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Stewardship Responsibilities and ESG Investment

Initiatives in 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, it newly established its Responsible Investing Department and proceeded with initiatives for active engagement in discussions with its investee companies regarding environmental, social, and corporate governance (ESG) issues and exercise of its proxy voting rights.

Moreover, with the aim of strengthening its capabilities for engaging in productive dialogue that will lead to sustained growth in corporate value, Asset Management One expanded its staff of ESG analysts who are responsible for engagement with passive investments in Japan and overseas. In April 2017, it also concluded an alliance with Hermes EOS, which is a leading engagement company with established processes in this area, and began a program of engaging with overseas companies.

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Examples of Engagement on Various Themes (Fiscal 2016)

Corporate Strategy

An example of working toward sustainable growth at Company A through identifying major issues related to risk and return in view of Company A's special characteristics and developing a shared awareness of these issues.

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Analysts' Awareness of Issues Full–scale recovery in performance is taking time, and disclosure of ESG–related information is inferior to that of other companies in the same industry. Need to make a decisive response to ESG issues for sustainable growth of performance.
Dialogue with Management From the perspective not only of return but also risk, assessment of major issues is desirable. Also, taking Company A's unique characteristics into account, discussion of points related to setting priorities was held.
Company A's Response As was pointed out, major issues should be assessed from the perspectives of both risk and return. First, following discussions of what can be done, a task force has been formed to identify major issues from the viewpoint of future business opportunities and return. These should be reflected in integrated report disclosure and in medium–term plans and elsewhere.

Environmental Issues

An example of how a positive and forward–looking response was obtained through holding discussions regarding the unfavorable assessment of Company B from an ESG perspective, in view of the trend toward withdrawing from investments in the fossil fuels industry. Agreement was reached that a proactive response to ESG issues would reduce risk and be effective in increasing its corporate value.

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Analysts' Awareness of Issues In view of the trend toward withdrawal from investments in the fossil fuels industry, Company B, which uses fossil fuels, is experiencing growing social demands related to concern for the environment but has not been able to implement a response policy and provide sufficient disclosure.
Dialogue with Management Company B's main business is exposed to the need to reduce CO2 emissions, but, since it is conducting its business activities with an awareness of the environment, discussions were held regarding strengthening of the response to ESG issues to eliminate misunderstanding in the market.
Company B's Response Company B is aware of the issues that have been pointed out and, going forward, will improve its disclosure to external parties regarding its renewable energy businesses.

Social Issues

An example of how a common understanding with senior management regarding needed improvements was reached with Company C, which is in an industry where there are issues related to labor management through discussions regarding making improvements mainly related to human resources.

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Analysts' Awareness of Issues Company C's industry confronts labor shortages, lengthy working hours, and other issues. There is room for improvement in corporate value through a stronger response to ESG issues from the perspective of risk management.
Dialogue with Management No improvement was seen regarding delays in responding to ESG issues that were pointed out in the previous year. In addition, discussions were held regarding the low evaluation of Company C within its industry regarding not taking prompt measures to secure sufficient laborers, dealing with lengthy working hours, and its ESG evaluation overall. Discussions also covered the need for strengthening ESG information disclosure.
Company C's Response Company C responded that it would take proper action regarding ESG issues because of its awareness of its tardiness in providing non–financial information disclosure and the increasing social interest in its industry.

Development of Products with a View to ESG

In recent years, interest has risen in "ESG Investing," among institutional investors, which considers environmental, social, and corporate governance (ESG) issues, which form the basis for medium–to–long financial information. To continue to be an asset management institution that contributes to the development of its customers and society as a whole, Asset Management One is strongly aware of the importance of ESG information as a foundation for financial information in the medium–to–long term and is working to integrate this into its ESG investment strategies.

Domestic ESG Bond Fund

As part of Asset Management One's investment strategy, which integrates ESG evaluations, , Asset Management One established its "Domestic ESG Bond Fund" in August 2017 and began to offer it to institutional investors. This fund fuses Asset Management One's research capabilities, its know–how in ESG investment, its proxy voting database (covering about 2,000 companies each year), and the ESG data analysis model of Mizuho Daiichi Financial Technology. Using these integrated capabilities, Asset Management One eliminates stocks that have high risk from an ESG perspective and aims to reduce downside risk and secure stable return.

"Sustainability Research Strategy Fund" Concentrating on CSV* Issues

Asset Management One carefully selects companies where growth in income is possible through initiatives to address social issues and offers its "Sustainability Research Strategy Fund" which concentrates on securing income. In selecting companies, this fund not only takes account of ESG assessments, but also gives more emphasis to return and carefully selects companies that are expected to report growth in income through initiatives to address and solve social issues. When establishing this fund, Asset Management One takes account of the Sustainable Development Goals (SDGs) and other sources including research on trends in social issues and corporate assessments from an ESG perspective and works in collaboration with Mizuho Information and Research Institute which has abundant CSR consulting experience for corporations. For companies to practice CSV management in the long term, we think it is important for their management philosophies to be in accord with CSV and for their management to insist on CSV ideals. The stance of potential investee companies toward CSV management is determined through constructive dialogues.

  • *CSV stands for Creating Shared Value, and it was developed by Harvard University professor Michael Porter in 2011 as a management model to enable companies to create simultaneously both economic value and social value.