ESG

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

• ROE has not risen at the pace expected, but dividends have begun to increase, and in FY2021 DOE rose to the 3% range for the first time.
• While ROE alone will not surpass the record high of FY2017, ROE plus DOE (ROE+DOE) is expected to slightly surpass the record high of FY2017 in FY2022.
• Even in FY2021, when DOE increased, Equity Ratio increased (and total assets also increased), so there is still room to increase shareholder returns, given that cash on hand increased.

• For Japanese companies that take time to take action while watching their surroundings, it’s skeptical of the expectation that individual managers will initiate measures in response to a “TSE request.
• The shift from deflation to inflation won’t only affect company’s profit structure and balance-sheet, but will also force Japanese companies to change as it resets the mindset of all managers.
• Since there’s little economic rationale for holding cash under inflation, all companies, rather than individual management decisions, will be forced to use cash for investment in growth and shareholder returns.

• Not because TSE requires it, but because management should provide shareholders with a concrete plan and outlook for cash allocation based on the company’s growth stage and the external environment.
• For companies that disclosed improvement measures before TSE requested them and saw their stock price rise significantly, the sustainability of the stock price depends on the feasibility of the plan.
• The stock market jumped the gun and rallied in anticipation of the company’s announcement of feasible plan as expected, even though the company has yet to disclose any improvement plan.

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

• Even though OP Margin has been stagnant, NP Margin has improved due to the corporate tax rate cut, and the increased free cash flow has been less directed to investments.
• The fact that OP Margin didn’t rise much while personnel and R&D costs were curbed and there wasn’t much investment simply implies a lower gross margin in the core business.
• With ROE growth sluggish and cash accumulating, it’s reasonable that investors demand further shareholder returns. If asset turnover declines while OP Margin slows, there’s little reason to hold cross-held shares.

• It’s skeptical that managers before the bubble economy really took risks. They no longer are protected by regulations  as they were before, and must take risks on their own initiative.
• The Stewardship Code and Corporate Governance Code were introduced in the hope that they would provide a boost to standstill managers to improve profitability to increase corporate value.
• Exit from the market is an important factor, but it can decelerate the speed at which exits are facilitated, such as maintaining listing through transitional measures or changing TOB rules.

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

• Whatever one calls it – a boom-going-bust, a bubble bursting, a market correcting – the ESG party that has raged for years appears to be winding down for certain investors.
• Some partygoers have over-indulged in the ESG Kool-Aid, and regulators have the perfect elixir to sober them up – new and often confusing “anti-greenwashing” investing regulations.
• Particularly consequential for indexed ESG funds.  Index providers and asset managers struggle to comply, evidenced by recent methodology changes, reconstitutions, and fund closings.

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

• Since listed companies have abundant cash reserves even if interest rates rise, they will use their cash to pay down debt but they are unlikely to use it for investments.
• Cash is piling up on balance-sheet resulting from the inability to invest in growth and get out of the game of sharing the pie of the existing stable domestic market.
• In order to raise profit margins significantly, a manager may find growth and invest in non-existing businesses or introduce game-changing products that disrupt the stability of the market.

• Fujitec’s board composition was above average of Japanese companies in form. This was an opportunity to see an example of a board that is formally structured but not actually functioning.
• Bringing manager’s buddy on as an “independent director” is not likely to contribute to sustainable growth in corporate value.
• If domestic institutional investors, including passive funds, vote according to the will of the company, it will lead to stagnation of the substance of corporate governance in Japanese companies.

• While policy holdings have declined, passive funds have appeared among the top shareholders of many companies. The Bank of Japan’s ETF purchases have accelerated this growth. 
• The question is whether the passive funds that have appeared as major shareholders in each company are exercising their voting rights on reasonably reasonable basis that fulfills their fiduciary duties.
• In reality, engagement is limited to a few companies due to the large number of portfolio companies and low management fees.This implies that the same is true for proxy voting.