When shareholders voted on a climate-focused resolution at Mizuho Financial Group last month, it was a stark reminder that, when it comes to investor stewardship and engagement, Asia is the new kid on the block: it was the first ever climate proposal to be filed at an Asian company.
“Climate Action 100+ is the first attempt at collaborative engagement in Japan, and Asia more widely,” says Seiji Kawazoe, Senior Stewardship Officer for Sumitomo Mitsui Trust Asset Management and investor representative for Asia on CA100+’s steering committee. “In fact, it’s the first time investors have had this kind of coordinated engagement across the world, in the same language, on the same platform, with a common list of companies that we are each asking to commit to the same, robust, measurable things.”
But the resolution at Mizuho wasn’t from a CA100+ member. It was filed by Japanese NGO Kiko Network, asking the banking giant to disclose its exposure to climate risks and publish a strategy to align its financial activities with the Paris Agreement. And, while it got a very strong result – nearly 35% support – much of this was driven by European and North American shareholders.
Instead, the work that Kawazoe and his colleagues are doing through CA100+ in Asia steers clear of the ballot box.
“We focus a lot on long-term dialogue with the companies to move them towards actual commitments – that feels more appropriate and more effective than going out to resolutions,” he explains.
Success, he adds, is reliant on the “attitudes of senior management and how important they feel climate change is”, combined with the initiative’s emphasis on local managers engaging with domestic companies. “That way it’s based on long-term relationships, so the investor knows the key individuals they need to be talking to, and they’re familiar with the people and the company – they already have an element of trust there, which makes it much smoother and more effective.”
Sumitomo is leading engagement for CA100+ on a number of companies in Japan, Korea and Thailand, as well as acting as a “supporting investor” for firms elsewhere in the world.
The timing of engagement efforts in Japanese is particularly important, Kawazoe notes, because of the current capital market reforms taking place in the country, including the publication of new stewardship and governance codes, and the high-profile leadership that public pension fund GPIF – a relatively recent signatory of CA100+ – has shown on sustainable finance lately.
“We focus a lot on long-term dialogue with the companies to move them towards actual commitments – that feels more appropriate and more effective than going out to resolutions”
“There is momentum on ESG now, and the disclosure part of the CA100+ requests – where we ask for companies to report in line with the Taskforce on Climate-related Financial Disclosures – has been a catalyst for discussion,” Kawazoe observes, pointing to a consortium set up by the Government for Japanese companies to share experiences and develop approaches to TCFD disclosure. More than 250 firms are currently represented on the group, which he describes as “a really unique and effective way of enabling a conversation about climate change within the financial community”.
“There is a clear link between the companies that have joined that group, and the companies that have been targeted by CA100+, so clearly our work has encouraged that discussion – and in turn, that discussion will help with our engagement efforts.”
While disclosure is “the foundation for everything CA100+ is asking,” according to Kawazoe, the robustness of company targets will be something that will come under increasing scrutiny by signatories.
“There is a lot of talk about very ambitious climate targets, but in some cases the technologies companies are relying on to reach those targets are not feasible or commercial yet, so we need to see realistic commitments,” he explains, referring to technologies such as Carbon Capture and Storage and hydrogen-based steel manufacturing, among others. His concerns are shared by his peers in Europe: a recent Responsible Investor panel discussion saw Spanish energy firm Repsol agree to work with CA100+ on developing credible standards and expectations around the use of these technologies in the transition plans of Oil & Gas companies.
“If our target companies are relying on those technologies to get to Net Zero, we need to see that they are ramping up capital allocation to their research, development and implementation,” says Kawazoe. “Companies need to be clear on when new projects will be up and running, and whether they will be able to contribute meaningfully to emissions reductions within the necessary timeframes. We’ll be monitoring that, because it’s good to talk about emissions targets, but it needs to be serious.”
While a lot of the focus of CA100+ in Asia has so far been on Japan, engagement elsewhere is beginning to pick up steam.
In January, the first Chinese asset owner, Ping An, joined China Asset Management as a signatory to the initiative, and RI understands that there is further interest being expressed by investors in mainland China – important, if the project is to effectively tackle the seven Chinese companies on its target list.
In India, SBI Funds – a joint venture between Amundi and the State Bank of India – has been leading on a number of engagements for CA100+, with the initiative making plans for further work in the country. And, if the experience in Japan is anything to go by, it could be boosted by the publication of India’s stewardship code earlier this month, which requires shareholders to identify “circumstances for active intervention in investee companies and the manner of such intervention”, as well as developing engagement procedures and reporting on their stewardship performance.