Trading Houses
Directors of Japan’s trading houses must be held accountable for poor risk management
Directors of Japan’s major trading houses—Mitsui, Sumitomo, and Mitsubishi—are facing increasing scrutiny over their responsibility to ensure effective material risk management.
Investors should use proxy voting rights and “Vote No” on Directors failing to fulfill their duties.
Investors will be negatively impacted by poor risk management. Investors expect the Board of Directors to play the ultimate role in guiding companies with an appropriate strategy and in monitoring and supervising management (executive function). In addition to approving frameworks and policies, Directors are responsible for ensuring effective implementation and oversight, and must be held accountable when companies fail to manage risks properly.
However, significant gaps persist between stated policies and actual business practices, raising concerns about Directors’ effectiveness in managing material risks identified by the companies themselves.
- While these trading houses have announced net-zero by 2050 targets, analysis indicates that their current business strategies remain aligned with a 4.6°C or higher warming scenario*. This misalignment leaves companies exposed to substantial transition and physical risks.
- Japanese trading houses have a documented history of involvement in high-risk and controversial projects, including those linked to human rights violations that contradict their own corporate policies and commitments.
- Risk exposure is further compounded through joint ventures and partnerships, where inadequate oversight and misalignment further increase potential liabilities and reputational risks.
We recommend investors “Vote No” on the election of any Board Directors failing to fulfill their duties at the upcoming Japanese Annual General Meetings in 2026.
*According to the MSCI implied Temperature Rise, data obtained from Bloomberg
*JERA is a 50-50 joint venture between TEPCO Fuel & Power (a wholly owned subsidiary of Tokyo Electric Power Company) and Chubu Electric Power.
** Based on analysis by the MSCI Sustainability Institute
Download the documents
Investor briefing Apr 22
Frequently asked questions
What is governance?
Quite simply, corporate governance is the framework of rules, relationships, and processes by which a company is directed and held accountable to ensure it operates ethically, transparently, and in the best interests of its shareholders and stakeholders.
In Japan, processes are set under Companies Act and the Corporate Governance Code with companies also creating functions under their articles of incorporation and bylaws.Please read the details in the Baseline Governance Expectation.
What questions should investors be asking directors?
Please see Baseline governance expectations - questions are adapted from multiple sources, including World Economic Forum Climate Change Governance Principles, CA100+, IIGCC, Japan’s Corporate Governance Code, as well as the proxy voting guidelines of multiple global and Japanese asset managers.
Why do you rely on the International Energy Agency (IEA) NZE scenario in your briefings?
There are other energy scenarios beyond the NZE that are consistent with limiting global warming to 1.5°C, including those published by the IPCC. However, we refer primarily to the NZE for several reasons:
- It’s up to date
- It’s widely used
- The IEA is a trusted source
More details are on the FAQ page
Do you consider energy security?
Yes. Please see questions 12 and 13 on the FAQ page
Related
Disclaimer
Informational purposes only – This communication is provided solely for informational purposes only and is not, and should not be construed as, investment advice or investment recommendations for the purposes of the Financial Instrument Exchange Act of Japan.
No joint-exercise of voting rights – Nothing in this written communication, nor in any related oral discussion, is intended to be, nor should it be construed as, an offer, an acceptance or a consent, to enter into an agreement for the joint exercise of voting rights or any other shareholder’ rights for the purposes of the Financial Instrument Exchange Act and Foreign Exchange and Foreign Trade Act of Japan. If needs be, it is hereby emphasised that each shareholder exercises its shareholder’s rights independently based upon its own decision and shall not be held liable for its exercise of its shareholder’s rights in any event or in any result, as a breach of any discussion between the shareholders.
No proxy solicitation – Nothing in this written communication, nor in any related oral discussion, is intended to be, nor should it be construed as, a “solicitation for proxies” for the purposes of the Financial Instrument Exchange Act of Japan. The shareholder is not soliciting or seeking any authorization by any other shareholders to exercise their voting rights or any other shareholders’ rights on their behalf or as their agent at the annual shareholders’ meeting. This is a non-commercial product for public dissemination only. Not for sale.
Analysis featured in this briefing does not substitute analysis and disclosure from the companies themselves. The purpose of the information featured here is to demonstrate to investors the substantial climate-risks the companies are exposed to, and encourages them to undertake their own detailed, forward-looking analysis to demonstrate to investors how they are managing these risks.