Since the Stewardship Code was signed in 2014 followed by the signing of the Corporate Governance Code in 2015, asset owners, asset managers, and corporations have all experienced a shift in awareness and recognition.

This year, we expect to see this shift to manifest itself in various actions.  Having said that, in Japan, it is still unusual to see investors and companies engaging in dialogue around ESG issues. Companies are concerned whether investors will actually approach them with issues, and if they were to do so, what they would demand. NTT’s case is noteworthy in this environment, as the company actually received a cooperative engagement action from a party of PRI (Principles of Responsible Investment) signatories, and successfully revised their information disclosure standards to accommodate their requests.

This case study was presented at the September 2015 annual ”PRI in Person 2015” event in London. This was the first time that a Japanese company presented at the PRI event.

There had been growing anticipation from overseas investors to seek more open information disclosure from, and to engage in discussions with Japanese corporations. The fact that a large Japanese company like NTT presented a successful engagement case is, in itself, a good example and could set the trend for the future.

We interviewed Kenya Nakatsuka,Chief Administrative Officer and Head of CSR Promotion, and Yoshiyuki Okada, Director, CSR Promotion, about the engagement. Mr. Nakatsuka presented at “PRI in Person 2015” representing NTT.

Asked about what made this engagement unique, the answers were as follows:

◆ It all began with a letter from an overseas investor.

◆ Executive managers decided that the company should take a mid/long-term perspective and tackle the issue head on.  Members from CSR,investor relations,and public relations worked together to kick-start the engagement.

◆ The engagement was not acrimonious, but rather, an extremely constructive series of discussions between the investor and the company. This resulted in improving enterprise value for the company.

◆ The engagement resulted in the company’s information disclosure scores improving, and an attitude change internally and across the group to embrace information disclosure.

Photo 1 :Seen left is Mr. Okada. On the right is Mr. Nakatsuka.

Photo 2:Panel discussion at PRI in Person 2015. Mr. Nakatsuka is on the far left.

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1. Engagement Process

(Q) Please tell us how the engagement started. How did your company react to the engagement request?

(A) We received a letter from Mr. David Orr, a then Senior Portfolio Manager with Sparinvest in November 2013, which was addressed to our vice president. The letter stated, “I am representing 29 individuals from 27 investment managers. We believe that your firm should more clearly and openly disclose efforts to combat corruption. We would like to engage you in a dialogue to see improvements from your company in this area.”

We had already published the information related to some questions in this letter, so we responded with a letter in December requesting Mr. Orr to refer to the published information.

The following March, our board members visited Sparinvest on an annual routine overseas investors roadshow to go over our business performances and efforts. At this meeting, we informed Mr. Orr of our intention to engage in a dialogue with him. In the same month, Mr. Orr visited us in Japan and met with Mr. Nakatsuka and our IR representative to kick off the engagement. Mr. Nakatsuka holds the position of Chief Administrative Officer and attended this meeting as compliance representative.

Interestingly enough, we had already started an internal effort to improve our ESG-related information disclosures when the first letter arrived.

Our financial information disclosures scored fairly well at that time, but our non-financial information disclosures scored poorly. We had a meeting a couple of months prior to receiving Mr. Orr’s letter, with the president, board members, and consulting firm present. The purpose of this meeting was to report on how our company score poor on the DJSI (Dow Jones Sustainability Index).

In this meeting, the president recognized the importance of tackling this issue. Not to make it too late to start changes, immediate decision was conducted. The chief financial officer was appointed to take responsibility of whole improvement of our evaluation in this area, and Mr. Nakatsuka was assigned take day-to-day action and responsibility. The president was astute about jointly assigning responsibility to CSR, IR, and PR. In order for us to disclose to the public that we are doing what is right in this area, we needed to make sure that we would not be embarrassed internally. In the same month, a multi-department project launched its activities.

In November, Mr. Nakatsuka and Mr. Okada’s predecessor visited Korean Telecom (KT)’s CSR department to learn how they were dealing with this issue, as Korean Telecom has received high evaluations in this area. What surprised us was that we were told that Korean Telecom used NTT as their role model when they first started their efforts a decade ago. Also surprising to us was that the government equivalent to Japan’s METI in Korea sponsors study sessions to guide corporations on how to score high marks on the DJSI.

One of the reasons why Mr. Orr’s request for engagement was readily accepted is because we had already started to address issues internally when we adopted the PRI.

