The Council of Experts on the Stewardship Code (the Council), governed where Japan’s Financial Services Agency (FSA) is its secretariat, finalized and released its second Revision of the Stewardship Code (the Revised Code) on March 24th, 2020. What are the changes and how do they affect institutional investors?

Japan’s Stewardship Code was first established in February 2014 and revised in May 2017.  After revising Japan’s Corporate Governance Code in 2018, the Council of Experts Concerning the Follow-up of Japan’s Stewardship Code and Japan’s Corporate Governance Code published an opinion statement in April 2019 (reported here:, suggesting further revisions to the Stewardship Code.  The Council began work on a second revision of the Code and produced a draft in late 2019.  After soliciting public comments this winter in both Japanese and English and taking all 67 comments into account, the Council released its newly revised Code.  The finalized revision largely retains the principles and guidance from the draft, with five important changes from the previous Code:

1.  Consideration of Sustainability

The Revised Code instructs institutional investors to include among their stewardship responsibilities “consideration of sustainability (medium- to long-term sustainability including ESG factors) consistent with their investment management strategies”.  The Revised Code also stipulates that institutional investors should clearly specify how they take the issues of sustainability into consideration in their stewardship policy.

The Code continues to refer to fostering “sustainable growth” of investee companies, especially when institutional investors engage in the issues of sustainability.

2.  Application Widened to Non-equity Investments

The Code covers primarily institutional investors in Japanese listed shares.  The Revised Code “may also apply to other asset classes as far as it contributes to fulfilling ‘stewardship responsibilities’ ”.

The application of the Revised Code to assets other than listed shares, such as corporate bonds and green bonds, is beneficial for institutional investors investing in such assets.

3.  Clarification of SS Activities by Corporate Pensions

In the Code, “institutional investors” are defined not only as asset managers but also as asset owners, such as corporate pensions.  The Revised Code encourages stewardship activities by asset owners.  “Asset owners, in line with their size and capabilities, etc., should encourage asset managers to engage in effective stewardship activities” and if they “directly manage funds and exercise their voting rights, in line with their size and capabilities, etc., they should engage in stewardship activities, such as holding dialogue with investee companies”.  The Code applies to defined benefits corporate pensions (fund- and contract-types) and employee’s pension funds.

4.  Disclosure of Reasons "For" and "Against" in Voting Records

While appreciating that asset managers had increasingly disclosed their stewardship activities, the Follow-up Council in April 2019 pointed out that “the number of asset managers who disclose the underlying reasons for their voting decisions is limited to just 20, and the quality of asset managers’ stewardship activity reports varies considerably.”

In response, the Revised Code adds that “institutional investors should disclose their voting rational with respect to either “for” or “against” vote”, as it is an important element of constructive dialogue with the investee companies.

5.  Service Providers for Institutional Investors 

The Revised Code applies Principle 8 specifically to “service providers for institutional investors”.  Service providers for institutional investors, such as proxy advisors and investment consultants for pensions, “should endeavor to contribute to the enhancement of the functions of the entire investment chain” running from their clients and beneficiaries to the investee companies.


Institutional investor signatories to the previous version of the Code are expected to update their disclosure practices based on the principles and guidance of the Revised Code by the end of September 2020 and to notify FSA of such updates.  Institutional investors who support the Revised Code and are prepared to accept it are expected to publicly disclose their intention.



< Mariko Okamoto >

FSA’s announcement about finalization of Japan’s Stewardship Code: