The Global Alpha team has just attended a pair of conferences in Japan. The BofA Japan Conference and the Mizuho Japan Alpha Conference. We attended numerous panel discussions on topics ranging from trade and tariffs to the changing geopolitical and defence world order to the AI boom. We met with over 40 Japanese companies including many of our holdings and completed a few onsite visits.

At the time of writing, Prime Minister Ishiba announced his resignation, less than a year after succeeding Kishida. His position was untenable after the humiliating defeat of his party in the spring. Political instability is not new in Japan, nor in most countries these days – something investors do not seem to have yet fully factored into risk premiums. And the rise of extremism, both right and left, is further colouring political landscapes globally.

Here are some takeaways from the conference:

• Inflation in Japan continues to exceed 2% and the country is very unlikely to fall back in deflation. After over fifteen years of fighting to achieve sustained 2% inflation. It breached it in 2023–24, and 2025–26 will see inflation above that number. Dismissed is the risk of runaway inflation, which could happen and is one of the reasons for the defeat of the Liberal Democratic Party.
• As a result of inflation rising, interest rates are going up. The Japan 30-year bond is at its highest since 1993 and now exceeds 3%. The Bank of Japan is expected to continue raising short-term interest rates. This has been an important positive for the financial sector. One of our largest holdings is Concordia Financial Group Inc.(7186 JP), a super regional bank in the Kanto region of Tokyo.
• Japanese retail investors still only have about 2.5% of their savings invested in the Japanese stock market. Over 90% is in bank deposits which represents over USD6 trillion.
• Spring wage negotiations in 2025 yielded a record wage increase of 5.1% after another record of 5% in 2024. The companies we met all indicated that 2026 will be equal or higher than 2025 as an acute shortage of workers is felt.
• We met many real estate companies operating in office, retail, hospitality as well as residential. New leases are seeing price increases averaging 7 to 10%.
• Most of the companies we met indicated that they need to raise prices and likely face little push back.
• The pace of reforms being brought by the government, the Tokyo Stock Exchange and companies themselves is accelerating.
• Overall, the sentiment was positive. Both conferences saw record attendance from foreign investors.

However, the inspiration for this week’s commentary came from a meeting with a Japanese forest product company called Oji Holdings. The company was established in 1873 and over the next one hundred years became a leader in the production of newsprint and printing paper.

We well know what happened to the Canadian and US forest industries. To respond to a secular decline in newsprint demand, they merged and eventually went bankrupt, with assets being closed or sold. No company can shrink to greatness.

Oji is not immune to the decline in newsprint and paper demand. However, in the seventies, it started migrating to tissue and packaging. And more recently, it accelerated its diversification, still using its expertise transforming wood to pulp, but using that pulp for sustainable packaging and to make biomass plastics from the green ethanol produced. The company is also using biomass to produce advanced semiconductor photoresist, eliminating all perfluorinated substances commonly used by current processes. Oji also established Oji Pharma in 2020 to develop and commercialize plant-based medicinal products such as Heparin, currently produced with animal proteins and banned in many Muslim countries. By 2030, these new divisions will have grown more than the decline in paper.

Including Oji, there are over 20,000 companies in Japan that are more than one hundred years old. Even more impressive, over 3,000 companies are more than two hundred years old and around six hundred are more than three hundred years old.

With regard to company longevity, over 50% of the companies in Japan are over one hundred years old. Europe follows with its number of century-old companies. The United States has less than 5%.

The oldest known, continuously operating company in the world is a Japanese construction firm specializing in Buddhist temples and shrines called Kongo Gumi. It was established in 578 AD and operated for over 1,400 years before becoming a subsidiary of a larger group in 2006.

Why are there so many century-old companies in Japan?

This incredible longevity is attributed to a combination of cultural, business and historical factors, but most important is the emphasis on continuity and legacy. This comes from fostering a long-term perspective and not necessarily maximizing short-term profit. Other factors contributing to longevity success are the focus on core competency, resilience and adaptation, as demonstrated by Oji.

It will be interesting to see how Japanese companies can continue to adopt this long-term focus yet at the same time respond to shorter-term shareholder objectives.

According to Morningstar, global sustainable funds attracted an estimated net USD4.9 billion in Q2 2025. With 72 new sustainable funds launched in just one quarter, total assets in global sustainable strategies have now reached USD3.5 trillion.

Sustainable investing is booming – and getting harder to navigate.

Quarterly global sustainable fund assets (USD billion)

Source: Morningstar Direct. Data as of June 2025.

To differentiate themselves, funds increasingly segment by theme – from “climate leaders” and “net-zero transition” to “socially responsible” and “impact” strategies. The United Nations Sustainable Development Goals (UN SDGs) have become the most common reference point for defining what is “sustainable.” But as SDG labels become more common, investors face a critical challenge: How can you tell the difference between real contribution and clever branding?

The answer lies in applying core principles borrowed from the field of impact investing – even when the investment strategy itself isn’t “impact” by design. Three key concepts help sharpen the lens and assess sustainable outcomes in the real world:

• Intentionality: Are the investee companies actively seeking to contribute to a positive social or environmental outcome through their core business or are the outcomes unintended?
• Additionality: Would these outcomes have happened without the companies’ products or services? This helps determine the companies’ real contribution.
• Measurability: Are there clear metrics to track and report how the outcomes affect the end beneficiary?

Take a firm that installs solar panels only to offset its own energy use – essentially fixing a problem of its own making. While this could be marketed as a “sustainable outcome” by many, this is risk management: no additionality, no broader SDG contribution and no real benefit beyond the company’s operations.

At the aggregate level, thinking like an impact investor can sharpen how equity investors assess credibility of sustainability claims. A useful tool is a theory of change – a framework that maps how a company’s core activities lead to specific outputs (e.g. products or services), which in turn generate measurable outcomes. Applying this lens helps investors move beyond marketing language to identify businesses whose growth is directly tied to delivering credible, positive, real-world outcomes alongside financial performance.

At Global Alpha, our Sustainable Global Small Cap Strategy applies these principles as a framework – not to make impact investments, but to ensure that the companies we invest in generate credible, positive contributions to the SDGs through the sale of their products and services. Our aim remains financial performance, which we do by delivering real-world, positive outcomes, as evidenced in our 2024 Sustainable Global Small Cap Annual Report.

Portfolio spotlight: The North West Company

The North West Company Inc. (NWC CN) is a leading retailer serving remote and underserved communities in Canada, Alaska, the Caribbean and the Pacific. In regions where reliable access to goods and services is limited, NWC delivers food, household essentials and health products – often as the sole provider.

NWC’s impact begins with its extensive distribution network, retail infrastructure and partnerships with governments and organizations focused on food security. Through 230 stores and over 7,000 employees – 44% of which are from Indigenous groups – it delivers affordable, high-quality goods, supports local employment and invests in community initiatives.

Its business model demonstrates:

• Intentionality: NWC’s core strategy targets underserved and rural communities.
• Additionality: In many locations, it operates where no comparable services exist.
• Measurability: Metrics include the number of communities served and local employment created.

The below theory of change showcases how NWC’s activities aim to increase access to essential goods across 190 communities, reduce disparities in access to services and enhance economic self-sufficiency, directly contributing to SDG 11 – Sustainable Cities and Communities.

Source: 2024 Sustainable Global Small Cap Annual Report

NWC exemplifies how small caps can deliver meaningful real-world outcomes in addition to financial returns – and why thoughtful sustainability analysis matters.