ESG

• New TOPIX still has a large number of stocks and its components aren’t sufficiently liquid. TSE seems to have considered the companies that are under pressure to sell their shares.
• The challenge for companies excluded from TOPIX components should achieve sustainable growth by continuous review of their business portfolios to achieve growth that they could not achieve in the past.
• The company’s performance must be in line with the plan disclosed by the company in response to the TSE’s request. These companies should consider whether they should remain listed.

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

The group aspires to be included in the DJSI.

• Since there was no difference in IR Disclosures between companies that increased valuations over past year and those that didn’t, it’s clear that improvement IR Disclosures alone won’t raise valuations.
• Since many companies with large market capitalizations have high foreign ownership, overseas investor engagement has had a positive impact on their high return on capital.
• TSE’s support for companies with small market capitalizations is a type of engagement that encourages companies whose engagement doesn’t reach them to think about their management strategies.

• Overseas investors tend to invest in companies with larger market capitalization and higher profitability, and companies with higher foreign shareholdings have significantly better values in corporate governance.
• Hitachi has been one of the most successful companies in this area, probably due to its intermittent reforms in profitability and corporate governance through engagement with overseas investors.
• Few companies, like Hitachi, achieved sustainable growth by continuous business portfolio review. This has led to high stock price volatility for many companies that cannot enter the sustainable growth phase.

• A few companies have stock compensation plans for outside directors, but their common features are a majority of outside directors on the board and a high percentage of foreign ownership.
• 8 million compensation for an outside director would be too low to devote much of his/her time to that company. Consequently, 17.5% of all outside board members serve multiple companies.
• The need to raise the ratio of female board members amid the low percentage of women in managerial positions has increased the concurrent positions of female board members.

• The speed of management reform in Japanese companies is usually slower than investors and shareholders expect. In case of small- to mid-cap stocks, the speed is much slower.
• In small-to-mid-cap stocks, foreign ownerships are often lower than the average for listed companies, and older companies are often protected by cross-shareholdings. Therefore, engagement should be prepared for sluggish response.
• The way to resolve this situation is for the company to break the silent shareholder structure or increase shareholders who can exercise their voting rights based on rational decisions.

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

• The increase in net profit from the previous year outpaced the growth in dividends, which increased cash on hand for listed companies to a record high level. 
• Since the equity ratio of manufacturing sector is over 40% and there’s little room for debt repayment, there’s room for a considerable increase in dividends in conjunction with share repurchases.
• If free cash flow isn’t used to invest in growth and return profits to shareholders, rather than to pay small dividends to shareholders, cash on hand will continue to increase.

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

• The increase in foreign ownership and the decline in cross-shareholdings have encouraged management reform. In order for engagement to be effective, it is essential to further reduce cross shareholdings.
• Reasonable explanation of the reasons for such transfers as changes in the purpose of policy shareholding or contributions to retirement benefit trust must be provided in the annual securities report.
• Rising stock prices increase the value of policy shareholdings. To accelerate the reduction of policy shareholdings, numerical targets should be published, such as by setting milestones.

• The percentage of shares held by individuals and trust banks fell from 17.6% to 16.9% and from 22.6% to 22.1%, respectively. Increasing individual investors’ investment in Japanese equities isn’t easy.
• The presence of overseas investors will increase, as the percentage of shares held by foreigners, which has reached a record high, is expected to remain high in the future.
• The percentage of shares held by corporations decreased slightly, and cross-shareholdings are gradually being unwound. The gradual decline is likely to continue in the future.