Responsible ownership push picks up steam
The Tokyo-based Pension Fund Association has appointed UK firm Hermes EOS to help it implement its stewardship activities, in a sign of a growing focus on the role of investors in corporate governance in Japan and elsewhere in Asia.
The move by the ¥12.7 trillion ($112 billion) fund reflects accelerating momentum in the region towards establishing principles of responsible ownership for institutional investors, said Hans-Christoph Hirt, co-head of Hermes EOS.
Last week Hong Kong’s Securities and Futures Commission published consultation conclusions on its own draft principles. And Taiwan has moved swiftly on this front; having consulted on a set of principles in December, it plans to launch them on March 29. Singapore, too, has drafted a stewardship code, but has not yet held a public consultation, Hirt told AsianInvestor.
“My expectation is that Hong Kong and Singapore will follow quickly [after Taiwan], because there seems to be a bit of regulatory competition [to put principles in place],” he noted.
That said, Japan is two or three years ahead of the rest of Asia on this front, said Hirt. PFA is Hermes EOS’s first client in the region, though the UK firm is talking to other institutions in Asia about its stewardship services.
As of the end of November, 205 asset managers and owners had signed up for Japan’s Stewardship Code, the Principles for Responsible Institutional Investors. These include several of the country's biggest insurers and pension, such as the $1.2 trillion Government Pension Investment Fund, Japan Post and Nippon Life. A number of foreign firms are also signatories.
Securing PFA as a client gave Hermes EOS the critical mass to hire its first full-time employee in Japan in January. As senior engagement consultant, Masaru Arai will support Hermes EOS and its clients.
Arai is chair of the Japan Sustainable Investment Forum and previously worked at Daiwa Asset Management for 19 years, seven of which as CIO. Prior to that, he worked at Daiwa Securities, specialising in global investment and finance.
Commenting on the deal with Hermes EOS, Daisuke Hamaguchi, PFA’s chief investment officer, said: “At a high level, our focus is to improve the transparency and efficiency of Japan’s capital markets in order to attract more investors, not only from within Japan but also from overseas. It is about time the industry starts acting as good stewards.”
Japan introduced its Stewardship Code in 2014, and this was followed by the country’s first ever Corporate Governance Code, which came into force in June 2015. Hermes EOS was involved in the development and promotion of the two codes and, together with Hermes IM, was one of the first signatories to the Stewardship Code.
Elsewhere, Malaysia launched its own stewardship code in June 2014, shortly after Japan.
Such codes set out how long-term institutional investors should exercise stewardship of the companies they have stakes in, in areas such as voting rights and corporate engagement.
However, there is some way to go before certain Asian markets are at the same stage as Japan or even Hong Kong or Taiwan on this front. Hirt said he was not aware of any developments around stewardship principles in mainland China, and “nothing concrete” in India.
In Korea, there had been discussion of stewardship codes, but that appears to have slowed down significantly, he noted. “There was a semi-public hearing at the end of last year, but things do not seem to have moved on since then,” said Hirt.
Industry observers point out that Korea's powerful, family-controlled chaebols are unlikely to be keen on greater scrutiny of their corporate governance arrangements.