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US fund to pull small Japanese firms into ESG era

Neuberger Berman sees room for returns by bolstering governance

Small Japanese companies have a reputation for governance issues, such as lack of transparency beyond financial disclosures.   © Reuters

TOKYO -- U.S. investment manager Neuberger Berman will create a fund that advocates for governance and sustainability reforms at small and midsized Japanese companies.

Neuberger chiefly will seek enterprises valued at less than 500 billion yen ($4.57 billion). The fund will select 20 to 30 targets pending bottom-up due diligence. The new investment vehicle aims to draw capital from global pension funds.

The investment house dedicated a small team that includes a new portfolio manager and an analyst versed in environmental, social and governance principles. The team will engage with targets to improve ESG performance.

Smaller Japanese companies are cited as trailing U.S. and European counterparts at enacting ESG best practices, such as disclosing nonfinancial data.

Neuberger sees a large margin for improvement -- and a prime opportunity to reap ample returns. ESG investment is expected to grow in the Japanese equity market, raising the value of companies responsive to such dialogue from investors.

Neuberger, an independent firm fully owned by employees, oversaw $339 billion in assets under management at the end of September. The company's investment in Japan had been limited to large-cap stocks picked by global equity managers.

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