1LIAJ initiatives in FY2021


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 FY2021.

In addition, LIAJ implemented measures to refine and raise the sophistication of activities at each LIAJ member firm in FY2021. Measures
included holding joint working group (WG) seminars with Environment (E) and Society (S) themes, such as “Addressing climate change” and“Human rights.”



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

Based on surveys ofcompanies/investors

Improvingclimate change
disclosures

Upgraded initiatives and approaches of WG participants

Stewardship Activities WG(11 life insurers)

Collaborating

ESG Investment and Finance WG(18 life insurers)

Recommendations for companies, investors and government

2

FY2021 policy recommendations
 The number of companies and investors that now have a higher awareness of the need to improve corporate governance andaddress climate change increased in the survey of companies and investors carried out in FY2021.
 Based on the survey results, recommendations on enhancing dialogue and promoting ESG initiatives in FY2021 were partiallyrevised or combined.
Recommendations
Management
goals /
financialstrategies
Improvingcorporate
governance①

Raise shareholder returns over the medium andlong terms (dividend payout ratios of at least 30%)②

Set ROE targets adjusted for cost of capital andtarget higher ROE levels③

Improve disclosures about expectations of external
directors’ roles and their performance

Recommendations

TargetShareholder
voting⑤Companies⑧

Greater transparency for shareholder voting processes

Investors

Provide further disclosure of non-financial information,
including ESG, through integrated reports and othermeans

Companies⑩

Formulate medium-term management plans to realize
Revised sustained growth, including ESG initiatives

Promoting
ESG
initiatives

Encourage involvement of top management in
dialogue

Promote dialogue based on in-depth understanding of⑥ companies and dialogue from a medium- and longCombined term perspective that contributes to the solution ofissues facing companies

Provide clearer explanations of proposals with a highdissent ratio

Combined

Improve disclosure/dialogue on medium- and long④ term investment strategy, including investments in
Revised human capital and intellectual property

Enhancing
dialogue⑦⑨
Companies

TargetEnhance disclosure of information related to climatechange impacts, and consider formulating greenhouse
Revised gas reduction targe⑪⑫⑬
Investors

New

Companies
Investors

Take steps to promote ESG initiatives acrossgovernment ministries/agencies
Government

Further enhance policy-based support to realize carbon
neutrality

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 ofcompanies/investors<Survey targets and response rate> Listed companies 42% (508/1,200 companies); investors 54% (108/199 companies)

For Companies

Recommendation (1): Management goals/financial strategies

3

Continued

Recommendation (1): Raise shareholder returns over the medium and long terms(dividend payout ratios of at least 30%)
79% of investors are not fully satisfied with the level of shareholder returns and dividends. There has been no change in investors’ position in thisrespect before and after the COVID-19 crisis.



59% of investors, a greater percentage than in the previous fiscal year, expect firms to offer dividend payout ratios of at least 30% over the medium
and long terms. However, the actual dividend payout ratios remained under 30% for 44% of all firms, despite some signs of improvement in thedividend payout ratio performance of listed firms.
⇒ 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%)

Satisfactory at about halfof firms (40-60%)【For investors】
Desired medium- and long-term level of dividend payout ratios (select one)
60% or10-20%
50-60% over
20-30%
40-50%

59%

Level does notmatter30-40%

56%

Satisfactory at
not many firms(20-40%)

Reference: Distribution of payout ratio for listed companies (actual)Less than10%

10-20%

44%
20-30%

40-50%

50-60%

60% orover

30-40%

42%

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

Source: Nikkei QUICK

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

182 Total payout

Undisclosed

126
600

80%

70%

66% 66% 66%

45% 48%51%
54%
59% 57%

92

44%
80
90

500

91

43

37

37

60%
400

300

40%

ratio, etc
120

40

54

51

31

35

35

114

99

95

37

49
92

91

74
55

20%

30%

34% 35% 34%

0%Payout ratio
58 (less than 30%)

