ESG

• Even the companies with US type 3 committees, which is expected to have higher awareness of corporate governance, there’re differences in the status of nominating committee activities among the companies.
• While doubts about whether the nominating committee is fulfilling its function have not been dispelled, there have been cases of low approval rates for proposals for the election of directors.
• Since discussions in voluntary nominating committees are only advisory, more companies are expected to move to Company with US type 3 Committees, which have statutory nominating committees.

• While good for small-cap stocks to disclose stock price improvement plans, which is the minimum to be eligible for TOPIX, few global investors can invest in company of this size.
• Since many Japanese small-cap companies have diversified businesses and compete with numerous companies for a market that is not large, forcing low profit margins, a market shakeout is necessary.
• The key is whether small cap companes that are beyond the reach of overseas investor engagement can execute a business portfolio review on its own initiative.

• Listing criteria for TSE Growth Market will be raised to over 4 billion yen in market capitalization after 10 years of listing, but the details are left for further discussion.
• It is necessary to provide opportunities for founders to exit and recover their capital without relying on an IPO, for example by creating a market for unlisted shares.
• Switching to a policy of using cash for shareholder returns because of the inability to comply with TSE Growth Market listing maintenance standards is not a fundamental solution.

• With external female board member resources under pressure, it will be extremely difficult to raise the percentage of female board members steadily at this rate.
• The trump card for this is matching numbers. Increasingly, female board members with no management background or outside talent are being recruited to female managerial positions.
• It is expected that fewer companies will move to Company with US type 3 Statutory Committees in order to avoid increasing the number of statutory executive officers.

• Listed subsidiaries decrease but increase if equity method listed companies are included. Many companies haven’t fully exercised treatment of subsidiaries, selling only a little of their shares to below 50%.
• Many parent companies that own listed subsidiaries and equity-method listed companies have placed cash in subsidiaries or equity-method companies without increasing their own stock prices.
• Although companies have changed their mindset somewhat, they haven’t changed their management to effectively use cash to create value, which is the reason for the low valuations of Japanese stocks.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Shui On Land’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Strong”.

• Unlike the transfer of personnel rights, which is resisted by management, equity compensation that can be used to retain talent is attractive to management and is likely to accelerate.
• If equity compensation plans are introduced for employees with a low ratio of female managers, the gap in compensation between men and women is expected to widen.
• The introduction of equity compensation for employees is anticipated to provide an opportunity for management “kaizen” tips to emerge from individual workplaces.

• A year after human capital disclosure became mandatory, little progress was made, but few companies, even those in top 100 in market capitalization, have self-assessed their milestones and actual progress.
• While it was favored that companies with higher scores on human capital disclosure outperformed in stock price, it is reasonable to assume that multiple other factors had an impact. 
• Some companies formulated growth strategies by presenting clear cash/capital allocations and have actually achieved improved capital profitability. Human capital initiatives can be viewed as part of such autonomous “kaizen” activities.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We view Braskem’s ESG as “Weak”, in line with its scores for the Environmental, Social and Governance pillars. Controversies are “Material”, but Disclosure is “Strong”.

• Outside director compensation is increasing, but there is a considerable difference in compensation for outside directors between large and small companies and between small and medium-sized publicly traded companies.
• Every time a scandal occurs, there is a lack of shareholder-oriented management and a smattering of outside board members who turn a blind eye to the scandal.
• A compensation model that includes equity compensation should be created to maximize the power of outside directors, with “management from the perspective of shareholders” as a necessary condition.

• The number of days to disclose first- and third-quarter financial results was 37.0 days, roughly the same timing as the previous year, regardless of whether reviews were conducted or not.
• The larger market capitalization companies are more likely to conduct voluntary reviews, and the larger market capitalization companies are more positive about ensuring the reliability of their disclosure information.
• Despite a slight increase from the previous year, only a little more than 10% of all companies disclosed cash flow statements in the first and third quarters.

• It’s understandable that compensation is paid for managing a global business and achieving significant growth, but it’s also paid for bloated performance in yen terms due to the weak yen.
• Employee engagement is very important for value-added products and more money should be spent on human capital. Otherwise, higher profit margins are unlikely to be achieved.
• The election of directors at AGMs rarely results in rejection of the company’s proposal. Cross-shareholdings should be reduced so that managers whose “employment” is protected by cross-shareholdings don’t receive commensurate compensation.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Clarios’ ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess SIG plc’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”.