The Two Wheels of the Cart: Japan's Stewardship Code (2014, 2017, 2020, 2025)

TL;DR - Japan's Stewardship Code was finalised on 26 February 2014 by the FSA's Council of Experts chaired by Hiroyuki Kansaku, with seven principles operating on a comply-or-explain basis. GPIF accepted it twelve weeks later. - The Code has been revised three times — May 2017 (added Principle 8 covering service providers; named voting disclosure), March 2020 (integrated ESG; expanded scope to non-equity asset classes), and June 2025 (third revision, building on collaborative engagement). - The Stewardship Code and the 2015 Corporate Governance Code are the two wheels of the cart: the Stewardship Code governs investor behaviour; the CG Code governs issuer behaviour. Both are FSA-administered, both are principles-based, both operate on comply-or-explain.

The "two wheels" metaphor

The FSA Council of Experts that oversees both codes uses a recurring phrase: kuruma no ryōrin — "the two wheels of the cart." The Stewardship Code regulates the investor side of the company-investor dialogue. The Corporate Governance Code regulates the issuer side. Neither wheel turns the cart alone; both have to be present, and broadly comparable in standard, for the dialogue the reform programme envisaged to produce capital-efficient outcomes.

The Stewardship Code came first, by sixteen months, and is the focus of this post. The 2015 Corporate Governance Code is treated in detail in Theme 2.1.

The 2014 inception

In August 2013 the FSA established the Council of Experts Concerning the Japanese Version of the Stewardship Code, chaired by Professor Hiroyuki Kansaku of the University of Tokyo Law Faculty. The Council had 17 members drawn from asset managers (Nomura AM, Daiwa AM, BlackRock Japan), asset owners (the Pension Fund Association), proxy advisors (ISS), the Ministry of Justice, the Cabinet Secretariat, METI and the TSE.

The Council met six times between August 2013 and February 2014. A public consultation drew 26 Japanese-language and 19 English-language responses. On 26 February 2014 the Code was finalised; formal release was 7 April 2014.

The Code's operative definition of stewardship — repeated, almost verbatim, in every subsequent Japanese governance document — is:

"Stewardship responsibilities" refers to the responsibilities of institutional investors to enhance the medium- to long-term investment return for their clients and beneficiaries (including ultimate beneficiaries; the same shall apply hereinafter) by improving and fostering the investee companies' corporate value and sustainable growth through constructive engagement, or purposeful dialogue, based on in-depth knowledge of the companies and their business environment.

Three features of that definition matter operationally:

1. "Medium- to long-term" rules out a stewardship doctrine focused on short-term proxy votes.
2. "Constructive engagement, or purposeful dialogue" establishes engagement as a fiduciary duty, not a discretionary activity.
3. "In-depth knowledge of the companies and their business environment" authorises the kind of company-specific research and engagement that, pre-2014, foreign investors did routinely but Japanese institutional investors did not.

The seven original principles

The 2014 Code is built on seven principles, each elaborated by detailed guidance.

1. Policy disclosure — Institutional investors should have a clear policy on how they fulfill their stewardship responsibilities, and publicly disclose it.
2. Conflicts of interest — Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities and publicly disclose it.
3. Monitoring — Institutional investors should monitor investee companies so that they can appropriately fulfill their stewardship responsibilities with an orientation towards the sustainable growth of the companies.
4. Engagement — Institutional investors should seek to arrive at an understanding in common with investee companies and work to solve problems through constructive engagement with investee companies.
5. Voting policy and disclosure — Institutional investors should have a clear policy on voting and disclosure of voting activity. The policy on voting should not be comprised only of a mechanical checklist: it should be designed to contribute to sustainable growth of investee companies.
6. Reporting to clients/beneficiaries — Institutional investors in principle should report periodically on how they fulfill their stewardship responsibilities, including their voting responsibilities, to their clients and beneficiaries.
7. Knowledge and skills — Institutional investors should have in-depth knowledge of the investee companies and their business environment and skills and resources needed to appropriately engage with the companies and make proper judgments in fulfilling their stewardship activities.

GPIF accepted the Code on 30 May 2014, twelve weeks after publication. Signatory uptake then ran: 127 institutions by mid-2015; 214 by December 2016; 281 by May 2020; and 333 as of 31 December 2024 (FSA published list).

