Executive Director, Metrical Inc

Aki Matsumoto

Executive Director

Independent Leading Corporate Governance Research

Metrical Inc

METRICAL INC. is an independent leading Corporate Governance research firm in Japan where Corporate Governance is increasingly recognized as an important element on corporate management in these days. Thus, CG research and solutions would become an essential component of global capital markets and play important to contribute to transparency of the markets and maximize shareholders’ value in Japan. 

METRICAL INC. provides Corporate Governance research and analysis including rating services, and  also offers investment research and IR services with solutions and customized profound research on CG and IR issues.

The TOPIX, also known as the Tokyo Stock Price Index, is a capitalization-weighted index of all companies listed on the First Section of the Tokyo Stock Exchange. The index is supplemented by the subindices of the 33 industry sectors. The index calculation excludes temporary issues and preferred stocks, and has a base value of 100 as of January 4, 1968.

<ul>
<li>Operating income and depreciation, the components of operating cash flow, have been sluggish. This has undeniably dampened expectations for expanding corporate value.</li>
<li>Many companies have begun to be aware of cash flow, but have yet to see results. They are at the stage of producing results by selecting business to invest cash.</li>
<li>In terms of “not being conscious of cash flow,” shareholder returns are still strongly net income oriented and not cash flow oriented.</li>
</ul>


Operating income and depreciation, the components of operating cash flow, have been sluggish. This has undeniably dampened expectations for expanding corporate value.
Many companies have begun to be aware of cash flow, but have yet to see results. They are at the stage of producing results by selecting business to invest cash.
In terms of “not being conscious of cash flow,” shareholder returns are still strongly net income oriented and not cash flow oriented.


Companies Have Begun to Be Aware of Cash Flow, but the Reality Is that It Doesn't Produce Results

<ul>
<li>For investors, it is a step forward to lower the hurdles for collaborative engagement, and for institutional investors, it is a step forward to reduce costs. </li>
<li>It is hoped that passive funds, which have been reluctant to engage in engagement due to cost, will take a more positive approach.</li>
<li>Rule amendments to make it easier to identify substantial shareholders are expected to be negotiated in advance with substantial shareholders prior to voting.</li>
</ul>


For investors, it is a step forward to lower the hurdles for collaborative engagement, and for institutional investors, it is a step forward to reduce costs. 
It is hoped that passive funds, which have been reluctant to engage in engagement due to cost, will take a more positive approach.
Rule amendments to make it easier to identify substantial shareholders are expected to be negotiated in advance with substantial shareholders prior to voting.


The Impact of the 2025 Revision of the Stewardship Code Is ...

<ul>
<li>Shareholder activism approaches include those seeking to resolve balance sheet issues, those targeting governance practices, those seeking to restructure business portfolios, and those seeking to improve business profitability.</li>
<li>In approaches that call for business strategy reform, shareholders may require the company to establish a special committee, including outside directors and outside experts, to discuss solutions to issues.</li>
<li>The discussions of “Strategy Committee” can significantly alter the shape of a company. Since few managers manage to evolve with changes in business environment, shareholder activism plays a significant role.</li>
</ul>


Shareholder activism approaches include those seeking to resolve balance sheet issues, those targeting governance practices, those seeking to restructure business portfolios, and those seeking to improve business profitability.
In approaches that call for business strategy reform, shareholders may require the company to establish a special committee, including outside directors and outside experts, to discuss solutions to issues.
The discussions of “Strategy Committee” can significantly alter the shape of a company. Since few managers manage to evolve with changes in business environment, shareholder activism plays a significant role.


Shareholder Activism Plays a Significant Role in Companies that Are Slow to Change

<ul>
<li>Repurchasing investment units, increasing dividends through property sales, and increasing EPS through negative goodwill of M&amp;A seem to be the share price raising measures necessary for capital increase for growth.</li>
<li>When increasing capital amid stagnated REIT stock prices, it's questionable whether the picture that is drawn after capital increase is reasonable in the face of rising required returns by investors.</li>
<li>When the profitability of REIT investment companies is in question, it is not surprising that activist investors will focus on management issues, including cost of capital or corporate governance.</li>
</ul>


Repurchasing investment units, increasing dividends through property sales, and increasing EPS through negative goodwill of M&amp;A seem to be the share price raising measures necessary for capital increase for growth.
When increasing capital amid stagnated REIT stock prices, it's questionable whether the picture that is drawn after capital increase is reasonable in the face of rising required returns by investors.
When the profitability of REIT investment companies is in question, it is not surprising that activist investors will focus on management issues, including cost of capital or corporate governance.


The Situation Is Different for REITs that Rely on Capital Increase, Despite the Same Low P/B Issue

<ul>
<li>From FY3/2027, companies with market capitalization of over 3 trillion yen will be required to disclose GHG sequentially. 76% of companies with market capitalization of over 500 billion yen disclose.</li>
<li>A guarantee program is scheduled to be introduced in FY3/2028, but only 21% of companies with market capitalization of over 500 billion yen have disclosed their guarantees.</li>
<li>The guarantee program will begin in Scope 1 and 2 with limited guarantees. Disclosure of guarantees will increase once the discussion on qualification system for guarantee service providers is finalized.</li>
</ul>


From FY3/2027, companies with market capitalization of over 3 trillion yen will be required to disclose GHG sequentially. 76% of companies with market capitalization of over 500 billion yen disclose.
A guarantee program is scheduled to be introduced in FY3/2028, but only 21% of companies with market capitalization of over 500 billion yen have disclosed their guarantees.
The guarantee program will begin in Scope 1 and 2 with limited guarantees. Disclosure of guarantees will increase once the discussion on qualification system for guarantee service providers is finalized.


Guarantee Program for GHG Disclosure Will Start in FY3/2028 with Limited Guarantee for Scope 1 and 2

Executive Director, Co-head of CG Research, Metrical Inc.
METRICAL INC. is a corporate governance(CG)research, investment research and consulting firm in Japan, offering a full service CG research and solutions to investors, public companies and other wide range of organizations globally. http://www.metrical.co.jp/

Aki Matsumoto
Executive Director
• Metrical Inc

Companies Have Begun to Be Aware of Cash Flow, but the Reality Is that It Doesn't Produce Results

I would like to discuss the issues on the November 22 article in the Nikkei Shimbun titled “Japanese Companies Focus Less on Cash Flow than US and...

Metrical Inc

The Impact of the 2025 Revision of the Stewardship Code Is ...

I would like to discuss the issues on the November 18 Nikkei article, “FSA to Consider Revisions to Stewardship Code to Facilitate Understanding of...

Metrical Inc

Shareholder Activism Plays a Significant Role in Companies that Are Slow to Change

I would like to discuss the issues on the November 15 Nikkei Shimbun article, “The Reality of Strategic Issue-based Activism."

Metrical Inc

The Situation Is Different for REITs that Rely on Capital Increase, Despite the Same Low P/B Issue

I would like to discuss the issues on the November 18 Nikkei article, “‘TSE Reform’ to Spill over to REITs, Split Investment Units with NISA in...

Metrical Inc

Guarantee Program for GHG Disclosure Will Start in FY3/2028 with Limited Guarantee for Scope 1 and 2

I would like to discuss the issues on the October 10 Nikkei article, “Liability Limited Even If Third-Party Information is False in Greenhouse Gas...

Metrical Inc