ESG- a New Normality in Japan?

ESG

The interest among investors from Japan in ESG (environmental, social, and governance) factors has snowballed over the last five years, and Japanese businesses have incorporated sustainable practices as a result of this momentum. 

One of the most significant reasons ESG has garnered attention from corporations as well as individual stakeholders occurred in 2012. In 2012, Shinzo Abe came to power in Japan. Abe sought to support companies that factored ESG standards into their business models. To do this Abe used the pension fund named GPIF (Government Pension Investment Fund), one of Japan’s largest to exist, to assist companies who followed ESG. He believed that by aiding companies that follow ESG principles, he would further encourage other businesses to implement it into their portfolio [2].

Seven years after Shinzo Abe came to power, “The Japan Sustainable Investment Forum (JSIF) reports that total sustainable investment AUM rose to JPY336.4 trillion (USD3.1 trillion) in the 2019 fiscal period, marking a 45% jump from the previous year. These assets, according to the Global Sustainable Investment Alliance (GSIA), represent 55.9% of the total professionally managed money in Japan, up from just 3% in 2016″ [1]. Numbers from Japan have shown formidable growth of ESG in a relatively short period of time, and those who have chosen to invest using ESG standards have not been disappointed. Research by the International Monetary Fund suggests that “funds with a ‘sustainable mandate’ have returns similar to those of conventional equity funds. Of course, those figures exclude the long-term benefits to the planet and communities accruing from measures such as reducing the carbon footprint, eliminating child labor, or stamping out corruption” [1]. The IMF recognizes the impact of ESG standards and suggests through their research that ESG investments are mutually beneficial- fiscally and ethically. Japan has become exemplary in its accordance with environmental, social, and governance standards and has thus been rewarded fiscally and otherwise.

Hiro Mizuno, GPIF’s CIO, has also assisted greatly in the rise of ESG. He has publicly promoted the JPX 400 index, which lays out the top 400 corporations in terms of “governance and respect for minority investors”[2], terms very similar to that of ESG standards. Mizuno has worked with multiple groups to help reach new sustainable goals as well. Some of these companies are: “FTSE Blossom Japan (consisting of companies showing solid commitment to ESG practices), MSCI Japan ESG Leaders, and, no less importantly, MSCI Japan Empowering Women” [2]. At the end of 2017, Mizuno also announced that during the PRI (Principles for Responsible Investment) conference, GPIF would fully implement ESG principles in all future investments [2]. GPIF’s positive stance regarding ESG displays how quickly and efficiently sustainable actions can occur when a holistic effort is made. 

Parallel to the support given to those who abide by ESG standards, companies in Japan that have resisted following ESG criteria are being punished through exclusions of indexes. The lack of ESG involvement has resulted in harming their brand/image, as well as discouraging current and future stakeholders. 

Japan has shown tremendous effort in their endeavors to promote ESG. They have set an inspiring precedent regarding how to seamlessly implement ESG, which should help it grow on a global scale.

  1. Russell, F. (2020, July 19). Sustainable Investing: The New Norm For Japan? Retrieved July 30, 2020, from https://seekingalpha.com/article/4359224-sustainable-investing-new-norm-for-japan
  2. UBP. (2019, April 09). Factoring in ESG criteria in Japan. Retrieved July 30, 2020, from https://www.ubp.com/en/newsroom/factoring-in-esg-criteria-in-japan

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