1LIAJ initiatives in FY2020
Working groups on stewardship activities and ESG investment and finance were set up to contribute to equity market reinvigoration and achieving asustainable society. Continued to publish the LIAJ recommendations (this report) and implement collaborative engagement through both working
groups in FY2020.



Implemented measures to refine and raise the sophistication of activities at each LIAJ member firm in FY2020. Measures included holding joint
working group (WG) seminars with Environment (E) and Society (S) themes, such as “Addressing climate change” and “Work style reforms(including digitalization).”

LIAJ believes that when companies and shareholders engage in a constructive dialogue and share a mutual awareness of issues, companies will be
encouraged to take steps to increase shareholder value over the medium and long terms. Based on this belief, LIAJ hopes that this report will help toincrease shareholder value over the medium and long terms, leading to reinvigoration of the stock market as a whole.

Equity market reinvigoration/Achieving a sustainable society

2017～

Improvingshareholder
returns

1974～

Improving ESG
disclosure

Improvingclimate change
disclosures

Based on surveys of companies/investors

Upgraded initiatives and approaches of WG participants

Stewardship Activities WG(11 life insurers)

Collaborating

ESG Investment and Finance WG(16 life insurers)

Recommendations for companies, investors and government

2

FY2020 policy recommendations
 The number of companies and investors who recognize the importance of digitalization and ESG increased in
the survey of companies and investors carried out in FY2020.
 Based on the survey results, the recommendations on enhancing dialogue in FY2020 were revised torecommendations that emphasize digitalization and ESG (sustainability).
Recommendations
Management
goals /
financialstrategies
Improvingcorporate
governance①

Raise shareholder returns over the medium
and long terms (dividend payout ratios ofat least 30%)②

Set ROE targets adjusted for cost ofcapital and target higher ROE levels③

Improve disclosures about expectations ofexternal directors’ roles and theirperformance

Shareholder
voting⑥
RevisedCompanies⑨

Greater transparency for shareholder voting
processes

Investors⑩

Disclose ESG initiatives using integrated
reports and other means
Companies

Promoting
ESG
initiatives

Provide further disclosure of non-financial
information, including ESG

Promote dialogue based on in-depth understanding ofcompanies and dialogue on medium- and long-term themes
such as management strategies and sustainability initiatives
Revised⑦

Provide clearer explanations of proposals
with a high dissent ratio⑪

Encourage involvement of top
management in dialogue⑫⑬

Investors

Target⑧Companies

Improve disclosure/dialogue relating to④ medium- and long-term investment strategy,
Revised⑤ including digitalization
Enhancing
dialogue

Recommendations

Target⑭

Incorporate ESG initiatives in medium-term
management plans
Formulate ESG investment and finance policies
and promote dialogue from medium- and longterm perspectives according to investment
strategies
Enhance disclosures about the impact ofclimate change on corporate activities andencourage the use of this information
Take steps to promote ESG initiatives acrossgovernment ministries/agencies

Survey on initiatives to enhance corporate value<Purpose> To implement recommendations for equity market reinvigoration and achieving a sustainable society based on results of surveys on
initiatives and awareness of companies/investors<Survey targets and response rate> Listed companies 42% (508/1,200 companies); investors 54% (108/199 companies)

Investors

Companies
Investors

Government

For Companies

Continued

Recommendation (1): Management goals/financial strategies

3

Recommendation (1): Raise shareholder returns over the medium and long terms(dividend payout ratios of at least 30%)
 80% of investors are not fully satisfied with the level of shareholder returns and dividends. There has been no change in investors’ positionin this respect before and after the COVID-19 crisis.
 56% of investors, roughly the same level as in the previous fiscal year, expect firms to offer payout ratios of at least 30% over the medium
and long terms. However, the actual payout ratios remained under 30% for 42% of all firms, despite some signs of improvement.
⇒ Increase shareholder returns over the medium and long terms, with a payout ratio ofat least 30% after gauging investor expectations through dialogue【For investors】
Satisfaction level for shareholder returns and dividends (select one)
Satisfactory at nearly
all firms (80%+)
Satisfactory at many firms(60-80%)80%59%Satisfactory at
not many firms(20-40%)

2019

0%

82%

10%

20%

30%

Less than 10-20%
10%

42%

2020

20-30%

Satisfactory at little to nofirms (under 20%)）
20%

40%

60%

40%

50%

60%

70%

80%

90%

100%

Reference: Distribution of payout ratio for listed companies (actual)

2019

0%

Level does notmatter30-40%

2020

Satisfactory at about half offirms (40-60%)

2020【For investors】
Desired medium- and long-term level of dividend payout ratios (select one)
60% or40-50% 50-60%
over
10-20%
20-30%
56%80%

40-50%

50-60%

60%
or
over

30-40%

50%

100%

2019

Note: Percentage figures are rounded to the nearest percent, so they will notnecessarily sum to 100. The same applies hereafter.

0%

20%

Source: Nikkei QUICK

40%

60%

80%

100%

Note: TOPIX components (excluding unprofitable firms)

For Companies

Recommendation (1): Management goals/financial strategies

Continued

4(Reference) Disclosure of numerical shareholder return (SR) targets
Proportion of firms with official SR targets

Number of firms disclosing numerical SR targets by target type

100%

700
126

Undisclosed

600

80%
59%
70%

66%

66%

57%

54%

51%

45%

80

300

41%
34%

35%

2012

2013

43%

DOE*

40
31

54

51

35

35

114

99

95

68

405

426

430

2018

2019

2020

Payout ratio(less than 30%)

96

37
94
93

Payout ratio

Disclosed
20%

55

92
91

37

40%

30%

37

91

60%

49
43

90

500

400

Total payout
ratio, etc.

