japan stewardship code


The Financial Services Authority, Japan’s independent regulator, published the “Principles for Responsible Institutional Investors” (the “Code”) in 2014, with revisions published in 2017 and 2020. The Code seeks to promote sustainable growth of companies through investment and dialogue. The stewardship principles enshrined in the Code reflect the responsibility of institutional investors to engage constructively with invested companies with the aim of enhancing long-term returns, while fostering and improving corporate value and sustainable growth. The Code reflects the complementary roles of a company’s Board of Directors and of its institutional investors in ensuring high standards of corporate governance and thereby promoting the sustainable growth of companies, and medium-to long-term investment returns for shareholders. The Code provides a framework for good practice in engaging with investee companies, and defines principles considered helpful to institutional investors in fulfilling their stewardship responsibilities with due regard to both their investors and beneficiaries and to investee companies.

Indus Capital Partners, LLC (“Indus”) is a specialist asset management company, investing principally in international equities, with a focus on Asia, and on global emerging markets. Indus is registered as an investment adviser with the US Securities and Exchange Commission (the “SEC”).

Indus believes that companies should manage their operations in the best interests of shareholders, and seek to enhance long-term value. Indus is a signatory to the Code, and in accordance with the Code’s requirements to disclose how it proposes to fulfill its stewardship responsibilities, sets forth below the manner in which it implements the principles contained therein.

PRINCIPLE 1 – Institutional investors should have a clear policy on how they fulfill their stewardship responsibilities, and publicly disclose it.

Indus strongly supports the principles of the Code. Our primary goal is to provide our investors with superior risk-adjusted returns over the long-term. We believe this can be achieved with, and enhanced by, an emphasis on ethical investment, integrating environmental, social, and corporate governance factors into our investment process and decision-making.

Our investment team strives to ensure that our holdings maintain operations that are consistent with environmental sustainability and resource efficiency. Indus analyzes a company's operational impact on common resources, utilization of common resources, and pollution emissions to determine the sustainability of the operations, the potential impact of disruption and cessation of access to these resources, as well as the legal and policy risk to a change in availability and/or cost of operations. We endeavor to align our investments with enterprises that are working to reduce their carbon footprints where possible.

We strive to invest in companies that operate fairly, ethically, and with integrity. We seek to analyze companies in this broader context, and make reference to respect for human rights, local cultural norms, and gender equity. We make every effort not to invest in companies that deploy forced, compulsory or child labor, are complicit in human rights violations, or the exploitation of minorities.

Corporate governance and engagement are cornerstones of our investment process. Given our emphasis on long-term investment, we recognize that quality of governance can be an important determinant of return, as well as of the volatility of returns within our projected investment horizon. We pay considerable attention to the structure and efficiency of boards, voting our shares and engaging with management where appropriate to influence better corporate governance practices. In our interactions with corporates, we also encourage the adoption of a majority of independent directors on the board, as well as oversight through independent audit, nomination and compensation committees.

PRINCIPLE 2 – Institutional investors should have a clear policy on how they manage conflicts of interest in fulfilling their stewardship responsibilities, and publicly disclose it.

Indus understands that conflicts of interest may occur in the pursuit of stewardship responsibilities. Indus maintains a robust policy to identify, manage and monitor any such conflicts of interest, and ensure that decisions are taken wholly in the interests of its investors. In compliance with SEC rules, Indus adopts a risk-based approach to avoid conflicts of interest and to take these into consideration in the implementation of policies and procedures. Any conflicts of interest are disclosed in Indus’s Form ADV Part 2A filed with the SEC. The policy is subject to regular senior management review, including by the firm’s Chief Compliance Officer, and, as necessary, Management Committee. The policy requires all staff to notify the Indus compliance team in the event that they become aware of any material conflict of interest.

PRINCIPLE 3 – 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.

Indus considers regular monitoring of investee companies to be a key responsibility of fundamental investment management. Comprehensive and continuous research and regular engagement with investee companies is an intrinsic characteristic of the firm’s investment philosophy and approach. Indus conducts thousands of meetings each year with company management both in Japan and overseas, as well as attending analysts’ results meetings, roadshows, and investment conferences. Detailed financial analysis incorporates regular monitoring and analysis of published company reports and accounts, as well as other company announcements, together with assessment of publicly available information, including broker and independent research, and external data suppliers. In doing so, we seek to triangulate publicly disclosed information from suppliers, competitors, and customers.

PRINCIPLE 4 – 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.

Throughout the investment process, Indus seeks to engage constructively with investee companies to ensure that they are pursuing strategies and processes that reflect the best interests of shareholders, while ensuring sustainable medium- to long-term growth. In the event that Indus identifies concerns regarding management process, strategy, or the application of best standards of corporate governance, Indus will seek to discuss its concerns with members of the investee company’s management (which may include non-executive officers), or legal counsel, as it considers appropriate, while maintaining strong internal communication channels. The level of engagement that is appropriate in each case is considered on its own merits, and Indus determines whether to disclose its holdings in the investee company on a case-by-case basis. Indus does not object in principle to collective action by investors, but normally seeks to engage individually with the companies in which it invests. Complying with United States securities regulations, to which Indus is subject, can be complex and technically challenging with respect to collective action, and Indus generally finds that the potential risks of collective action outweigh the potential benefits for its investors and therefore contemplates collective action on a case-by-case basis.

PRINCIPLE 5 –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 the sustainable growth of investee companies.

