GPIF scales up stewardship expectations

Japan’s GPIF scales up stewardship expectations

Japan’s biggest public pension fund has revised its stewardship and proxy voting principles amid a surge in shareholder activism in the country.

The Government Pension Investment Fund, one the world’s largest pools of retirement savings with assets totalling ¥168.9 trillion (£1.28 trillion) as of the end of 2019, has mandated all its external fund managers comply with its updated principles to boost managers’ stewardship activities.

According to the revised guidance document, fund managers who fail to comply with the principles are required to explain the reason for non-compliance.

Greater expectations

Originally launched in 2017, GPIF has updated its standards to encourage asset managers to play a greater role in corporate governance, company engagement and the exercising of voting rights.

Under the revised framework, which has five, broad, principles, asset managers should adopt Japan’s Stewardship Code and have a strong corporate governance structure.

Fund managers should also explain how their remuneration and incentive systems for their executives and employees are aligned with the interests of GPIF.

Asset managers are expected to manage conflicts of interest through establishing a third-party committee with a high degree of independence.

When exercising voting rights for companies with which they have a potential conflict of interest, asset managers are expected to develop a process that allows a third-party committee to make voting decisions or examine the validity of their own decisions. The third option is to follow the recommendations of a proxy voting advisor, such as Minerva.

It also encourages fund managers to publicly disclose their entire voting record on an individual company and individual agenda item basis.

“In accordance with the GPIF’s Stewardship Principles, GPIF’s external asset managers should exercise any and all voting rights in a manner consistent with their ongoing corporate engagements and other stewardship activities.

“When using a proxy voting advisor, asset managers should conduct proper due diligence prior to their selection,” the Principles state.

Integration emphasis

These new standards put a much stronger emphasis on the integration of ESG in the investment process, than previously. They aim to increase corporate value and promote the sustainable growth of investee companies. As well as impelling asset managers to become signatories of the Principles for Responsible Investment, the GPIF wants fund managers to give careful consideration to ESG issues when exercising voting rights.

The framework requires that asset managers apply specific due diligence when voting on proposals that could undermine minority shareholders’ interests as well as those that could protect minority shareholders’ interests. The amended principles follow growing shareholder dissent in the country.

According to data by international law firm White & Case, a record breaking 54 Japanese public companies faced shareholder proposals in the June 2019 annual meeting proxy season.

The number has been steadily increasing over the past three years, from 40 companies in June 2017, to 42 in June 2018. Proposals to strengthen corporate governance and shareholder return led the charge. Furthermore, at least 12 companies faced shareholder proposals made by institutional investors in the June 2019 season, breaking the previous record of 10 in the 2018 proxy season, according to White & Case.

While no proposals in the Japanese market were approved in 2019, but 17 individual proposals submitted by institutional investors received more than 20 per cent support, while 10 received the backing of more than 30 per cent.

Last Updated: 13 March 2020
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