68

96
94

93

Payout ratio

Disclosed
55% 52% 56%
49%46%
41% 43%

DOE*

200
306
100

239

244

336

373

405

426

430

461 (at least 30%)250

02011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source: LIAJ research
Based on survey of top 1,200 listed stocks by market capitalization2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

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
 88% of investors, a greater percentage than in the previous fiscal year, expect ROE of at least 8% over the medium and long terms.
Meanwhile, ROE remains under 8% at 49% of listed firms.
 The ratio of firms that have not calculated their cost of capital (return expected by shareholders) was 35%, 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%

88%

At least
12%

10-12%

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

35%
81%

Level does
not matter

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

49%
Less than
6%

Cost of capitalassessed but
not calculated

10-12%

6-8%

At least 12%

38%
52%

Source: Nikkei QUICK
Note: All listed firms (excluding unprofitable firms and the financial sector ）Cost of capital
calculated

For Companies

Recommendation (3): Improving corporate governanceContinued

6

Recommendation (3): Improve disclosures about expectations of external directors’ roles
and their performance 49% 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?
【2021】
Fulfilled to some extent

Supervise through decision-making on
経営戦略、重要案件等に対する意思決定
management strategy, important projects

Fulfilled adequately in linewith expectations

を通じた監督and other matters

Companies

Get involved in and provide advice on
経営陣の評価（選解任・報酬）へのFulfilled
inadequately
不十分であり、andneeds improvement
改善の余地がある

2%
投資家からは評価できない
Cannotbe evaluated by investors

Fulfilled to some extent

62%

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

Investors【2020】

Companies 42%
Investors

performance evaluations of the
management関与・助言
team (election/dismissal,
remuneration)

Other
その他

Not fulfilled
at allFulfilled adequately in linewith expectations

Supervise
systems to prevent malfeasance Companies 19%
不祥事の未然防止に向けた体制の監督

Investors

38%

利益相反行為の抑止
Deter any conflict-of-interest
behavior
少数株主をはじめとするステークホルダーのReflect the opinions of minority interestsand otherstakeholders in management
意見を経営に反映

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

Companies

Companies
企業

Dialogue投資家との対話
with investors

Fulfilled inadequately
and needs improvement

Investors
投資家
Other

その他

Investors

Cannot be evaluated by investors

Other

Not fulfilled
at all

0%

20%

40%

60%

80% 100%

For Companies

Recommendation (4): Enhancing dialogue

Revised

7

Recommendation (4): Improve disclosure/dialogue on medium- and long-term investment
strategy, including investments in human capital and intellectual property
 66% of companies believe the levels of cash balances are appropriate. Meanwhile, 74% of investors see current levels of cash balances as
excessive, which indicates a gap in perception between investors and companies.
 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.
 In the revised Japan’s Corporate Governance Code, new disclosures of investments in human capital and intellectual property are required.
⇒Target appropriate cash levels, and improve disclosure/dialogue
related to medium- and long-term investment strategy, including human capital and intellectual property【 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?

【2021】(digitalization)

Companies
企業

32%

66%
Appropriate

Excessive
Investors
投資家

74%

0%

3%

20%

40%

Inadequate

23%
60%

80%

【2020】
Companies
企業

2%
100%

4%
26%

70%

Investors
投資家

72%

Inadequate

26%
2%

0%

20%

40%

60%

研究開発投資R&D
investment

Companies
Investors

人材投資
Human capital investment

Companies
Investors

Capital expenditure
設備投資
Shareholder
returns
株主還元

20%

M&A
Ｍ＆Ａ

19%

80%

100%

1%

40%
31%

59%
58%
54%

38%
33%

11%
Companies
企業

4%
1%

Other
その他

（企業）特に決まっていない(Companies) Undecided

64%

20%

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

Appropriate

Excessive

46%

Companies
Investors

IT investment
IT投資（デジタル化）

Investors
投資家

1%
0%
0%

20%

40%

60%

80%

For Companies

Recommendation (4): Enhancing dialogue

Revised8

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

2.5

IT investment （US）

IT investment (Japan)

Labor costs (US)Labor costs (Japan)

Capex（US）

Capex (Japan)

R&D spending（US）

R&D spending (Japan)

2.0

1.5

1.0

0.5
1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

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

Continued

Recommendation (5): Enhancing dialogue

9

Recommendation (5): Encourage involvement of top management in dialogue 87% of companies have systems in place to share dialogue content with management, but investors feel that “dialogue content
does not reach 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?

33%

Inadequate disclosure of information as

System in place
87%

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

None

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

0%

49%

13%

20%
40%
60%
80%
100%
【 For companies】(Select multiple)
System for sharing dialogue content with management, if such a system isin place

Non-participation by senior managers
経営トップが対話に関与していない

Companies 12%

Investors
Companies

Improve investor dialogue and
投資家の対話や議決権行使方針への

16%
23%

None
特段なし

23%
16%

understanding of policies on shareholder
voting
理解度向上

Opportunities are given to IR personnel to report to the
取締役会や経営会議でIR担当者が報告する機会を

10%
Investors

47%

40%

66%

Board of Directors and Executive Committee

設けている

Dialogue with investors is held regularly by management
定期的に経営陣が投資家と対話を行い、経営陣内で57%

and shared within management

共有化している

Lack of resources and personnel

対話関係のリソース・人材が不足
involved in dialogue

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

15%

46%

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

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

41%

Other
その他

20%

40%

60%

80%

* Options are based on the written
responses of investors.

29%

Companies
企業
Investors
投資家

6%
5%

その他
Other

5%
0%

11%

36%

0%

20%

40%

60%

80%

For investors

Recommendation (6): Enhancing dialogue

Combined

10

Recommendation (6): Promote dialogue based on in-depth understanding of companies and dialogue from a
medium- and long-term perspective that contributes to the solution of issues facing companies


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.
Looking at discussion themes for which companies took action based on dialogue, themes such as sustainability, information disclosure, andmanagement and business strategies accounted for large shares of the responses. However, financial strategy and profitability represented onlyaround 20% of the responses, indicating that some items have not yet led to specific actions.
⇒ Promote dialogue from medium and long-term perspectives that will benefit companies, based on in-depth understanding ofcompanies.

【 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?

【 For companies/investors 】 (select up to three)
Themes for which action was taken or visible changes at investee
companies were made, following dialogue
Information disclosure
情報開示

50%

短期的な視点・テーマのみに基づく対話の実施
perspectives and themes

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)

Companies 37%
Investors

Dialogue based only on short-term

Sustainability (initiatives
to address
サステナビリティ
environmental and social issues)

49%（環境・社会課題への取組み）

Management/business
経営戦略・事業戦略
strategy54%

株主還元
Shareholder returns

None
特段なし

External directors (Number of external
社外取締役関係（社外取締役の人数、
directors, independence of external
社外役員の独立性／出席率等）
directors / attendance rate,
etc.)

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、
othermatters (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)

Companies 21%
Investors 16%

Financial strategies
財務戦略

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

Companies 18%
Investors 14%

Profitability
収益性Lack of dialogue skills among dialogue staff

買収防衛策
Anti-takeover measures

対話担当者の対話スキルが不足

その他
Other

Companies
企業

アクションを起こしていない/
No action
taken / Effects of
dialoguecannot be felt
対話の効果を感じられない
企業■Companies

Malfeasanceresponse
不祥事等の対応

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 by0%companies.

投資家■Investors

Other
その他

20%

40%

60%

80%

0%

10%

20%

30%

40%

50%

60%

For Companies

Recommendation (7): Shareholder voting

Continued

11

Recommendation (7): 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 around 60% of investors feel that explanations on individual agenda proposals have improved to acertain 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
Investors 59%

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
hadsubstantial opposition / and what measures do you expect of companies?

