RI Asia 2014 - Responsible Investor · •CalPERS •Capital Dynamics ... •Taiyo Life Insurance ... RI Asia 2014 was produced by Responsible Investor which is published by Response

RI Asia 20145&6 March, Tokyo

Conference Report

RI ASIA 2014

CONFERENCE REPORT APRIL 2014

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Hosted by

In Partnership with

Lead sponsor

Co-sponsors

Associate sponsors

Exhibitor Supporting organisations

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By region:

RI Asia 2014 attracted 273 delegates from 168 companies and 14 countries

Japan 84%

Others 16 %

By job level:

CEO/CIO/CFO/COO/Executive Director/Partner 14%

MD/Director/Business Head 24%

Others 28%

Managers 34%

By type of company:

Asset owners and advisers 15% (eg pension funds, faith groups, investmentconsultants, fund buyers)

Asset managers 18% (and suppliers of investment management services)

Service provider 40% (eg research agencies, indices, data vendors)

Others 27% (corporates, government and regulators, associations,legal, academics etc)

Response Global Media Ltd

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• Alamco - asahi life assetmanagement

• All-Japan Prefectural andMunicipal WorkersUnion

• AllianceBernstein Japan

• AMP Capital

• Amundi

• APG Asset Management

• Arabesque AssetManagement

• Ark Totan Alternative

• Asahi Shimbun

• Asia Market Data andResearch

• Asia Pacific EconomicJournal

• Australian Council ofSuperannuationInvestors

• Australian TradeCommission

• Awa Securities

• Best Mix Investment

• Big Lobe

• Bloomberg

• BNP Paribas

• Boston Common AssetManagement

• British Embassy Tokyo

• Business for SocialResponsibility (BSR)