92

48%

66%

120

46%

49%

55%

52%

200
306

34%
100

0%

239

244

250

2012

2013

2014

336

373

(at least 30%)

0
2011

2014

2015

2016

2017

2018

2019

2020

Source: LIAJ research
Based on survey of top 1,200 listed stocks by market capitalization

2015

2016

2017

Source: LIAJ research
Based on survey of top 1,200 listed stocks by market capitalization
Note: Firms with multiple SR targets are counted for each target*DOE: dividend-on-equity ratio

For Companies

Recommendation (2): Management goals/financial strategies

Continued

5

Recommendation (2): Set ROE targets adjusted for cost of capital andtarget higher ROE levels
 81% of investors expect ROE of at least 8% over the medium and long terms, with no change in investors’ position in this respect before
and after the COVID-19 crisis. Meanwhile, ROE remains under 8% at 52% of listed firms.
 The ratio of firms that have not calculated their cost of capital (return expected by shareholders) was 38%, indicating no major change
from the previous fiscal year. The fact that some firms do not assess their cost of capital remains a reason for the gap between investor
expectations and the status quo.
⇒ Set ROE targets adjusted for cost of capital, eyeing medium- and long-term improvement in ROE【For investors】Desired medium- and long-term level for ROE (select one)
6-8%
2020

81%
At least Level does
12% not matter10-12%

8-10%【For companies】(select one)
Do you calculate a precise cost of capital(return expected by shareholders)?
No assessment of cost of capital

38%

76%
2020

2019

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

7%

Cost of capitalassessed but notcalculated

100%

Reference: Distribution of payout ratio for listed companies (actual)
8-10%

52%
Less than
6%

2020

2019

At least 12%

6-8%

5%

0%

10%

20%

36%

41%

2019

0%

Cost of capital
calculated

10-12%

47%

Source: Nikkei QUICK

31%

30%

40%

50%

60%

70%

80%

90%

Note: TOPIX components (excluding unprofitable firms)

100%

20%

40%

60%

80%

100%

For Companies

Recommendation (3): Improving corporate governance
継続

Continued

6

Recommendation (3): Improve disclosures about expectations of external directors’ roles
and their performance 56% of investors see room for improvement in the roles of external directors, indicating a perception gap between investors and companies on
this issue.
 Notably, investors attach even greater importance than companies to certain roles of external directors, such as “involvement in andadvisement on the evaluation of management” and “supervision of systems to prevent malfeasance.”⇒ Improve disclosures about expectations of the roles and performance of external directors,
and explain these matters to investors via respectful dialogue

社外取締役に期待する役割・実績についての情報開示充実【 For companies/investors 】 (select up to three)
What roles expected of external directors do you see as particularly
important?

【 For companies/investors 】 (select one)
Are external directors currently fulfilling the roles that are expected ofthem?

Supervise through decision-making on

経営戦略、重要案件等に対する意思
management strategy, important projects【2020】

3%

Fulfilled to some extent

Fulfilled adequately in linewith expectations

48%

49%

企業
Companies

Get involved in and provide advice on
経営陣の評価（選解任・報酬）へのperformance evaluations of the

56%

35%
Cannot be evaluated by investors

0%

10%
2%

20%

30%

40%

50%

44%

Companies

19%
Investors

督

Not fulfilled
at all
90% 100%

43%

Other 1%70%

80%

Deter any conflict-of-interest
behavior
利益相反行為の抑止

少数株主をはじめとするステークホ
Reflect the opinions of minority interestsand other stakeholders
ルダーの…in management

54%

会計や法律等専門家としての助言
Provideadvice as experts in accounting, law
and other fields

Fulfilled inadequately
and needs improvement

Investors
投資家

不祥事の未然防止に向けた体制の監Supervise systems to prevent malfeasance5%

Fulfilled adequately in linewith expectations

Fulfilled to some extent

企業
Companies

60%

58%

Provide advice
on business execution
経営執行に対する助言

2%
1%

投資家
Investors

44%

Companies
Investors

management team (election/dismissal,
関与・助言 remuneration)

Fulfilled inadequately
and needs improvement【2019】and other matters

決定を通じた監督

企業
Companies

投資家との対話
Dialoguewith investors

投資家
Investors

55%

34%

11%

Other
その他

Cannot be evaluated by investors

0%
0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

20%

40%

60%

80%

100%

For Companies

Recommendation (4): Enhancing
dialogue
変更

Revised

7

Recommendation (4): Improve disclosure/dialogue of medium- and long-term investment
strategy, including digitalization
 70% of companies believe the levels of cash balances are appropriate. Meanwhile, 72% of investors see current levels of cash balances as
excessive, which indicates a continued gap in perception between investors and companies, while there was a decrease in this percentage
from the previous fiscal year amid the COVID-19 crisis.
 In their medium- and long-term investment/financial strategies, companies see capex as vital, while investors put more emphasis on
investments including those in intangibles such as investments in human capital, IT (digitalization), and R&D.
 Notably, IT investment (digitalization) became a primary item to consider for both companies and investors, with an increase of
approximately 20 points in this item year on year.
⇒ Target appropriate cash levels, and improve disclosure/dialogue related tomedium- and long-term investment strategy, including digitalization【 For companies/investors 】 (select up to three)
What do you think are important matters to consider, or should beconsidered, in your medium- and long-term investment/financial
strategies?

【 For companies/investors 】 (select one)How do you see current levels of cash holdings?

