METI Releases the Report on ESG Dialogue between Active Fund Managers and Companies

1. Challenges

In establishing the subcommittee, members of the forum presented an opinion, concerning the problem facing active fund managers*² who face ever-increasing worldwide pressure due to the rise in popularity of passive fund management, and a tendency towards short-termism and a lack of sufficient discussions among fund managers. With this understanding, the members pointed out that now is the time for active fund managers, who have few opportunities to discuss issues concerning ESG investment and dialogue with companies, to gather and discuss ways to facilitate constructive dialogues with companies, and to make the guidance the shared language to understand and use amongst themselves.

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2. Points of discussion

Among others, the subcommittee discussed the following points.

• Types of corporate information that investors find most useful; identifying which information is prioritized in relation to size or sector of the company; desirable methods for corporate disclosure
• Approaches to making use of the guidance in investment practices; in line with this, how to refine the guidance to make it more useful for investors.

 

3. Output from the subcommittee

Based on the discussion in the subcommittee, the report shows the following:.

• Active investors are focused on business models, competitive advantages, strategies and KPIs based on them.
• Active investors want companies to show their own unique information about ESG rather than coverage.
• The management philosophy and values are important, but the starting point in the dialogue with companies is the achievement of the financial result and the KPI. So, investors want the manager to explain them in their own words.
• Because it is useful to use the guidance as a shared language, investors want to use “the guidance” in the management of the company.
• In order for companies to make its information disclosure or have a dialogue following the guidance, investors should commit to refer, read carefully, and give it considerable thought, before they conduct in dialogue with the company..

In light of these discussions, the subcommittee has compiled “the Declaration of Active Fund Managers” that welcomes information disclosure based on the guidance and incorporates it into the investment decision process.
In this report, the expectation that the circle of corporate investors and fund management organizations which agrees with the declaration will expand in the future is shown.

4. Report released by the subcommittee

• Discussions Summary on ESG Dialogue between Active Fund Managers and Companies(PDF:74KB)
• Report on ESG Dialogue between Active Fund Managers and Companies (full text, in Japanese)(PDF:1,880KB)

5. References

Reference materials

• The Declaration of Active Fund Managers (Released on May 18, 2018)(PDF:147KB)
• The supporters of Declaration of Active Fund Managers (PDF:143KB)

For details of the Guidance for Collaborative Value Creation, visit the following website (in Japanese).

• METI’s portal site (“The Guidance for Collaborative Value Creation” for corporate and investor dialogue)

Related News Release

• METI Formulates Guidance for Integrated Corporate Disclosure and Company-Investor Dialogues for Collaborative Value Creation
• METI Compiles “Four Principles” and “Four Actions” for Disclosure and Dialogues between Companies and Investors

Division in Charge

Industrial Finance Division, Economic and Industrial Policy Bureau