• CalPERS

• Capital Dynamics

• Colonial First StateGlobal AssetManagement

• cre-en

• CSR Design & Landscape

• Dai-ichi Life ResearchInstitute

• Daiichi Sankyo

• Daiwa Insititute ofResearch

• Daiwa SB Investment

• Daiwa Securities Group

• Dasos Capital

• Deloitte ToucheTohmatsu

• Development Bank ofJapan

• DIAM

• Dragon Capital

• Edge International

• EIRIS

• ESG factars Institute

• Far East Securities

• Federation of NationalPublic Service PersonnelMutual Aid Associations

• FINEV

• First State Investments

• French Embassy in Japan

• FTSE Group

• Fukoku Life Investment

• Global Compact JapanNetwork

• Governance for OwnersJapan

• Government of Japan

• Henley Business School

• Hermes EquityOwnership Services

• Hermes Fund Managers

• IFM Investors

• ITOCHU Corporation

• James Cook University

• Japan Asia AssetManagement

• Japan BusinessAssurance

• Japan Investor Relations& Investor Support

• Japan ShareholderServices

• Japan Social InvestmentForum

• JPC Office Toyosu

• KDDI Pension Fund

• Kokkusai Kogyo

• KPMG AzusaSustainability

• Link CorporateComminications

• Mariner Japan

• Markit Asia

• MEDINET

• Ministry of Health,Labour and Welfare

• Ministry of theEnvironment

• Mitsubishi CorporationDisaster Relief Foundation

• Mitsubishi ElectricPension Fund

• Mitsubishi UFJ Trust andBanking Corporation

• Mizuho Bank

• Mizuho Information &Research Institute

• Mizuho Trust & Banking

• Morgan Stanley MUFGSecurities

• MSCI

• MSCI ESG Research

• MU Investment Advisory

• Nadir

• National Federation ofMutual Aid Associationsfor Municipal Pensions

• NEC Capital Solutions

• NEC Corporation

• Nikkei

• Nikko FinancialIntelligence

• Nikko Securities

• Nippon Ham PensionFund

• Nippon Life GlobalInvestors Singapore

• Nishin Oillio GroupPension Fund

• Nissay AssetManagement

• Nomura

• Nomura AssetManagement

• Nomura Holdings

• Nomura ResearchInstitute

• Nomura Securities

• Northern Trust

• NTT

• Oji Management Office

• Okasan AssetManagement

• Ontario Teachers'Pension Plan

• ORIX Corporation

• Osaka Electro-CommunicationUniversity

• Parnassus Investments

• Pension FundAssociation

• Pension FundAssociation for LocalGovernment Officials

• PGGM

• PRI Initiative

• PwC

• QUICK Corporation

• Rengo - Japanese Trade UnionConfederation

• Research Institute forPolicies on Pension &Aging

• Resona Bank

• Response Ability

• Rich Appraisal Institute

• Rob Lake Advisors

• Robeco Asia Pacific

• S.T. Corporation

• S&P Dow Jones Indices

• SA&C

• SCS Global Holdings

• SCSK Pension Fund

• Secom CorporatePension Fund

• Seven & i Holdings

• Shinkawa

• Shiseido

• SMBC Nikko Securities

• Sompo Japan Insurance

• Stanley Pension Fund

• Sumitomo Corporation

• Sumitomo Mitsui Asset Management

• Sumitomo Mitsui TrustBank

• Sun Messe

• Sunrise Advisors

• Sustainalytics

• Sustainavision

• T&D Asset Management

• Taiyo Life Insurance

• Takara Printing

• Takasaki City Universityof Economics

• Tau InvestmentManagement

• The Good Bankers

• The Japan ResearchInstitute

• The Mutual AidAssociation ofPrefectural GovernmentPersonnel

• The Nishi-Nippon CityBank

• The Pension Fund ofBridgestone

• The Taffrail Group

• Tokio Marine AssetManagement

• Tokio Marine Holdings

• Tokuyama Corporation

• Toppan

• Towers Watson

• Trucost

• TSE / Japan ExchangeGroup

• UBS Global AssetManagement (Japan)

• UNEP Finance Initative

• United NationsInternational Strategyfor Disaster

• UniversitiesSuperannuation Scheme (USS)

• Vigeo

• Waseda University

• Wellington International

• Yamamoto GroupPension Fund

• Yamamoto Transport

• Yokogawa Electric

By Company:

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The RI Asia 2014 Conferencewas held at the Tokyo StockExchange on March 5-6.Over two days, 273delegates heard high-levelpresentations from some ofthe leading figures inresponsible investment andcorporate sustainability,and joined in lively Q&Asessions and networkingbreaks.

RI Asia 2014 was produced by Responsible Investor which is published by Response Global Media Limited.

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Opening the 2014 RI Asia conference at the TokyoStock Exchange on March 5, Professor John Kay,the author of the ‘Review of UK EquityMarkets and Long-Term Decision-Making’,more commonly known as the ‘Kay Review, beganhis keynote speech with a quote from Cliff Stoll, theAmerican astronomer: “Data is not information,information is not knowledge, knowledge is notunderstanding, understanding is not wisdom.”

The quote, he said, resonated withhis belief that more than 100 yearsof deliberation about financialmarkets had led to many falsepremises. These, he said, includedthe assumption that markets are‘good’ at processing information,that more informationautomatically leads to bettermarkets, and that the reaction to

every market failure requires ‘more’ information.Kay said a dependency on big data had divertedfinancial attention from the importance of humanskill and judgement as qualities for the economic‘stewardship’ of companies. He questioned whetherincreased computer power and speed could everreplace the knowledge, understanding and wisdomessential to running a sustainable economy. Kay saidthe limitations of mechanising finance had been aclear factor in the crisis as computerised creditscoring crowded out “good judgement” onmortgage lending.

“Data is not information,information is notknowledge, knowledgeis not understanding,understanding is not wisdom. ”

Professor John Kay

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Big data, he said, was less about betterunderstanding of the companies or GDP, but moreof replicating the economy and feeding off it ratherthan investing in it: “I believe we have reached thestage where less information is more”.

He said a level playing field of market informationshould - in an efficient market, - imply little gainfrom data that is available to all.Instead, he said: “The truth is thatreal understanding of companies iselicited by understanding them andengaging with them closely acrossdifferent sectors, size brackets andmarkets. By the same token thereshould be a heavy legal duty onfiduciary responsibility to clients,with strict penalties fortransgression.

He said: “The wisdom of crowds leads to insiderinformation and trading, and breaches of fiduciaryduty. The myth of efficient markets needs to bereplaced by fiduciary duty.”

Kay’s conclusion echoed one of the major JapaneseRI themes that would come up in the conference,that of Japan’s adoption of a version of the UKStewardship Code - itself an initiative backed byKay in his Review - as part of the Abe government’s“Revitalisation Strategy” to kick deflation and spureconomic growth.

