose a transition plan to align their lending and investments with the Paris Agreement. Support ranged between 17-21 percent at Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group and Mizuho Financial Group.
Those proposals were filed by a coalition of environmental NGOs – including Australia’s Market Forces and the Kiko Network – which also filed three additional ones at Japanese energy giants Mitsubishi Corporation, Tokyo Electric Power Company Holdings (TEPCO) and Chubu Electric Power Co.
Requests for disclosure of how capital expenditure aligns with a 2050 net-zero pathway attracted support of 9 percent and 12 percent at TEPCO and Mitsubishi Corp, respectively. But it fared much better at Chubu, with 20 percent of shareholders backing it.
Another proposal at Mitsubishi Corp from the NGOs calling on it to adopt and disclose Paris-aligned short- and medium-term greenhouse gas emission reduction targets, was also supported by 20 percent of investors on 23 June.
Børrild told RI that it appears shareholder proposals are becoming more mainstream in Japan and added that he would be interested in understanding what Japanese investors and companies think after seeing multiple proposals on climate, some of which attracted significant support.
Whether companies continue to face proposals will depend on Japanese corporate boards. APG’s Lee said, “If they show progress, I think there will be less filed. However, if they don’t make progress enough, then I think there will be more.”
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