Norway wealth fund calls on Japanese boards to boost diversity, independence – Pensions & Investments

Norway's sovereign wealth fund has called for increased independence and diversity requirements to be included in revisions of Japan's corporate governance guidelines.

Norges Bank Investment Management, the in-house manager of the Government Pension Fund Global, Oslo, said in separate letters to Japan's Financial Services Authority and the Tokyo Stock Exchange that it invested $76.2 billion in 1,499 Japanese companies at the end of 2020. Executives running the fund, which had 11.03 trillion Norwegian kroner ($1.29 trillion) in assets as of March 31, were responding to consultations by Japan's FSA on changes to its guidelines for investor and company engagement and to the stock exchange's consultation on revisions to the country's corporate governance code.

"We regard the protection of minority shareholders through good corporate governance as necessary to safeguard and promote the fund's long-term financial interests," the letters said.

In the letter to the FSA, NBIM executives highlighted the importance of board independence, board composition, the nomination process and sustainability reporting as four issues for the fund and manager investing in the Japanese equities market.

It made a number of recommendations for each area of concern, although also noted a "gradual increase in independence levels on Japanese boards since the introduction of guidelines in 2018.

The FSA is recommending in its revised guidelines that companies listed on Japan's prime market that at least one-third of the board is composed of independent directors. However, NBIM said that, over time, it would encourage that a majority of the board be independent over time, to align with global best practices.

Diversity of competences and backgrounds was also high on NBIM's recommendation list, with a call for an "appropriate gender balance."

The letter also welcomed a recommendation on enhancing dialogue between shareholders and companies. "Over the last years, we have seen that Japanese companies are increasingly willing to engage with shareholders. We would welcome further engagement directly with independent directors, especially in companies where the chairperson is an executive," the letter said.

The second letter, to the Tokyo Stock Exchange, regarded a consultation on changes to Japan's corporate governance code, introduced in 2015.

As well as echoing calls for increased independence and diversity of board members, NBIM said the code could be made more effective by the introduction of reporting against its standards in English by all companies, to be published "well in advance of the annual shareholder meeting."

"This would enable us to consider the companies' own reporting when we make our voting decisions and engage with Japanese companies," the letter said.

Both letters were signed by Carine Smith Ihenacho, chief governance and compliance officer, and Peter Alexis Wegerich, senior economist.

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Norway wealth fund calls on Japanese boards to boost diversity, independence - Pensions & Investments