【2020】
4%

Other
Companies
企業

26%

70%
Appropriate

Excessive
Investors
投資家

72%

Inadequate

20%

40%

60%

80%

100%

【2019】
30%

63%
Appropriate

Excessive
投資家
Investors

Companies

Companies 37%
Investors

研究開発投資R&D
investment

Investors

Companies
20%

67%

66%
(2019：50％)
63%

55%

Shareholder
returns
株主還元

87%
20%

40%

80%

企業
Companies

Inadequate

投資家
Investors(Companies) Undecided（企業）特に決まっていない

12%
60%

Interest-bearing
debt
有利子負債の返済
repayment
Other
その他

1%
0%

IT investment
IT投資（デジタル化）(digitalization)

32%
Investors
40% (2019：23％)
Investors

M&A
Ｍ＆Ａ

7%
Companies
企業

Companies

Capital expenditure
設備投資

26%
2%

0%

Human capital investment
人材投資

100%

0%

20%

40%

60%

* Apart from the options listed above, 27% of investors emphasized the need to improve thecapital mix, while only 17% of companies emphasized this priority.

80%For Companies

Recommendation (4): Enhancing
dialogue
継続

Continued

8

Reference: Trends in labor costs, IT investment, capex, and R&D spending inJapan/US
2.5* Indexed with the 1997 values set as 1.0.

2.0

Labor costs (US)IT investment （US）
Capex（US）
R&D spending（US）
1.5

1.0

R&D spending (Japan)
Capex (Japan)
Labor costs (Japan)
IT investment (Japan)
0.5
1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

Sources: OECD statistics, data from the Cabinet Office, and Ministry of Internal Affairs and Communications of Japan, and the U.S. Department of Commerce.

For Companies

Recommendation (5): Enhancing
dialogue
継続

Continued

9

Recommendation (5): Encourage involvement of top management in dialogue 82% of companies have systems in place to share dialogue content with management, but investors feel that “dialogue content does notreach management” and there is “non-participation by senior managers.”⇒ Actively involve management in dialogue and provide feedback on the results of sharing dialogue to investors【 For companies/investors 】 (select up to three)
What are the main dialogue-related issues regarding the systems andmeasures of your company / the systems and measures for companies?

【For companies】 (select one)
Do you have a system in place to share dialogue content with management?

Dialogue content does not reach
対話内容が経営層に届いていない

System in place
82%

Companies

15%
51%

Investors

management

None
18%

Inadequate disclosure of information as

対話の材料となる情報開示が不十分
material for dialogue
0%

20%

40%

60%

80%

100%

Companies

Non-participation by senior【 For companies】(Select multiple)
System for sharing dialogue content with management, if such a system isin place10%

経営トップが対話に関与していない
managers

40%

Investors

None
特段なし
Opportunities are given to IR personnel to report
取締役会や経営会議でIR担当者が報告する機会を
to the Board of Directors and Executive
設けているCommittee

57%

定期的に経営陣が投資家と対話を行い、経営陣内でDialogue with investors is held regularly bymanagement 共有化している
and shared within management

56%

Lack of resources and personnel

対話関係のリソース・人材が不足
involved in dialogue

Dialogueis compiled into a report and regularly
レポート形式にして定期的に経営陣へ送付しているsent to management

Improve the skills and knowledge of
dialogue staff
対話担当者のスキル・知識の向上

52%
Improve investor dialogue and
投資家の対話や議決権行使方針へのOpportunities are given to provide direct, regular
経営トップに直接定期的に報告する機会を設けている
reporting to top management

understanding of policies on shareholder
理解度向上
voting40%

Companies
企業
Investors
投資家

Other
その他

Other
その他

0%

20%

40%

60%

80%

0%

20%

40%

* Options are based on the written responses of investors.

60%

80%

For Companies

RevisedRecommendation (6): Enhancing dialogue

10

Recommendation (6): Provide further disclosure of non-financial information,
including ESGWith respect to dialogue, investors have stronger expectations for companies to disclose information as material for dialogue than assumed bycompanies.
Notably, while a lot of investors had previously expected companies to enhance disclosure of “non-financial information on Environmental (E),
Social (S) and related issues,” such as “climate change” and “human rights and community,” there was an additional increase of 16 percentage
points in these investors compared to the previous fiscal year, making this priority the most strongly emphasized item by investors.

⇒ Provide further disclosure of non-financial information, including ESG【 For investors 】 (select up to three)
What do you expect companies to do to provide opportunities for dialogue
and improve disclosures as material for dialogue?

【 For companies/investors 】 (select up to three)
What do you feel are the main dialogue-related issues regarding policies
and activities at your company, or the main dialogue-related issues forcompanies in general?

Non-financial information on Environmental
環境（E）・社会（S）等の非財務情報(E), Social (S) and related issues

Dialogue content does not reach
対話内容が経営層に届いていない

Evaluationof the effectiveness of the Board
取締役会の実効性評価（G）
of Directors (G)Analysisof operating results and
業績の分析・経営陣の見解
management’s views

management

31%
Companies
Investors

Inadequate disclosure of information as
対話の材料となる情報開示が不十分
material for dialogue

2020
2019

38%

54%

51%
47%

2020
2019

Plans to nurture
successors to the CEO andCEO等の後継者の育成計画
other key posts
Reasons for the appointment of external
社外取締役の選任理由や活動状況
directors and their activities
Policy on remuneration 役員報酬の方針
of Board members

49%

Non-participation by senior managers
経営トップが対話に関与していない決算に関する補足・詳細データ
Supplemental
and detailed earnings data

None
特段なし

Policy on nomination 役員指名の方針
of Board members

2020

特段なし
None

2019

Lack of resources and personnel

対話関係のリソース・人材が不足
involved in dialogue

Other
その他
Improve the skills and knowledge of0%

対話担当者のスキル・知識の向上
dialogue staff

20%

40%

60%

80%

【 For investors 】 Major themes for ESG investment and finance (select up to five)

Improve investor dialogue and
投資家の対話や議決権行使方針へのunderstanding of policies on shareholder
voting
理解度向上

Major themes for which responses
increased from the previous fiscal
year (top three)

Increase

1

Climate change (E)+13points

68%

81%

2

Human rights and community (S)+11ponts

20%

31%

3

Supply chain (S)+7points2%

9%Companies
企業
投資家
Investors

Other
その他

0%

20%

* Options are based on the written responses of investors.

40%

60%

80%

2019

2020

For investors

Recommendation (7): Enhancing dialogue

RevisedRecommendation (7): Promote dialogue based on in-depth understanding of companies and dialogue
on medium- and long-term themes such as management strategies and sustainability initiatives
Both companies and investors feel that the key dialogue-related issues are that dialogue is based on a short-term perspective and there is only asuperficial analysis and understanding of companies.

Both companies and investors believe that dialogue focused on medium- and long-term themes such as “management strategies and businessmodels” is important. In addition, both companies and investors who selected “sustainability” as a response increased by approximately 15
percentage points from the previous fiscal year, making this theme the second most important item.
⇒ Promote dialogue based on in-depth understanding of companies and dialogue on medium- and long-term themes
such as management strategies and sustainability initiatives【 For companies/investors 】 (select up to three)
What are the main dialogue-related issues for investors/what do investors themselves
see as the main issues?
Companies
Investors

Dialogue based only on short-term
短期的な視点・テーマのみに基づく対話の実施
perspectives and themes

52%
45%

Companies
Investors

Management
strategy and business
経営戦略・ビジネスモデル
model
Sustainability (initiatives to address
サステナビリティ（環境・社会課題への39%
Companies
Investors

Superficial analysis and understanding of
企業に対する分析や理解が浅い(対話内容が形式的)
companies (dialogue is mostly a formality)【 For companies/investors 】 (select up to three)
What themes do you think are important to conduct in-depth, constructive
dialogue?

37% (2019:21％)
Companies
Investors 45% (2019:28％)

environmental and social issues)

取り組み）

60%

91%
69%

Management
philosophy
and vision
経営理念・ビジョン
11

None
特段なし

Financial strategy
財務戦略（資本コスト含む）

Inadequate explanation of the purpose of dialogue and
対話目的等の説明が不足（保有方針、議決権行使方針、
other matters (shareholding policy, shareholder voting
対話の位置づけ、対話後のプロセス等）
policy,role of dialogue, process after dialogue)(including cost of capital)

企業業績
Corporate business performance

対話関係のリソースや人材が不足
Lack of resources and personnel
involved in dialogue

コーポレート・ガバナンス
Corporate governanceLack of dialogueskills among dialogue staff
対話担当者の対話スキルが不足

Shareholder
returns
株主還元

Other
その他

Companies
企業
投資家
Investors(Investors only) Clarify policy on and approach to（投資家のみ）対話活動の方針や考え方の明確化
dialogue activities• Options are based on the written
responses by companies.

0%

20%

40%

60%

Matters
related to AGM agenda and
株主総会議案・議決権行使関係
shareholder voting

Companies
企業
投資家
Investors

その他
Other
80%

0%

20%

40%

60%

80%

100%

For Companies

Recommendation (8): Shareholder voting

Continued

12

Recommendation (8): Provide clearer explanations of proposals with a high dissent ratio Companies have been working intensively to provide clearer explanations of proposed agendas in convocation notices. Accordingly,
around 80% of both companies and investors feel that explanations on individual agenda proposals have improved to a certain extent.
 That said, investors have stronger expectations than assumed by companies, for companies “to enhance explanations through dialogue
and AGM notices” for prior resolutions that had substantial opposition.

⇒ Provide better explanations of prior resolutions with high dissent ratios through dialogue and AGM notices【 For companies/investors 】 (select up to three)
What intensive measures are being taken and what means would be desirable
for companies to provide better explanations of individual proposals?
Companies

Explain proposals more clearly

招集通知の議案内容の説明充実
in AGM notices【 For companies/investors 】 (select up to three)
What measures do companies take to address prior resolutions that had
substantial opposition / and what measures do you expect of companies?
75%
72%

Investors

Regularly explain the company’s stance
対話を通じた継続的なスタンスの説明

Companies

Dialogue投資家との対話
with investors

34%
Investors

74%

through dialogue

Explain proposals more clearly before AGMs
総会前の議案の事前説明の実施・充実

反対理由の分析
Dissenting
vote analysis

Provide explanations of proposals via websites
ホームページ等を活用した議案の説明
and other means

Companies
企業

Explain resubmitted motions better
再度付議する場合の招集通知書でのin AGM notices
説明充実

投資家
Investors

その他
Other
0%

20%

40%

60%

80%

【 For companies/investors 】 (select one)
Are explanations of individual proposals adequate?
Adequate
Investors
投資家 3%

Inadequate

76％

73%

Almost
none
23%

1%

Companies

25%
Investors

議案の修正・取り下げ
Modify/withdraw
resolutions

Analyze opposing
shareholders
反対株主の分析

特段なし
None

企業
Companies

To some extent
Companies
企業

0%

24%

81％
20%

57%

40%

16%

60%

80%

3%

100%

55%

Investors
投資家

Other
その他

0%

20%

40%

60%

80%

For investors

Recommendation (9): Shareholder voting

Continued

13

Recommendation (9): Greater transparency for shareholder voting processesAround 50% of both companies and investors recognize the importance of voting based on the actual circumstances of each company through dialogue.

