Stewardship responsibilities and ESG investment
Initiatives at Asset Management One
At the same time that Asset Management One, which is the Mizuho group company responsible for asset management, began operations in October 2016, we newly established our Responsible Investing Department (currently Responsible Investment Group) and proceeded with initiatives for active engagement in discussions with our investee companies regarding environmental, social, and corporate governance (ESG) issues and exercise of proxy voting rights.
Asset Management One's corporate message "Creating a sustainable future through the power of investment" clearly states that it will "incorporate sustainability into management" as an asset management company contributing to customers and society. Asset Management One created a materiality map that dynamically captures global environmental and social issues based on two axes (double materiality) of sustainable materiality, which indicates the level of civil society and investor interest, and financial materiality, indicating the economic impact. Management also identified nine core materiality items of climate change, biodiversity, business and human rights, water resources, circular economy, diversity and inclusion, sustainable food systems, air, water and land pollution, and health and wellbeing. Of these, business and human rights, diversity and inclusion, and health and wellbeing were set as focus areas, that the company will use to guide its engagement and voting related to its materiality items.
For further information on Asset Management One's policies with respect to Japan's Stewardship Code, please refer to the following link.
Approach to engagement activity
At Asset Management One, we select companies for developing close relationships with and then conduct engagement activities.
In our passive asset management activities, which account for the majority of our equity investing, after taking into account the level of impact on the market, we select companies for ongoing dialogue regarding their initiatives to address their ESG issues and other matters.
In our active portfolio management, after considering the corporate issues and effect on corporate value of these issues at the time when they are solved, we then conduct our engagement activities.
Actual engagement activities
Breakdown of engagement activity issues (fiscal 2021)
|Environmental issues||Responses to environmental issues, including climate change, biodiversity, pollution, and waste||16.1%|
|Social issues||Responses to social issues, including diversity, labor standards, industrial safety and health, and product liability||5.8%|
|Governance issues||Responses to governance issues, including the structure of the Board of Directors and risk management||29.6%|
|ESG issues||Responses to comprehensive ESG issues, such as CSR/ESG information disclosure and supply chain management||23.1%|
|Corporate strategy||Business strategy, financial and capital policy, and other strategies to enhance corporate value and financial stability||25.5%|
*Target: Domestic stock and domestic bond active
Note: The percentage of the number of company engagement activities related to climate change in FY2021 was 12.8%.
Examples of engagement on various topics
We deepened dialogue with a general trading company that has been in continuous discussions about reducing GHG emissions, and also discussions related to coal-fired power generation, including responses to shareholder proposals related to climate change.
|Analyst view||Delay addressing climate change will directly damage corporate value. At the same time, advance initiatives could reduce risk and boost competitiveness. Transitioning to a decarbonized and renewable energy business is an urgent issue for a general trading company.|
|Dialogue with company management||We engaged with management in detailed discussions about TCFD responses, including shareholder proposals related to climate change.
The company took the positive steps of announcing a target for attaining carbon neutrality in 2050, setting interim milestones for 2035, and providing a 1.5°C scenario analysis. We then exchanged views on various issues, including the company’s stance on the construction of coal-fired power plants.
|Response from Company A||The company told us that consistency with the Paris Agreement is the top priority as a criterion for coal-fired power generation. The company's comparative advantage in the field of renewable energy comes from its track record of IPPs related to power generation, which it believes gives it presence in the industry. Regarding the GHG reduction target, the company has already provided an interim milestone for 2035, but is also considering setting a target for 2030 to make it easier to understand.|
We engaged in ongoing discussions about the importance of workstyle reform and human resource strategy with a company well-known for being hard working.
