Overview Of The Proposed Revisions To The Stewardship Code

1. Publication of the Proposed Revisions by the Financial Services Agency

On March 21, 2025, the Financial Services Agency released a proposal for revisions to the Principles for Responsible Institutional Investors¹ (Japan's Stewardship Code, or "SS Code"). The proposal was compiled by the "Expert Council on the Stewardship Code (FY2025)" (the "Council"). These proposed revisions (the "Proposed Revisions") reflect the discussions on the principles of action expected from institutional investors in the context of advancing corporate governance reforms. The Proposed Revisions contain significant implications for both institutional investors and corporations. Below, we provide an overview of the key changes introduced in the Proposed Revisions.

2. Summary of the Revisions

Based on publicly available materials², the key changes in the Proposed Revisions are summarized as follows:

(1) Revisions to Promote Collaborative Engagement

The Proposed Revisions include measures aimed at promoting "collaborative engagement," whereby institutional investors collectively engage in dialogue with investee companies.
Notably, collaborative engagement has been positioned as an "important option." Compared to the current SS Code, which merely stipulates that collaborative engagement "may be beneficial as necessary", it is now highlighted that collaborative engagement should be considered more proactively.
In the meantime, new language has also been added, stating that when considering the approach to the dialogue with the investee company, institutional investors should consider whether the dialogue will be constructive and will contribute to the sustainable growth of that investee company. This addition likely reflects concerns raised during the Council's discussions, including the challenges of collaboration among multiple institutional investors and the potential for excessive pressure on companies.

(2) Revisions to Enhance Transparency of Beneficial Ownership

The Proposed Revisions introduce new guidelines for institutional investors to facilitate the efficient acquisition of information by companies regarding "beneficial owners"—those who hold voting rights or investment authority through "nominee shareholders" (e.g., custodians).
Specifically, the new guideline in the Proposed Revisions provides that institutional investors are expected to "explain the extent of their own shareholdings in investee companies" during dialogues with such companies. Furthermore, they are required to "publicly disclose their policies for responding to requests for the explanation from investee companies" as part of the new guidelines. The current SS Code solely contains a note stating that it "may be desirable" for them to explain to the companies the extent to which they hold shares in those companies. In contrast, the Proposed Revisions require institutional investors to take certain actions toward information disclosure.
It is also worth noting that the Legislative Council of the Ministry of Justice is expected to deliberate on the potential establishment of a framework under the Companies Act that would allow corporations to verify beneficial owners through nominee shareholders. These simultaneous advancements in the SS code and under the Companies Act will encourage both companies and institutional investors to enhance engagement to achieve better corporate governance.

(3) Revisions to Streamline and Adopt a Principles-Based Approach

The SS Code adopts a "principles-based approach," which sets forth fundamental principles, rather than detailed rules, requiring stakeholders to understand the intent of the principles and make appropriate decisions in their activities. This approach contrasts with a "rules-based approach," which prescribes specific actions in detail.
The Proposed Revisions aim to reinforce the principles-based approach by simplifying sections that have already gained traction in practice, eliminating redundant content, and removing supplementary footnotes. This streamlining aligns with recent developments in the United Kingdom, where efforts to simplify the Stewardship Code have also been undertaken.

3. Future Outlook

Following the solicitation of public comments, the Proposed Revisions are expected to be finalized and published as the revised SS Code. Institutional investors who have expressed their acceptance of the SS Code will be required to review their activities in light of the revised SS Code, disclose their implementation status, and provide explanations for any principles they do not implement.
Furthermore, based on publicly available materials, it is anticipated that revisions—including further streamlining and principles-based adjustments—will continue to be considered in response to changes in the environment surrounding corporate-investor dialogue and the progress of corporate governance reforms.
Therefore, it will be crucial to monitor how institutional investors adapt their behavior in response to these revisions, and how the SS Code continues to evolve and be received over the long term.

Footnotes

1. https://www.fsa.go.jp/news/r6/singi/20250321-2/01.pdf (In Japanese)
https://www.fsa.go.jp/en/refer/councils/stewardship/material/20250226_1.pdf (The English version (provisional translation) published with the original text.).

2. Documents such as " Proposed Revisions to the Stewardship Code," which were released alongside the Proposed Revisions, as well as explanatory materials presented during the Council's discussions.
https://www.fsa.go.jp/singi/stewardship/siryou/20250226/03.pdf (In Japanese)
https://www.fsa.go.jp/en/refer/councils/stewardship/material/20250226_3.pdf (The English version (provisional translation) published with the original text.)

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