Measuring the sustainability of Abenomics


Following decades of recession and slow growth, Japan’s Prime Minister Shinzo Abe introducedarevitalization plan in 2012 –dubbed Abenomics–to address the key barriers of economic growth.In particular,the third“arrow”ofAbenomics,thegrowth strategy, focused on a series of government-driven initiatives impacting corporations and capital markets.Among them was the establishment Japan’s Stewardship Code and Corporate Governance Code. Implementation of these codes, also called Two Wheels, focused greater attention among Japanese companies and investors on corporate earnings capabilities. Constituents of the MSCI Japan Index as of August 16, 2016 showed return on equity (ROE) growth of 13% compound annual growth rate (CAGR) between FY2012 and FY2015.1 However,questionsremainastowhether the positive trends in earnings growth can continue and whether Japanese companies have fundamentally changed their practices to accelerate future growth.

MSCI ESG Research analyzed constituents of the MSCI Japan Index as of August 16, 2016 for trends incorporate governance,human capital and innovation. We found that while companies significantly improved their performance over key parameters,2 in aggregate, Japanese companies still had a large gap to make up in order to match global peers in governance oversight and in human capital capacity. An intense competitive landscape has also raised the bar for Japan to keep up with the pace of innovation among global firms.

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The full report can be read here

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The coronavirus epidemic has further accelerated the rise of ESG into the investment mainstream. As deficits skyrocket, bond investors have an opportunity to engage with governments on climate change, argues Thomas Dillon, Senior Macro ESG Analyst at Aviva Investors.

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