|Analyst view||Delay improving the work environment to secure human resources and improve productivity will directly damage corporate value. At the same time, advance initiatives would very likely reduce risk and strengthen the competitiveness of the core business. Because the company's executive management is well-known for being hard working, it is necessary to confirm the status of the improvements to the working environment and encourage improving the work style reforms for employees as well as for suppliers.|
|Dialogue with company management||While engaging in dialogue about workstyle reform and strengthening measures to implement human resource strategies, the company announced a voluntary action plan for workstyle reform and a health declaration. In 2021, during discussions about the effectiveness of highly efficient labor, management took the positive steps of identifying issues of materiality related to human resources and launching a new personnel system designed to switch focus "from working hard to working efficiently" and "from work hours to productivity."|
|Response from Company B||The company told us that it is placing great importance on workstyle reform and is seeking to refocus from hard work to high-efficiency work. Management also set targets to shift from work hours to productivity and introduced concrete measures to adopt an evaluation system designed to boost productivity and to shift to a job-based personnel system. The company is also stepping up efforts across the supply chain and examining implementing visualization, for its KPIs.|
We engaged in ongoing dialogue about reducing the volume of strategic shareholdings, which are negatively affecting capital efficiency, leading to deeper mutual understanding and more effective management initiatives.
|Analyst view||The company needs to find ways to improve its capital efficiency, which is low because of its substantial volume of strategic shareholdings, and to utilize its solid capital base to contribute to development of local communities. Reducing strategic shareholdings and improving shareholder return could vastly improve the company’s market valuation.|
|Dialogue with company management||Following ongoing discussions about improving capital efficiency, which included providing detailed feedback on the exercise of voting rights (opposing the election of some directors based on performance criteria), the company announced that it is enhancing shareholder return. The dialogue including discussing the value of strengthening shareholder return and the need to vastly revise the policy on strategic shareholding based on the perspective that holding such a large volume was like an asset management company and therefore should come with the responsibility of disclosure. Dialogue about increasing disclosure is continuing as well as dialogue about the reasons for the maintaining the cross shareholdings.|
|Response from Company C||The company said it has had internal discussions about shareholder returns and increased the total return ratio while maintaining a balance shareholder return and investment for growth. Management said it now has a new understanding of the disclosure of information about its strategic shareholdings, and it also wants to gather information and methods for capital return management. The company is unsatisfied with its current state of strategic shareholdings and low capital efficiency and has said it would like to take steps to address the issue in the near future.|
Development of products with a view to ESG
In recent years, institutional investors have been showing greater interest in ESG investment, which considers environmental, social, and corporate governance (ESG) issues, as a type of non–financial information. To continue to be an asset management institution that contributes to the development of our customers and society as a whole, Asset Management One recognizes the importance of ESG information as a foundation for financial information in the medium to long term, and we are working to integrate ESG into our investment strategies.
Japanese ESG Bond Fund
As part of our investment strategy integrating ESG evaluations, we established the Japanese ESG Bond Fund in August 2017 and began to offer it to institutional investors. This fund combines our research capabilities, our ESG investment knowledge, our proxy voting database (covering about 2,000 companies each year), and Mizuho–DL Financial Technology's ESG data analysis model. Using these integrated capabilities, we eliminate stocks that are high risk from an ESG perspective, aiming to reduce downside risk and secure stable returns.
"Sustainability Research Strategy Fund" concentrating on CSV* issues
Asset Management One carefully selects companies that are able to generate growth in income through initiatives to address social issues and offers institutional investors our Sustainability Research Strategy Fund, which concentrates on securing income. In selecting companies, this fund not only takes account of ESG assessments, but also gives more emphasis to return and carefully selects companies that are expected to report growth in income through initiatives to address and solve social issues. When establishing this fund, we considered the Sustainable Development Goals (SDGs) and other sources, including research on trends in social issues, corporate assessments from an ESG perspective, and works in collaboration with Mizuho Research & Technologies, which has abundant CSR consulting experience for corporations. For companies to practice CSV management in the long term, we think it is important for their management philosophies to be in accordance with CSV and for their management to insist on CSV ideals. We identify the stances of potential investee companies toward CSV management through constructive dialogue.
* CSV stands for Creating Shared Value, and it was developed by Harvard University professor Michael Porter in 2011 as a management model to enable companies to create both economic value and social value simultaneously.