77%
Companies 34%

Dialogue withinvestors
投資家との対話

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

Investors 70%

Provide総会当日における説明充実
clearer explanations at AGMs

Dissenting反対理由の分析
vote analysis

Explain proposals more clearly before

総会前の議案の事前説明の実施・充実
AGMs
Provide explanations of proposals via

ホームページ等を活用した議案の説明
websites and other means■Companies
企業

Other
その他

■Investors
投資家
0%

20%

40%

60%

80%

Inadequate

Almostnone【 For companies/investors 】 (select one)
Are explanations of individual proposals adequate?
Adequate
Companies
企業

85％

26.5%

投資家
Investors 2.2%
0%

To some extent

81％
20%

13.0% 2.3%

58.2%

17.6%

79.1%

40%

60%

80%

1.1%

100%

Explainresubmitted 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

Companies 23%
Investors 53%

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

Analyze opposing
shareholders
反対株主の分析

None
特段なし■Companies
企業
投資家■Investors

Other
その他

0%

20%

40%

60%

80%

For investors

Recommendation (8): Shareholder voting

Continued

12

Recommendation (8): 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. There are also more investors who believe it is important to conduct voting from a medium- to long-term perspective.
 In addition, around 30% of companies believe it is important to “improve disclosure of voting criteria” and “improve disclosure of voting
results (including disclosure of the reasons for voting decisions).”⇒ 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?

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

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

2021
2020

議決権行使の実施

53%
51%

議決権行使の実施

Explain the reasons for voting for or
自社への議決権行使賛否理由の説明

53%
52%

2021
2020

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

against each company’s proposals

2021
2020

Conduct voting from a medium- andImprove disclosure of voting criteria

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

議決権行使基準の開示の充実

中長期的な視点での議決権行使の実施
term perspective

Conduct voting from a medium- and long-

2021
2020

32%
30%

議決権行使結果の開示の充実
Improve
disclosure of voting results(including
reasons
for voting decisions)（賛否理由の開示を含む）

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

2021
2020

29%
29%

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
Improve disclosure of voting criteria（賛否理由の開示を含む）

42%
35%

議決権行使基準の開示の充実

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

Utilize proxy advisory firms properly

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

2021

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

Other
その他

2020

Other
その他

0%

20%

40%

60%

80%

2021
2020
0%

20%

40%

60%

80%

For Companies

Recommendation (9): Promoting ESG initiatives

Combined

13

Recommendation (9): Provide further disclosure of non-financial information, including
ESG, through integrated reports and other means

There remains a perception gap between companies and investors on disclosure of ESG initiatives. 36% of companies believe disclosure is adequate,
while only 3% of investors hold this view. Investors expect companies to enhance disclosure of “non-financial information such as Environmental (E),
Social (S) and related issues.”
Firms often use their website to provide ESG disclosures. However, investors continue to seek ESG disclosures through integrated reports and othermeans.
⇒ Encourage communication with investors by enhancing disclosure of non-financial information, including ESG,
through integrated reports and other means【 For companies/investors 】
Is the current disclosure of ESG initiatives adequate? (select one)
To someextentAdequate

Inadequate

Not
disclosed【 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?
Non-financial information on Environmental(E), Social (S) and related issues

Evaluation of the effectiveness of theBoard of Directors (G)Companies

Analysis of operating results andmanagement’s views

Investors

Identify materiality (important issues
for companies)【 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)Integrated Report

Reasons for the appointment of
external directors and their activities
Plans to nurture successors to the
CEO and other key posts
Policy on remuneration of Board
members

IR presentation materials
CSR Report / Sustainability Report

Supplemental and detailed earnings data

WebsiteCorporate Governance Report
Annual Securities Report

Policy on nomination of Board members

Earnings Report

Other

No disclosure of information on ESG
initiatives is needed.

