Stewardship responsibilities and ESG investment
Initiatives at Asset Management One
At the same time that Asset Management One, which is the Mizuho group company responsible for asset management, began operations in October 2016, we newly established our Responsible Investing Department (currently Stewardship Group) and proceeded with initiatives for active engagement in discussions with our investee companies regarding environmental, social, and corporate governance (ESG) issues and exercise of proxy voting rights.
Asset Management One's corporate message "Creating a sustainable future through the power of investment" clearly states that it will "incorporate sustainability into management" as an asset management company contributing to customers and society. Asset Management One created a materiality map that dynamically captures global environmental and social issues based on two axes (double materiality) of sustainable materiality, which indicates the level of civil society and investor interest, and financial materiality, indicating the economic impact. Management also identified nine core materiality items of climate change, biodiversity, business and human rights, water resources, circular economy, diversity equity and inclusion, sustainable food systems, air, water and land pollution, and health and wellbeing. Of these, business and human rights, diversity and inclusion, and health and wellbeing were set as focus areas, that the company will use to guide its engagement and voting related to its materiality items.
Approach to engagement activity
At Asset Management One, we select companies for developing close relationships with and then conduct engagement activities.
In our passive asset management activities, which account for the majority of our equity investing, after taking into account the level of impact on the market, we select companies for ongoing dialogue regarding their initiatives to address their ESG issues and other matters.
In our active portfolio management, after considering the corporate issues and effect on corporate value of these issues at the time when they are solved, we then conduct our engagement activities.
Actual engagement activities
Breakdown of engagement activity issues (fiscal 2022)
| Issues | FY2022 | |
| Environment | Responses to environmental issues, including climate change, biodiversity, and circular economy, etc. | 14.9% |
| Social | Responses to social issues, including diversity, business and human rights, and health and wellbeing, etc. | 7.4% |
| Governance and information disclosure | Responses to governance issues, including the structure of the Board of Directors and risk management Sustainability management initiatives including integrated reporting and supply chain management |
45.9% |
| Others (Issues in Japan) |
Regional revitalization Digital transformation |
6.4% |
| Corporate strategy | Business strategy, financial and capital policy, and other strategies to enhance corporate value and financial stability | 25.4% |
*Target: Domestic stock and domestic bond active
Examples of engagement on various topics
Example 1
Environment
Case where progress in climate action has been confirmed including detailed disclosure on GHG emission, elaboration of 1.5°C scenario analysis, and the building of an internal mechanism to drive business portfolio decarbonization and resilience.
| Analyst view | The company needs to appeal more strongly for the reduction of climate risk and energy transformation (EX) to increase business value, including through elaboration of 1.5°C scenario analysis and disclosure of financial impact in the TCFD report, in addition to the disclosure of GHG emissions from the whole supply chain. |
| ▼ | |
| Dialogue with company management |
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| ▼ | |
| Response from Company A | The company responded, "We decided to disclose Scope 3 Category 11 emissions despite concerns expressed by internal stakeholders about the fact that the emissions would reach the highest level in Japan. The scenario for the 1.5°C pathway was prepared independently to complement the IEA 2050 net zero scenario. We still face challenges regarding the disclosure of financial impact, since the simple presentation of impact from the use of coal as a raw material and natural gas might be misleading. We have adopted a policy to enhance appeal including by reducing Scope 3 and actively promoting an EX strategy." |
Example 2
Society
Case where we shared our view with one of the most profitable leading companies in Japan that the strengthening of human capital management is a material issue in further enhancing its business value.
| Analyst view | Further strengthening human capital management and HR strategy is a key challenge for the company to accelerate its global operation. As a leading company in Japan, they are required to accelerate diversity, equity and inclusion. |
| ▼ | |
| Dialogue with company management | Despite the company's reputation for HR development including OJT, the president recognizes two key challenges: (1) creating high-value-added products on an ongoing basis; and (2) raising the share of overseas markets in sales. We discussed how best to address human capital management and HR strategy for further improvement of business value. Building on various datasets, we focused our discussion on possible issues in the development of talent overseas, advancement of women and long-term HR development. |
| ▼ | |
| Response from Company B | The company responded, "As you have noted, we recognize the importance of further efforts for human capital management including the enhancement of talent development overseas, promotion of diversity and long-term HR development. We are committed to addressing those issues." |
Example 3
Governance
Case where our equity and ESG analysts have worked together continuously to address succession planning for a company characterized by strong top management leadership.
| Analyst view | The company needs to deepen discussion on the composition of the board to encourage further efforts for building a sustainable governance structure including the promotion of diversity and the selection of CEO based on succession planning. |
| ▼ | |
| Dialogue with company management | We reviewed the company's initiatives for succession planning and transition to a new structure and exchanged opinions on whether succession planning for the CEO and (outside) directors is serving to build an effective governance structure. |
| ▼ | |
| Response from Company C | The representative director & chairman of the company responded, "The confusion surrounding the appointment of the President was my fault for not having enough insight into personnel matters within the company. We now have candidates for the next president, all of whom are well-qualified. Discussion on the selection is ongoing at the Nominating Committee, whose membership includes a majority of outside directors. I will follow the decision of the committee in principle. There is no gender consideration in appointing outside directors provided they have the required competence. It is often pointed out that the candidate list does not include experienced corporate executives, but I welcome any referrals." |
Development of products with a view to ESG
In recent years, institutional investors have been showing greater interest in ESG investment, which considers environmental, social, and corporate governance (ESG) issues, as a type of non–financial information. To continue to be an asset management institution that contributes to the development of our customers and society as a whole, Asset Management One recognizes the importance of ESG information as a foundation for financial information in the medium to long term, and we are working to integrate ESG into our investment strategies.
ESG Japan Equity Strategy
The domestic ESG Focus Fund is an ESG investment product that reflects our vision of sustainable investment products.
Conceptually, it aims to achieve sustainable financial returns and contribute to social returns including in the form of the planet or society passed onto the next generation, by investing in companies serving as drivers of a sustainable society. To that end, we have built an investment strategy integrating the following three features.
①Evaluation of promising industries based on a double materiality approach
Based on our proprietary Materiality Map, we identify and evaluate promising industries with growth potential, and leverage ESG Rating, our proprietary tool for business evaluation, to select companies with business practices capable of rapidly responding to societal demand for sustainability.
②Identification of business opportunities and evaluation of management quality by ESG experts
Building on the industrial evaluation based on the Materiality Map, the ESG Macro-Research and ESG Quantitative Analysis Teams, both composed of specialists in ESG, conduct research to identify "companies involved in business to help solve environmental and social issues" and "companies with high ESG potential" as candidates for investment. Those companies are subsequently assessed for suitability as investment targets in terms of profit sustainability and valuation, among others. Only those companies that are expected to produce substantial returns on capital over the years are retained in the portfolio.
③Engagement with investment targets leveraging our strong presence
Our sector analysts and ESG analysts work together to engage with the target companies in order to ensure that the latter continue to improve their ESG potential.