Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

<ul>
<li>Corporate Governance Code requires disclosure based on TCFD, and an ISSB-based disclosure system will be discussed in Japan. While interest in disclosing climate change-related information is growing, disclosure hasn’t progressed.</li>
<li>In the TSE survey, only one-tenth of the companies that listed Scope 1, 2, and 3 emissions in their integrated reports disclosed them in their annual reports.</li>
<li>If a company can't disclose Scope 1/Scope 2 in its annual securities report, there's concern that the company may have challenges in data collection and risk delaying management decisions.</li>
</ul>


Corporate Governance Code requires disclosure based on TCFD, and an ISSB-based disclosure system will be discussed in Japan. While interest in disclosing climate change-related information is growing, disclosure hasn’t progressed.
In the TSE survey, only one-tenth of the companies that listed Scope 1, 2, and 3 emissions in their integrated reports disclosed them in their annual reports.
If a company can't disclose Scope 1/Scope 2 in its annual securities report, there's concern that the company may have challenges in data collection and risk delaying management decisions.


Is the Emission Data of a Company that Doesn't Disclose in Annual Securities Report Reliable?

<ul>
<li>It's true that the difference in profit margins between a listed subsidiary that focuses on specific business and a parent company that has different businesses is the difference in valuations. </li>
<li>It will be difficult for a parent company to reverse the valuations of its subsidiaries until the parent company dissolves the parent-subsidiary listing and increases its own profit margins.</li>
<li>With respect to corporate governance practices, companies with no major shareholders are included with relatively higher corporate governance scores, but this isn't as significant difference as it tends to be.</li>
</ul>


It's true that the difference in profit margins between a listed subsidiary that focuses on specific business and a parent company that has different businesses is the difference in valuations. 
It will be difficult for a parent company to reverse the valuations of its subsidiaries until the parent company dissolves the parent-subsidiary listing and increases its own profit margins.
With respect to corporate governance practices, companies with no major shareholders are included with relatively higher corporate governance scores, but this isn't as significant difference as it tends to be.


Will Parent Company Valuations Remain Undervalued Until the Parent-Subsidiary Listing Is Dissolved?

<ul>
<li>The fact that many companies have low actual returns is the crux of the problem; investors will likely increase pressure on the companies as ROEs haven't increased noticeably in 2023.</li>
<li>TSE may have indicated the points for disclosure, based in part on the experience of few companies that achieved the listing criteria by successfully disclosing their "plans" for transitional measures.</li>
<li>March 2023, TSE published "Request for Disclosure on the Status of Dialogue with Shareholders." However, mismatches between companies and investors makes it difficult to require all prime market companies this.</li>
</ul>


The fact that many companies have low actual returns is the crux of the problem; investors will likely increase pressure on the companies as ROEs haven't increased noticeably in 2023.
TSE may have indicated the points for disclosure, based in part on the experience of few companies that achieved the listing criteria by successfully disclosing their "plans" for transitional measures.
March 2023, TSE published "Request for Disclosure on the Status of Dialogue with Shareholders." However, mismatches between companies and investors makes it difficult to require all prime market companies this.


Will Disclosure for This P/B Rise Based on the Failure of Transitional Companies "Plan" Work?

<ul>
<li>Even if TSE requires new listed companies to disclose the reasons for listing and the possibility of raising funds, it's questionable whether this will motivate them to grow their businesses.</li>
<li>Companies that are not eligible for investment in terms of market capitalization and trading liquidity criteria will not be effective if they seek contact with institutional investors.</li>
<li>If unlisted stock markets are created, IPOs will increase in size. If listing criteria are raised to tens billion yen in market capitalization, institutional interest in growth market will increase.</li>
</ul>


Even if TSE requires new listed companies to disclose the reasons for listing and the possibility of raising funds, it's questionable whether this will motivate them to grow their businesses.
Companies that are not eligible for investment in terms of market capitalization and trading liquidity criteria will not be effective if they seek contact with institutional investors.
If unlisted stock markets are created, IPOs will increase in size. If listing criteria are raised to tens billion yen in market capitalization, institutional interest in growth market will increase.


TSE Should Aim for a Quality Market Rather than a Market Where Listed Companies Can Easily Inhabit

<ul>
<li>TSE has published a proposal to require simultaneous disclosure of financial statements and timely disclosure information in both Japanese and English from April 2025 (for March fiscal year end companies).</li>
<li>The elimination of time gap between disclosure of financial statements in Japanese and English and the expansion of English-language disclosure of timely disclosure information are advances resulting from this revision.</li>
<li>As TSE continues to consider expanding the range of documents covered, the focus is on when English-language disclosure of annual securities reports, which cover all important information, will become mandatory.</li>
</ul>


TSE has published a proposal to require simultaneous disclosure of financial statements and timely disclosure information in both Japanese and English from April 2025 (for March fiscal year end companies).
The elimination of time gap between disclosure of financial statements in Japanese and English and the expansion of English-language disclosure of timely disclosure information are advances resulting from this revision.
As TSE continues to consider expanding the range of documents covered, the focus is on when English-language disclosure of annual securities reports, which cover all important information, will become mandatory.


From the Reality of 4%, Mandatory English Disclosure of Annual Securities Reports Is a High Hurdle

Japan

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

TSE Tokyo Price Index TOPIX (TPX INDEX)

Is the Emission Data of a Company that Doesn't Disclose in Annual Securities Report Reliable?

I would like to discussion the issues on the January 23rd Nikkei article, "Disclosure of CO2 Emissions in Annual Securities Reports Stands at 10%,...

Metrical Inc

Will Parent Company Valuations Remain Undervalued Until the Parent-Subsidiary Listing Is Dissolved?

I would like to discuss the issues on the analysis in groups of companies that have large shareholders and those that do not, and what...

Metrical Inc

Will Disclosure for This P/B Rise Based on the Failure of Transitional Companies "Plan" Work?

I would like to discuss the "Points and Examples of 'Management Conscious of Cost of Capital and Stock Price' from Investors' Perspective (Draft)"...

Metrical Inc

TSE Should Aim for a Quality Market Rather than a Market Where Listed Companies Can Easily Inhabit

I would like to discuss the issues on the document "Future Responses to the Functioning of the Growth Market (Draft)" disclosed by the TSE on...

Metrical Inc

From the Reality of 4%, Mandatory English Disclosure of Annual Securities Reports Is a High Hurdle

I would like to discuss the "Draft Policy for Expansion of English Disclosure in the Prime Market" from the 14th Follow-up Meeting on Revision of...

Metrical Inc