Other■Companies■Investors

None

2021

2020

For Companies

Recommendation (10): Promoting ESG initiatives

Revised

14

Recommendation (10): Formulate medium-term management plans to realize sustained
growth, including ESG initiatives
 60% of companies replied that the importance of ESG initiatives has increased due to the impact of the spread of COVID-19.
 Around 30% of companies have not yet incorporated ESG initiatives in their medium-term management plans, although the ratio ofcompanies that have done so is steadily increasing.
 Around 40% of investors selected business model transformation as an initiative that they would emphasize in response to the spread of
COVID-19, whereas around 20% of companies selected this option. This indicates a gap in perception between investors andcompanies.
⇒ Encourage the formulation of medium-term management plans to realize sustained growth, including business modeltransformation, considering a social and economic environment where ESG responses can have a bearing on corporate value.
【 For companies】
How has your awareness of the importance of ESG initiatives changed in
response to the spread of COVID-19? (select one)60％

【 For companies/investors 】
Initiatives you will emphasize in response to the spread and long-term
persistence of COVID-19
Promote work style reforms
Business model transformation

Companies
Investors

Improve business profitability
Strengthen supply chain management
Recognized as important before; importance has
increased further
Recognized as important before; no change inimportanceNot recognized as important before; no change inimportanceNot recognized as important before; importancehas increased
Recognized as important before; importance has
decreased
Not recognized as important before; important has
decreased further【 For companies】 Trend in the percentage of companies that responded to the question“Which management policies incorporate ESG initiatives? (select multiple)” and replied thatthey incorporate ESG initiatives in their medium-term management plans

Formulate and strengthen business
continuity planning (BCP)
Diversify employment formats
Reorganize and withdraw from
unprofitable businesses
Enhance in-house personnel development
Promote research and development further
Diversify businesses
Diversify fund procurement methods■Companies

None or not sure
Increase capital and enhance internal
reserves
Other■Investors

For Companies and Investors

Recommendation (11): Promoting ESG initiatives

Revised

15

Recommendation (11): Enhance disclosure of information related to climate change impacts,
and consider formulating greenhouse gas reduction targets
 Around 30% of both companies and investors have already undertaken the disclosure and use of climate change-related information based on
TCFD recommendations. Meanwhile, many companies’ activities have been limited to qualitative analyses, while many others have still notundertaken these activities.
 Certain companies and investors have already formulated carbon neutrality targets to reduce greenhouse gases, while around 50% ofcompanies and around 80% of investors have not yet formulated such targets at this time.
⇒ Encourage companies and investors to further enhance disclosure of climate change-related informationand consider formulating carbon neutrality targets for 2050 to reduce greenhouse gases.
【For companies】
Are you considering TCFD-style climate-related disclosures? (select one)

【 For companies/investors 】
Greenhouse gas reduction targets for achieving carbon neutrality in 2050
at your company or in your investment portfolio
48％
Companies

Already providing enough disclosure (qualitative andquantitative analyses)

Already providing a certain level of disclosure (onlyquantitative analysis)

Considering adoption for disclosure

Planning to consider disclosure

No plans for disclosure

Not familiar with the TCFD

79％
Investors【For Investors】
Are you considering using TCFD-style climate-related disclosure
information in the evaluation of firms or for dialogue? (select one)
We have formulated and announced carbon neutrality targets for 2050 and interim
targets (for around 2030).
We have not formulated interim targets (for around 2030) but have formulated andannounced carbon neutrality targets for 2050.
We have not formulated carbon neutrality targets for 2050 but have formulated andannounced interim targets (for around 2030).
Already using enough disclosure information(qualitative and quantitative analyses)

Already using a certain level of disclosure information(only quantitative analysis)

We have not formulated specific targets but are considering appropriate steps.

Considering adopting the use of disclosure
information
No plans for the use of disclosure information

Planning to consider the use of disclosure
information
Not familiar with the TCFD

We currently have no plans to formulate targets.

