ESG

• The average P/B has remained flat since March end, when TSE requested improvements for companies with P/Bs below 1x, and TOPIX has risen in line with the rise in BPS.
• Given the lack of progress in improving ROE, companies have many issues to resolve in improving returns through the appropriate allocation of cash and capital.
• Since it’s no longer possible to show early results simply by leaving it to managers, the use of TOB/MBO will be a shortcut to raising shareholder returns and corporate value.

• It should be noted that some companies that state that they do not possess takeover defenses also indicate that they will take “appropriate measures.”
• Addition of ROE and % of independent directors to the approval/disapproval of takeover defense agenda is likely an afterthought to add these conditions to favor the introduction of takeover defense.
• It’ll take several years before life insurance companies show signs of change in voting. It’ll be interesting to see how they come to terms with their corporate clients and stewardship.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We view Indika Energy’s 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 Guala Closures’ ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Strong”.
• Guala Closures is a leading producer of closures for spirits, with a strong presence in emerging markets. Its main product lines are Safety Closures, Wine Closures and Standard Closures. 

• 439 companies that will be excluded from TOPIX aren’t expected to face further selling pressure, but 43 companies that remain in TOPIX may have a positive impact in the future.
• Only 43 companies (8.9%) succeeded in exceeding 10 billion yen in tradable market capitalization; compared to 22.3% rise in TOPIX, the stock performance of the TOPIX exclusion candidates were lackluster.
• These companies with small market capitalizations represent a challenge that has made it difficult for them to attract investor attention and to come up with convincing disclosures.

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

  Ineos AG was awarded another gold sustainability rating by EcoVadis in 2022, while Ineos Group Holdings received a low-risk rating from Sustainalytics and was ranked the third-best commodity chemicals company out of 234 rated by the agency.

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Arcor’s ESG as “Adequate”, in line with its “Adequate” Social and Governance scores. The company’s Environmental pillar is “Strong”. Controversies are “Immaterial” and Disclosure is “Strong”.
• Arcor SAIC is one of the largest confectionery, cookie and food companies in Argentina. Founded in Cordoba, the company’s LTM Q2/23 sales and EBITDA stood at ARS 944.8 bn (USD 5.4 bn) and ARS 80 bn (USD 468 mn), respectively. 

• Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
• We assess Volcan’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”.
• Volcan Cia Minera SAA is a polymetallic mining company in Peru. It is one of the largest producers of zinc, lead and silver in the world.

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

• Although it’s important that the quality of companies be maintained and improved through metabolism, the number of listed companies has consistently increased due to the many IPOs and few delistings.
• Many founders used IPOs as a tax-saving measure, and many managers were not thoughtful enough to increase shareholder profits, which is why there were many IPOs and few delistings.
• Delisting through MBO or TOB for parent and subsidiary listed subsidiaries is much more effective than “TSE request” in reducing the number of companies with P/B below 1x.

• While necessary talent should be sought from both outside and inside the company, it is not good for the company’s future if the most of internal executive directors are male.
• The appointment of women and foreign board members is an effective way to transform the board of directors to ensure transparency and objectivity, without compromising the traditional atmosphere of familiarity.
• Companies with a higher percentage of female board members tend to be more proactive in their corporate governance practices and more diligent about improving profitability and stock valuation.

• The group of companies with lower than 25% female board member will only manage to meet the targets by “matching numbers,” as few companies have high awareness regarding the practice.
• Since the government target of 30% female managers was set in 2005, companies’ awareness remains low. It’s not easy to raise the ratio to 30% by the methods so far.
• There are a number of initiatives that will not progress unless top management is replaced by women, including accelerated promotion of women to management positions and female board members.

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

• The groups with over 30% female board members and 25%-30% have higher percentage of foreign shareholders, suggesting that overseas investor engagement drives raising the ratio and that awareness is high.
• Groups with 0% female board members include small companies and are distant from overseas investor engagement, but are unlikely to improve practices substantially, given that they have no female executives.
• The group with over 30% female board members had noticeably higher ROE and Tobin’sQ than those with 25%-30%, which suggests that the high ROE was highly valued by overseas investors.

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

• While the number of companies with majority of independent directors is still small (15.7% of the Metrical Universe as of September 2023), the number of those companies is steadily increasing.
• The group of companies with over 50% independent director are superior in market capitalization, ratio of foreign shareholders, ratio of female board members, ROE, ROA, Tobin’s Q, and Metrical Score.
• Given that the presence of overseas investors remains high, profitability, share price valuation, and corporate governance practices such as independent director ratios will continue to improve in the future.

• Managers self-analyze the factors that lead to P/B of below 1x, as companies fail to appreciate their growth potential and to ensure profitability in excess of their cost of capital.
• This seems to be dilemma in that companies’ failure to realize sufficient profitability, along with insufficient growth investments, prevents them from sharing the image of corporate value growth with investors.
• Managers believe that the first step is to improve ROE by reshuffling business portfolios and promoting profitability improvement, but reducing excess cash and increasing shareholder returns should be pursued simultaneously.