Corporate Governance Reform in Japan
Japan Corporate Governance Forum

金融庁
Financial Services Agency, the Japanese Government

January 12, 2023

Overview To promote sustainable growth of companies and their mid- to long-term increase invalue, it is required to further deepen corporate governance reform from form to
substance.
 Especially, it is important to enhance engagement between companies and investors.
Also, it is important for us to hear from investors in US and globally.
 Beyond the Corporate Governance Reform, we are accelerating; To further enhance the corporate disclosure, sustainability reporting is to be incorporated
into statutory reporting framework.
 Asset-Income Doubling Plan realizes a “virtuous cycle of growth and asset income”.
 Japan aims to become an international financial center that attracts more investment
through various initiatives.

-1-Financial indicators
 The Return on Equity (ROE) of Japanese companies has been more than doubled after the Great
Financial Crisis.
 Stock Prices of Japanese companies has been on the upward trend. TOPIX has outperformed
STOXX Europe 600 in the last decade.
ROE
(%)
20

Stock Prices
340

Great Financial Crisis
17.7

18

TOPIX
14.2

14.1

300

15.6

15.4

16

13.6 14.1

14.4 14.3

14.6

14.1
13.4

14
11.7

11.2

13.7
13.5

12

11.9

12.3

13.2
12.2
11.1

12.0 11.9

11.8

10

10.9

8.2
7.7 7.8 8.0
6
6.1

9.0 8.7

8.0

8.9

7.3

6.7

260

STOXX Europe 600

240

180
160

6.3
140

5.6
Japan

4.5

120

US

3.5

2

S&P500

200

11.7

4

280

220

10.1
8

320

100

EU

80

0
08

09

10

11

12

13

14

15

16

17

18

19

20 21
(fiscal year)

Note: ROE is the median of ROE of the companies which constitute following
stock index. Japan: TOPIX500 / US: S&P500 / EU:BE500
Source: Prepared by the JFSA from Bloomberg.

13

14

15

16

17

18

19

20

21

22
(year)

Note: Local currency based indexes. Rebased to 100 as of 2013 Jan.1.
Source: Bloomberg.

-2-

Speech by Prime Minister KISHIDA Fumio at the New York Stock Exchange (1) (September 22, 2022)
 Corporate Governance Reform
One very important policy is corporate governance reform.
As a result of numerous reforms Japan has made in the last decade, the behavior of Japanese companies has significantly
changed.
ROE ratios have soared, and almost all companies now have independent outside directors. We also expect more companies toappoint women and foreign talent to their boards.
We have witnessed more companies undertaking vast corporate reforms not seen in the past, such as divesting non -corebusinesses and pivoting to new fields.
We will accelerate and further strengthen corporate governance reforms in Japan, such as establishing a forum in thenear future to hear from investors from around the world.
It has been three decades since the burst of the "bubble" economy in Japan. Since then, Japan has cut costs by tacklingexcessive debt, excessive investments and excessive capital. We have achieved a slim, cost -sensitive economy as a result. But
clearly more is required.
We face the challenge of investing in the future and developing an economy that consistently creates new value .
 Asset-Income Doubling Plan
My fourth point is our Asset-Income Doubling Plan.
We now have 2,000 trillion yen in personal financial assets. Only around 10% of this is invested in stocks. In order to double a sset
income and enable long-term asset building for retirement, it is essential to make our small investment tax exemption system
for individuals permanent.
Source: Official Website of the Prime Minister of Japan and His Cabinet at:https://japan.kantei.go.jp/101_kishida/statement/202209/_00009.html-3-Speech by Prime Minister KISHIDA Fumio at the New York Stock Exchange (2) (September 22, 2022)
 Human Capital
Let me share Japan’s five priorities.
First is to invest in people.
Digitalization and greening have drastically changed the economy. We know that a source of a great deal of added value will b e
intangible, not tangible, assets. And in particular, it will be human capital.
So, we will advance a society where human capital is central.
Labor market reform is my priority. Japanese labor management will be updated, from a seniority -based, lifelong employment
system into a new Japanese system where job-based pay is located at its core, through the cooperation between the governmentand business community.
This will facilitate labor mobility and give birth to a cycle in which paying higher wages attracts highly skilled personnel, thereby
increasing labor productivity and level of salaries.
We will further bolster our support for the reskilling of workers in digital and other fields, while encouraging labor mobili ty.
Japan’s future depends upon the vitality that women bring to our economy. "Women empowerment" is crucial. There has been aclear shift in the attitudes of the younger generation. Over the past 10 years, the percentage of full -time female employees under
the age of 35 has increased by 10% or by 0.6 million -even though the population of this generation decreased by 1.2 million ove r
the same period.
We are determined to clear the obstacles that hinder women’s advancement because women must be at the core of the Japanese
economy.
We need women to pursue their careers and have families. There is no reason we cannot pursue both and help the declining
birthrate. In April of next year, we will establish the Child and Family Affairs Agency to consolidate child -rearing policies. This is alandmark policy that aims to meet the structural challenges of our population decline.
Reforming the wage system, investing in people, and women empowerment. All of these efforts will be promoted in atransparent manner as we establish disclosure protocols for human capital, and we will lead the international rule -making
process as well.
Source: Official Website of the Prime Minister of Japan and His Cabinet at:https://japan.kantei.go.jp/101_kishida/statement/202209/_00009.html-4-Corporate Governance Reform: Future issues and Initiatives
 With the aim of promoting the sustainable growth of companies and their medium- to long-term
increase in value, it is required to proceed with initiatives toward the substance of corporate
governance reform.

