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  5. Inauguration of a Study Group on Dialogues that Contribute to Long-term Corporate Management and Investment for Creation of Sustainable Corporate Value

Inauguration of a Study Group on Dialogues that Contribute to Long-term Corporate Management and Investment for Creation of Sustainable Corporate Value

May 28, 2021

Due to recent global multi-stakeholder discussions and the growing importance of ESG investment and SDGs-based corporate management, there has been growing interest in dialogues between companies and investors on sustainability and the disclosure of non-financial information.
Following the publication of the Ito Review in 2014, the Ministry of Economy, Trade and Industry (METI) presented the Ito Review 2.0 and Guidance for Collaborative Value Creation in 2017, and has been encouraging companies and investors to engage in dialogues toward improving corporate value on a medium- to long-term basis. Furthermore, last August, the Study Group on Approaches to Making More Substantial the Dialogues for Creation of Sustainable Corporate Value(*1) proposed "sustainability transformation" (SX) in order to make the dialogues more substantial. SX aims at incorporating social issues into corporate management on a long-term time scale to reinforce corporate earning power by synchronizing social sustainability and corporate sustainability.
In order to make the SX approach more concrete, METI will inaugurate a Study Group on Dialogues that Contribute to Long-term Corporate Management and Investment for Creation of Sustainable Corporate Value (the "SX Study Group").
The study group will clarify the challenges and ideal approaches regarding the following: long-term management of companies that incorporate social sustainability on a long-term time scale; company-investor dialogues toward improving corporate value on a medium- to long-term basis by incorporating sustainability elements; and the disclosure of non-financial information. Then, it will reflect those elements in the Guidance for Collaborative Value Creation(*2) formulated as a "common language" for dialogues between companies and investors, in order to revise the Guidance as a framework for integrated information disclosure and company-investor dialogues based on sustainability.
In addition, the study group will compile as an Ito Report 3.0 information on the challenges and approaches regarding these company-investor dialogues that contribute to improving corporate value on a medium- to long-term basis based on sustainability.

1. Purpose and background

METI proposed the importance of "sustainability transformation" (SX) at the Study Group on Approaches to Making More Substantial the Dialogues for Creation of Sustainable Corporate Value (hereinafter referred to as the "Study Group for Substantial Dialogues"), which conducted reviews for six years after the release of the first version of the Ito Review.(*3) The SX concept encompasses such elements as the following: business management based on a long-term time scale for sustainable improvement of corporate earning power; approaches that synchronize the time scales for social sustainability and corporate sustainability and incorporate social issues into business management on the basis of the resulting time scale; and strengthening resilience through continual dialogues between companies and investors in order to be prepared for uncertainties. Its aim is to narrow the gaps between investors and companies regarding dialogues about matters such as business portfolios and sowing the seeds for innovation (Interim Report published in August 2020).

In recent years, whenever stakeholder capitalism is proposed, there are gaps between companies' and investors' perceptions about whether value that companies should create should be regarded as independent value for each stakeholder, or value for stakeholders should be regarded as value that is ultimately returned to shareholders after being circulated in a value chain.

Non-financial information, especially regarding sustainability, is also increasingly being called for in information disclosure and dialogues with investors, but internationally, there are many different frameworks for information disclosure and dialogues regarding whether the importance should be placed on financial impact on the companies (impact on the companies from external factors such as the social environment), or on social impact (the companies' impact on society), and companies and investors take different standpoints. Moreover, discussions on rule-making regarding the disclosure of non-financial information have been growing more active internationally. An example of this is the creation of a new board on the disclosure of non-financial information by the IFRS Foundation.

In 2017, METI formulated the Guidance for Collaborative Value Creation to accompany the release of the Ito Report 2.0.(*4) The aim was to provide a framework for information disclosure and dialogues regarding value-creating scenarios from the standpoint of medium- to long-term value creation. Although the Guidelines have encouraged dialogues between companies and investors, the Study Group for Substantial Dialogues has pointed out that there are still challenges to overcome in order for substantial dialogues to be possible.

For this reason, the SX Study Group will clarify the challenges and ideal approaches regarding long-term corporate management by companies and investment by investors and the specific dialogues these will entail. It will base this clarification on the SX concepts proposed by the Study Group for Substantial Dialogues, such as synchronizing corporate sustainability and social sustainability. It will also discuss revising the Guidance for Collaborative Value Creation so that it reflects those elements and will be a framework for integrated information disclosure and company-investor dialogues based on SX.

Furthermore, the Study Group for Substantial Dialogues pointed out that another challenge regarding making dialogues more substantial is the gaps between companies' perceptions regarding approaches to dialogues and the dialogues themselves. It has organized the elements that constitute a substantial dialogue in order to narrow those gaps. The SX Study Group will further organize these elements, and then discuss how to revise the Guidance.

In conjunction with the inauguration of the SX Study Group, a Study Group on Disclosure Guidelines for Non-financial Information will also be inaugurated to share information on global trends regarding non-financial information and related policies, and discuss what directions such guidelines should take in order to achieve high-quality disclosure of such information.

2. Examples of matters and points that are going to be discussed by the SX Study Group

(1) Defining corporate "value" that companies should create, based on global discussions about stakeholders

Note: What to communicate to whom, and by what means

(2) Challenges regarding corporate management and dialogues on a medium- to long-term time scale based on SX

  1. Identify and clarify directions companies should take and their purposes
  2. Approaches to materiality
  3. Approaches to formulating management strategies such as long-term visions and long-term management plans based on a long-term time scale
    Notes:
    1. Issues regarding continuity and consistency of (1) to (3)
    2. Issues regarding continuity between long-term visions, etc. and medium-term management plans, and relevance between financial/non-financial matters
  4. Approaches to specific strategies and initiatives to achieve long-term visions, etc. (e.g., business diversification, business portfolio strategies, investment in intangible assets, sowing seeds to create innovation)

    (4)-1. Approaches to business portfolios based on time scales
    (4)-2. Approaches to investment in intangible assets
    (4)-3. Approaches to sowing seeds to create innovation and new forms of business

  5. Governance on a long-term time scale

(3) Challenges regarding capital markets and investors

(4) Challenges regarding the Guidance for Collaborative Value Creation

3. Members

See the Appendix.

4. Schedules

The first session will be held on May 31 (Mon.). The study group will then be convened about once a month, and will prepare an interim summary by the summer of this year. Then, based on the interim summary, it will revise the Guidance for Collaborative Value Creation by the autumn.

The study group will be conducted privately in order to ensure that its members can exchange views frankly and freely, but the materials and summaries of the minutes will be released in principle.

Related documents

  1. The Interim Report by the Study Group on Approaches to Making More Substantial the Dialogues for Creation of Sustainable Corporate Value (formulated by METI in August 2020)
  2. Guidance for Collaborative Value Creation: Guidance for Integrated Corporate Disclosure and Company-Investor Dialogues for Collaborative Value Creation: ESG Integration, Non-financial Information Disclosure and Intangible Assets Investment (formulated by METI in May 2017)
  3. Final Report of the Ito Review “Competitiveness and Incentives for Sustainable Growth: Building Favorable Relationships between Companies and Investors” Project (formulated by METI in August 2014)PDFファイル
  4. Ito Review 2.0: A report compiled by the Study Group on Long-term Investment (Investment evaluating ESG Factors and Intangible Assets) toward Sustainable Growth (formulated by METI in October 2017) 

Appendix:

Division in Charge

Corporate Accounting, Disclosure and CSR Policy Office, Industrial Finance Division, Economic and Industrial Policy Bureau