Indus seeks to discharge its responsibilities under the Code by means of the implementation of a clearly defined voting policy. As a fiduciary and as part of this commitment to solid corporate governance for investors, Indus has developed a robust proxy voting policy which provides transparency on our decision-making process in the event of any escalation of voting activities. This policy requires us to consider and vote each proxy proposal in the Funds’ best interests and in accordance with our fiduciary responsibilities. In fulfilling its stewardship obligations, Indus will act in a manner deemed to be prudent and diligent and which is intended to enhance the economic value of the underlying securities. Each vote is considered individually, taking into account all prevailing and relevant circumstances for the company. Indus has retained a third-party service provider, Institutional Shareholder Services Inc. (“ISS”), to assist with the development of proxy voting policies, procedures, and guidelines. Our ongoing direct engagement with companies provides us with valuable insights and context from which to evaluate recommendations from ISS. The Chief Compliance Officer works with ISS, as well as various Indus personnel, including portfolio managers, analysts, operations, and compliance professionals, to ensure that, to the extent reasonably practicable, all proxies are being properly voted and appropriate records are being retained. The proxy voting policy can be made available to Indus investors and their fiduciaries upon request.

The policy is subject to regular senior management review by the firm’s Chief Compliance Officer and Management Committee. Proxy voting procedures and record-keeping are the responsibility of the Indus operations team, who report in turn to the firm’s Chief Operating Officer. The team refers, as appropriate, to the portfolio manager for voting decisions.

Indus endeavors to take all reasonable steps to vote proxies in accordance with our fiduciary responsibilities and stewardship obligations, applying prevailing best practices and codes and standards of corporate governance. When voting proxies, Indus gives significant consideration to the recommendation of a company’s management, but will only support this if Indus believes that to do so would be in the best interest of the company’s shareholders.

While Indus fully supports the goals of the Code and its responsibilities thereunder, Indus does not generally disclose voting records to third parties (other than proxy vote processors) elsewhere in the world and believes that its practice in Japan should be consistent with this global approach. Moreover, consistent with its responsibilities under the Code, Indus has considered whether to make disclosure carefully, and has determined that at this time, the potential risks associated with disclosure (including the privacy of Indus’s investors and the confidentiality of its various investment strategies) outweigh the potential benefits to its investors and investee companies. Given Indus’s typically modest positions in its investee companies and varied strategies holding shares of investee companies, Indus believes that disclosure of its voting record on certain issues could work to unnecessarily impede its dialogue with the management of certain investee companies and possibly also confuse other holders of the stock with regards to Indus’s investment strategies.

PRINCIPLE 6 – Institutional investors in principle should report periodically on how they fulfill their stewardship responsibilities, including their voting responsibilities, to their investors and beneficiaries.

Indus’s disclosure on how it proposes to fulfill its stewardship responsibilities under the Code is made available on its website, and updated as necessary, but no less than annually.

Indus’s proxy voting policy is available for investors and their fiduciaries upon request. Voting intentions are not normally disclosed to third parties, other than to a proxy vote processor. As discussed above, voting actions are not publicly disclosed.

Where this does not conflict with investor confidentiality or the pursuit of investment strategies, the manner in which voting rights have been executed may be disclosed to an investor or their fiduciaries.

PRINCIPLE 7 – To contribute positively to the sustainable growth of investee companies, institutional investors should develop skills and resources needed to engage appropriately with the companies and to make proper judgments in fulfilling their stewardship activities based on in-depth knowledge of the investee companies and their business environment and consideration of sustainability consistent with their investment management strategies.

Indus considers companies’ business strategy and process in assessing sustainable long-term growth, taking into account capital structure, financial stability, and the application of appropriately high standards of corporate governance. All investment personnel whose activities include Japan are equipped with the necessary experience, skills, tools, and resources to engage effectively with corporates on these topics in a manner which is consistent with Indus’s Stewardship obligations, and with the investment strategies, taking into account sustainability and the enhancement of medium- to long-term value. The portfolio manager and Japan analysts have extensive experience investing in Japan (in some cases, in excess of 20 years). Investment personnel engage regularly with Japanese corporate management, as described under Principle 3 above. The Indus investment team includes six fluent or native Japanese speakers.

Members of the investment team specializing in Japan are located in Tokyo, San Francisco, and New York. Indus’s expertise in Asian markets, with dedicated investment staff analyzing companies and industries in Asia ex-Japan, is of direct benefit in the understanding and monitoring of investee companies in Japan. Our global presence adds further context and perspective in understanding the supply chains, customer requirements, and competitive environment for many of the companies in which we invest.

Although Indus undertakes its engagement with investee companies on an independent basis, the firm recognizes that discussions with other investors may foster better engagement with investee companies, and does not exclude the possibility of engaging in such dialogue in the event that this is likely to enhance the quality of its stewardship responsibilities.

Indus consistently reviews its processes at appropriate intervals to ensure that its activities are consistent with our responsibilities under the Japan Stewardship Code. Indus is willing to discuss the results of such reviews with its investors and other stakeholders upon request. Indus’s Code Disclosure is made available on its website, and fully reviewed and updated as necessary, but no less than annually.

PRINCIPLE 8 – Service providers for institutional investors should endeavor to contribute to the enhancement of the functions of the entire investment chain by appropriately providing services for institutional investors to fulfill their stewardship responsibilities.

Before engaging any service providers, including proxy advisors, Indus undertakes a comprehensive due diligence process. This process may include, by way of example and not limitation, review of any material conflicts of interest, as well as the provider’s relevant policies and procedures and their human and operational resources.