ESG

• Since very few companies disclosed challenges, efforts to resolve them and progress, it’s unlikely that ‘gender pay gap’ will be disclosed in convincing manner, with this being the only exception.
• Japan’s Law for the Promotion of Women’s Activities does not prohibit gender discrimination and is not legally binding on gender equality, so the wage gap is only an effort target.
• While some proactive companies may accelerate their efforts as disclosures reveal gender pay gap, many are likely to move at modest pace to match the pace of those around them.

• The Monetary Authority of Singapore (MAS) recently launched a public consultation regarding a Code of Conduct for ESG ratings providers and ESG data product providers in Singapore.
• It is the right approach for Singapore – a voluntary best-practices framework furthering one of the world’s most credible “green” economies, not a regulatory force-fix of something broken.
• No surprise ratings methodology changes. No en masse upgrades/downgrades. No acute shocks to the system. Just slow and steady progress for ESG investing and finance in Singapore.

• Companies that accept reductions in policy shareholdings tend to repurchase their own shares. Pressure to reduce policy shareholdings will increase further this year when share prices are rising.
• In order to verify whether institutional investors’ voting criteria and voting behavior are consistent, the reasons for supporting/opposing individual proposals should be disclosed in more detail.
• Investors are expected to base decisions on performance, as voting advisers returned to policy of recommending voting against top management in companies with lower-than-standard ROEs due to recovery from COVID-19.

• It remains to be seen whether domestic institutional investors will support shareholder proposals on shareholder returns, which had low approval rate among domestic institutional investors at the previous year’s AGM.
• If domestic institutional investors are voting in favor of shareholder proposals, it wouldn’t be surprising if more companies passed them. It’s doubtful that passive funds have the same voting practices.
• There is concern about critical tone regarding the legally binding nature of the resolution of AGMs, which appears to come from companies feeling threatened by declining shareholdings by banks/business partners.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Natura’s ESG as “Strong”, in line with its “Strong” Environmental and Social scores. The company has an “Adequate” score for the Governance pillar. Controversies are “Immaterial” and Disclosure is “Strong”. 

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We assess Telecom Italia’s ESG as “Adequate”, in line with its “Adequate” Social and Governance scores. While the company has a “Strong” Environmental score, this pillar has the lowest weightage in our assessment of companies in the telecom sector. Controversies are “Immaterial” and Disclosure is “Strong”.

• Although more companies have recently started to use their cash for shareholder returns, this is still not enough in terms of the dividend payout ratio.
• Both sales and profits of companies haven’t increased by that amount for past 10 years. The question for the future is whether the cash on hand can be used effectively.
• It is hoped that the quality of listed companies on prime market will improve as a result of M&As involving industry restructuring, the dissolution of parent-subsidiary listings and going private.

• Samsung Electronics (005930 KS) has been a nice outperformer relative to SK Hynix (000660 KS) and Micron Technology (MU US) due to valuation, tech merit and exposure to AI
• For cyclical stocks, no matter defensive vs. peers, does it make more sense to play the pure plays?
• On the recent settlement between Elliott and Samsung C&T (028260 KS) , there was a secret payment made to just Elliott. What about the other minority shareholders?!

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

• Given the history of changes in the external environment that have changed managers’ mindsets all at once, inflation and rising foreign shareholdings are likely to be the catalysts for change.
• Given that some companies still do not show capital efficiency as a KPI, it is dangerous to expect much from individual companies’ efforts to improve capital efficiency.
• Whether or not to engage in management improvement is a matter for managers, but the catalyst is often an increase in foreign shareholdings. Changes are taking place in some companies.

• 8 years after the introduction of Corporate Governance Code and “Ito Report,” which showed the relationship between P/B and ROE as the cornerstone of management, few companies improved their management.
• Companies with sustained share price growth were executing excellent growth policies and IR disclosures that were likely learned from their engagement with overseas investors.
• It takes a certain period of time for a company to learn through engagement, for the results to show up in improved management, and for other investors to notice it.

• The TSE is in a long-term battle to improve the quality of the prime market while maintaining lax listing standards that do not fit the prime market concept.
• If passive funds move to JPX Prime 150 Index, which would increase the divergence between stock prices of high quality and low quality companies, it might motivate the companies more.
• If there is little difference between performance of TOPIX and JPX Prime 150, the passive funds will be satisfied with this index, and the TOPIX engagement problem will be eliminated.

• While many listed companies have already established formal standards, TSE plans to establish rules with higher hurdles to ensure the independence of listed subsidiaries and other dependent companies.
• It would make more sense for TSE to question why the parent company maintains the subsidiary’s listing, and minority shareholders of both parent and subsidiary would be more interested.
• Certainly TSE’s “independence criteria” for independent directors is loose, which has negatively impacted the operation of the Board of Directors, so it would be effective to re-establish the criteria.