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>Japan has the largest number of TCFD endorsing institutions in the world, and the number of listed companies endorsing the TCFD has increased by 350 since last year.</li>
<li>It's hoped that more companies will follow the example of those that disclosed specific climate change impact estimates under certain conditions, and that other companies will attempt to do so.</li>
<li>There are many companies that have endorsed TCFD, but have only endorsed it and not disclosed it, so the issue isn’t about endorsing TCFD, but about the content of disclosure.</li>
</ul>


Japan has the largest number of TCFD endorsing institutions in the world, and the number of listed companies endorsing the TCFD has increased by 350 since last year.
It's hoped that more companies will follow the example of those that disclosed specific climate change impact estimates under certain conditions, and that other companies will attempt to do so.
There are many companies that have endorsed TCFD, but have only endorsed it and not disclosed it, so the issue isn’t about endorsing TCFD, but about the content of disclosure.


Issues with Content of Disclosures, Not Keyword Searches in TCFD

<ul>
<li>TSE market reorganization triggered the reduction of policy shareholdings, and now the test will be whether policy shareholdings can be reduced in order to raise ROE, which is sluggishly growing.</li>
<li>Companies that maintain excessive policy shareholdings should provide a rational explanation of their holding policies and the reasons for each shareholding in their corporate governance reports and annual securities reports.</li>
<li>Improving OP Margin, which is highly correlated with ROE, is a shortcut to raising ROE. Policy shareholdings, should not be accumulated in cash on hand, but used for profitable investments.</li>
</ul>


TSE market reorganization triggered the reduction of policy shareholdings, and now the test will be whether policy shareholdings can be reduced in order to raise ROE, which is sluggishly growing.
Companies that maintain excessive policy shareholdings should provide a rational explanation of their holding policies and the reasons for each shareholding in their corporate governance reports and annual securities reports.
Improving OP Margin, which is highly correlated with ROE, is a shortcut to raising ROE. Policy shareholdings, should not be accumulated in cash on hand, but used for profitable investments.


Policy Shareholdings, if Reduced, Should Be Used for Profitable Investments

<ul>
<li>Overseas investors feel that the disclosure of English documents by Japanese companies is slow-paced and the majority of overseas investors are not satisfied with the English disclosure.</li>
<li>Without sufficient disclosures in English, it is impossible to conduct a detailed analysis of the portfolio company. This also casts a shadow over engagement.</li>
<li>Given the narrowing coverage of sell-side analysts, companies should proactively disclose English-language materials at the earliest possible time. For long-term investors, English-language disclosures such as annual securities reports are also useful.</li>
</ul>


Overseas investors feel that the disclosure of English documents by Japanese companies is slow-paced and the majority of overseas investors are not satisfied with the English disclosure.
Without sufficient disclosures in English, it is impossible to conduct a detailed analysis of the portfolio company. This also casts a shadow over engagement.
Given the narrowing coverage of sell-side analysts, companies should proactively disclose English-language materials at the earliest possible time. For long-term investors, English-language disclosures such as annual securities reports are also useful.


Gap in Response to Disclosures in English Compared to the Growing Presence of Overseas Investors

<ul>
<li>The problem of agenda setting in engagement with investment firms is due to the mismatch that is occurring in each of the listed companies and investors.</li>
<li>Meetings without top management present disappoint investors who have prepared thorough analyses of the issues facing the portfolio company. Top management should also avoid listening to template questions at meetings.</li>
<li>It's unrealistic to ask passive funds that cannot devote resources not to ask template questions. Active funds of Japanese investment managers may have too many portfolio companies to engage adequately.</li>
</ul>


The problem of agenda setting in engagement with investment firms is due to the mismatch that is occurring in each of the listed companies and investors.
Meetings without top management present disappoint investors who have prepared thorough analyses of the issues facing the portfolio company. Top management should also avoid listening to template questions at meetings.
It's unrealistic to ask passive funds that cannot devote resources not to ask template questions. Active funds of Japanese investment managers may have too many portfolio companies to engage adequately.


Too Many Portfolio Companies Is One of the Reasons for Not Enough Engagement

<ul>
<li>Regardless of "TSE request," only 31% of prime market listed companies disclosed "measures to realize management with awareness of cost of capital and stock price" in their corporate governance reports.</li>
<li>The lack of ready disclosure measures on companies' side seems to be the reason why few companies disclosed information, but many of those that did are also poor in content.</li>
<li>For companies with large shareholders and low P/B, the parent company has not yet TOB or sold the company, which may be the reason for the delay in disclosure.</li>
</ul>


Regardless of "TSE request," only 31% of prime market listed companies disclosed "measures to realize management with awareness of cost of capital and stock price" in their corporate governance reports.
The lack of ready disclosure measures on companies' side seems to be the reason why few companies disclosed information, but many of those that did are also poor in content.
For companies with large shareholders and low P/B, the parent company has not yet TOB or sold the company, which may be the reason for the delay in disclosure.


Disclosure of Management Strategies with Cost of Capital and Stock Price in Mind Is Still Limited

Japan

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TSE Tokyo Price Index TOPIX (TPX INDEX)

Issues with Content of Disclosures, Not Keyword Searches in TCFD

I would like to discuss the issues of the Nikkei article "Financial Impact of Climate Change: Over 1,000 Companies Mentioned in Annual Securities...

Metrical Inc

Policy Shareholdings, if Reduced, Should Be Used for Profitable Investments

I would like to discuss the issues on the Nikkei Shimbun article of September 8 titled Listed Companies' Policy Stocks Lowest: Hitachi and Others...

Metrical Inc

Gap in Response to Disclosures in English Compared to the Growing Presence of Overseas Investors

I would like to discuss the summary of the materials disclosed by the TSE on August 31 in the material of "English Disclosure Implementation Status...

Metrical Inc

Too Many Portfolio Companies Is One of the Reasons for Not Enough Engagement

I would like to discuss the issues on the "Status of Responses and Follow-up of Companies Regarding Promotion of Dialogue with Shareholders and...

Metrical Inc

Disclosure of Management Strategies with Cost of Capital and Stock Price in Mind Is Still Limited

I would like to discuss the issues on "Status of Companies' Responses and Follow-up on Responses to Achieve Management Conscious of Cost of...

Metrical Inc