ESG

• The number of workers expected to be in short supply could further expand if parameters change, such as decrease in working-age population due to further decline in the birth rate.
• Even if the current foreign technical internship system relaxes the “no change of employer” restriction somewhat, changing the status of residence to permanent residence has not been points of discussion.
• Government has avoided discussions that lead to the acceptance of foreign nationals based on permanent residency and as a result, the problems of population decline and worker shortages have worsened.

• Recently, a controversy surrounding substantial crypto investments in the political sphere has exerted downward pressure on the stock prices of major listed game companies in South Korea. 
• In the past five years, there has been a shift in the gaming industry’s risk landscape, with social risks giving way to governance risks.
• Some game companies have started publishing sustainability reports, but challenges arise due to the inconsistency in environmental data and the difficulties in comparing companies.

• The lack of laws mandating female directors and the absence of specific numerical targets for ％ female directors in Corporate Governance Code have slowed the increase in % female directors.
• The lack of understanding of the value of ensuring diversity on the board on companies is serious, as only 9.1% of companies that disclosed skills-matrix adopted “diversity” as a criterion.
• It should be a catalyst for companies to understand the value of ensuring diversity on their boards, not merely numbers-crunching that a company only needs to hire one female director.

• Companies were occupied with meeting the raised standards, and there was little substantive discussion of how corporate governance should be implemented to achieve the corporation’s goal of maximizing shareholder interests.
• A few companies have made steady progress, but we cannot expect corporate governance initiatives to go further than they are now if left to the efforts of well-intentioned companies.
• Unless the benchmark is changed from TOPIX to another index with a smaller number of components, it will be nearly impossible to find a satisfactory engagement for a passive fund.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We view Tata Motors’ ESG as “Adequate”, with “Adequate” Governance and Social pillars, while its Environmental pillar is “Strong”. 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 China Water Affairs’ ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Immaterial” and Disclosure is “Adequate”.

• The decline in the working-age population is not merely a decrease in the number of workers; it causes a loss of dynamism in society as a whole.
• The “5-year rotational use of foreign workers without the assumption of permanent residency,” not immigration, is overshadowed by human rights issues.
• Besides the high cost of education, an increasing number of people are choosing not to marry, and it is necessary to create a society that respects diverse lifestyles.

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

• It’s doubtful that if the outcomes of factor analysis of Berkshire Hathaway’s portfolio stocks and screened to Japanese stocks would be the stocks that Buffett would want to invest in.
• Berkshire Hathaway wouldn’t invest in a Japanese company if there were companies in other countries with the same type of business that are more competitive and worthy of investment.
• Investors continue to look for companies that few investors are aware of, as stock prices are often high for companies that have competitive advantages and promising future cash flow growth.

• It’s hoped Buffett’s visit to Japan will encourage managers to review their business strategies to develop products with competitive advantage and value, so that more companies can expect sustainable growth.
• Companies with low OP Margin will need to rethink their fundamental strategy to raise OP Margin for mid-to-long term, as ROE may only temporarily rise even if cash is reduced.
• There are many stocks in Japan with low valuations, but while there are many cash cow companies, there aren’t many undervalued stocks that can generate cash flow for sustainable growth.

• Examining ROE contribution requires first reducing cash and raising Asset Turnover and Financial Leverage. Also, regarding stock price appreciation, increasing ROE+DOE, which has higher correlation with TOPIX, will be effective.
• Stock performance is correlated with higher foreign ownership and Tobin’s q, indicating that overseas investors are also more interested in cash-rich, growth policy, dividend policy, policy-shareholdings, treasury-share retirements, AGM/IR disclosures.
• TSE’s adoption of P/B, made it easier to compare management capabilities with that of other companies. Managers who can’t achieve sufficient stock performance will have to seek help from shareholder-returns.

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

• The increase in the number of companies adopting restricted stock is a positive development, but the bias toward fixed remuneration and the non-disclosure of individual director compensation are unsolved issues.
• It’s ironic that 90% investors see ROE as equal to or lower than the cost of capital, while 93% companies know their cost of capital but only 2.3% disclose it.
• If affiliated companies with 20% shareholdings are included, there are still large number of companies covered (36.7% in the prime market), and “parent-subsidiary listings” continue to be a hot topic.