ESG

• The TSE’s new efforts to encourage companies to disclose measures to improve their capital efficiency and stock prices correlate closely with general indicators of good governance.
• Over 60% of companies that we classify as “Proactive” have already disclosed their status, while only around one third of “Obstructive” companies have done so.
• Companies with higher levels of Board Independence and that are more aligned with shareholders are more likely to be better allocators of capital for long-term growth.

• Wouldn’t the shareholders of Mitsubishi Chemical want to either TOB for the growth of the subsidiary or invest the cash from the sale of shares in a value-generating business?
• It’s difficult to exclude the influence of the parent company in business decisions that impact significantly on the parent’s earnings and shareholding. Is continued parent-subsidiary listing desirable for subsidiary’s shareholders?
• The management of Nippon Sanso wants to continue the parent-subsidiary listing, but their small shareholding may make it difficult to manage the company from the same perspective as the shareholders.

• Parent-Subsidiary listings present several problems: the disadvantages to parent company’s shareholders that drain subsidiary’s profits, the distortion of market capitalization between subsidiary and parent company, and independence of subsidiary’s management.
• While it’s an improvement for TSE to ask companies to disclose their purpose and policy of listing subsidiaries and affiliates, it doesn’t ensure the complete independence of subsidiaries and affiliates.
• More than 30% of listed companies are listed subsidiaries or affiliates. Investors are forced to look for investment targets while worrying about management independence in 70% of the companies.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess West China Cement’s ESG as “Adequate”, in line with its “Adequate” Environmental and Governance scores. That said, the company’s Social pillar is “Weak”. Controversies are “Immaterial” and Disclosure is “Adequate”.

• It is desirable for stakeholders other than shareholders for the company to be profitable. The problem lies in holding excess cash without making sufficient returns from the business.
• Cash flow should be used for reinvestment and shareholder returns, but in fact many companies didn’t grow their allocations to investment and shareholder returns, but instead accumulated cash on hand.
• There is a big difference in corporate value between a company with growing cash flow and increasing shareholder returns and a company with stagnant cash flow but raising shareholder returns.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess TalkTalk’s ESG as “Adequate”, in line with its Environmental and Governance scores, while the Social score is “Weak”. Controversies are “Immaterial” and Disclosure is “Weak”.
• TalkTalk is the UK’s leading non-traditional telecom service provider. It offers fixed-line telecom and pay-TV services (3.8 k on-net subscribers as of August 2023), as well as wholesale telecom services.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
CBR Fashion’s ESG is “Adequate” in our view, in line with its Governance score. The company has “Weak” scores for the Environmental and Social pillars. Controversies are “Immaterial”, but Disclosure is “Weak”.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Renk’s ESG as “Adequate”, driven by the “Adequate” scores for the Environmental, Social and Governance pillars. Controversies are “Immaterial” and Disclosure is “Adequate”.
• Renk AG is a global manufacturer of high-quality automatic transmissions, gear units, slide bearings, suspension systems, couplings and test systems.

• It is an expected option for a parent company to make a profitable subsidiary wholly owned by the parent company, an environment that demands improved ROE.
• It is natural that the market would receive a stock offering by a large shareholder with more information than others as the stock price is higher than its fair value.
• It’s not unrelated to the fact that few shareholder proposals are approved and company proposals are rejected at AGMs, and that most domestic investment managers affiliates of major financial institutions.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Standard Profil’s ESG as “Adequate”, in line with its “Adequate” Environmental, Social and Governance scores. Controversies are “Immaterial”, but Disclosure is “Weak”. 
• Standard Profil (SP) is a European manufacturer of automotive sealing solutions.

• In Japan, many companies have large gap between their stock price and their intrinsic value due to issues related to the use of assets and other resources or cash flow.
• Companies want to use the example of “improvement measures” to be released by TSE in January as a template, so we can’t expect “management is serious about  tackling this issue.”
• The fact that ROE has improved modestly over the past decade indicates that management hasn’t made fundamental changes to traditional management strategies to address the challenges faced by individual companies.

• TSE’s request to raise P/B was issued March end, and the number of companies that have disclosed their improvement measures is still low, at only about 30% of all companies.
• Companies are likely to use good examples, but because the factors that increase share price vary from company to company, companies must offer their own solutions to their own situations.
• Investors don’t want to see “P/B improvement plan” that follows the template, but want to see compelling measures that demonstrate cash flow growth, which is based on share price appreciation.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).

We assess Almaviva’s ESG as “Adequate”, in line with its Environmental and Governance scores. The company has a “Strong” score for the Social pillar. Controversies are “Immaterial” and Disclosure is “Adequate”.

Almaviva is an Italian company with a focus on IT services and business process outsourcing (BPO) in customer relationship management (CRM).

• Companies with large shareholders’ interests of 20% or more account for 779 of 1,784 companies in Metrical Universe. A number of companies are investment targets as TOB  and MBO candidates.
• Companies with large shareholder influence may feel distanced from general corporate governance practices, but their interests are aligned with those of minority shareholders in terms of shareholder-oriented management.
• For quality markets, it’s necessary to reduce the number of companies by increasing TOBs and MBOs, and to do so, managers need to be aware of the cost of listing.