For Government

Recommendation (12): Promoting ESG initiatives

Continued

16

Recommendation (12): 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 support corporate
disclosure, take steps to prevent duplication of guidelines and other frameworks, and strengthen cooperation between government bodies
on related policy planning, in the course of promoting corporate ESG initiatives and ESG investment and finance by investors.
 Meanwhile, the government has bolstered various initiatives to promote ESG initiatives. It has enhanced cooperation between various
government bodies through steps such as the joint formulation of the “Basic Guidelines on Climate Transition Finance” by three
government bodies, specifically the Ministry of Economy, Trade and Industry (METI), the Financial Services Agency (FSA), and theMinistry of the Environment.
⇒Step up the creation of 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
Support disclosure

Companies
Investors

Steps to prevent duplicationof guidelines and otherframeworks
Strengthen cooperation
between government
bodies on related policy
planning

Companies
Investors

ESG Initiative Promotion Guidelines

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

Basic Guidelines on Climate Transition Finance

Ministry of Economy, Tradeand Industry, Ministry of
the Environment

Disclosure and Engagement Guidance to Accelerate
Sustainable Finance for a Circular Economy
Sustainable Development Goals (SDGs) Application
Guide

Companies
Investors

Ministry of theEnvironment

Practical Guide to ESG Regional Finance

Practical guide for Scenario Analysis in line with the
TCFD recommendations

Establish a hotline
Financial Services
AgencyRecognize exemplary firms
via awards

Guidelines for Dialogue Between Investors andCompanies
Social Bond Guidelines
Guidance for Collaborative Value Creation■Companies
Other■Investors

Ministry of Economy,
Trade and Industry

Green Investment Guidance
TCFD Guidance 2.0
SDGs Management Guide

For Government

Recommendation (13): Promoting ESG initiatives

New

17

Recommendation (13): Further enhance policy-based support to realize
carbon neutrality
 The share of both companies and investors who said there was a “high likelihood” of achieving carbon neutrality in 2050 was only 10% orlower. Meanwhile, the roadmap to achieving this goal is uncertain, with many respondents stating that they “cannot determine thelikelihood of achievement at this stage.” As for expectations for government actions, responses included “Propose energy policies centered on renewable energy,” “Formulate
specific roadmaps,” and “Develop infrastructure to expand renewable energy.”⇒ Formulate specific policies and further enhance policy-based support to increase the feasibility of realizing carbon neutrality【 For companies/investors 】
Which of the following statements most closely describes yourcurrent position on the likelihood of achieving carbon neutrality in
2050 at your firm or in your firm’s investment portfolio?

【 For companies/investors 】 (select up to three)
What do you expect the government to do to achieving carbon neutrality in
2050?
Propose energy policies centered on
renewable energy

Companies

Formulate specific roadmaps

Companies

Develop infrastructure that enables
growth in renewable energy

Companies

Investors
Investors
Investors

Funding assistance for innovativetechnology development

High likelihood of achievement
Somewhat high likelihood of achievement
Somewhat difficult to foresee achievement, with many issues along the way
Difficult to foresee achievement, with an extremely large number of issues
along the way
Cannot determine the likelihood of achievement at this stage(Reference) Major initiatives to address climate change by the government

Green Growth Strategy (announced December 2020)
Industrial policy to lead the challenging goal of carbon neutrality
to a “Positive cycle of economic growth and environmental
protection”
Project for the Green Innovation FundA ¥2 trillion fund to continuously support companies and otherorganizations committed to reaching ambitious goals, in efforts
ranging from research and development (R&D) todemonstrations to social implementation of the outcomes

Build supply chains for nextgeneration energy
Promote policies across government
ministries/agencies
Promote understanding of the need for carbon
neutrality among citizens
Introduce carbon pricing (carbon tax, emissions
trading, etc.)
Support for efficient decarbonization ofindustries with high environmental impact
None or not sureStrengthen international cooperation
with other countries
Design systems to expand green
investment and finance among investors
Others■Companies■Investors

18【Topics】Domestic Conditions Concerning Human Rights


In Japan, the level of human rights initiatives expected by companies and investors has rapidly increased, following the formulation of the
National Action Plan on Business and Human Rights, among other developments.