2. Actual Disclosure Content and the Company’s Response

(Q) To the extent possible, please tell us about the content of the engagement and how your company responded.

(A) Our basic approach was to disclose everything we could as long as it was listed in the GRI list. We established an overall framework and put together a timeline to respond to the following 3 categories within 3 years.

  • Items that could be disclosed immediately would be included in the next disclosure (within the 1st year).
  • Items that would require cooperation from other group companies would be disclosed in the 2nd year.
  • Data that would need to be compiled by building out a system would be disclosed in the 3rd year.

During the first year, we published information that was already available internally, and re-arranged the website, adding links and making it generally easier to find information. This is an ongoing effort today. We have exchanged emails and have held meetings on an ongoing basis, and coordinated with our internal project team to publish a compliance section on our website in June 2015, which incorporates Mr. Orr’s advice.This compliance section is designed so that there is no longer any difference in the information made public in Japanese versus English. We also summarized relevant items on 1 page to make the information easily accessible.

We also organized the content of information disclosed. We used to have a CSR report, an annual report, and a corporate overview which needed to be coordinated internally for consistency. We have now organized these reports by goals, and have cancelled the corporate overview as this can be substituted with our website. The CSR report and annual report have been combined. The sustainability report is prepared for evaluation organizations.

Furthermore, we have started to actively respond to various surveys in addition to the DJSI.

3. Resulting Benefits

(Q) How would you describe the resulting benefits of these activities, both from a quantitative and qualitative perspective?

(A) Our anti-corruption scores on the PRI Transparency International TRAC Report improved from 18% to 80%. We have been told that we marked the largest improvement amongst the 33 companies that engaged in dialogues with investors. We have also been selected for the DJSI Asia Pacific Index since last year.

Qualitative improvement can be seen in our readiness to disclose information. This is markedly evident when we have group company meetings with CSR teams at NTT Data, NTT DoCoMo and other companies.

4. What was most difficult?

(Q) What were difficult challenges for you, and how did you overcome these? Do you have any overarching thoughts from the engagement dialogue?

(A) As I mentioned at the beginning, we encountered no resistance internally. What was difficult was to access a lot of data, such as country-specific information across all the group companies. The NTT Group has acquired overseas companies over the past 4 to 5 years, bringing our overseas revenue to 1 trillion yen. On a consolidated basis, we have 240,000 employees of which 70,000 are overseas employees. It has proven difficulties to gather company and employee information on firms that were acquired. We have been working on thematic information gathering, but there are still challenges.

When we first embarked on our dialogue, we did not know what PRI and TRAC reports were, or how and when we were being evaluated. It was difficult to digest all of this, but David Orr of Sparinvest was very helpful and guided us through this. He also gave us detailed advice on how we should word our message in English to get the right nuance across to our audience, which made for a valuable dialogue.

We understood the benefits of companies having a dialogue with investors. We experienced a cooperative dialogue by going beyond simply evaluating a company’s ESG scores, but working towards a common goal of enhancing the value of the company to benefit both investors and the company itself. We believe that this is a good framework.

We have ample experience over dozens of financial dialogues, but this engagement was unique in that we were able to implement actionable steps to attain specific goals.

5. Future Directions and Challenges

(Q) What are some challenges for you in the future?

(A) We need to gather information on our overseas subsidiaries, and ensure governance. I had an opportunity to speak with a board member from Orange (the French telecom company), who advised me that “this would require information gathering by using a system”.

Our website needs to be improved as there are areas that are hard to follow. I also spoke with investors at “PRI in Person” and understood that they hope to engage in discussions with us on areas where we scored low compared to the benchmark. DJSI uses questionnaires to make assessments, but many other evaluation organizations only take publicly available information to score us. We therefore need to change our website with major benchmark items in mind. We also need to strengthen our relationships and communications with evaluation organizations other than Dow Jones.

6. Basic Information

Company Profile (Departments, Organization, Corporate structures, etc.)

In 1985, in an environment of innovation in telecommunications technologies, Nippon Telegraph and Telephone Public Corporation was privatized and reborn as a corporation that could implement more-flexible business administration in response to changes in the operating environment. Subsequently, aiming to diversify its operations, NTT aggressively expanded its business activities to such fields as data communications and mobile communications. In addition, targeting the full-scale roll out of overseas operations, NTT implemented M&As in global cloud services, including the acquisition of Dimension Data, as well as Group collaboration. In this way, NTT built the foundation for the Group’s overall growth.


Interview Date: November 2, 2015