The number of companies and investors who believe it is important to “improve disclosure of voting results (including disclosure of the reasons forvoting decisions)” increased from the previous fiscal year. There was also an increase in the number of investors who believe that it is important to“utilize proxy advisory firms properly.”⇒ Greater transparency for shareholder voting processes through voting rationale and explaining voting decisions.

【 For companies】 (select up to three)
What kinds of improvements do you expect from investors on shareholder voting?

Voting based on the actual circumstances
対話等により個別企業の実態を踏まえ…
of each company through dialogue

対話等により個別企業の実態を踏まえた
Voting based on the actual circumstances

51%
54%

2020
2019

【 For investors】 (select up to three)
What kinds of improvements do you think will be necessary with respect to yourshareholder voting?
2020of each company through dialogue

議決権行使の実施

52%
53%

2019

Improve voting-related dialogue
議決権行使に関する対話の充実

Explain the reasons for voting for or
自社への議決権行使賛否理由の説明
against each company’s proposals

Conduct voting from a medium- andConduct voting from a medium- andlong-term perspective
中長期的な視点での議決権行使の実施

中長期的視点での議決権行使の実施
long-term perspective

Improve disclosure of voting criteria

議決権行使結果の開示の充実
Improve
disclosure of voting results(including reasons for voting decisions)

議決権行使基準の開示の充実

2020
2019

（賛否理由の開示を含む）

Improve disclosure of voting results
2020
議決権行使結果の開示の充実…
(including
reasons for voting decisions)
2019

23%
17%

投資先企業個社への議決権行使
Explainthe reasons for voting decisions
to individual companies receiving
賛否理由の説明
investments

29%
20%

Improve voting-related dialogue
議決権行使に関する対話の充実

Improve
disclosure of voting criteria
議決権行使基準の開示の充実

Utilize proxy advisory firms properly
議決権行使助言会社の適切な活用

議決権行使助言会社の適切な活用
Utilize proxy advisory firms properly

2020 13%2019 7%2020
Consistency
between dialogue and voting
対話内容と議決権行使判断の整合
decisions

2020
2019

Consistency
between dialogue and voting
対話内容と議決権行使判断の整合
decisions

2019

Other
その他

Other
その他

0%

20%

40%

60%

80%

0%

20%

40%

60%

80%

Recommendation (10): Promoting ESG initiatives

For Companies

Continued

14

Recommendation (10): Disclose ESG initiatives using integrated reports and other means

There remains a perception gap between companies and investors on disclosure of ESG initiatives. 29% of companies believe disclosure isadequate, while only a few investors hold this view.
Firms often use their website to provide ESG disclosures. However, investors continue to seek ESG disclosures through integrated reports andother means.

⇒ Encourage communication with investors by improving ESG disclosure, using Integrated Reports and other publications, as well as websites.

【 For companies/investors 】
Is the current disclosure of ESG initiatives adequate? (select one)

【 For companies/investors 】
What kinds of media do you use to disclose ESG initiatives? (select multiple) /Which would you like companies to use? (select up to three)【2020】

0%

Adequate
Companies
企業

Investors
投資家

Inadequate

48%

18%

4%

26%

2%

IR presentationmaterials
IR説明会資料100%

ホームページ
Website

29%

3%

0%

69%
20%

Not
disclosed

To someextent

40%

60%

80%

Adequate

To someextent26%

49%

Companies
企業

1%
0%

40%

60%

Investors
Companies

80%
68%

51%

CSR
Report / Sustainability Report
CSRレポート・サステナビリティレポート

Investors
Companies

42%
78%

コーポレート・ガバナンス報告書
Corporate
Governance Report【2019】

Investors
投資家

Integrated
Report
統合報告書

20%

Not

Inadequate disclosed
17%

28%

67%
20%

40%

60%

80%

7%

Annual 有価証券報告書
Securities Report
Earnings決算短信
Report4%

No 情報開示は必要ない
disclosure is needed

100%

Other
その他

Investors
投資家
企業
Companies

For Companies

Recommendation (11): Promoting
ESG initiatives
継続

Continued

15

Recommendation (11): Incorporate ESG initiatives in medium-term
management plans 45% of companies replied that the importance of ESG initiatives has increased due to the impact of the spread of COVID-19.
 The ratio of companies that have incorporated ESG initiatives in medium-term management plans still remains at 56%, although theratio has steadily increased.
 66% of investors believe that ESG investment and finance will lead to improved medium- and long-term returns. 31% of investors havetaken a positive stance toward ESG investment and finance, based on the belief that it will contribute to improved returns.
⇒ Increase corporate value over the medium and long terms through efforts to strengthen the business-level commitment
by including ESG initiatives in medium-term management plans【 For companies】
How has your awareness of the importance of ESG initiatives changed in
response to the spread of COVID-19? (select one)
45%
41%
0%

10%

20%

30%

40%

1%
0%

53%

4%
50%

Recognized as important before; importance has
以前から重要と認識、より重要性増加
increasedfurther

60%

70%【 For investors】
What impact does ESG investment and finance have on investment performance? (select one)

2%
80%

90%

100%

Not recognized as important before; importance
以前は重要と認識せず、重要性が増加
has
increased
Not
recognized as important before; no change in
以前から重要と認識せず、変化なし
importanceNot recognized as important before; important has
以前から重要と認識せず、より重要性低下
decreased further

Recognized
as important before; no change in
以前から重要と認識、変化なし
importance
Recognized
as important before; importance has
以前は重要と認識、重要性低下
decreased【 For companies】 Trend in the percentage of companies that responded to thequestion “Which management policies incorporate ESG initiatives? (selectmultiple)” and replied that they incorporate ESG initiatives in their medium-term
management plans
0%
20%
40%
60%
2020

