What GPIF’s Stewardship Reports Reveal About the Future of Investor Engagement

In recent years, M&A activity and activist investor engagement have been gaining momentum in the Japanese market. One of the driving factors behind this trend is the unwinding of cross-shareholdings, which has led to a decline in the ratio of stable shareholders. This trend is likely to continue going forward. As a result, it is expected that listed companies will become increasingly interested in the policies and approaches institutional investors adopt toward stewardship activities, including engagement.

A useful reference for understanding corporate attitudes in this context is a series of reports compiled by the Government Pension Investment Fund (GPIF) based on its information-gathering efforts with companies. GPIF has published the following reports:

• The “Stewardship Activities Report” (March) (*1),

• The “Corporate Interviews: Engagement by Institutional Investors—Corporate Perspectives on Evaluation and Challenges” (April) (*2), and

• The “Survey Results on Institutional Investors’ Stewardship Activities: Questionnaire for Listed Companies” (May) (*3).

Across these reports, GPIF explicitly expresses its expectation that asset managers will strengthen the sophistication and effectiveness of their engagement practices. Given that the quality and impact of institutional investor engagement are increasingly being scrutinized, these documents offer highly instructive insights when considering future directions. Below is a summary of key takeaways:

1. Milestone-Based Engagement Management

Several asset managers are implementing milestone management—a method that involves setting clear objectives for each engagement and managing progress in stages until those objectives are achieved. There is also a growing number of managers establishing escalation strategies, to follow up when engagements do not produce results.

2. Measuring Engagement Effectiveness

Asset managers are increasingly working with academics to evaluate the impact of engagement on corporate behavior, company value, and investment performance.

3. Engagement with Companies Involved in Scandals

When engaging with companies that have experienced misconduct, asset managers assess the severity of the incident (e.g., whether there were regulatory penalties, the impact on earnings, and whether organizational involvement was present). They then scrutinize the content and implementation of recurrence prevention measures, management’s commitment, and the alignment with corporate accountability before determining their stance.

4. Engagement Coverage Based on Number of Companies

On a company count basis, engagement activities have been conducted with approximately 45% of GPIF’s portfolio holdings.

5. Listed Companies’ Evaluation of Institutional Investor Engagement

GPIF’s interviews revealed a mixed assessment from listed companies. While engagement has begun to yield results, concerns remain about the depth and substance of those interactions.

On the positive side, companies noted that engagement is starting to influence management. For example, disclosures clarifying the relationship between corporate strategy and corporate value are being recognized, and discussions on social impact indicators are steadily advancing. Dialogue based on integrated reports is becoming more common, increasing opportunities to speak with outside directors. There is also growing awareness among companies regarding capital costs and share prices, and collaborative engagements on climate change are becoming more active—prompting noticeable shifts in management direction.

On the negative side, concerns were raised about the formalization and superficiality of engagement, which often prevents companies from finding meaningful value in the dialogue. Specific issues include narrowly focused topics that fail to address broader strategic or operational challenges, delayed sharing of ESG questions that leave companies underprepared, and a persistent emphasis on short-term results over long-term perspectives. The repetitive nature of template questions and lack of clarity on ESG materiality were also cited as factors undermining engagement quality. Moreover, companies expressed dissatisfaction with how investors link engagement insights to investment decisions and criticized perceived tokenism in proxy voting and lack of follow-up discussions.

*1 https://www.gpif.go.jp/esg-stw/26487392gpif/StewardshipReport_2024.pdf (In Japanese only)

*2 https://www.gpif.go.jp/esg-stw/interview_202504.pdf (In Japanese only)

*3 https://www.gpif.go.jp/esg-stw/202405_stewardship_questionnaire_10.pdf (In Japanese only)