Human rights due diligence and provision of remediation are expected by the United Nations and other organizations. The shares of companies
that replied that they have “already implemented” these initiatives were low, at 22% and 11%, respectively.

Investors expect companies to take steps such as establishing governance systems, enhancing disclosure and implementing human rights due
diligence. There is a gap between investors’ expectations and the measures currently implemented by companies.

【 For companies/investors 】 (select up to three)
What initiatives are you already taking, or what initiatives do you expect
companies to undertake, to foster respect for human rights?
Strengthen
education and training
従業員への教育・研修の強化
seminars for employees

National Action Plan on Business and Human Rights(announced in October 2020)
This plan presents various initiatives concerning “business and humanrights” that the government will implement going forward. In addition,
it articulates the government’s expectations for companies to introduce
and promote human rights due diligence.

Formulate human人権方針の策定
rights policies
Bolster supply
chain management
サプライチェーン管理の強化
Establish governance systems to fulfill
人権責任を果たすためのガバナンス体制の整備
human rights responsibilities

Companies
Investors

Enhancedisclosure related to human rights
人権取り組みに関する情報開示の充実
initiatives

Companies
Investors
業

Implement human rights due diligence
人権デューディリジェンスの実施(Reference) Domestic trends concerning human rights

32%

57%

27%
39%
22%

Companies
Investors

34%

Strengthen
engagement and cooperation
投資家とのエンゲージメント・連携強化
with investors
No initiatives
are needed
必要な取り組みはない
Provide remediation (grievance
救済メカニズム（グリーバンスメカニズム）の構築
mechanisms)

11%
8%

Strengthen
engagement and cooperation with
人権NGO等とのエンゲージメント・連携強化
human rights NGOs and other organizations

Other
その他
Disclose lists of suppliers
サプライヤ－（取引先）リストの公開

企業■Companies
投資家■Investors
0% 10% 20% 30% 40% 50% 60% 70%

Source: Ministry ofForeign Affairs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 FY2021, the campaign targeted 170 listed companies (174 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 continued its efforts from the previous fiscal year to makethe 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) formulate and disclose aroadmap for greenhouse gas emission reductions with a view to achieving net zero emissions in 2050.
Equity market
reinvigoration

Improving shareholder
returns

Achieving a sustainable society

Improving ESG disclosure
Improving climate change disclosures

Targeted: 63 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%

Targeted: Companies in the top 52 bygreenhouse gas emissions

Targeted: 59 listed companies
Companies in the top 300 bymarket cap that do not provide
integrated disclosure of financial
and non-financial information

Target all companies in the top 50 by greenhousegas emissions (plus companies to which requests
were sent last year), considering the heightenedrisk awareness toward climate change in recent
times.

Dialogue by letter and meetings
Stewardship Activities WG(11 life insurers)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 90% of the targeted companies disclosed risks and opportunities
associated with climate change, and 98% of the targeted companies disclosed greenhouse gas reduction targets, indicating progress on thedisclosure of climate change information.
Looking at improving ESG disclosure, companies that newly issued integrated reports rose from 17% in FY2019 to 22%.
With regard to improving shareholder returns, companies that have met the standard of a dividend payout ratio of 30% increased from 24% in
FY2019 to 31%.

Improving climate change disclosures(Top: Disclosure of risks and opportunities; Bottom: Formulation ofgreenhouse gas emission reduction targets)
Disclosed(Quantitative and qualitative Disclosed (only qualitative analysis)
analysis)

Improving shareholder returns
Dividend payout
ratio of at least 30%

Not disclosed

90%

2020

8%
0%

82%
20%

40%

Disclosed reduction targets
based on the Paris
Agreement

2020

10%
60%

98%

40%

60%

69%

3%
2019

２％

56%

20%

31%

80%

24%
0%

73%
20%

40%

Theme
Progress on
disclosure

No progress on
disclosure

Improving climatechange disclosures

22%

16%

63%

Improving ESG
disclosure

17%
0%

28%
20%

80%

100%

(Reference) Status of activities of collaborative engagement in FY2020

Newly issued
integrated
reports

2019

60%* Companies excluded due to delisting, etc.

