The Financial Services Agency and the Ministry of Economy, Trade and Industry (METI) information disclosure and dialogue. are pouring efforts into the promotion of ESG dialogue. Some companies have started to use the “Guidance” to promote.
On June 1, 2018, Japan Exchange Group announced the revised Corporate Governance Code. To coincide with this, the Financial Services Agency (FSA) published the Guidelines for Investor and Company Engagement on the same day. The guidelines set out the priority matters for dialogue between companies and investors. The FSA is encouraging the adoption of the guidelines by characterizing them as an appendix to the Corporate Governance Code, intended for companies, and the Stewardship Code, intended for investors.
ESG (environmental, social, and governance) dialogue is challenging. Sometimes, companies and investors talk at cross purposes. “Even though we want to explain the appeal of our environmental and social initiatives, we receive no questions in our dialogue with investors,” an investor relations official at a major manufacturer said. Meanwhile, lamenting the sorry state of dialogue, an official in charge of engagement at an asset investment company said: “In some cases, companies’ CSR (corporate social responsibility) officials unilaterally talked about CSR initiatives. It is useless to keep on listening to explanations on charity activities.”
As it is difficult to express non-financial information, including ESG information, in numerical terms, companies and investors have their own ways of evaluating ESG information from the viewpoint of enterprise value. In some cases, there is a perception gap between companies and investors over what should be discussed in their dialogue and what the objective of dialogue should be.
Sharing of perceptions
In the meantime, some companies and investment institutions are promoting disclosure of ESG information in accordance with a set of unified rules and are trying to use the information in dialogue. The set of unified rules is represented by the Guidance for Collaborative Value Creation, which was adopted by the Ministry of Economy, Trade and Industry (METI) in July 2017 and which set out ESG-related matters that should be addressed by companies. On May 18 this year, METI recommended that this guidance should be used as a “common language” in company-investor dialogue.
On June 4, Seven & I Holdings Co., Ltd. announced the Corporate Governance Report, which was in line with the disclosure standard laid down by the Guidance for Collaborative Value Creation. Explaining the objective of this report, public relations official at Seven & I said: “We would like to use this report as a starting point for dialogue with institutional investors. We will also use it to ensure sharing of perceptions with our group companies.”
Asset Management One Co., Ltd., an investment institution, has already started to use the guidance in actual dialogue with companies. Toru Terasawa, who heads the Investment Division said: “We are using the guidance to make sure that we are talking with each other based on the same perceptions while looking at the whole picture of business strategy.”
While companies are starting to devote efforts to disclosure of ESG information and dialogue, it is unclear how investors are using disclosed information and the results of dialogue when making investment decisions. METI has recommended that investors should indicate how they evaluate enterprise value. Going forward, not only companies but also investors and asset management institutions will have to promote information disclosure.