“ I believe we havereached the stagewhere lessinformation is more ”

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Japanese financial regulation tends to be rulesbased, whereas the new Stewardship Code is avoluntary comply-or-explain construct, a novelty inthe country. Motoyuki Yufu, Director,Corporate Accounting andDisclosure Division in theFinancial Services Agency of theJapanese government, saidJapanese pension funds and assetowners have until the end of May tosign up to the initial list ofsignatories to the Code in what willbe an early sign of its success. It aimsto promote medium- to long-termsustainable corporate returns based on sevenprinciples to guide investors on their stewardshipresponsibilities. Yufu said the Code encouraged“purposeful dialogue” between investors andcompanies, which he said was a relatively newconcept in the country. In 2009, he said, a studyrevealed that 80% of companies never spoke withtheir investors and that the remaining 20% onlyspoke with investors by telephone: “We are lookingto encourage a change of mindset here to promotethe sustainable growth of companies.”

“ We are looking toencourage a changeof mindset here topromote thesustainable growthof companies ”

Motoyuki Yufu

Motoyuki Yufu (standing), Hugh Wheelan, Megumi Terayama and Daniel Summerfield

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Chihiro Kawashima, Chief of the Departmentof Economic and Social Policy at RENGO,which has strong links to pension plans accountingfor almost half of the schemes in Japan’s JPY50trillion (€450bn) corporate pensions sector, saidthe union-linked funds were looking very closely atcapital markets safety and gender equality –particularly women on boards – both issues raisedunder the Abe reforms.

Daisei Koyagi, Director, Research Division,Gender Equality Bureau, Cabinet Officewithin the Government of Japan, said thegender issue had been singled out under‘Abenomics’ as being able to raise or protectcompany value over time. Pointing to the WorldEconomic Forum’s (WEF) 2014 Global Risks Report,

Fiona Reynolds, Managing Director of thePrinciples for Responsible Investment (PRI)highlighted more ESG value markers. She noted

that water crises, climate change risks and severeincome disparity dominated the top 5 risks, a clearreminder that issues confronted by responsible,long-term investors were front and centre of globaleconomic concerns. A WEF ‘global risk’, she notedis defined as potentially causing significant negativeimpact for several countries and industries over atime frame of up to 10 years, with a particularaccent on potential systemic breakdown. As aresult, she said the PRI would be focusing its ownforthcoming work on issues of “operationalising”long-termism via responsible investment mandatesand investment and engagement collaborationplatforms.

Chihiro Kawashima

Fiona Reynolds & Chihiro Kawashima

L-R Junko Nakagawa, Tsukasa Kanai and Daisei Koyagi

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Ai Kaibu, Deputy Director, Environment andEconomy Division, Environmental PolicyBureau, Ministry of the Environment inJapan, said the Ministry was promoting ESG andfinancial activism for local institutions via thePrinciples for Financial Action (PFA). She said thePFA had been set up as a Japanese stepping-stonefor local players to understand responsibleinvestment and take part in global initiatives.Launched two years ago it has 180 members withthe Ministry acting secretariat. She said the sevenPrinciples of the PFA, which are modified slightlydepending on the relevance to industry sectors viathree sector-specific working groups and onecross-sector working group, had been broadlyaccepted by the Japanese financial servicesindustry.

Talking about how different pension fundsinternationally respond to responsible investment,Claudia Kruse, Managing Director, Head ofGovernance and Sustainability at APG, theDutch pension fund manager, pointed out that as alarge pension fund managing the money of publicsector employees, what the fund does is closelymonitored by Dutch society. Kruse was asked whatthis meant in terms of excluding companies fromits portfolio and verifying the status of excludedcompanies. She explained that the fund hadexcluded 15 companies, mostly for clustermunitions breaches, but that TEPCO, Petrochinaand Walmart, had been divested for breaches ofthe guidelines of the Global Compact. Sheunderlined, however, that the fund preferredcorporate engagement to exclusion.

Ai Kaibu

L-R Rob Lake, Claudia Kruse, Fiona Reynolds & Chihiro Kawashima

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Hiroichi Yagi, Managing Director of thepension fund for SECOM, Japan’s largest securityfirm, said the stability of the Y70bn scheme (ofwhich Y20bn is in equities) in terms of income andpayment stream for benefits was paramount. But,he said the scheme also gave a lot of thought to itssocietal role and its contribution to sustainabledevelopment. He said the new JapaneseStewardship Code would be very relevant in thisregard. Its clear principles, he said, would contributeto the stable income and focus on downside riskthat the fund was looking for, especially in itsJapanese equity portfolios where it hasconcentrated portfolios of 20-30 names where itwants to focus on company durability and dividendstability in the event of market downturns. He saidthe fund had already sent instructions to its assetmanagers regarding the contents of the new rules.