Assumed Initiatives

 Enforce the disclosure form of non-financial information, including human capital investment
and climate change.
 Examine whether corporate governance reform has contributed to enhancing corporate
value, and further improve the substance.
 Enhance the quality of stewardship activities and stewardship report of institutional
investors.
 Examine the effectiveness of institutions’ incorporation of the revised Code. (Applying
the PDCA cycle.) Review the large shareholding reporting system to facilitate dialogue between companies
and investors.
 Clarify the range of (i) “joint holder” and (ii) an "act of making important suggestions.”

Set up a Forum to hear a wide range of opinions from stakeholders, including global investors, andcompile an Action Program to take action on corporate governance reform in terms of substance.
-5-Overview of the interviews with companies
on corporate governance reforms

Material of The Council of Experts Concerning
the Follow-up of Japan’s Stewardship Code andJapan’s Corporate Governance Code (thetwenty-seventh council on May 16, 2022)

 FSA, with the cooperation of Keidanren (Japan Business Federation), conducted a series ofinterviews with companies in order to look into their corporate governance initiatives and theirviews.
[Interviewed companies (in alphabetical order)]Astellas Pharma, Ebara, FP Corporation, Omron, Kao, Sun Frontier Fudousan, Shin-Etsu Chemical, Suzuki Motor, Sumitomo Electric Industries, TDK, Nitori HD, Fujitsu, Mitsui & Co.,
Mitsui Fudosan, Yamaha, Yokogawa

Key Takeaways•
Evaluation of the
Corporate
Governance Reforms

Most companies, including the management side, said that enhanced deliberations by the board of directors anddeepened discussions on medium- to long-term business strategies had a positive impact on their business, and thatengagement with investors gives useful suggestions to the management, suggesting that the direction andeffectiveness of corporate governance reforms are widely supported.

• Given the pressure to comply on the companies' side, if the Corporate Governance Code refers to even details of
businesses, it may lead to formalistic responses by companies, resulting in an insubstantial reforms.
• High-quality engagement should be promoted by addressing issues such as exercise of voting rights based on acheck-the-box by institutional investors, the lack of opportunities for engagement at medium-sized and smaller
companies, and the difficulty for companies to identify beneficial owners.

