Japan: a sustainability update

This special round-up includes updates on environmental, social and governance issues in Japan over recent weeks.


The green bond market continues to grow in Japan, with two ‘firsts’ in recent weeks. Japan Retail Fund Investment Corp sold ¥8bn of notes, becoming the first Japanese Real Estate Investment Trust (REIT) to tap the asset class. The five-year deal was rated GA1 by Rating and Investment Information in its green bond assessment. Shipping company Nippon Yusen Kaisha sold ¥10bn of green, five-year notes into the Japanese domestic market this month, becoming the world’s first issuer in the shipping industry to sell green bonds. The issuer got a second-party opinion from Vigeo Eiris.
A group of Environmental NGOs has commended newly-announced restrictions on the financing of overseas coal power by Japan’s Dai-ichi Life Insurance Company. The Japan Center for a Sustainable Environment and Society (JACSES), Friends of the Earth Japan (FoE Japan), Kiko Network, 350.org Japan, Greenpeace Japan and Rainforest Action Network said that this is the first policy of its kind by a Japanese financial institution, although they recommended that it be extended further to include domestic coal power plants projects. The NGOs named a number other major financial institutions – the Mitsubishi UFJ Financial Group, Mizuho Financial Group and Sumitomo Mitsui Financial Group – that should “take heed” of this development, and adopt similar policies.
The Japanese division of environmental NGO 350.org has launched a global petition calling on Japan’s three biggest financial institutions to stop financing new coal developments. The petitions asks that Mitsubishi UFJ Financial Group, Mizuho Financial Group, and Sumitomo Mitsui Financial Group cease all new lending to coal-fired power generation and coal extraction, and make concrete steps to align their finance policies with the Paris Agreement. 350.org Japan says the institutions – the first, second and fifth largest global lenders to some of the largest companies involved in developing new coal-fired power plants – are jeopardising the chances of keeping global warming below 1.5-2°C, between them pouring $25bn into coal projects. Bill McKibben, co-founder of 350.org added, “Banks in the US and Europe are starting to restrict finance for the most carbon intensive fossil fuels, predominantly coal. Japan’s banks are swimming against the tide with their continued support for coal.”


Mizuho Financial and Orix Corporation are under fire from civil society for owning $1.7m worth of equity in companies associated with Indofood – Indonesia’s largest integrated food company and the target of long-running complaints over labour abuses. Complaints were filed with the Roundtable on Sustainable Palm Oil in 2016 against the firm relating to child labour, low pay, health & safety issues, production quotas and informal labour – practices which were alleged to be ongoing in a follow up complaint submitted in 2017.h6. Governance

Glass Lewis’ special report on Japan looked at attendance problems engendered by the high concentration of annual meetings in June, but encountered resistance to change. The role of former executives serving as advisors was also examined because of several high-profile scandals involving their undue influence. Nearly three-quarters of the respondent companies said they had advisors, with a slightly higher proportion simply providing advice, while others participate in financial, social and public activities. More than half of respondents expressed reservations about the wholesale adoption of Western-style governance structures, citing the statutory auditor system as having distinct advantages over the single tier board. The report also includes a frank interview with Mr. Isao Teshirogi, president of Shionogi & Co., which acquired US pharma company Sciele in 2008 and subsequently experienced some major governance problems.
Christopher Dyer, Director of Global Equity at Eaton Vance, has said that Japan’s stewardship code and corporate governance code have been a huge catalyst for progress in the country. Speaking at a media Eaton Vance breakfast entitled “Disrupted investing” Dyer said Japanese companies were adopting stronger corporate governance; though not at the same level of companies in Europe and the US. Dyer said the culture of “Japanese board insiders” was gradually changing and that the corporate governance code had achieved a focus on return of capital that wasn’t the case before. “Japanese companies are more efficient and better managed through governance,” he said, noting that GPIF was now allocating more to equities, and it had been a big voice in implementing changes. “It’s a positive signal for Japanese equities for years to come. An era of growth, better governance and more efficient return of capital is positive for the equity market.”
The Life Insurance Association of Japan’s latest annual survey of 1,136 listed companies and 213 institutional investors have shown an increasing importance of ESG information disclosure to corporate value, with many investors finding the current level of disclosure “insufficient”. A breakdown of ESG factors further showed that more emphasis were placed on governance and social issues compared to the environment. The survey also announced that the Association’s Working Group for Enhancing Corporate Value is starting “collective engagement” with 100 companies deemed to fall short on issues of governance, information disclosure and shareholder returns by issuing letters or establishing direct dialogue.
Xerox has terminated its controversial sale to Japan’s Fujifilm after it entered into an settlement agreement with activist investors Carl Icahn and Darwin Deason due to “material deviations” between audited results from its Asian joint venture with Fujifilm, Fuji Xerox, and previous unaudited statements. Both investors own 15% of Xerox and opposed the $6.1bn deal which allegedly undervalued the firm. Under the settlement agreement, six board members were ousted, including the company’s CEO, paving the way for two executives close to Icahn to be appointed as Chief Executive and Board Chairman. Link