Sidebar — How "comply or explain" differs from a hard rule. The Cadbury Committee in the UK introduced comply-or-explain in 1992. The mechanism allows a principle to remain prescriptive while the implementation is flexible: a signatory either complies with the principle as written, or publicly explains why it does not. Crucially, both outcomes are acceptable in form. The discipline comes from market scrutiny of the explanations — an "explain" that looks evasive will draw investor questions and reputational consequences. Japan imported the doctrine directly from the UK Cadbury tradition; both the Stewardship Code (2014) and the Corporate Governance Code (2015) run on it.

What Japan borrowed, and what it inverted

The UK 2010 Stewardship Code (revised 2012) was the explicit source text. The Japanese Code's seven-principle structure mirrors the UK Code's seven principles closely. Four substantive choices differ:

The Japanese choices are not arbitrary. Having the FSA administer the Code keeps it close to the financial-regulation centre of gravity and avoids the political complexity of building an FRC-style independent regulator. The single signatory list reflects an aversion to public ranking in Japanese regulatory culture; the FSA prefers naming what is present over rating what is better. The early inclusion of proxy advisors reflects a Japanese market structure in which ISS and Glass Lewis recommendations move TSE voting outcomes more decisively than they move UK FTSE 100 outcomes, because dispersed Japanese boards historically lacked their own communications infrastructure with foreign holders. Asset-owner accountability matters because GPIF — by far the largest Japanese asset owner — operates entirely through external managers, and the FSA needs leverage on the chain end-to-end.

The four revisions — diff table

What the 2017 revision actually changed

The 2017 revision was published on 29 May 2017 after a public consultation that drew 44 Japanese-language and 23 English-language responses. Its three operational changes:

1. Principle 8 was added, requiring proxy advisors and pension consultants to disclose how they manage conflicts of interest, contribute to the broader investment chain, and engage with management.
2. Voting disclosure became named. Signatories had to disclose voting records on an individual-company basis, not in aggregate by category. The UK FRC adopted a comparable requirement only in its 2020 update — a rare case in which the Japanese Code led the UK Code rather than followed it.
3. The asset-owner / asset-manager bifurcation was sharpened. Asset owners must set clear stewardship expectations of the managers to whom they delegate; managers must implement those expectations. GPIF used this framework to require its ~25 external asset managers to publish their individual proxy votes from 2017 onward.

What the 2020 revision actually changed

Finalised on 24 March 2020, the 2020 revision is the moment ESG became operationally binding for Japanese institutional investors that had signed the Code. The Code text was amended so that "stewardship responsibilities" now requires considering "sustainability (medium- to long-term sustainability including ESG factors) consistent with their investment management strategies." Before 2020, ESG was a topic a signatory could engage on if it chose to; after 2020, ESG was a topic a signatory had to engage on or explain why not.

The 2020 revision also extended the Code's scope beyond Japanese listed equities to encompass debt and alternative investments. This broadened stewardship from a pure equity-engagement framework into a portfolio-wide doctrine, recognising that institutional investors hold beneficiary assets across the capital structure and across asset classes.

Signatories were given until end-September 2020 (six months) to update their public stewardship disclosures to the revised standard. A redline of the 2020 Code against the 2017 Code is published by the FSA at https://www.fsa.go.jp/en/refer/councils/stewardship/20200324/02.pdf — readers wishing to verify which revision introduced any particular item of guidance should consult that track-changed document.

What the 2025 revision is doing

The June 2025 revision — outside the historical scope of this Theme 1 module but mentioned here for completeness — builds on the FSA Council's 2023–2024 work on collaborative engagement and the place of collective investor action in Japanese stewardship. Theme 5.7 of this curriculum treats the 2025 revision in depth.

"The growth and competitiveness of Japanese listed companies depend on the parallel functioning of two codes — the Stewardship Code regulating institutional investors and the Corporate Governance Code regulating listed companies. The codes are the two wheels of the cart of capital-market reform." — FSA, Council of Experts Concerning the Follow-up of Japan's Stewardship Code and Japan's Corporate Governance Code, standing position statement (paraphrase)

The Code's enforcement: voluntary signature, public accountability

Unlike the Corporate Governance Code, which applies automatically to all TSE-listed companies, the Stewardship Code is voluntary — institutional investors choose whether to sign. The discipline comes from three mechanisms:

1. Public signatory list. The FSA publishes the list of signatories on its website and updates it quarterly. As of December 2024, 333 institutions had signed. A meaningful Japanese asset manager that has not signed faces immediate questions from clients and from the press.
2. GPIF's manager-selection process. GPIF requires its external asset managers to be Code signatories and to publish individual voting records. Because GPIF is the largest mandate provider in Japanese asset management, this requirement creates a de facto market obligation for any manager that wants GPIF money.
3. Action Programmes and disclosure reviews. The FSA's Council of Experts Concerning the Follow-up of Japan's Stewardship Code and Japan's Corporate Governance Code has met more than 29 times between 2015 and 2024 and publishes the annual Action Program for Corporate Governance Reform. The Programme names — sometimes by category, occasionally by example — areas of signatory practice the Council finds wanting.