2019

2020

Improved medium- and long-term
中長期的なリターン向上
returnsRisk
mitigation
リスク抑制

Improved medium- and long-term
中長期的なリターン向上
returnsRisk
mitigation
リスク抑制

62%
19%
12%
3%
2%
2%
0%
0%

No
impact
影響なし
Other
その他
Reduced medium- and long-term
中長期的なリターン低減
returns
Reducedshort-term returns
短期的なリターン低減
Improved
short-term returns
短期的なリターン向上
Increased
risk
リスク上昇

2018

Other
その他
Reduced medium- and long-term
中長期的なリターン低減
returns
Reducedshort-term returns
短期的なリターン低減
Improved
short-term returns
短期的なリターン向上
Increased
risk
リスク上昇

【 For investors】 What is your stance on ESG investment and finance? (select one)
Should undertake positively as
it will lead to improved returns

Should invest without
sacrificing returns

Contributes to society andshould be invested in, evenat the expense of returns

56%

31%
2019

No
impact
影響なし

66%
19%
5%
4%
3%
3%
0%
0%

58%

2% 8%

47%
41%

1%
0%

20%

40%

60%

80%

100%

Cannot determine stance on
Should not invest, since
returns are highly likely to investment and finance because theconnection with returns is unclear
be sacrificed

For Companies

継続 ESG initiatives
Recommendation (12): Promoting

Continued

16

Recommendation (12): Formulate ESG investment and finance policies and promote dialogue frommedium- and long-term perspectives according to investment strategiesThe ratio of investors that implement ESG investment and finance and the ratio of investors that formulate ESG investment and finance policies
both increased.
Around half of firms believe the problem lies in the fact that investors only seek dialogue focusing on short-term themes. Meanwhile, there was anincrease from the previous fiscal year in the ratio of companies that said they took, or improved, actions based on dialogue on the topic ofdisclosure, or on environmental and social themes.
⇒ It will be important for investors to formulate policies, while promoting dialogue from medium- and long-term
perspectives according to their investment strategies.
【 For companies】
What issues are discussed during dialogues with investors? (select three)【 For investors】
Are you implementing ESG investment and finance? (select one)

0%

2020

2019

Yes

No

76%

24%

66%

20%

40%

60%

Dialogue based only on short-term themes andperspectives
短期的な視点・テーマのみに基づく対話の実施

企業に対する分析や理解が浅い
Superficial analysis
and understanding of companies
None
特段なし
Insufficient explanation of the purpose of dialogue and
対話目的等の説明が不足
other matters
Lack of resources
and personnel involved in dialogue
対話関係のリソースや人材が不足

34%

Lack対話担当者の対話スキルが不足
of dialogue skills among dialogue staff
Other
その他

0%

20%

40%

60%

80%

100%

【 For investors】 Have you formulated policies on ESG investment andfinance or action plans? (for companies implementing ESG investment
and finance, select one)

Formulated andannounced
2020

Formulated
but notannounced

59%

10%

Not
formulated【 For companies】
What actions did you take or improve based on dialogue?
0%

10%

20%

30%

Information情報開示
disclosure

40%

50%

49%

Management/businessstrategy
経営戦略・事業戦略
Shareholder
returns
株主還元
Environmental/social (E/S)
E（環境）・S（社会）関係

30%

24%

31%

財務戦略
Financialstrategies
External directors
社外取締役関係

2019

48%

11%

41%

Profitability
収益性Anti-takeovermeasures
買収防衛策

0%

20%

40%

60%

80%

100%

No actions taken
アクションを起こしていない
Other
その他

Malfeasanceresponse
不祥事等の対応

2020
2019

60%
54%

For Companies and Investors

Recommendation (13): Promoting ESG initiatives

Continued

17

Recommendation (13): Enhance disclosures about the impact of climate change on corporate activities
and encourage the use of this information
 There were increases in the ratios of both companies and investors who replied that climate change is a major theme in ESG activities.
Notably, 81% of investors replied that they emphasize climate change, marking a large increase from the previous fiscal year.
 The disclosure and use of climate change-related information based on TCFD recommendations has advanced compared with theprevious fiscal year and is expected to continue to expand going forward.
⇒ Identify risk and capture investment and business opportunities by enhancing companies’ disclosure of climatechange-related information and encouraging the use of this information by investors.
【 For companies/investors 】
What do you consider to be the top five major themes in ESG activities
and ESG investment and finance? (select up to five)【Companies】
2019

2020

2020

governance
1 Corporate
コーポレートガバナンス

75%

governance
1 Corporate
コーポレートガバナンス

71%

2 Climate
気候変動
change49%change2 Climate
気候変動

55%

and safety
3 Health
健康と安全

45%

3 Diversity
ダイバーシティ39%

of products and4 Safety
製品サービスの安全
services43%

and safety
4 Health
健康と安全

39%

management
5 Risk
リスクマネジメント

39%

Safety of products and
5 services
製品サービスの安全

35%【Investors】
2019【For companies】
Are you considering TCFD-style climate-related disclosures? (select one)
21%

2019

8%
0%

17%

21%

23%

28%

31%

20%

40%

15%
60%

Already
disclosing
既に開示している
Considering
adoption for
今後、開示に向けて検討する予定
disclosure
TCFDについてよく知らないNot familiar with the TCFD

10%

25%
80%

100%

Considering adoption for
現在、開示に向けて検討中
disclosure
現在、開示する予定はない
No plans for disclosure【For Investors】
Are you considering using TCFD-style climate-related disclosures in theevaluation of firms or for dialogue? (select one)2020

governance
1 Corporate
コーポレートガバナンス

83%change1 Climate
気候変動

81%

change2 Climate
気候変動

68%

governance
2 Corporate
コーポレートガバナンス

67%

3 Information
情報開示 disclosure

42%

3 Diversity
ダイバーシティ31%

4 Malfeasance
不祥事

27%

rights and3 Human
人権と地域社会community

31%

5 Diversity
ダイバーシティ27%

and safety
5 Health
健康と安全

23%

2020

2019

24%

9%
0%

9%

24%

18%

30%

20%

40%

27%

17%

18%
60%

26%
80%

100%

Already using
既に活用している

Considering
adoption for use
現在、活用に向けて検討中

今後、活用に向けて検討する予定
Planning to consider for future use

現在、活用する予定はない
No
plans for use

Not familiar with the TCFD
TCFDについてよく知らないFor Government

Recommendation (14): Promoting
ESG initiatives
継続

Continued

18

Recommendation (14): Take steps to promote ESG initiatives acrossgovernment ministries/agencies

Following on from the previous fiscal year, investors and companies both continue to expect the government to improve the system for disclosures, takesteps to prevent duplication of guidelines and other frameworks, and strengthen cooperation between government bodies on related policy planning, in thecourse of promoting corporate ESG initiatives and ESG investment and finance by investors.
Meanwhile, the government has bolstered activities aimed at decarbonization in 2050. It has enhanced cooperation between government bodies throughsteps such as the establishment of the Taskforce on Preparation of the Environment for Transition Finance, which is held jointly by three government
bodies, specifically the Ministry of Economy, Trade and Industry (METI), the Financial Services Agency (FSA), and the Ministry of the Environment.
⇒ Continue to create policies on the promotion of ESG initiatives across government ministries and agencies,in order to encourage the disclosure of ESG information and ESG investment and finance【 For companies/investors 】
What do you expect government authorities to do to promote ESG initiatives(companies) and ESG investment and finance (investors)? (select up to two)

Reference: Government meeting structures and guidelines on ESG
promotion initiatives
Ministries/Agencies

0%

20%

40%

60%

80%

Improved system for
情報開示制度の充実
disclosure

Ministry of Economy,
Trade and Industry,
Financial Services Agency,
and Ministry of theEnvironment

Ministry of theEnvironment

Steps to prevent duplication
ガイドライン等の複線化防止
of guidelines and otherに向けた対応frameworks
Strengthen cooperation
関連政策の立案における
between government bodies
on related
policy planning
省庁間の連携強化

Financial Services
AgencyRecognize exemplary firms
モデル企業の選定、表彰制度
via awards

Ministry of Land,
Infrastructure,
Transport andTourism

Establish a hotline
相談窓口の設置
Other
その他

ESG Initiative Promotion Council
TCFD Consortium
Taskforce on Preparation of the Environment forTransition Finance
ESG Finance High-Level Panel
Study Group on Green Bonds and Green Loans
The Council of Experts Concerning the Follow-up ofJapan’s Stewardship Code and Japan’s Corporate
Governance CodeExpert Panel on Sustainable Finance

Companies
企業
Investors
投資家

Study Group on ESG Real Estate Investment

Ministries/Agencies

ESG Initiative Promotion Guidelines

Ministry of theEnvironment

Sustainable Development Goals (SDGs) Application Guide

Financial Services
AgencyGuidelines for Dialogue Between Investors and Companies

Ministry of
Economy, Tradeand Industry

Guidance forCollaborative Value
Creation

Green Investment Guidance

TCFD Guidance 2.0

SDGs Management GuideImplementation of collaborative engagement

19

Supported efforts by companies to address decarbonization through requests
for improving climate change disclosures

From FY2017, the life insurers in the Stewardship Activities Working Group (WG) jointly initiated a collaborative engagement
campaign to convey their awareness of issues to companies. In FY2020, the campaign targeted 171 listed companies (178 companies intotal), while keeping in place the three themes of improving climate change disclosures, improving ESG disclosures and improving
shareholder returns.
Notably, on the theme of improving climate change disclosures, the campaign newly made the following two requests to all companies
in the top 50 by greenhouse gas emissions: (1) perform quantitative and qualitative analysis of management risks and opportunities
associated with climate change and disclose this information; and (2) create a strategic plan for the reduction of greenhouse gas
emissions. In this manner, the campaign helped companies to take further steps and provide disclosure with a view to achieving
decarbonization.
Equity market
reinvigoration

Improving shareholder
returns (Continued)
Targeted: 64 listed companies

Companies with sound finances,a low ratio of investing CF
relative to operating CF, and along-term dividend payout ratioof less than 30%

Achieving a sustainable society

Improving ESG disclosure (Continued)
Improving climate change disclosures(requests sent to more companies)
Targeted: 64 listed companies
Companies in the top 300 bymarket cap that do not provide
integrated disclosure of financial
and non-financial information

Dialogue by letter and meetings
Stewardship Activities WG(11 life insurers)

Targeted: Companies in the top 50 bygreenhouse gas emissions
Encourage companies to (1) perform quantitative andqualitative analysis of management risks and opportunities
associated with climate change and disclose thisinformation; and (2) create a strategic plan for the reductionof greenhouse gas emissions.

