ESG

• This year, 26.4% of companies will hold AGMs on June 29. The trend will continue, with 1/4 companies holding AGMs on the day before the last business day of June.
• Electronic provision of shareholder meeting materials (3-4 weeks in advance) and electronic voting platforms for institutional investors progressed, mainly for prime market listed companies.
• The mismatch between supply and demand continues, with only 26.9% of companies providing English translations of business reports (materials for AGMs), a much-needed service for global institutional investors.

• As statements of reasonableness are disclosed with respect to subsidiary listings that are less than reasonable, further elimination of parent-subsidiary listings is expected to progress.
• The issue of parent-subsidiary listings will to come under further scrutiny, as no fundamental solution can be expected even if formal system for ensuring independence of a subsidiary is established.
• Extending disclosure to affiliate relationships is a commendable step forward not only for minority shareholders of dependent companies, but also for shareholders of the listed parent company.

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

• Share buybacks are likely to increase considerably in FY2023. One of the reasons for this is that the TSE has requested companies with stagnant stock prices to disclose improvement measures.
• More important than the amount of share repurchase is how much ROE increased as a result. Whether shareholder returns were adequate for cash reserves and cash flow should be examined.
• While Japanese companies today are in a cash cow situation as a whole, they are very cautious about investing aggressively.

• Now that percentage of foreign shareholders has reached 30%, other foreign shareholders are more likely to support activist investors’ proposals, and companies are paying more attention to communication with investors.
• While cross-shareholdings held by banks etc. are declining, foreign shareholders and trust banks are on the rise. The holdings held by trust banks are managed by domestic institutional investors.
• Whether their exercise of voting rights changes from the past will be the key to improving governance and moving forward with solutions to issues that have been postponed until now.

• The fact that there is a certain correlation between ROE+DOE and TOPIX reconfirms that it’s effective to ask management to improve performance in terms of both profitability and shareholder return.
• While % change in shareholders’ equity moves in line with % of change in net profit, dividend payout moves moves differently. Many companies still adopt a “stable dividend” policy.
• If shareholders propose share repurchases, dividend increases, etc., it can be said that management has determined that the shareholder return (ROE+DOE) it has secured is not sufficient.

• Many companies have worked to ensure labour productivity by curbing personnel costs by reducing work hours and shifting from full-time to part-time workers, as well as by controlling depreciation.
• Maintaining labor productivity by converting to part-time and reducing working hours of full-time employees has been an effective measure to ensure operating profits margins, but it also carries risks.
• Personnel cost/sales have bottomed out in 2018 and are on the rise. With cost structures changing dramatically after the economic reopening, controlling labor costs will be more difficult than ever.

• While the shareholding of banks and insurances has dropped significantly, that of foreign shareholders has risen to 30%, making it impossible to ignore the opinions of overseas investors as before.
• Since the introduction of the Corporate Governance Code, the concept of governance and ROE has permeated companies, making it possible for them to understand the background of activist investors’ proposals.
• Besides the close relationship between changes in valuations and changes in foreign shareholding, overseas investors account for 70% of TSE’s transactions, forcing management to increasingly listen to overseas investor’s voices.

• The items to be disclosed by 300 listed companies with active women are expected to be disclosed in the Human Capital section of the Sustainability section of Annual Securities Report.
• Investors will now decide whether these disclosure items have an impact on their investment or whether they need to seek disclosure of further material factors.
• In Metrical universe, the ratio of female executives is also useful for investment tips, as it has been found to have a significant positive correlation with ROA and Tobin’s q.

• Although women should be appointed to the board of executive directors to bring women’s perspectives into management, many companies actually only appoint a few women to “non-statutory executive officer” positions.
• A survey shows that the percentage of women in management positions is about 10%, and even now there’re no signs of an increase in the number of female management executives.
• Companies seem to be reluctant to act on their own to address the obstacles that prevent women from becoming board members as a social issue.