ESG

• Looking at all listed companies over past 10 years, despite the gradual dissolution of cross-holdings, the Total Asset Turnover has not increased and the Equity Ratio level has not changed.
• Reducing equity capital through shareholder returns is effective in raising ROE, but ROE is unlikely to rise continuously if the company’s cash flow does not continue to increase.
• ROA is the product of the ROE components of net sales and asset turnover, excluding financial leverage. ROA is a key factor for increasing valuations.

• SGX has launched futures on the Nikkei Climate 1.5°C Target Index. The index is based on the Nikkei225 and uses screens to remove stocks that do not meet certain criteria.
• The Nikkei Climate 1.5°C Target Index has a high degree of overlap and correlation and low tracking error with the Nikkei 225 (NKY INDEX). 
• With increased interest in Climate/ESG investing, market participants can use the SGX-listed futures to get the same risk/reward characteristics as the Nikkei225 with atleast 50% lower Greenhouse Gas emission intensity.

• Surprisingly, about half of shareholders did not vote in favor of the shareholder proposal to remove outside directors who implemented practices that were problematic in terms of corporate governance.
• Domestic institutional investors are still unwilling to oppose the company even when, as in this case, there is a clear corporate governance problem with the company.
• It’s extremely difficult for these outside directors to fully fulfill their responsibilities as independent directors on a board composed of “independent directors” who are friends brought in by top management.

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

• While investment managers spend money on expanding their ESG investment systems and disclosures in preparation for the FSA’s guidelines, they expect the business of ESG funds to continue to grow.
• It’s desirable for investment managers to disclose qualitative and quantitative information, recognizing the need to incorporate ESG factors into their investment decisions and to show that results are being achieved.
• Some investment managers are redefining ESG funds to incorporate ESG factors beyond ESG integration, and this trial-and-error process will continue as investment managers position ESG investment trusts as key products.

• Japanese companies are keen on obtaining ISO certifications, so it’s relatively easy for companies that have obtained these certifications to ensure the comprehensiveness of sustainability information by disclosing such information.
• It’s useful to know the degree to which management recognized the challenges and the leadership that management could exercise in solving those challenges, rather than laundry list of self-praise information.
• For management to recognize issues and implement initiatives at global level, it’s expected to hire a head who is sensitive to global initiatives and work with him/her to resolve issues.

• Indusind Bank (IIB IN) ‘s shares saw a sharp fall of 7% on Monday.
• The fact that RBI shortened the tenure of MD & CEO to two years baffled the market. 
• Shortening of tenures by the RBI have been seen earlier also for BFSIs. The move does not explicitly indicate any fundamental deficiency, hence investors should not be too worried.

• TSE will require companies with P/Bs below 1x to disclose improvement plans, urging them to shift to management that reflects an awareness of their cost of capital and stock price.
• The good thing about this TSE request is that “cost of capital” will be widely recognized by companies. Companies can no longer easily reject shareholder proposals regarding cost of capital.
• It should also be an opportunity for management to evaluate its own corporate value and compare it to market value and consider whether it should remain listed or go private.

• Few companies have generally achieved significant growth since listing, and about half of the companies are below their market capitalization at the IPO, which is challenges in TSE Growth Market.
• Even if the number of companies subject to such shares is limited, the use of multiple voting shares shouldn’t be ruled out if the dilution of voting rights hinders fundraising.
• The key to solving the challenges of TSE Growth Market, where few companies have growth potential and have financing needs, is the ability of management to realize growth potential post-listing.

• Without sufficient sales growth and profitability, including profit margins and ROE, it is understandable that shareholders will demand greater shareholder returns in order to secure a return on their investment.
• Since Zojirushi’s foreign shareholder ratio is 19.9%, it was expected that shareholder proposals including takeover defense measures would likely be rejected at the general shareholders meeting.
• The likelihood of passage by a company that have low foreign ownership ratio is unlikely to increase without significant change in the attitude of domestic institutional investors toward shareholder proposals.

• More companies have made progress in the last 6 months as more companies have made only human capital policies. Specific measures will probably not become visible until April or later.
• If companies are required to disclose their policies in a hasty manner, they may end up with a list of unrealistic measures in addition to policies that have no substance.
• Companies are expected to spend the next year disseminating their human capital policies internally and implementing specific human capital measures to strengthen their own competitiveness.