The combination produces an enforcement architecture that is neither hard law nor pure norm. It is the same architecture the Cadbury Committee invented, adapted for the Japanese market structure.

What this means for IR

1. Know which of your top-20 holders are Code signatories. The current list is published by the FSA. Engagement letters from signatories carry the Code's authority; engagement letters from non-signatories do not. The asymmetry is useful when prioritising your engagement calendar.
2. Read your largest signatory holders' stewardship reports. Each is required to disclose policy, voting record on an individual-company basis, and engagement summary. Your name may appear in those documents — and the appearance will tell you what they think of you before they tell you directly.
3. Treat the 2020 ESG amendment as a binding context. Any Stewardship Code signatory that holds your equity is under principles-based obligation to engage with you on sustainability. If your sustainability reporting cannot answer SSBJ-aligned questions, you will see engagement on that gap.
4. Track the diff between revisions when briefing the CEO. A board member who learned about the Code in 2015 may not know about Principle 8 (2017), the ESG amendment (2020), or the 2025 collaborative-engagement guidance. The CEO briefing is more useful if it is dated.
5. Use the FSA Action Programme as a forward indicator. The annual Action Programme is the most reliable single signal of what the FSA Council intends to push next year. Reading the most recent edition before each governance-reform internal meeting is a 90-minute investment that beats most external advisor outputs.

Sources & further reading

• FSA, Principles for Responsible Institutional Investors «Japan's Stewardship Code» — final 2014 announcement: https://www.fsa.go.jp/en/refer/councils/stewardship/20140407.html
• FSA, Japan Stewardship Code final text (Feb 2014, English PDF): https://www.fsa.go.jp/en/refer/councils/stewardship/20140407/01.pdf
• FSA, 2017 revised Code announcement: https://www.fsa.go.jp/en/refer/councils/stewardship/20170529.html
• FSA, 2017 revised Code (English PDF): https://www.fsa.go.jp/en/refer/councils/stewardship/20170529/01.pdf
• FSA, Finalization of Japan's Stewardship Code (Second revised version) (24 Mar 2020): https://www.fsa.go.jp/en/refer/councils/stewardship/20200324.html
• FSA, 2020 revised Code (English PDF): https://www.fsa.go.jp/en/refer/councils/stewardship/20200324/01.pdf
• FSA, 2020 revised Code with track changes: https://www.fsa.go.jp/en/refer/councils/stewardship/20200324/02.pdf
• FSA, Expert Panel on the Stewardship Code (council index): https://www.fsa.go.jp/en/refer/councils/stewardship/index.html
• FSA, Council of Experts Concerning the Follow-up of Japan's Stewardship Code and Japan's Corporate Governance Code: https://www.fsa.go.jp/en/refer/councils/follow-up/index.html
• GPIF, Adoption of Japan's Stewardship Code: https://www.gpif.go.jp/en/investment/pdf/adoption_Japans_stewardship_code.pdf
• GPIF, Stewardship Activities Report 2024–2025: https://www.gpif.go.jp/en/investment/Stewardship_Activities_Report_2024-2025.pdf
• Cabinet (Kantei), Japan's Stewardship Code topic page: https://japan.kantei.go.jp/ongoingtopics/pdf/2014/140324_stewardship.pdf

Previous in this theme: 1.3 Abenomics' Third Arrow: how governance became growth policy

Next in this theme: Theme 1 complete — proceed to Theme 2: The Code Era starting with 2.1 The 2015 Corporate Governance Code: a comply-or-explain primer.

Related posts in other themes: - 2.1 The 2015 Corporate Governance Code: a comply-or-explain primer - 5.7 Collaborative Engagement After Stewardship Code 3.0 - 5.5 SSBJ in Action: the three-phase sustainability disclosure roll-out - ★ The IR Toolbox: every JPX / FSA / METI / SSBJ artifact, indexed