William Sherwood-McGrew, PortfolioManager at CalPERS, the Californian pensiongiant, which has $13bn invested in the Japanesemarket, said issues such as integrated reporting bycompanies, regulatory effectiveness and theconcept of stewardship were extremely importantto the fund. He said CalPERS deployed a “rapidreponse team” to take ESG issues up withinvestment managers because “many still don’tknow how to do this”. Investment returns over thelast three years, he said, showed that the fund wasgetting it right on investment and governance.

Hiroichi Yagi

William Sherwood-McGrew

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The conference heard about the prospects forresponsible investment in Japan. Masaru Arai,Chair of the Japan Social Investment Forum,said the country still had a long way to go with RIat just 0.2% of total institutional asset coverage.However, he pointed out that in a 2013 survey ofthe market 7% of pension funds said they wereactively looking at ESG and 5% said they wereconsidering doing so.

The barriers, he said, were mainly knowledge andunderstanding. Arai said he was seeing the start ofinstitutions exploring their voting rights in Japan -albeit not publicly - but said he couldn’t see jointcorporate engagement taking hold amongstJapanese investors.

On the supply side, Tsukasa Kanai, GeneralManager, CSR, Corporate PlanningDepartment at Sumitomo Mitsui Trust Bank,said Japanese managers had toknow about ESG because of foreignfunds investing into the market. Inaddition, he said the Japanese publicwas becoming increasingly sensitisedto supply chain issues after a recentreport by Global Witness onrainforest slashing in Malaysia hadaccused Japanese companies ofinvolvement. Nonetheless, Minako Takaba,Senior ESG Analyst at MSCI ESG Research saidJapan lagged most developed market companieson research into supply chain labour riskmitigation, leaving many companies exposed.

“ Japan (lags) mostdeveloped marketcompanies on researchinto supply chain labourrisk mitigation ”

Masaru Arai

Tsukasa Kanai

Minako Takaba

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Peter Webster, Chief Executive Officer at Eiris,the ESG research company, said a survey of 236analysts from the Japanese securities analystsassociation found that 70% believed ESG issueswere indispensable to risks not on the balancesheet, but that 70% also wanted more evidence onthe link between financial performance and CSR. Tothat end, George Iguchi, CorporateGovernance Officer at Nissay AssetManagement, said research at the firm showedthat companies with higher ESG ratings tended toshow higher sales growth and margin expansion,with the “G” factor having a stronger influence onanalysts forecasts. However, he noted that the level

of value influence of “E”, “S”, and “G” variedacross industry sectors and said that in the research“S” issues had much stronger influence on“corporate value” than expected, particularlyamong pharmaceutical, service and retailcompanies.

Peter Webster George Iguchi

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Webster asked rhetorically whether Japan wasready for a “breakthrough” on responsibleinvestment? He noted that five years ago CSR hadbecame a trendy topic in Japan, and pointed upthe idiosyncracy that in Japan responsibleinvestment was led by corporate pension funds; aworld first! Looking further back, he noted thatgreen funds had kicked off in Japan in 1999 andgrown quickly to Y200bn, a level that had takenten years in the UK. Impact bonds had also grownto Y500bn in a short space of time,he said. Etsuya Hirose, Director,Executive General Manager,Sales Headquarters at QUICK, theJapanese financial informationprovider, which has launched an ESGinformation service incorporatingdata and analysis from Eiris, said thecompany would be looking toexpand data on Japanese SMEs. Thedomestic commitment suggests that Japan is fertileground for responsible investment.

“Japan may be mirroring the UK’s StewardshipCode now, but it could be that in five yearseveryone is following Japan,” said Webster.

“ Japan may be mirroringthe UK’s StewardshipCode now, but it couldbe that in five yearseveryone is followingJapan ”

Etsuya Hirose

Documents

RI Asia 2014 - Responsible Investor · •CalPERS •Capital Dynamics ... •Taiyo Life Insurance ... RI Asia 2014 was produced by Responsible Investor which is published by Response