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Sompo Asset Management Co., Ltd.

PRI reporting framework 2020

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Outputs and outcomes

LEA 09. Number of companies engaged with, intensity of engagement and effort

Indicate the proportion of companies in your listed equities portfolio with which your organisation engaged during the reporting year.
We did not complete any engagements in the reporting year.

Number of companies engaged

(avoid double counting, see explanatory notes)

Proportion of companies engaged with, out of total listed equities portfolio

Individual / Internal staff engagements

300
50

Collaborative engagements

2
1

09.2. Indicate the breakdown of engagements conducted within the reporting year by the number of interactions (including interactions made on your behalf).

No. of interactions with a company
% of engagements
One interaction
2 to 3 interactions
More than 3 interactions
Total
100%

09.3. Indicate the percentage of your collaborative engagements in which you were the leading organisation during the reporting year.

Type of engagement

% leading role
  Collaborative engagements

09.5. Additional information. [Optional]


LEA 10. Engagement methods

10.1. Indicate which of the following your engagement involved.

(specify)

          proxy voting
        

10.2. Additional information. [Optional]


LEA 11. Examples of ESG engagements

11.1. Provide examples of the engagements that your organisation or your service provider carried out during the reporting year.

ESG Topic
Climate Change
Conducted by
Objectives

Risks and opportunities of potential carbon regulatory changes

Scope and Process

We discussed the research, CAPEX, and regulatory costs associated with reducing emissions with the company and explained that it may be able to translate its technological advantage into higher demand. The company told us if introduced impact of carbon pricing would be minimal and that it sees opportunities in differentiation of engineering and eco products given increasing demand due to greater environmental awareness.  We confirmed that SNAM and the company are largely on the same page with regard to the issue and that it is unnecessary to make further environmental risk discounts to our intrinsic value calculations.

Outcomes
ESG Topic
Company leadership issues
Conducted by
Objectives

Composition & function of the board of directors

Scope and Process

We informed the company that we believe its board to be too large given the scale of its operations. We also requested to the company to revisit the role of the board given the long tenure of its majority shareholder chairperson owner.

The company told us it was aware the size of the board is too large and planned to submit a proposal to greatly reduce the number of directors at the next shareholder’s meeting. It also spoke of an intention to have the chairperson assume a purely supervisory role and to separate the execution and supervisory functions.

SNAM looks forward to the above mentioned proposal at the next shareholders meeting. Regarding the separation of execution and supervisory functions, going forward we intend to request the company disclose pertinent information on this matter to its external stakeholders.

Outcomes
ESG Topic
Shareholder rights
Conducted by
Objectives

Improvement of shareholder return and elimination of excessive cash reserves

Scope and Process

We suggested to the company, who according to its business plan has been holding cash to prepare for M&A activity that has yet to materialized, that it would be better to return this cash to shareholders. SNAM requested the company to disclose cash levels required for ordinary business operations.

The company explained there were “special circumstances” associated with the industry it operates in and did not provide SNAM with a satisfactory answer. The company did agree to feedback details of the dialogue to top management and that SNAM’s suggestion may be partially reflected in their new FY2019 business plan.

While we consider it a success that SNAM was able to demonstrate to the company that we do not tolerate low dividends and high shareholders equity ratios, the company did not express willingness to change and therefore we will continue our dialogue going forward.

Outcomes
ESG Topic
Pollution
Conducted by
Objectives

We have confirmed the situation of its supply chain management, including procuring raw materials and the decrease in number of people engaged in agriculture.

Scope and Process

The Investor Relations manager, who used to work in China until quite recently at that time, explained to us in detail. The personnel explained to us how the company deals with residues from agricultural chemicals and a mycotoxin issue.

We found the meeting fruitful, with getting to know how the company obtained business opportunities in overseas countries.

Outcomes
ESG Topic
Other

specify

          
        
Conducted by
Objectives

Low ROE, about to announce its new medium-term plan

Scope and Process

We explained to this low ROE, high shareholders equity ratio company that investors tend to look for capital efficiency and ROE objectives, also recommending they touch upon about how they plan to address the cross-shareholdings issue. We also requested them to add an objective of 2% dividend on equity to their shareholder return policy. Management told us they mainly use a backcasting style approach to formulate their medium-term plan, basing it on how they believe the world will be thirty years from now centered around employees currently in their 30’s and then working back from there to 10, 5, and 3 years into the future. The company expressed their willingness to accept SNAM’s proposal. The company agreed to comply with SNAM’s request to include sale of cross-shareholdings and objective of DOE 2% in the medium-term plan. On the other hand, the company did not set ROE or ROA targets, choosing instead to focus on asset efficiency (moderation of financial asset & inventory levels). We believe that opting to commence use of the dividend on equity metric represents considerable progress, although note that the high shareholders equity issue remains unaddressed. Going forward, we will continue our dialogue with this company.

Outcomes
ESG Topic
Executive Remuneration
Conducted by
Objectives

The company worsened its capital efficiency by holding quite a number of cross-shareholdings. In spite of this situation, it included an increase in remuneration for board of directors in the item, with its strong earnings result as an excuse.

Scope and Process

Even though we opined disagreement to the item, the company did not respond to us. We voted against the item and notified the company of our voting decision.

Outcomes
ESG Topic
Other governance
Conducted by
Objectives

Faced significant negative earnings after legal violations by its subsidiary

Scope and Process

After listening to the company’s explanation of the situation, we informed them that while it may have been an accurate account of what happened, important areas like feasibility of improvement and preventative measures, where responsibility for wrongdoing lay, and effectiveness of corporate governance frameworks remained unaddressed. We also requested the company implement dividend on equity targeting and appropriate cash flow control.  While the company understood what SNAM had said, it was unclear whether the company accepted it. They did later suggest the possibility of a review into HR practices and corporate governance enhancement.

Outcomes
ESG Topic
Climate Change
Conducted by
Objectives

As a lead-investor for a collaborative engagement, Climate Action 100+, we explained to the company what Climate Action 100+ is and what we were aiming for.

Scope and Process

After meeting the personnel in Investor Relations Department, we asked them if we could have a meeting with the staff in CSR Department. In terms of the capital policy and the shareholder return, they promised us to give some feedback to the board of directors. As a co-lead investor, we are going to continue dialogues and we would like to contribute to the company’s global warming gas emission reduction. After the meeting with Investor Relations Department, we had a meeting with CSR Department.

Outcomes
ESG Topic
Human rights
Conducted by
Objectives

As we could not confirm the policy on its employee’s health and security, we confirmed with them how they deal with the issue at a meeting.

Scope and Process

In its annual report issued in 2019, the company mentioned “workplace safety and sanitization” in the section of “Group’s Code of Conduct”, though the company did not have an independent policy on “workplace safety and sanitization”. Its HP did not go beyond referring how it dealt with the issue. Its annual report did not have particular words such as “Human Rights” or “Community” in its code of conduct, though its supply chain mentioned human rights. The company promised us to disclose the information in a better, consistent way. The company is on the way to improving its disclosure.

Outcomes

11.2. Additional information. [Optional]


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