Japan investors flex muscles in 2021 proxy season

October 1, 2021

Investors in Japanese listed companies pushed boards on director independence, diversity, and climate change in this year's proxy voting season, according to a new review.

In a newsletter distributed on 24 September, Sumitomo Mitsui Trust Bank reported that 48 companies received a total of 162 shareholder proposals in June 2021, "a slight decrease from the previous year".

Despite this slight numerical decline, the bank declared that "shareholder activism is getting widespread in Japan".

The issues raised in the proposals included climate change, executive compensation, and board composition.

In its review, Sumitomo Mitsui said climate change drew the most attention.

It cited the example of Kiko Network, an environment-focused organisation, which in 2020 pushed for Mizuho Financial Group to publish disclosures in relation to its plans to comply with the goals of the 2015 Paris Agreement on climate change. This shareholder proposal received 34% support from fellow investors this proxy season.

This year, other environmental groups submitted proposals to Mitsubishi UFJ Financial Group and Sumitomo Corporation calling for similar disclosures.

Meanwhile, investors have increasingly sought to limit stock compensation plans for executives this year, the review showed.

"Activists often focus on companies whose market capitalisation and share price performance have been sluggish, and they sometimes see it attributable to 'limited linkage between executive compensation plans and operating performance/stock prices' [and so] call for improvements."

Proxy advisers have begun to question the Japanese practice of cross-shareholding, Sumitomo Mitsui said. This involves listed companies holding shares in other listed companies. The bank said advisers had been "introducing and applying new guidelines for cross-shareholdings".