Hirohiko Nakatani is the IR manager at Tokyo-headquartered multinational company Yokogawa Electric Corporation. In an interview with IR Magazine, he discusses recent trends, changes and challenges in Japanese IR and highlights the company’s approach to ESG disclosure.
What are the major trends and challenges in the Japanese IR landscape?
Traditionally, the focus [of IR] in Japan has been on the financial aspect of reporting. In the last two years, however, there’s been a dramatically increased focus on non-financial reporting as well to give a broader perspective to investors. The key challenge IR professionals in Japan face right now is how to show [investors] the relationship between the current state of non-financial reporting and future financials.
What is your advice to IR practitioners in Japan to overcome those hurdles?
At Yokogawa, what we have been working on is strengthening the IR department’s relationship with other departments in the company. For example, [working with] the sustainability team, the treasury department, the business units and gathering various kinds of information, sharing it with top management and getting advice from it on how to present that information externally.
How do you think the IR market in Japan differs from other countries?
We don’t have a lot of detail about how IR teams operate in countries like the US, for example. But considering our position at Yokogawa, the IR team is positioned quite close to top management and has frequent communication with it, so it’s quite easy to operate.
[Looking at how the IR profession has evolved in Japan], we could say the profession has gained more importance, not just with top management but also generally in the company. The understanding of the IR function and what IROs do has improved over the past 15 years.
How do you consider ESG factors when engaging with Japanese and foreign investors?
Each investor thinks about ESG differently so, to a certain extent, we modify the approach to investors according to their way of thinking. The basic approach is just to gather and [present] as much information as possible and disclose that information as necessary [while] trying to improve on disclosure. At Yokogawa, we are gaining a reputation for being a good discloser of ESG information. There isn’t a huge difference between Japanese and non-Japanese investors’ expectations, though requests from some of the foreign investors tend to require a bit more detail.
Is there a difference in ESG disclosure depending on whether you are talking to retail or institutional investors?
Our retail investor ratio is just under 10 percent, so it’s not that high. Our described approach mostly refers to institutional investors. Private investors are interested in ESG, but they’re more interested in the company’s financial performance.
Have expectations around ESG disclosures changed in Japan over the years?
Interest and expectations for ESG have certainly increased over the last few years, particularly the interest in how companies are approaching the E and S part of the acronym. As for why, that is possibly due to [ESG] trends from overseas.
What about the G part of the acronym?
Traditionally, governance disclosures have been of higher interest to investors and probably still are. Although environmental and social disclosures have increased in recent years, the connection with and impact of those values on financials is still sometimes difficult to make, [while it is more apparent when it comes to governance].
If you could pass on one lesson to IROs in your region and elsewhere, what would it be?
Probably the most important thing to keep in mind is just don’t tell untruths. There are times when you want to hide some uncomfortable truths, but we try to be as transparent as possible with our reporting.