Key Issues

Engagement

Opinions of Companies

Companies

Corporate
Governance

Board of Directors

Board
EffectivenessNomination
Committee

Secretariat

Investors•

Corporate governance reforms help to increase corporate value in the long-run, and the directionof the Corporate Governance Code that aims to improve corporate value is highly appreciated .

•By original and ingenious initiatives, such as methods of explanations provided by the management
to the Board, the Board of Directors' deliberations were enhanced, and valuable suggestions andadvice were provided by outside directors, which led to decisive decision -making.

•Medium - to long-term management strategy was discussed at the Board of Directors, and authority
was transferred to executives. The monitoring of management through progress report increased the
speed of decision-making and enabled management in line with the medium - to long-term strategy.

Management
Appointment•

By gaining trust from within the company, a nomination committee can endow the nominatedmanagement team with strong leadership.

Evaluation of
the Board
Effectiveness•

Applying a PDCA cycle of corporate governance reforms that hinges upon the evaluation of theboard’s effectiveness can substantiate the functions of the board.

•

Engagement by the president, the chairman of the board and outside directors actively andcontinuously with investors who see the company on a medium to long horizon and give them
helpful suggestions.

Relation with
the Management

Engagement-6-Summary of Report by the Working Group on Corporate Disclosure of the Financial System Council(published on June 13, 2022)

SustainabilityNew Sustainability
Enhancement Corporate
Governance

Financial information
Annual Report(Matters of Financial Instruments
and Exchange Act’s revision)

Improving efficiency
of disclosure

Q3

Quarterly
Securities
Reports

Corporate
Governance(Matters of Cabinet Office Ordinance’s revisions)

Enhancing non-financial
disclosure The Working Group on Corporate Disclosure has discussed enhancing disclosure of non-financial information and improving efficiency of
disclosure in light of recent changes in economic and social circumstances. The summary below is based on the discussions.
GeneralAnnual Securities Reports
 A new section for disclosure of sustainability information will be created(Statutory)•“Governance” and “Risk Management” will be disclosed by all
issuers.
•"Strategy" and "Metrics and Targets" will be disclosed under
Non-financial informationmateriality judgement by an issuer.

Quarterly
Earning
Reports(Exchange
Rules)
Integration(Statutory)

Q2
Q1

Human capital "Human resource development policies" and "Policies on improving
workplace environment" will be added to disclosure items.
Diversity
 "Gender pay gap," "Ratio of women in managerial positions," and "Ratio ofmale workers taking childcare leave" will be added to disclosure items.
Functioning of the Board of Directors
 A new section for disclosure of activities of the Board of Directors,
Nomination Committee, and Remuneration Committee will be created.

Revision of Quarterly Disclosure System The quarterly disclosure requirements under the Financial Instruments
and Exchange Act (Q1 and Q3) will be abolished and integrated intoquarterly earning reports based on the Exchange Rules.
Quarterly Earning
Reports

Continue discussions on issues for materializing the integration, such as
consideration regarding disclosure obligation, content of disclosure,
enforcement against false statements and review by audit firms.

(Exchange Rules)(Note) In addition to the above, clarification of disclosure requirements for material contracts entered into by companies with other parties, and promotion of disclosure
in English have been also summarized.

-7-

Interim Roadmap for sustainability disclosure in Japan

Provisionally translated based on
Presentation Materials of the forth
meeting of the Working Group on
Corporate Disclosure of the
Financial System Council

 In order to enhance the disclosure of sustainability information in Japan, the following initiatives canbe considered while reviewing them as needed in accordance with future changes in circumstances.
Scope

