Most Japanese firms not keen on ESG indexes

> 56% of 247 companies polled not aware of corporate governance issues

TOKYO: A majority of Japanese companies have no interest in being included in stock indexes guided by environmental, social and governance (ESG) principles, a Reuters poll found, even as pressure grows on firms to lift their management standards following a string of corporate scandals.

Investment in ESG indexes is expected to grow after Japan’s Government Pension Investment Fund, which manages US$1.3 trillion (RM5.4 trillion), decided earlier this year to raise its ESG allocation to 10% of its stock holdings from 3%.

The pension fund’s shift follows problems that have put the focus on Japan Inc’s management. These include the accounting scandal at Toshiba Corp, Kobe Steel Ltd’s data fabrication and Nissan Motor Co’s revelation that uncertified technicians had been carrying out vehicle inspections.

However, despite increased awareness around corporate responsibility issues, a Reuters Corporate survey showed 56% of 247 companies polled were not aware of ESG indexes, and only 6% said their companies were included in one. Some 72% of companies said they were not included and 22% said they didn’t know.

Of the 174 companies that said they are not included in such indexes, 144 said they had no interest in joining them, accounting for 58% of the entire survey sample.

“Companies that make ESG efforts do not necessarily report strong earnings,” wrote a manager at a wholesale company.

A manager at a food company was also dismissive: “Companies should contribute to society by paying more taxes and not bother with ESG criteria.”

Prime Minister Shinzo Abe has been pushing for greater corporate governance and transparency.

GPIF in July chose three indexes to guide its investments in the area: the FTSE Blossom Japan index, which includes 150 companies, the MSCI Japan ESG Select Leaders index (252 stocks) and the MSCI Japan Empowering Women index (211 stocks).

The companies in the indexes were selected based on criteria including labour practices, efforts to prevent global warming and the use of toxic substances and board of directors selection.

In a drive to improve corporate governance at Japanese companies and make them more attractive to foreign investors, GPIF signed the UN-supported Principles for Responsible Investment, or PRI, in 2015.

Both Kobe Steel and Nissan are included in the MSCI Japan ESG Select Leaders index.

The survey for Reuters by Nikkei Research, conducted Oct 26-Nov 7, polled 400 big and mid-sized businesses. A total of 247 firms, which reply on condition of anonymity, answered the questions on ESG.