Five Years of Climate-Related Shareholder Proposals in Japan: Legal Insights and the Road Ahead

ClientEarth Japan was delighted to host a webinar titled "Advancing Climate Stewardship in Japan: Legal Insights from Five Years of Climate-Related Shareholder Proposals and the Future of the Companies Act Reform." Approximately 60 participants from Japan and globally joined the session, representing institutional investors, legal professionals, and environmental organisations. The session discussed five years of developments in climate-related shareholder engagement in Japan.

Shareholder Proposals and Their Impact on Corporate Governance

Since 2020, climate-related shareholder proposals targeting Japanese companies have become one of the primary tools investors use to drive corporate behavioural changes.

Asahi Yamashita, attorney and board member of ClientEarth Japan, outlined the original rationale behind the introduction of shareholder proposal rights in 1981 — to prevent shareholder meetings from becoming a mere formality — as well as the "advisory function" of shareholder proposals structured as amendments to articles of incorporation, and the reasons why enshrining climate principles in modern articles of incorporation is appropriate.

Even when a shareholder proposal to amend the articles is rejected, soft-law accountability mechanisms may still be triggered. Where a proposal receives more than 50% support, directors are, more often than not, recommended to change existing policy. Where support exceeds 20%, companies bear a responsibility to explain whether they will maintain or revise their position. Therefore, shareholder proposals do bring about positive climate action within the boardrooms of Japanese corporations. 

The Investor Perspective: Shareholder Proposals as a Selective Tool When Dialogue Stalls

Legal & General (UK) co-filed a shareholder proposal in Japan in 2024, calling for greater transparency and accountability in corporate policy engagement on climate and energy matters. Aina Fukuda, Head of Investment Stewardship at Legal & General Investment Management Japan (LGIM Japan), shared the investor perspective on the role of shareholder proposals.

"We do not file shareholder proposals frequently. We use them as a selective escalation tool to seek explanation or improved action from boards when dialogue has stalled and other means are unlikely to move things forward. Where the ask is clear and likely to attract broader shareholder support, the chances of driving constructive change are higher."

Aina Fukuda also highlighted ongoing challenges around the governance and transparency of corporate policy engagement, and its consistency with climate strategy. She noted that how a company's policy engagement activities, both direct advocacy and indirect engagement through industry associations. connect to its stated climate commitments remains difficult for investors to assess.

Japanese Corporate Transition Strategies: Challenges and Progress

Dr. Sachiko Suzuki, Asia Climate and Energy Analyst at Market Forces, presented the challenges facing Japanese corporate transition plans and the changes driven by shareholder engagement.

Key challenges include the lack of concrete transition plans toward net zero by 2050 and insufficient transparency around board-level climate oversight. Japan's structural dependence on fossil fuel imports was also cited as a compounding risk to energy security.

At the same time, there is a growing trend of companies proactively seeking dialogue with investors. Over the past five years, shareholder proposals have contributed to meaningful progress, including decisions by Japanese companies and financial institutions to exit coal-related businesses and cease financing coal-fired power generation.

Implications of the Companies Act Reform for Shareholder Rights

The Ministry of Justice's Legislative Council on Company Law is currently deliberating a review of the shareholder proposal system. One proposal under consideration, to abolish the 300 voting rights threshold and replace it with a requirement to hold at least 1% of total voting rights, could eliminate approximately 80% of current shareholder proposals. Even proposals to raise the threshold to 1,000 or 1,500 voting rights would also have a significant impact on individual shareholders and NGO shareholders. Changes to resolution rules at general meetings could further affect shareholders' rights to submit amendments and ask questions.

Aina Fukuda noted that raising the shareholder proposal threshold risks narrowing the substantive agenda of general meetings, not just through changing who can file proposals, but by reducing what gets discussed. As a result, topics such as governance, disclosure, and climate risk, which minority shareholders and diversified institutional investors have historically brought to the table, may become harder to place on the agenda.

Asahi Yamashita expressed concern that the proposed Companies Act amendments appear to be aimed at reducing shareholder meetings to a formality, the very outcome the shareholder proposal system was designed to prevent in 1981. The proposed reforms risk running counter to the Corporate Governance Code and the Stewardship Code and could fundamentally alter the character of the general meeting.