July 20, 2016

International investors optimistic about progress in corporate governance practices in Japan, according to BNY Mellon survey

Confidence mainly driven by Abe’s structural reforms and positive developments since the implementation of Corporate Governance and Stewardship Codes

HONG KONG, July 20, 2016 The latest survey from BNY Mellon found that North American and European institutional investors are optimistic about investing in Japan, encouraged by Prime Minister Shinzo Abe’s ‘Third Arrow’ policies and by positive momentum in Japan’s corporate governance landscape.

According to the report, Investor Sentiment on Japanese Reform, 65% of surveyed investors find Abe’s ‘Third Arrow’ structural reforms as the most compelling aspect about investing in Japan, while 40% cited the policies’ ineffectiveness in revitalizing the Japanese economy as the biggest risk. In particular, survey respondents believe the introduction of Corporate Governance and Stewardship Codes are key drivers to spur change in corporate governance practices and drive higher shareholder returns. Independence of board directors (65%) and return-focused capital policy (60%) emerged as the most important components of the Codes to investors surveyed.

In another key finding, 60% of respondents said the negative interest rate environment did not affect their investment stance towards Japan, despite concerns over its effectiveness in bolstering the economy.

Investors taking part in the survey were from 19 large and small investment firms with aggregated equity assets under management of $679 billion, of which $49 billion is invested in Japanese equities.

According to Michael O'Brien, Vice President, Environmental, Social and Governance (ESG) Advisory, Depositary Receipts, at BNY Mellon, “Japanese issuers can better position themselves to international investors by prioritizing capital efficiency and returns. Investors would like greater access to senior management and encourage consistent visibility through attendance at global conferences, company hosted investor events and regular global non-deal roadshows. The pace of change will also be important for international investors to justify their continued allocation to Japan.”

While almost all survey respondents (19 of 20) pointed to some improvement in issuer behavior since the introduction of the Codes (adherence to which is voluntary), many investors (45%) indicated that their approach to investing in Japan has not changed. Respondents cited a potential box-ticking mentality (45%) and corporate culture (45%) as the biggest challenges to the adoption and implementation of the Codes.

“Environmental, Social and Governance (ESG) investing has grown significantly over the last few years as investors integrate ESG factors into their investment processes. It is encouraging to see good corporate governance being discussed more regularly in Japan since the introduction of the Codes,” said Neil Atkinson, BNY Mellon's Asia-Pacific Head of Depositary Receipts.

In April 2016, BNY Mellon commissioned Ipreo to conduct a survey of North American and European institutional investors to assess the progress and impact that the Codes have had on the Japanese investment landscape. The full report is available online at www.bnymellon.com/dr.

BNY Mellon acts as depositary for more than 2,600 American and global depositary receipt programs as of March 31, 2016. Acting in partnership with leading companies from over 65 countries, BNY Mellon is committed to helping securities issuers access the world’s rapidly evolving financial markets and delivers a comprehensive suite of depositary receipt services. Learn more at www.bnymellon.com/dr.

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets. As of March 31, 2016, BNY Mellon had $29.1 trillion in assets under custody and/or administration, and $1.6 trillion in assets under management. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Learn more at http://www.bnymellon.com/. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.

The Bank of New York Mellon Corporation is the holding corporation for The Bank of New York Mellon, a banking corporation organized and existing pursuant to the laws of the State of New York (member FDIC) and its subsidiaries and affiliates have various branches and representative offices in the Asia-Pacific Region which are subject to regulation by the relevant local regulator in that jurisdiction. Not all products and services are offered at all locations.

This release is for informational purposes only and does not constitute advice nor a recommendation or endorsement with respect to any company or securities. Nothing herein shall be deemed to constitute an offer to sell or a solicitation of an offer to buy securities. Depositary Receipts: Not FDIC, State or Federal Agency Insured; May Lose Value; No Bank, State or Federal Agency Guarantee. BNY Mellon provides no advice nor recommendations or endorsement with respect to any company, security or products based on any index licensed by BNY Mellon, and we make no representation regarding the advisability of investing in the same. Any views and opinions contained in this document are those of the authors as at the date of issue; are subject to change and should not be taken as investment advice.