2023

2024

2025

2026 and later

Annual Securities ReportCreate the new section forsustainability information

SSBJ

Japan

Listed companies（Companies
subject to FIEA）

SSBJ’s position be legislated

SSBJ standards considered to be incorporated into
statutory disclosure

Set sustainability disclosure standards in Japan
Will be discussed in accordance with the development of sustainability disclosure standards
Third-party Assurance
and changes in Japan and globally
Discuss sustainability assurance framework, which are- providers, assurance standards/coverage/level, and future regulation regime, etc.
Human resource development (issuers, assurance providers, users)
S1 and S2 be finalized
in the first half of 2023

ISSB（*1）－

IAASB（*1）
IESBA（*1）－• Develop newsustainability assurance
and ethics standards

US

Large accelerated filer

Scope1,2
required

Proposed
SEC rule on
March 2022

EU

Accelerated and Nonaccelerated filer
Smaller Reporting
Company
Large public-interest
companies with over 500
employees
Other large companies

Listed SMEs

Directive
CSRD・ESRS Non-EU companies（*5）

Set other standards beyond climate• Assurance standards to be finalized between Dec.2024 - Mar. 2025
• Ethics standards to be finalized on Dec. 2024

Publish the exposure
draft on 2023

* based on proposed SEC rule issued on
March 2022

Scope3 Limited Assurance（Scope1,2）
added
Scope1,2
required

LimitedIntroduced Assurance

2026
Reasonable
Assurance
2027
Reasonable
Assurance

Scope3 Limited Assurance（Scope1,2）
added
Scope1,2
required*Shift to Reasonable Assurance
LimitedIntroduced Assurance*Shift to Reasonable Assurance
Introduced Limited
Assurance
2026
Introduced Limited
Assurance
2028(*1) ISSB: International Sustainability Standards Board, IAASB: International Auditing and Assurance Standards Board, IESBA: International Ethics Standards Board for Accountants (*2) For ISSB and US,
description of proposed rules for climate-related disclosure (*3) For US, Large accelerated filer is an issuer which meets the conditions including an aggregate worldwide market value of $700 million or more,
Accelerated filer is an issuer which meets the conditions including an aggregate worldwide market value of $75 million or more, but less than $700 million, Non-accelerated filer is an issuer which doesn’t meet theconditions for large accelerated filer and accelerated filer, and Smaller Reporting Company is an issuer which meets the conditions including a public float of less than $250. (*4) In CSRD, SMEs are defined as allenterprises with less than 250 employees. (*5) Non-EU companies with substantial turnover in the EU (*6) In UK, the government published the roadmap for greening finance on October 2021. It is indicated in the-8roadmap to incorporate ISSB standards into statutory annual reporting.as the initiatives for one to two years from 2023.

Overview of Asset-Income Doubling Plan (1)Approved by Council of New Form of Capitalism
Realization on November 28, 2022

 Basic Concept Looking at New Form of Capitalism from the viewpoint of the flow of funds, it is important to increase income from financial
assets in addition to earned income by utilizing cash deposits in households for investment.
 If an environment is developed in which it is easy for the middle class to invest in assets with high returns, household inco mefrom financial assets will expand. If household funds become the source of growth investment for companies, corporate value
will increase. If corporate value increases, household income from financial assets will further expand, realizing a "virtuous cycleof growth and asset income".
 In the past, there was an image that investment in stocks and investment trusts was carried out by some wealthy people.
However, with the progress of digitalization, it is possible to greatly expand the asset income of the middle class by develo ping asystem in which a wide range of people, including those with little investment experience, can participate in asset formation .
 Goal
1. In five years, double the total number of NISA* accounts (from 17 million to 34 million) and the amount of NISA purchases (from28 trillion yen to 56 trillion yen).
2. Thereafter, aim to double household investment (the total balance of stocks, investment trusts, bonds, etc.), and throughachieving these goals, also aim to double asset management income itself as a long-term goal.
*Short for Nippon Individual Savings Account, the small investment tax exemption system for individuals.

 Direction
 Given the importance of making NISA simple, easy to understand and use, the need to widely disseminate the effectiveness ofdiversified long-term deposit investment, and the need to develop an adviser system that is neutral and reliable for consumers ,promote the following seven pillar initiatives in an integrated manner toward doubling asset income.
 Tax measures will be considered in the future tax reform process.

