Summary

  • The Japanese version of the Stewardship Code was compiled by the Financial Services Agency's Expert Committee chaired by Hiroyuki Kamisaku and finalized on February 26, 2014. Initially, it consisted of seven principles and was operated on a comply-or-explain basis.
  • The 2017 revision strengthened the responsibilities of the management team of management companies, the supervision of management companies by asset owners, and the publication of voting results for individual companies and proposals.
  • The 2020 revision added Principle 8 to consider sustainability, application to assets other than stocks, and service providers, and the 2025 revision clarified the position of collaborative engagement.

Role played by two codes

The Financial Services Agency has described the Stewardship Code and the Corporate Governance Code as the “two wheels” of governance reform. The former covers the behavior of institutional investors, and the latter covers the behavior of listed companies. Even if companies disclose sufficient information and the board of directors has effective oversight, dialogue will not deepen if shareholders only formally exercise their voting rights. On the other hand, even if investors actively engage in dialogue, reforms will be difficult to advance if companies do not have a mechanism to ensure accountability.

The Japanese version of the Stewardship Code was finalized approximately 16 months earlier than the Corporate Governance Code. There is also significance in the order in which the responsibility for dialogue is placed first on the investors side, and then principles are established for dealing with the listed companies. The Corporate Governance Code is covered in detail in Theme 2.1.

Formulated in 2014

In August 2013, the Financial Services Agency established the “Expert Study Group on the Japanese Stewardship Code.” The meeting was chaired by Professor Hiroyuki Kamisaku of the Graduate School of Law and Politics, the University of Tokyo, and 17 people participated from asset management companies, asset owners, voting advisory companies, related ministries and agencies, the Tokyo Stock Exchange, and others.

The review meeting was held six times from August 2013 to February 2014. The code was finalized on February 26, 2014, based on 26 public comments in Japanese and 19 in English.

The Code defines stewardship responsibilities as follows:

"Stewardship responsibility" refers to the responsibility of institutional investors to increase medium- to long-term investment returns for customers and beneficiaries (including ultimate beneficiaries; hereinafter the same applies) by promoting the improvement of the corporate value of the company concerned and its sustainable growth through constructive "purposeful dialogue" (dialogue) based on a deep understanding of the investee company and its business environment, as well as consideration of sustainability according to the investment strategy.

The following three points are important in this definition.

  1. The objective is medium- to long-term investment returns. This approach does not only deal with short-term stock price fluctuations or individual shareholder meeting proposals.
  2. Dialogue is not a voluntary public relations activity. Institutional investors are positioned as a responsibility to fulfill in order to increase the corporate value of investee companies and the interests of customers and beneficiaries.
  3. Dialogue requires a deep understanding of the company and its business environment. In addition to applying uniform standards for exercising voting rights, investors are expected to make judgments based on an understanding of the company’s strategy, capital allocation and risks.

Original 7 principles

The 2014 edition consists of seven principles and guidelines that embody each principle.

  1. Publication of policies -- Develop and publish clear policies to fulfill stewardship responsibilities.
  2. Management of conflicts of interest --- Identify conflicts of interest that should be managed and publish the management policy.
  3. Understanding the situation of investee companies --- Accurately understand the issues facing sustainable growth.
  4. Purposeful dialogue ---Share understanding with investee companies and strive to improve problems.
  5. Disclosure of voting policy and results --- Make decisions that contribute to the sustainable growth of the company, without relying solely on formal criteria.
  6. Reporting to customers/beneficiaries --- Regularly report on activities including the exercise of voting rights.
  7. Development of capabilities and systems --- Equipped with the knowledge, human resources, and organization to understand the company and business environment and make appropriate decisions.

GPIF announced its acceptance of the code on May 30, 2014. The number of accepting institutions rose from 127 in mid-2015, 214 in December 2016, and 281 in May 2020 to 333 as of December 31, 2024.

Column - What is "comply or explain"? The signatory institution will implement each principle or, if not, explain why. Although there is no immediate penalty for not implementing such measures, the validity of explanations will be evaluated by customers, beneficiaries, investee companies, and the market. It is not a uniform rule, but a system that allows each institution to implement methods according to its operational policy and scale while adhering to the principles.

What did Japan adopt from the UK framework, and what did it change?

The direct reference for the Japanese version was the UK's 2010 Stewardship Code. The basic structure of the seven principles followed the British version, but the method of announcing jurisdiction and accepting organizations was designed to match the Japanese system.

selection UK Stewardship Code Japan Stewardship Code
Jurisdiction Financial Reporting Council (FRC, independent regulator) Financial Services Agency (Financial regulatory authority)
Assessment of signatory institutions Tier list (after 2020: Tier 1 / Tier 2) Single public list
Voting advisory company Compatible with separate procedures at ESMA level From 2020 onwards, within the scope of the Code (Principle 8)
Asset owner accountability Mentioned but not central Emphasis since 2017 revision

With the Financial Services Agency in charge, the code is now more closely linked to financial administration and the supervision of asset management companies. On the other hand, the fact that accepting institutions are listed on a single public list without ranking them in terms of their merits or demerits reflects the public-facing approach adopted by the Japanese government.

Additionally, in Japan, many asset owners, including GPIF, outsource the actual management of their assets to external management companies. For this reason, it has become important for asset owners to clarify what they expect from their clients and how to evaluate them in order for the entire investment chain to function properly. The reason why service providers such as proxy voting advisory companies are included in the scope of the code is to ensure that entities that influence investment decisions are not left out of the chain.

