Category

ESG

Daily Brief ESG: Unreasonable Company Opposition and more

By | Daily Briefs, ESG

In today’s briefing:

  • Unreasonable Company Opposition, but No Change in Outlook for Shareholder Proposals to Be Rejected

Unreasonable Company Opposition, but No Change in Outlook for Shareholder Proposals to Be Rejected

By Aki Matsumoto

  • Zojirushi’s low profitability and numerical targets are at the root of the problem with this shareholder proposal, which required disclosure of cost of capital to verify reasonableness of the targets.
  • To ensure transparency of BOD, it would have required individual disclosure of director compensation, divestment of policy shareholdings, and elimination of takeover defenses, which are issues of corporate governance practices.
  • When % foreign shareholders reaches 30% level, companies tend to eliminate takeover defense. Since Zojirushi’s % foreign shareholders is 20%, the shareholder proposal will be very likely to be rejected.

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Daily Brief ESG: Overseas Investors Have Done a Great Deal to Improve the Governance of Japanese Companies and more

By | Daily Briefs, ESG

In today’s briefing:

  • Overseas Investors Have Done a Great Deal to Improve the Governance of Japanese Companies, But…

Overseas Investors Have Done a Great Deal to Improve the Governance of Japanese Companies, But…

By Aki Matsumoto

  • 11 of 14 corporate governance criteria confirmed the significance of % foreign shareholder. In particular, 9 of 14 criteria showed progress in their efforts due to engagement of overseas investors.
  • Overseas investors are concerned about whether the interests of minority shareholders can be secured in companies with large shareholders, such as listed subsidiaries, and whether governance will function properly.
  • As for the independence of the Nominating and Compensation Committee, which didn’t show significant correlation with % of foreign shareholders, it’s still beyond the power of engagement by overseas investors.

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Daily Brief ESG: Could the Turnaround Be Due to a Change in Management? and more

By | Daily Briefs, ESG

In today’s briefing:

  • Could the Turnaround Be Due to a Change in Management?

Could the Turnaround Be Due to a Change in Management?

By Aki Matsumoto

  • Fujikura and JVC Kenwood, which could generate cash flow by restructuring their business portfolios, were evaluated as “value stocks” due to the gap between their corporate value and stock prices.
  • Fujikura and JVC Kenwood haven’t posted record profits in 17 and 11 years, respectively. The key to solving why it took so long may be the change in top management.
  • If management doesn’t listen, structural reforms won’t be implemented, even if shareholders repeatedly suggest restructuring business portfolio. This is why it’s important for shareholders to replace management that continues underperforming.

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Daily Brief ESG: Board Independence Is Demonstrated by Whether It Is Aligned with Common Shareholder Goal and more

By | Daily Briefs, ESG

In today’s briefing:

  • Board Independence Is Demonstrated by Whether It Is Aligned with Common Shareholder Goal

Board Independence Is Demonstrated by Whether It Is Aligned with Common Shareholder Goal

By Aki Matsumoto

  • While shareholder proposals, including those from activist investors, should be considered from independent perspective, it’s clear that even companies with high-% independent directors don’t necessarily get along with activist investors.
  • Board independence is not a question of the number or ratio of independent directors; rather, it is a question of whether independent directors are truly functioning on the board.
  • If the loss of cash results in missed investment opportunities to expand corporate value, this would conflict with interests of shareholders, so subsequent increases in market capitalization should be verified.

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Daily Brief ESG: Using Smartkarma/OWL ESG Analytics to Narrow Down List of Corporate Activism Targets in Korea and more

By | Daily Briefs, ESG

In today’s briefing:

  • Using Smartkarma/OWL ESG Analytics to Narrow Down List of Corporate Activism Targets in Korea
  • China’s Green Loan Market: Fifty Shades of Green

Using Smartkarma/OWL ESG Analytics to Narrow Down List of Corporate Activism Targets in Korea

By Douglas Kim

  • We discuss how to use the OWL ESG Analytics (available on Smartkarma) to narrow down the list of companies that could be the next targets of corporate activism in Korea. 
  • We go through in detail, step-by-step process of how to narrow down the list of companies, using the OWL ESG Analytics. 
  • Corporate activism has been one of the most important, market moving factors moving the Korean stock market this year.

China’s Green Loan Market: Fifty Shades of Green

By Stanley Tsai, CFA

  • The PBOC has extended the use of its policy tools to support the green loan industry as part of the country’s’ drive towards carbon neutrality.
  • China’s green loan market is already the largest in the world, if you agree with its definitions and can look past its limitations.
  • The state of green finance matters to investors, and not just those with explicit ESG mandates. We look at the potential pitfalls in the China.

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Daily Brief ESG: Looking Forward to Discussion on How to Improve the Quality of Corporate Governance Practices and more

By | Daily Briefs, ESG

In today’s briefing:

  • Looking Forward to Discussion on How to Improve the Quality of Corporate Governance Practices

Looking Forward to Discussion on How to Improve the Quality of Corporate Governance Practices

By Aki Matsumoto

  • The fact that TSE, which has revised Corporate Governance Code several times, is now discussing improving the quality of corporate governance shows that the governance practices have become a formality.
  • Regarding the expansion of English-language disclosure, there is need to eliminate the mismatch between the documents that companies translate into English and those that overseas investors demand to be translated.
  • Asset owners should keep encouraging asset managers to follow Stewardship Code. Appropriate action by asset managers to deal with the BOJ owned ETFs will encourage changes in the companies.

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Daily Brief ESG: Isn’t the Best Catalyst to Facilitate MBOs to Increase Market Metabolism? and more

By | Daily Briefs, ESG

In today’s briefing:

  • Isn’t the Best Catalyst to Facilitate MBOs to Increase Market Metabolism?

Isn’t the Best Catalyst to Facilitate MBOs to Increase Market Metabolism?

By Aki Matsumoto

  • The problem is that many companies have resources but haven’t taken steps to strengthen their profitability, given that multiples have declined due to lower excess earnings than 50 years ago.
  • What is required of TSE isn’t to keep failing students in prime market and lower the quality of the market, but to promote metabolism and raise the quality of it.
  • The best catalyst is an MBO. Serious management’s consideration of what it should do for shareholders is to enhance profitability by leveraging resources, while the other is an MBO.

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Daily Brief ESG: Maybe There Are Many Companies in Japan that Have the Resources but Neglect Efforts to Increase ROA and more

By | Daily Briefs, ESG

In today’s briefing:

  • Maybe There Are Many Companies in Japan that Have the Resources but Neglect Efforts to Increase ROA

Maybe There Are Many Companies in Japan that Have the Resources but Neglect Efforts to Increase ROA

By Aki Matsumoto

  • If we read “improved asset efficiency” as “ROA,” it would fit better. ROA, along with ROE, correlates with valuation, and higher ROA can be expected to trigger higher stock prices. 
  • Companies with high ROA tend to have advanced corporate governance initiatives. In Metrical Universe of 1,779 companies, ROA (historical 3-year average) for many of corporate governance metrics are significantly correlated.
  • Whether Japanese stocks are undervalued is another question, but if companies have resources but are neglecting company-wide efforts to increase margins and turnover, activist investors are likely to be interested.

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Daily Brief ESG: The Real Goal of a Company that Wants to Remain in Prime Market Is to Remain in TOPIX and more

By | Daily Briefs, ESG

In today’s briefing:

  • The Real Goal of a Company that Wants to Remain in Prime Market Is to Remain in TOPIX

The Real Goal of a Company that Wants to Remain in Prime Market Is to Remain in TOPIX

By Aki Matsumoto

  • Since simply increasing shareholder returns won’t increase corporate value/market cap, it’s more natural to present shareholder return policy together with reasonable earnings target, even when such policy is put forth.
  • In fact, the companies exemplified in the Nikkei article saw share prices rise for companies with positive earnings outlooks and increased conviction that they will meet their medium-term earnings targets.
  • This is  a more serious and urgent issue for transitional companies, as companies with market cap of less than 10 billion yen in October 2023 will be excluded from TOPIX.

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Daily Brief ESG: Shortcut to Tension in Japanese Company Management Is Change in Voting Power of BOJ ETFs and more

By | Daily Briefs, ESG

In today’s briefing:

  • Shortcut to Tension in Japanese Company Management Is Change in Voting Power of BOJ ETFs
  • Align Partners’ Lee Chang-Hwan Joins SM Entertainment as a Board Member

Shortcut to Tension in Japanese Company Management Is Change in Voting Power of BOJ ETFs

By Aki Matsumoto

  • METI’s survey confirms that “the number of outside directors has increased, but they aren’t completely independent, as they’re sometimes appointed by people with ties to the company” isn’t incorrect statement.
  • The reality is that the parent companies of Japan’s large asset management companies are financial institutions, and it’s high hurdle to vote against proposals by clients of the parent company.
  • The BOJ is a major shareholder in many companies through its ETF holdings. If the exercise of those voting rights changes, the management of listed companies in Japan should change.

Align Partners’ Lee Chang-Hwan Joins SM Entertainment as a Board Member

By Douglas Kim

  • On 20 January, SM Entertainment announced that Lee Chang-Hwan, the CEO of Align Partners Capital will join the company as a board member. 
  • This will mark one of the first cases of an activist investor becoming a board member of a Korean company which already has a major shareholder.
  • We believe that Lee Chang-Hwan (CEO of APCM) joining SM Entertainment as a board member will have a positive impact on the company to meaningfully improve its corporate governance.

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