Like their peers in the U.S., Asian companies faced an uptick in shareholder activism last year. In fact, 2022 was the busiest year on record for activist and institutional investors in Asia, as financial and ESG-related demands surged.
According to the Corporate Governance in Asia 2023 report by Insightia, a Diligent Brand, much of this spike in activity stems from local investors using activism as a tool to maximize value creation, while investors and regulators also call for stronger ESG reporting.
“With domestic activists becoming the dominant force in shareholder engagement and the heightened focus on ESG on the part of both investors and regulators, it’s increasingly important for Asian issuers to understand and proactively address stakeholder concerns,” said Josh Black, editor-in-chief at Insightia.
Domestic Investors Lead the Surge in Activism
Insightia's report credits the recent rise in activism to a growing number of domestic activists looking to capitalize on undervalued companies.
Overall, 129 Asia-based activists issued public demands at Asia-based companies last year, up from 112 in 2021.
The increase in activity was particularly strong in Japan, as the number of listed companies subject to demands nearly doubled to 108, compared to 66 in 2021. Japan was second only to the U.S. when it came to companies facing demands.
Meanwhile, South Korea now ranks fifth, with 47 listed companies facing activist demands last year.
ESG Takes Center Stage
With countries like Hong Kong and Singapore introducing mandatory ESG reporting for select public companies, ESG-related issues have become top priorities for Asian companies and shareholders.
According to Insightia, ESG engagements "dominated the proxy season in Japan and Korea" last year, as Japan saw the number of climate change proposals subject to a vote quadruple from 3 to 12 since 2021. South Korea saw its first ever environmental campaigns, reaching 12 total demands.
And it's not just the number of proposals that is increasing — support for them is climbing steadily as well, now sitting at 17% (compared to 5.6% two years ago).
More Calls to Unlock Shareholder Value
Calls to return cash to shareholders were common in 2022, with 63 such demands issued to Japan-listed companies. Insightia credits this uptick to an eagerness to recoup pandemic-related losses.
At the same time, thanks to growing financial concerns, the success rate for director remuneration proposals at Asia-based companies is on the decline, now at 96.7% (compared to 98.1% in 2020).
Hong Kong saw three campaigns featuring capital structure demands (compared to 0 in 2020), while South Korea saw a 50% increase in such demands.
How Should APAC Directors Prepare?
"The ever-evolving number of ESG engagements and reporting requirements for Asian issuers underscores the need for leaders to have a 360-view of data across their organization, strengthening their ability to identify which red flags to escalate to the board, monitor and mitigate evolving risks, and document compliance and risk management efforts in defensible, auditable detail," writes Black.
Such an approach helps directors more effectively fulfill their duties, while reducing their organization's vulnerability to shareholder activism threats.
For a closer look at activism trends in Asia and what companies can do to prepare for the year ahead, download Insightia's full Corporate Governance in Asia report.