{"id":5313,"date":"2025-04-14T14:48:42","date_gmt":"2025-04-14T05:48:42","guid":{"rendered":"https:\/\/bdti.or.jp\/to-ensure-the-stewardship-code-functions-effectively-we-propose-specific-measures-to-strengthen-pension-governance\/"},"modified":"2025-12-04T14:56:27","modified_gmt":"2025-12-04T05:56:27","slug":"sc","status":"publish","type":"page","link":"https:\/\/bdti.or.jp\/en\/sc\/","title":{"rendered":"To ensure the Stewardship Code functions effectively, we propose specific measures to strengthen pension governance."},"content":{"rendered":"\t\t
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To ensure the Stewardship Code functions effectively, we propose specific measures to strengthen pension governance.<\/h2>\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t
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August 2016

Strengthening pension governance is essential to completing the governance reforms of Abenomics.<\/strong><\/p>

For the Corporate Governance Code to function at its fullest potential, the Stewardship Code must be effectively implemented. No matter how much emphasis is placed on \u201cconstructive dialogue,\u201d dialogue activities and proxy voting are inherently \u201ccost centers\u201d for fund managers, requiring significant time and effort. Unless a fund manager’s key clients specifically demand such activities, asset managers tend to cut corners and settle for superficial actions.<\/p>

Unfortunately, despite the government’s efforts, significant problems remain in Japan’s investment chain. Pension funds are the most important clients for fund managers. They entrust substantial sums on a regular basis, making them akin to gods. If pension funds clearly state that stewardship activities and ESG analysis are key criteria in selecting fund managers, \u201cconstructive dialogue\u201d would instantly cease to be viewed as a cost center that feels like half PR.<\/p>

But among the hundreds of institutional investors that have declared their acceptance of the Stewardship Code, how many non-financial listed companies’ pension funds do you think are included? At present, only one (Secom’s pension fund). Just one! With this, the code simply cannot reach its full potential.<\/p>

Furthermore, while it is commonly believed that \u201cvaluing employees\u201d is a Japanese corporate practice, institutionally speaking, Japan lacks legal systems as robust as the U.S. ERISA or the UK Pension Act for protecting workers’ post-retirement income. The specific professional knowledge required of trustees, along with the scope of their fiduciary duties and duty of care, remains unclear. Moreover, in most cases, plan participants cannot sue trustees either legally or in practice. Unlike under ERISA, participants also cannot sue fund managers or other service providers. Furthermore, when workers allege violations, there is no proactive enforcement system by authorities like those in the US or UK.<\/p>

At the same time, retirement benefit systems are quite dubious when objectively evaluated from the employee’s perspective. Even if accounting provisions exist, the money isn’t actually deposited there. How many workers are aware that it’s merely an accounting figure\u2014an account that exists only on paper? Not only is there no \u201cseparate bank account,\u201d but there are also no other accounts or mechanisms anywhere that serve as collateral for the retirement benefit liabilities. If the company goes bankrupt, there’s a high probability employees won’t receive their retirement benefits. Interestingly, Germany has a similar system. It’s generally perceived as a mechanism where \u201cemployees lend money to the company at low interest rates.\u201d This interpretation aligns with reality.<\/p>

The pension funding shortfall for listed companies alone stands at 26 trillion yen, and this figure will undoubtedly expand further under negative interest rate policies. Yet companies bear no obligation to disclose detailed information to workers regarding these issues or the implementation status of stewardship responsibilities by individual corporate pension funds. After all, the single statement above says it all: Corporate pension funds have no obligation to declare acceptance of the Stewardship Code, and most of them do not prioritize \u201cstewardship.\u201d<\/p>

For corporate governance and stewardship reforms to function effectively, the most crucial factor is for end asset owners such as corporate pension funds to become true stewards, upholding their fiduciary duties with professional expertise. To achieve this, strengthening pension governance and enhancing disclosure obligations to plan participants is essential.<\/p>

My Proposal<\/strong><\/h5>

Therefore, we have submitted the following specific proposals to the government regarding corporate pensions.<\/p>

1) To reflect the importance of stewardship responsibilities, corporate pension funds will be required to include an explanation of \u201cmatters concerning stewardship responsibilities\u201d in their \u201cbasic investment policy\u201d commitments.<\/p>