Hibiki’s Pledge on ESG Matters
1. We will produce long-term, sustainable, superior risk-adjusted return on investment for our clients.
2. As a long-term investment manager focusing in Japanese Mid/Small Caps, we seek out companies demonstrating great value and future prospects to grow our client capital.
3. As fiduciary to our clients, we will embrace changing paradigms and act as a missionary to investees to create further value together with those companies.
The Concept of ESG investment has its beginnings before the year 2000. In 2006, the United Nations introduced the UNPRI triggering an evolution in the investment world. Sustainable Development Goals (SDGs) was adopted by all UN member states in 2015 which saw the introduction of social and environmental issues into investment decisions which both companies and investors now tackle together.
We are dedicated to producing return on our clients’ investment and this priority has never changed and never will. However, shift in paradigm due to ESG has redefined the deeply rooted definition of this “return”. We believe that it is finally time that we embrace it fully, incorporating it into Hibiki’s fundamental-oriented research efforts and add further value, based on ESG, by being forward-looking.
The simple ethos of an active, engagement-style fund management is to invest in the right companies, engage with the management to strategize the best future for the company, and harvest the “return on investment”. However, the definition of “right companies” for investors have shifted dramatically over the years. The companies should not derive their profits or success itself from activities that have a detrimental impact to society and environment. For example, companies employing child labour to reduce operation costs or discharging harmful chemicals into the environment. Such activities should not be condoned even if they have the legal means to do so. They are something that investment community has been downplaying for decades.
In terms of common materialities for Japanese companies, we would address the following;
- E: Acknowledge the corporate responsibilities in environmental protection and integrate them into their respective business models, and disclose their progress in a timely manner
- S: Cultivate a diverse and inclusive culture which should start from improving gender diversity in managerial positions
- G: Properly execute duties and responsibilities among Board/Management/Shareholders with the common goal of maximizing long-term corporate value
Companies’ future values will increasingly be affected by how these companies, as being member of this human society, will wisely and effectively cope with these environmental and societal issues, and to proactively embrace it in their corporate strategy. Moreover, in terms of employee retention and recruit of talent, the existence, or lack, of such a mindset will hugely impact their loyalty and willingness to commit to the future of the company, thus affecting the risk premium and long-term value of the company itself.
We will encourage companies to be aware and accept this paradigm shift, influence them through our tireless engagement activities, and strive to find a long-term win-win solution together within the context of maximizing shareholder value. It is no longer a choice both for companies and investors but a fate to walk through and accomplish together, and it will solidify hope for a better, brighter future.
Chief Investment Officer
Hibiki Path Advisors Pte. Ltd.
5 February 2021