Takuya Fukumoto, Director of Industrial Finance Division at the Ministry of Economy, Trade and Industry (METI) and a key official in Japan's governance reform told IJ that a core aim among METI’s reforms is to develop a common language among Japan’s corporate and investment communities. He hopes to draft a new set of common terms for SDG management and ESG investment in the near future.

Japan (IJ):

The blueprint for Japan's governance reform was established by the Ito Review, which METI compiled from the results of discussions of the "Competitiveness and Incentives for Sustainable Growth: Building Favorable Relationships between Companies and Investors" Project in 2014. You were the METI director in charge of the Project. Now that you've seen governance reform efforts take shape, how would you rate their progress?


We have witnessed a major change in thinking and behavior among Japanese companies and investors since the Ito Review. Business people today can be found discussing ESG (environment, social and governance) or corporate governance matters anytime and anywhere, which we rarely noticed before the Ito Review.

Now when we discuss these issues, we put emphasis on importance of the "investment chain", always connecting companies and investors, and for that matter, society as a whole. This increased awareness of the investment chain has helped players from every sector of economic society recognize their role and responsibility to each other. More and more players have been become interested in talking about long-term growth in value than before.


Following the Ito Review, METI has taken up numerous policy measures concerning governance reform and ESG issues in management and investment. One result was "The Guidance for Integrated Corporate Disclosure and Company-Investor Dialogues for Collaborative Value Creation" ('Kachi Kyoso Guidance') in 2017. The Guidance covers a wide variety of topics, from business models and strategies to key performance indicators and governance, and we think it is a well-made primer for top managers of big business. What is the Guidance's proper role and what influence has it had on business people?


The Ito Review has been quite effective in encouraging discussion between companies and investors about long-term corporate value, but it has highlighted the difficulty on both sides of engaging in meaningful dialogue. Even when using the same words, each side has a different idea in mind. For example, how many years equal the "short-term" or "long-term" is different for corporations and investors. Likewise, both sides understand different things when considering ESG. If an asset manager requests more ESG information from a listed company, the company is often at a loss to decide which department should respond — investor relations (IR), corporate social responsibility (CSR), or some other business unit? Given such miscommunication, the chances for sustained and productive dialogue are close to zero.

To promote more fruitful dialogues, we decided to make a set of common language, the 'Kachi Kyoso Guidance'. Our message to businesses and investors was to try using the Guidance in discussions with each other and within the company and in so doing discover how to improve the dialogue. 

The first promising response came from investors, especially buy-side players. Many stewardship officers and chief analysts told us they intended to conduct a dialogue with companies using the Guidance and company managers have gradually come to tell us similar things.


The UN Sustainable Development Goals (SDGs) have been well accepted among Japanese companies. Recently METI hosted a new study group named the "SDG Management / ESG Investment Study Group". What goals do the Study Group hope to achieve?


The idea for the SDG Management / ESG Investment Study Group came about after some policy actions and discussions following the Ito Review 2.0, published in 2017. The updated report recommended creating a platform for promoting more effective disclosure and dialogue, so METI created the Forum for Integrated Corporate Disclosure and ESG Dialogue.

The Forum has hosted monthly workshops to formulate best practices, using the common language of the Guidance, by letting companies and investors explain share their ideas of integrated reporting and by facilitating discussions between the two. Forum members, who are top managers and head stewardship officers, have been learning how to improve their practices.

We even got good spin-offs from the Forum. One was the Declaration of Active Fund Managers in May 2018, in which more than ten active investors spelled out their policy for dialogue with companies. For instance, the Declaration said, "If a company proactively makes its information disclosure following the Guidance in a clear manner, active fund managers who place importance on constructive dialogue like ourselves will carefully read such disclosure, and give it considerable thought, before we conduct our dialogue with the company."

Another spin-off was the Kansai Subcommittee of the Forum, held in April-August of 2018. The Subcommittee, comprising representatives from eight small- and mid-cap companies located in the Kansai area, tried to establish best practices for dialogue between investors and small- and mid-cap companies with limited IR resources.

We recognized that the concept of the SDGs had an affinity for Japanese business, so the government has set goals for advancing the SDGs Business Promotion Initiative and encouraging companies and other businesses to incorporate SDGs into their management strategies.

In November 2018, METI launched the SDG Management / ESG Investment Study Group. The Study Group will focus on ways Japanese companies can incorporate SDGs into their management and attract ESG investment. The main goal of the Study Group is, again, to establish a common language for Japanese businesses, investors and stakeholders. The Study Group, chaired by Professor Kunio Ito of the Ito Review, includes fourteen top executives from major corporations and President Makoto Gonokami of the University of Tokyo, forming a new industry-government-academic cooperative. Statements from the Study Group will be released shortly (→ https://www.meti.go.jp/english/press/2019/pdf/0531_001a.pdf).


So is your next goal to harvest the fruits of the Study Group?


Yes. METI will convey the Group's findings to the Japanese business community and the world, with an eye toward the G20 meetings in June and the UN SDG Summit in September of 2019.

I think it is important to continue developing a common language, the 'Kachi Kyoso Guidance', so as to be more useful and better connected with other guidance on issues from climate change and diversity to product safety and IT.


Thank you very much.

Takuya Fukumoto

Takuya Fukumoto has been Director of the Industrial Finance Division and Startup & New Business Promotion Office, Ministry of Economy, Trade and Industry, since July 2015.  He joined the Japanese Government in 1996.  From July 2012, he was appointed Director of the Corporate Accounting, Disclosure and CSR Policy Office.  He was involved in various projects concerning corporate governance, investment chain reform and corporate communication with stakeholders, including “Competitiveness and Incentives for Sustainable Growth: Building Favorable Relationships between Companies and Investors” Project (“Ito Review”), Guidance for Integrated Corporate Disclosure and Company-Investor Dialogue for Collaborative Value Creation - ESG integration, non-financial Information disclosure and Intangible Assets into Investment - (“Guidance for Collaborative Value Creation”).  From June 2018, as a director of secretariat, he is in charge of the "J-Startup" initiative, which aims to create successful, cutting-edge Japanese Startups in global market and attract prominent entrepreneurs from around the world.