-9-Overview of Asset-Income Doubling Plan (2)Approved by Council of New Form of Capitalism
Realization on November 28, 2022

 Seven Pillars
1: Fundamentally expand and make permanent NISA, which shifts household financial assets from savings to investment
Make the NISA system permanent, and at the same time, make the tax-free holding period indefinite and raise the tax-free
limit.
2: Reform the iDeCo (individual-type Defined Contribution pension plan) system, including raising the minimum age forparticipation
Raise the participation age to 70; reach a conclusion on raising the contribution limit and the age at which people can start
receiving benefits in conjunction with the 2024 fiscal review of public pensions.
3: Create mechanisms to encourage consumers to provide neutral and reliable advice
Establish the public organization to promote financial and economic education, which certifies neutral advisors, and easeregistration requirements for targeted investment advisors.
4: Strengthen asset formation for employers
Encourage companies to make efforts to utilize neutral certified advisors in their work areas.
5: Enhance financial and economic education to instill the importance of stable asset formation
Establish the public organization to promote financial and economic education, and formulate the "Basic Policy" as a national
strategy for comprehensive and systematic promotion of education throughout the country.
6: Realize a global financial center open to the world
Comprehensively promote the revitalization of financial and capital markets, the globalization of financial administration an dtaxation systems, the improvement of living conditions and business environment, and the effective dissemination of
information.
7: Ensure Customer-Oriented Business Conduct
Review the "Principles for Customer-Oriented Business Conduct" and develop necessary rules.

- 10 -

Japan as an International Financial Center What makes fund managers consider the relocation of their resources?
 Increased focus on business continuity during the pandemic (i.e., multiple offices) Growing geopolitical uncertainties in East Asia Japan’s advantages for attracting more investment to Japan and the Asia include: A solid democracy and the rule of law;
 Safe and secure living and business environment; A large real economy and stock market; and huge household financial assets
Tax and financial regulation
 Financial Market Entry Office for English
consultation and supervisory interaction

 Effective promotion and outreach- Direct outreach to overseas managers- Increased media coverage New easy-entry schemes for overseas
asset managers
 Corporate, inheritance and income tax
reforms
 Review of the remaining tax obstacles

Living and business environment
 Financial start-up support program forfinancial license and visa acquisition

 Preferential immigration treatment for asset
management professionals
 Smooth opening of a bank accountBusiness opportunities Support for startups
 ESG bond market
 Corporate governance reforms
 Investment in human capital by JP firms
 Review of firewall regulations- 11 -

Thank you for your attention.
We hear from you at
jcgf.secretariat@fsa.go.jp

Public Relations Magazine

ACCESS FSA

ReferenceKey Points to the Second Revision to Japan’s CG Code To increase corporate value by improving the ability of Japanese companies to respond to changes inthe business environment and to gain recognition from investors in Japan and overseas, Japan‘s
Corporate Governance Code was revised on June 11, 2021 (second revision).
Key Points
1. Enhancing Board Independence Increase in the number of independent directors from at least two to at least 1/3 of the board for Prime
Market listed companies
 Establish a nomination committee and a remuneration committee
2. Promoting Diversity
 Disclose a policy and voluntary measurable targets in respect of promoting diversity in senior
management by appointing females, non-Japanese and mid-career professionals
3. Attention to Sustainability and ESG
 Enhance the quality and quantity of climate-related disclosure based on TCFD recommendations orequivalent international frameworks at Prime Market listed companies
Other major points
 Appoint independent directors enough to have them form a majority of the board or establish an independent
special committee at Prime Market listed subsidiaries so as to cope with conflicts of interest between their parent
company and minority shareholders
 Promote the use of electronic voting platforms and disclosure in English at Prime Market listed companies-1-Proportion of Independent Directors in the Prime Market[Principle 4.8 of the CG Code] Over 90% Prime Market listed companies have 1/3 or more independent directors.
 17% of JPX Nikkei 400 have a majority of independent directors.

【Companies with 1/3 or more Independent Directors】【Companies with Majority Independent Directors】

Source: Excerpts from “Response of Listed Companies regarding Revised Corporate Governance Code (As of July 14, 2022) , Tokyo Stock Exchange, Inc. August 3,2022”, partially processed by FSA-2-

Nomination / Remuneration Committees[Supplementary Principle 4.10.1 of the CG Code] About 80％ of companies at Prime Market have established statutory or optional Nomination /Remuneration Committees.

【Companies with nomination committee】【Companies with remuneration committee】

Source: Excerpts from “Response of Listed Companies regarding Revised Corporate Governance Code (As of July 14, 2022) , Tokyo Stock Exchange, Inc. August 3,2022”, partially processed by FSA-3-

Key Points to the Second Revision to Japan’s Stewardship Code To further promote the effectiveness of corporate governance reform, Japan‘s Stewardship Code wasrevised on March 24, 2020 (second revision).
Point 1
Point 2

Point 3

Corporate Governance Code

Stewardship CodeInvestInvestAsset

Ultimate
Beneficiaries

Asset Owners(Pension Funds)(the nation)

AssetManagers

Constructive
Dialogue

Investment Consultantsfor pensions

Corporates

ReturnReturnReturnPoint 5

Approach

Proxy Advisors

Service Providers
for Institutional Investors

Point 4

(1) General Discussions(1) Consciousness of “medium- to long-term increase of corporate value”(2) Consideration of “sustainability” (medium- to long-term sustainability)(3) Applying to other asset classes(2) Asset Managers

Improvement of disclosure to promote constructive dialogue(3) Asset Owners

Support for the stewardship activities of corporate pension funds(4) Proxy Advisors(5)

Investment Consultantsfor pensions

Improvement of quality of services for institutional investors-4-

Changes in number of institutions accepting Japan’s Stewardship Code The number of institutions accepting Japan’s Stewardship Code has continued to increase since theintroduction of the Code on February 2014. 322 institutional investors have accepted the Code as ofNovember 30,2022.
 296 institutional investors* have accepted 2020 revised version of Japan’s Stewardship Code as ofNovember 30,2022.(* 6 Trust Banks,183 Investment managers,24 Insurance Companies,73 Pension Funds, 10
Others)
350

300★The number of institutions accepting Japan’s Stewardship Code■Trust Banks■Investment managers■Pension Funds■Insurance Companies

322

Second Revision of Stewardship Code (March 2020)

12■Others (Service Providers for Institutional Investors, etc.)
7
Revision of Stewardship Code(March 2017)250
Introduction of Stewardship Code (Feb 2014)

200

150

100

7
19

127

7
23
21

7
24
22

7
26
22

7
7
26
22

7
26
22

7
26
22

31
22

7
32

7

49

8

22

23

174

178

11

11

74

77

79

24

24

24

205

205

202

11
68

53

58

23

24

24

194

194

199

37
23

11

21

4
12
19

122

133

141

147

152

153

153

163

188

50

86

0

6

6

7

7

7

7

7

6

6

6

6

6

6

6

6

6

6

6

14/05

14/12

15/06

15/12

16/06

16/12

17/06

17/12

18/06

18/12

19/06

19/12

20/06

20/12

21/06

21/12

22/06

22/11

Source: Prepared by JFSA

-5-

Issues regarding institutional settings that support engagement (1) –Collaborative engagement

Material of The Council of Experts
Concerning the Follow-up of Japan’s
Stewardship Code and Japan’s
Corporate Governance Code (the twentyseventh council on May 16, 2022)

 The Council of Experts on the Stewardship Code pointed out issues on institutional settings that support
engagement, such as the legal framework for collaborative engagement.
 In the most recent survey, more than half of investors mentioned the lack of clarity in the terms "joint holder"(Note 1) and"act of making important suggestions"(Note 2) as a challenge in collaborative engagement.
(Note 1) Under the large shareholding reporting system, shareholders are required to calculate their holding ratio of share certificates, etc. by including the shareholding of "persons who have agreed withanother shareholder to jointly exercise voting rights and other shareholder rights." (“joint holders”).
(Note 2) An "act of making important suggestions” means suggesting matters specified in Article 14-8-2, Paragraph 1 of the Order as those that will cause material changes or materially influence the issuer’s
business activities at a general shareholders meeting of investee companies or to their corporate directors.
For institutional investors, the deadline for submission of a large shareholding report, etc. is relaxed by a special reporting rule in consideration of the excessive clerical burden of disclosure. However, this rule
does not apply to cases where the purpose of holding is an "act of making important suggestions."

Issues regarding collaborative engagement
Proposed Revisions to the Stewardship Code (December 2019)
In addition, the following comments were also raised during the discussion of the Council. Further review by the Council based on actual conditions
is considered necessary. The Financial Services Agency is also expected to review them.
• With the expansion of passive investment, is it necessary to reconsider how to improve engagement?
• Some people point out that the “Clarification of Legal Issues Relating to the Development of Japan’s Stewardship Code” does not give sufficient
clarification on the scope of collaborative engagement. Is it necessary to deal with these arguments?
c.f.) Responses to public comments to the draft revised Stewardship Code (March 2020)
As it was pointed out that the “Clarification of Legal Issues Relating to the Development of Japan’s Stewardship Code” does not give sufficient
clarification on the scope of collaborative engagement, it is expected that the FSA will consider how to respond to such issues as requested in "Second
Revision of the Stewardship Code."

Survey on challenges for collaborative engagement
イ. 「重要提案行為」への該当性判断が不明確
A) Conditions of ”act of making importantsuggestions” is not clear.
ロ. of「共同保有者」への該当性判断が不明確
B) Conditions“Joint holders” is not clear.
C) Burden of large shareholding
reports when conditions of A) and B) are applicable
ハ. 上記イやロに該当する場合の大量保有報告制度への対応負担が大きい
D)ニ.Other
その他
E) Noホ.challenges
特に問題ない26 firms(65%)
24 firms(60%)
20 firms(50%)
9 firms(23%)
3 firms(8%)

Note 3: Respondents were 40 institutional investors that had outstanding Japanese equity investment as of the end of June 2021 that had "undertaken" or "planned to undertake" collaborative engagement
activities as of the end of August 2021.
Source: Prepared by JFSA from "Results of the 8th Questionnaire on Responses to the Japanese Version of the Stewardship Code (October 2021)", Japan Investment Advisers Association-6-

Issues regarding institutional settings that support engagement (2) –Collaborative engagement

Material of The Council of Experts
Concerning the Follow-up of Japan’s
Stewardship Code and Japan’s
Corporate Governance Code (the twentyseventh council on May 16, 2022)

