Stronger together: Japan’s stewardship reform aims to bolster engagement
Ahead of the AGM season, a notable shift in the country’s stewardship rules is underway
Japan’s AGM season is fast approaching. JERA, one of Japan’s power sector behemoths, will host its annual shareholder gathering on May 16. Next month, Tokyo Electric Power Company and J-Power will follow suit. As will Nippon Steel - the country’s largest steelmaker.
As these meetings draw closer, investors’ ability to engage with boards on climate-related issues will come under the spotlight. This capability depends, in no small measure, on the rules of the game - the country’s stewardship code.
Ahead of this year’s proxy season, Japan’s Financial Service Agency (FSA) has proposed a reform of the country’s stewardship code – which was last reworked five years ago.
The changes indirectly affect climate-related shareholder engagement and in turn, are of consequence to institutional holders of Japanese public equity.
Collaborative engagement
Perhaps the most significant change of direction under the new rules is the possible dawn of a new era of collaborative engagement in Japan.
The way things stand, Japan’s stewardship rules recognise the value of collaborative engagement, but recommend them ‘as necessary’. Under the reformed code, this status will be elevated.
“In Japan, the lack of clear rules around such collaboration had led to legal uncertainties and a cautious stance among institutional investors. By redefining collaborative engagement as an ‘important option’, the revision encourages more proactive investor behaviour”, Shiratori Takuya, the head of IRSR consulting at Sumitomo Mitsui Trust Bank told Net Zero Investor.
The change signals a formal recognition by the Japanese financial market regulator that investors working collaboratively can support a more constructive dialogue with companies.
For global asset owners, this recognition comes at a critical juncture – given that the Republican backlash against climate stewardship is largely centred on framing collaborative engagement as unwarranted collusion.
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Norges Bank Investment Management, which manages the Norway’s Government Pension Fund Global is one such asset owner. NBIM holds equity in over 1400 of Japan’s listed entities.
In a letter responding to the proposed changes, NBIM welcomed the FSA’s recognition of collaborative engagement. NBIM’s suggestion is that the Japanese regulator should go a step further.
“We suggest that FSA explains why collective engagement is an important engagement option for investors to consider where appropriate. For example, FSA can highlight that collective engagement can be more effective in some instances, especially if companies are not responding to individual engagement”, the letter reads.
Setting the tone
Other proposed changes include recommended ownership disclosures by investors and an overall streamlining of the code itself.
Changes that Shiratori says will strengthen the foundations on which stewardship in Japan is conducted going forward.
“Although the draft revision does not explicitly mention ‘climate’, it reinforces the foundation for stewardship activities that include sustainability-related dialogue. For investors concerned with climate change and sustainability, the revisions may serve as a catalyst for more active engagement”, he says.
“Ultimately the proposed changes to the revised Stewardship Code continue to emphasise the importance of incorporating financial materiality aspects into investors’ investment strategies, which we welcome from the perspective of promoting a sustainable global financial system”, commented Valerie Kwan, director of stewardship & corporate engagement at the Asia Investor Group on Climate Change (AIGCC).
Given that the 2025 proxy season is almost here, the effects might not be immediately noticeable. However, the proposed changes could have a lasting impact – given the wider context of rising institutional investor participation in Japanese boardrooms.
“Institutional investors are playing a more prominent role in Japanese equity markets, with rising voting participation rates and growing influence over corporate decision-making”, Shiratori adds.
"Generally speaking, investors exhibited a modest increase in support for climate-related shareholder proposals submitted to Japanese corporations in 2024. In fact, Japanese investors currently lead the region on proxy voting guidelines that incorporate climate change (vs the overall Asia investor average of 34%)”, says AIGCC’s Kwan.
Additionally, Kwan notes, investors also have access to engagement tools beyond climate resolutions.
“While voting for climate-related shareholder proposals is one of the tools that investors can utilise when engaging with investee companies, other engagement tools are also important and remain available at their disposal”, she told Net Zero Investor.
As investors and companies prepare for their annual exchange, these new rules of engagement will make the Japanese proxy season one to watch out for. A reformed stewardship code could seemingly affect the tone, channel and quality of the conversations about the happen.