What has changed in the three revisions since its formulation?

point of view 2014 (original version) 2017 (first revision) 2020 (second revision) 2025 (Third revision)
number of principles 7 7 8 8 (Guidelines revised)
New principles ― ― Principle 8: Service provider (proxy voting advisory firm, pension consultant) ―
Voting rights disclosure Assuming disclosure on a summary basis Promote publication of voting results for each individual company/proposal Reconfirmation/enhancement Reconfirmation
Sustainability/ESG Not specified Added reference to material ESG factors Clarify “sustainability (medium- to long-term sustainability including ESG factors)” in the definition of stewardship responsibilities Inheriting the positioning of 2020
Target asset class Japanese listed stocks Japanese listed stocks Clarified that it is applicable to assets other than stocks such as bonds Inherited 2020 range
Asset owner accountability Mentioned Strengthening expectations and supervision of subcontractors Further clarification continuation
collaborative engagement No special indication No special indication practical options Clarified positioning as a powerful dialogue method
Confirmed date February 26, 2014 May 29, 2017 March 24, 2020 June 26, 2025
Compliance deadline ― End of November 2017 End of September 2020 Estimated end of 2025

What changed in the 2017 revision?

The 2017 revision was finalized on May 29, 2017 based on 18 Japanese and 11 English opinions.

There are three main changes.

  1. The responsibilities of the management company's management team were clarified. Instead of leaving stewardship activities to the responsible department alone, management was asked to take responsibility for human resources, organization, and conflict of interest management.
  2. More detailed publication of voting results. The revision called for disclosure by investee company and resolution, rather than only aggregate counts of votes for and against.
  3. Strengthened supervision of asset management companies by asset owners. Asset owners were asked to specify the activities expected of their appointed managers and assess how those activities were carried out. GPIF reflected this idea in its evaluation of asset managers.

What has changed in the 2020 revision?

In the second revision on March 24, 2020, the definition of stewardship responsibilities clearly includes consideration of sustainability according to operational strategy. ESG is no longer an incidental topic of dialogue, but has become a factor that influences corporate value and investment returns and must be considered in accordance with investment policy.

At the same time, the code no longer has only Japanese listed stocks in mind. It has been shown that institutional investors who hold other assets such as bonds can also apply if they are able to carry out activities consistent with the purpose of the Code. Additionally, Principle 8 has been newly established, targeting service providers that support the investment chain, such as proxy voting advisory firms and pension consultants.

Signatory institutions were expected to update their published information in line with the revised content by the end of September 2020. The Financial Services Agency has also released a hidden version showing changes from the 2017 version: https://www.fsa.go.jp/news/r1/singi/20200324/02.pdf

What has changed in the 2025 revision?

The third revision was finalized on June 26, 2025. One of the central points of discussion was Collaborative Engagement, in which multiple institutional investors work together to engage in dialogue with companies on common issues. While demonstrating that collaborative engagement can be a powerful means of fulfilling stewardship responsibilities, it was confirmed that each investor remains responsible for making their own decisions and managing conflicts of interest.

Details of the third revision are covered in Theme 5.7.

"The growth and competitiveness of Japan's listed companies depends on two codes working in parallel: the Stewardship Code, which governs institutional investors, and the Corporate Governance Code, which governs listed companies. Both codes are the wheels of the wheel of capital market reform."

  • Continuing position statement of the Financial Services Agency's "Stewardship Code and Corporate Governance Code Follow-up Meeting" (translation)

A mechanism to turn arbitrary acceptance into effective discipline

The Corporate Governance Code applies to companies listed on the Tokyo Stock Exchange. On the other hand, acceptance of the Stewardship Code is voluntary for institutional investors. However, the reason why it has become so widespread is because of the following mechanism.

  1. Publication of the list of accepting institutions. The Financial Services Agency will announce the institutions that have announced acceptance of the code. If a management company or pension fund of a certain size is not listed, customers or beneficiaries will ask why.
  2. Contractor evaluation by asset owner. Asset owners such as GPIF will incorporate stewardship activities into the selection and evaluation of management companies. In order to be entrusted with large funds, the quality of not only the acceptance of the code but also the actual dialogue and exercise of voting rights are tested.
  3. Ongoing verification by the Financial Services Agency. Follow-up meetings and code revision review groups will address issues such as conflicts of interest, voting, and collaborative engagement, and update expectations.

Rather than imposing a uniform legal obligation, the principles-based framework combines public announcements of acceptance, explanations to clients and beneficiaries, evaluation of appointed managers and market scrutiny.

Implications that IR personnel should keep in mind

  1. Verify that major shareholders have accepted the code. List the acceptance status of top shareholders, stewardship policy, and important dialogue items. It becomes easier to understand the priorities of the dialogue and the background of the questions.
  2. Read activity reports and voting results of major asset management companies. Each company publishes its policies, activity reports, and voting results for each individual company and proposal. Judgments about the company and comparisons with other companies in the same industry may be expressed.
  3. Prepare for the revised 2020 Sustainability Dialogue. Be able to explain how climate, human rights, human capital, etc. affect corporate value and align with disclosures including SSBJ standards.
  4. Explain the differences between revision years to the board of directors. Based on the 2014 version only, an issuer would miss the 2017 asset-owner responsibilities, the 2020 sustainability provisions and Principle 8, and 2025 collaborative engagement.
  5. Read the Financial Services Agency study committee materials in advance. Pre-revision discussions reveal questions investors are likely to raise. Reflect the latest review status in explanatory materials to the board of directors and management committee.

Source/reference materials

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Next article for this theme: Theme 1 completed - Go to Theme 2: The Age of Code and start with 2.1 2015 Corporate Governance Code - The Basics of 'Comply or Explain'.

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