Implementation of collaborative engagement

20

Results of the collaborative engagement campaign in the previous fiscal year In terms of improving climate change disclosures, the campaign found that 53% of the targeted companies showed progress on disclosure,and confirmed that all companies that did not show progress on disclosure have adopted a positive stance toward improving theirdisclosure going forward.
 Looking at improving ESG disclosure, companies that newly issued integrated reports rose by 17% (around 3 times higher than the
FY2018 level). In addition, the number of companies that upgraded and improved their ESG disclosure without issuing integrated reports
increased to 28% of the targeted companies (around 2 times higher than the FY2018 level).
 With regard to improving shareholder returns, 24% of the targeted companies have met the standard of a dividend payout ratio of 30%,
mostly the same as the FY2018 level, despite the COVID-19 crisis.
Improving climate change disclosures

Improving shareholder returns

Progress on
開示に進捗がdisclosure
見られるNo
progress on
開示に進捗がdisclosure
見られない

53%

47%

2019

Dividend payout
ratio of at least 30%

Confirmed that all companies
have adopted a positive stancetoward improving disclosure

0%

20%

40%

60%

80%

100%

2018 6%0%

No progress on
disclosure

28%

55%

14%
20%

24%

73%

2018

27%

67%

0%

20%

40%

60%

6%
80%

100%

* Companies excluded due to delisting, etc.

Theme

Newly issued
integrated
Progress on disclosure
reports

17%

2019

Excluded*3%(Reference) Status of activities of collaborative engagement in FY2019

Improving ESG disclosure

2019

Dividend payout ratio of lessthan 30%

80%
40%

60%

80%

100%

Targeted companies

Improving climatechange disclosures

17
companies

Companies with large amounts of greenhouse gas emissions
whose policies on climate change disclosures need to be
confirmed

Improving ESG
disclosure

67
companies

Companies in the top 300 by market cap
that do not provide integrated disclosure of financial and nonfinancial information

Improvingshareholder returns

65
companies

Companies with sound finances, a low ratio of investing CF
relative to operating CF, and a long-term dividend payout ratioof less than 30%

Total

142
companies(149 companies in total)Upgrading the initiatives and approaches of life insurers: Stewardship Activities WG

21

Initiatives and approaches conducted or considered by WG participants to improvestewardship activities

Based on the sharing of activity details among WG participants and interviews with external investors and other experts, each WG participant
continuously strengthened its initiatives and approaches.
Notably, in the current fiscal year all WG participants conducted dialogue to address the spread of COVID-19 and took initiatives to expand
stewardship activities beyond domestic listed shares.

Activity details

Comparison with the previous fiscal year

(Number of WG participants)

FY2019FY202011

11

Approach

Organization•

Set up dedicated dialogue team4

6

Dedicated
staff•

Assigned dedicated dialogue staff

5

6

Expertcommittee•

Set up expert committee, including outsiders

9

9(10)

•

Governance (G) dialogue

11

11

•

Environmental (E)/Social (S) dialogues

11

11

•

Dialogue findings used in investment decisions

10

11

•

Conducted dialogue on themes based on the spread of COVID-19, such as work style reforms and digitalization

11•

Conducted dialogue via the web and telephone

11•

Expanded stewardship activities beyond domestic listed shares

Dialogue theme

Factoring into
investment decisions

Conduct dialogue toaddress the spread of
COVID-19

Expand the scope of
stewardship activities(action taken in response to the second revision of Japan’s Stewardship Code in March 2020)11* Figures in parentheses include the number of companies considering implementation in the next fiscal year.

Upgrading the initiatives and approaches of life insurers: ESG Investment and Finance WG

22Efforts to strengthen initiatives and approaches conducted or considered by WG participantsEach WG participant is conducting interviews with external investors and other experts, as well as sharing information and exchanging views on participants’
initiatives and approaches.

Each WG participant is pushing ahead with initiatives relating to ESG investment and finance, based on factors such as their respective investment strategies.

Moreover, all WG participants are carrying out investment and finance activities in response to the spread of COVID-19.

Activity details

Comparison with the previous fiscal year

Approach

FY2019(16)FY2020(16)• Become a signatory to PRI

11

12(14)• Formulate ESG investment and finance policy

11

15(16)• Create cross-divisional meeting structures11

12(14)• Endorse TCFD recommendations*1

14

15(16)•

9

11(16)• Engagement (Dialogue)

13

14(16)• Integration*2

1215• Negative screening *3

13

16

PolicyOrganization

TCFD
recommendations

Main ESG investment
and finance methods
being used

Investment and financeactivities related to the
spread of COVID-19

Disclose information according to TCFD recommendations

・Address consultations on modifying conditions for existing borrowers and tenants at property holdings based on the impact of COVID-19
・Investments in bonds and other instruments that contribute to COVID-19 response measures, among other related measures*1: Including cases where TCFD recommendations are signed and endorsed at the holding company level and the commitment also
covers group companies.
*2 Meaning that ESG factors are reflected in the investment process.
*3 Defining securities for portfolio exclusion from an ESG perspective* Figures in parentheses include the number of companies
considering implementation in the next fiscal year.

Upgrading the initiatives and approaches of life insurers: ESG Investment and Finance WG

23Interviews on progressive actions to enhance initiatives/approachesParticipants in the ESG investment and finance WG continued to invite external experts to host seminars to foster their understanding of ESG
investing and finance and enhance their initiatives/approaches.

Moreover, in the current fiscal year LIAJ held joint seminars for the ESG Investment and Finance WG and the Stewardship Activities WG on
Environment (E) and Social (S) themes such as addressing climate change and work style reforms (including digitalization).

Instructor

Seminar

AXA Investment Managers•

Advanced examples of responsible investing and impact investing

PRI Japan•

PRI’s activities

DWS Group•

Trends in ESG investment and practical issues

Ministry of the Environment•

Promotion of ESG finance＜Joint seminars with the Stewardship Activities WG＞
Instructor

Seminar

Hitachi, Ltd.

•A new normal in IT for work style reforms

Ministry of Economy, Trade andIndustry•

Trends in TCFD disclosures