100%

Improving ESG disclosure

2020

Excluded*100%Disclosed only astrategic plan for
reductions

Disclosed original
reduction targets

42%
0%

80%

2020

Dividend payout ratioof less than 30%

Improvingshareholder
returns

55%
40%

60%

80%

100%

Total

Targeted companies
50
companies

64
companies

64
companies

171
companies

Companies in the top 50 by greenhouse gas emissions (Scope 1
and Scope 2)
Companies in the top 300 by market cap
that do not provide integrated disclosure of financial and nonfinancial information

Companies with sound finances, a low ratio of investing CF
relative to operating CF, and a long-term dividend payout ratioof less than 30%(178 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 other activities.
WG participants are also actively engaged in dialogue on ESG issues such as climate change, human rights, diversity and governance.
Additionally, WG participants took steps to expand stewardship activities beyond domestic listed shares, with initiatives centered on domestic corporate bonds.

Activity details

Comparison with the previous fiscal year

(Number of WG participants)

Dialogue theme

FY2020

FY20211111• E (climate change) dialogues

11• S (human rights, diversity) dialogues

10• Governance (G) dialogue

11

11Manage, use anddisclose the resultsof dialogue• Dialogue findings used in investment decisions

11

11• Externally disclosed the outcomes and results of dialogue

11

Expand the scopeof stewardship
activities• Expanded stewardship activities to domestic corporate bonds• Expanded stewardship activities beyond domestic corporate bonds(to foreign shares and corporate bonds, etc.)

11
4(6)

・ Disclose voting criteria

10・ Disclose voting results and the reasons for voting decisions

11

Enhance voting
disclosures
Conduct dialogue toaddress the spreadof COVID-19• Conducted dialogue on themes based on the spread of
COVID-19, such as work style reforms and digitalization

11

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 establishing systems and pursuing initiatives aimed at promoting ESG investment and finance, based on factorssuch as their respective investment strategies.
Notably, in FY2021, each WG participant strengthened initiatives to address the climate change problem, such as disclosing information according
to TCFD recommendations and disclosing net zero emission targets in the investment portfolio.

Activity details

Approach

PolicyOrganization

Addressing
climate change

Main ESG
investment andfinance methods
being used

Comparison with the previous fiscal year

FY2020【16】FY2021【18】• Become a signatory to PRI

12

14（15）• Clearly include the term “ESG” in the basic
investment policy

4

10（11）• Create cross-divisional meeting structures

12

16• Endorse TCFD recommendations *1

15

17• Disclose information according to TCFD
recommendations

11

16（17）• Disclose net zero emission targets in the investment portfolio

10（15）• Engagement (Dialogue)

1416• Integration *2

15

18• Negative screening *3

16

18• Impact investing

4

8(11)

*1: Including cases where TCFD recommendations are signed and endorsed at the holding company level and thecommitment 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 theirunderstanding of ESG investing and finance and enhance their initiatives/approaches.

 In FY2021, 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 human rights.
Instructor

SeminarSocial Innovation and Investment Foundation (SIIF)•

Trends in impact investing

Ministry of Economy, Trade and Industry•

Trends related to green finance

Ministry of the Environment•

Promotion of ESG finance

Financial Services Agency•

Briefing on the Report by the Expert Panel on Sustainable Finance< Joint seminars with the Stewardship Activities WG >Instructor

SeminarResona Asset Management Co., Ltd.

•

Action on human rights issues and related matters

Government Pension Investment Fund(GPIF)•

Case examples of ESG investment and stewardship activities

Neuberger Berman East Asia Limited•

Cutting-edge examples of ESG investment systems

Green Pacific Co., Ltd.

•

Climate change scenario analysis