Japan’s corporates must match state direction on ESG
A new pledge to use foreign reserves to buy ESG assets is one of many institutional measures in Japan. But the country has still not realized its green potential at the corporate level.
When Japan’s finance minister, Shun'ichi Suzuki, announced in October that Japan would start to use its foreign reserves to buy ESG (environmental, social and governance) securities, it marked the latest in a long sequence of initiatives led by the country’s state institutions. The question is whether Japanese corporates will follow their lead.
There is no shortage of institutional landmarks. Japan has said it will reach carbon neutrality by 2050. Its central bank, the Bank of Japan, launched a strategy on climate change in July that committed it to buying green bonds, while also offering preferential borrowing terms to banks that make Taskforce on Climate-Related Financial Disclosures (TCFD) disclosures.
The Government Pension Investment Fund (GPIF), the world’s largest single pension fund, with $1.6 trillion in assets, has been allocating funds to ESG investments since 2017, having signed the Principles for Responsible Investing two years earlier. The country’s stewardship code has required companies to consider ESG implications since 2019. The Financial Services Agency (FSA) released draft social bond guidelines in July this year.
Nomura says Japan accounts for only 4% of green, social and sustainability bonds worldwide, about the same as far smaller South Korea
All of these are important steps, but the dominance of state institutions in this movement is problematic.