Problems arising from lack of clarity in the legal terms related to collaborative engagement
The 19th Follow-up Meeting (April 2019) Kerry Wailing Member
ICGN Members would welcome further clarity around their ability to act collaboratively with other investors without
being considered a ‘concert party.’ It would therefore be helpful for the FSA to publish guidance on what constitutes
acceptable engagement subjects to ensure they will not breach rules regarding collective holding thresholds above
which would trigger onerous reporting requirements.
The 7th Follow-up Meeting (April 2016) Ueda, Ryoko Member(T)he UK investors and investors’ associations […] often tell us about their concerns: if they take part in collective
engagement in Japan, it will be regarded as “acting in concert,” and they will become subject to regulations on large
volume holding of shares. […] Even though the FSA has already sorted out and published legal issues related to the
Stewardship Code, such doubts have not been easily cleared up. Then we many need to consider other methods.
The Council of Experts on the Stewardship Code (October 2019) Tanaka, Wataru Member
The large shareholding report regulations are still said to be having a chilling effect. Regardless of thecomprehensive management control indicated by “Act of Making Important Suggestions,” in addition to the breadthof the original provisions in which all actions of a certain level of importance were seemingly included among the“Act of Making Important Suggestions,” the concept of “joint exercise of shareholder rights” can be read as having
extremely comprehensive application because, unlike in the UK and other countries, there are no requirements thatit be for the purpose of management control. In the end, I think it would be best to resolve this through legislation.
Because such provisions exist under the current legal system, I have heard it said that an investor wanting to makea suggestion has no choice but to do so in the form of a question, that is, to ask the management team what they
think about a particular matter. […] the people I have spoken to have made it clear that ideas are not being
conveyed, saying that the investor’s intent is not communicated to corporate managers, or at least to certain
corporate managers, simply by asking questions. An approach must be developed to allow things to be stated more
directly.

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Overview of TSE Market Restructuring
 On April 4, 2022, TSE restructured the cash equity market to incentivize sustainable growth andmedium- to long-term corporate value creation at listed companies, thereby providing an attractive
market that gains support from various types of investors both domestic and overseas.
Old Market Divisions
1st Section

For various companies

For companies with high liquidity

Mothers
For startups

Indicated Issues
 Ambiguity in the market division concepts

Standard

2nd Section
For companies witha track record Poor incentives for sustainable growth

GrowthTransition to newmarket segments on
April 4, 2022

New Market
Segments

Prime

Standard

GrowthThe market oriented tocompanies which center
their business on
constructive dialogue with
global investors

The market oriented tocompanies with sufficientliquidity and governancelevels to be investment
instruments

The market oriented tocompanies with highgrowth potential

Basic Concepts
 Criteria are set according to the concept of each market segment
 Initial listing criteria and continued listing criteria for each market segment have beenstandardized in principle.
-8-

the Code of Conduct for ESG Evaluation and Data Providers
 The Technical Committee for ESG Evaluation and Data Providers compiled a draft "Code of Conduct" to ensuretransparency and fairness of ESG evaluation and data providers that evaluate corporate ESG initiatives. The draft report,
published in July 2022, set out recommendations for ESG evaluation and data providers, institutional investors, andcompanies.
 Based on the Technical Committee’s report the FSA published a draft Code of Conduct for public consultation (fromJuly to September 5) and finalized it in December 2022.
note) The FSA calls for voluntary endorsement of the Code from ESG evaluation and data providers that provide services in Japan. The
Code will not be laws or regulations, but are designed to be voluntary on a “comply or explain” basis, where the providers supporting theCode will either comply with the principles and guidelines of the Code, or explain the reasons why they do not comply with a particular
item.). The FSA will publish the status of endorsement regarding evaluation by June 2023 and that regarding data by June 2024.







Recommendations for ESG evaluation and data providers (Code of Conduct)
Ensuring Transparency
Disclosing the objective, approach and basic methodology of ESG evaluations.
Human Resource Development
Securing necessary professional human resources as organization and developing
their own professional skills.
Avoiding or managing the risks of conflicts of interest
Identifying their own activities and situations that could undermine theindependence, objectivity, and neutrality of their business, and avoiding or reducing
the risks of, potential conflicts of interest.
Communication With Companies
Clarifying a contact point with a company, allowing it for confirmation and correctionof input data for evaluation, and disclosing these procedures in advance.
Recommendations for institutional investors and companies



Clarifying the basic approach of how they utilize ESG evaluation and data in theirinvestment decisions (investors)
Disclosing ESG information in an easy-to-understand manner and contact point for
responding to inquiries from ESG evaluation and data providers (companies)(*1)developed in light of international reports by IOSCO(*2)Academic and media organizations are not included in the scope-9-