As movements to create more sustainable societies gain traction worldwide, the idea of ESG (Environmental, Social, and Governance) investment has taken root in Japan. Both private financial institutions as well as the Japanese government have promoted policies aimed at fostering sustainable growth. Japan’s Ministry of the Environment (MOE) leads the environmental area of ESG promotion and has raised its profile in ESG investment.
IJ asked MOE’s Aya Nagata and Yutaka Kikuchi, Deputy Directors for Environment Finance, Environment and Economy, how MOE works to advance ESG investment. Following is part 1 of our two-part interview.
|Why is MOE involved in ESG?|
MOE has endeavored for some time to build a decarbonized society, a sound material-cycle society, society in harmony with nature, but we’ve always been aware of the huge financing gap between where we are and where we wish to be. Public funding alone is insufficient to realize the kind of society we envision, so we need cooperation from the private sectors. That’s why we’ve focused on ESG. We’re working to build a system that supports a sustainable environment and sustainable economic growth by building a financial system based on ESG considerations. The private finance sector holds the necessary leverage to encourage corporations to change their behavior. In addition to driving change through private funding, we aim to restructure corporate business models.
MOE has worked to build a decarbonized society, a sound material-cycle society, and society in harmony with nature for the last 10 years or so via “environmental finance” and promoting more environmentally conscious forms of finance. Since 2017, MOE has made it a policy to promote ESG investment and has done so, for example, by creating the ESG Finance Award and establishing the ESG Finance High Level Panel.
ESG is also promoted by the Financial Services Agency (FSA) and the Ministry of Economy, Trade and Industry (METI). MOE exchanges information and coordinates with them on various policy themes. For example, METI and FSA join MOE’s Positive Impact Finance Task Force as observers. We both work to promote sustainable growth in Japan by deploying the units of expertise within our institutions.Our Environmental Finance Section, set up in April 2018, coordinates ESG promotions within MOE as a command center. Although MOE had involved itself in environmental finance before, the Environmental Finance Section was specifically set up to show the ministry’s will to engage in this mission over the long term. There are many ESG-related operations in MOE such as climate change, circular economy, biodiversity, and so on. The Environmental Finance Section leads and coordinates all divisions and sections in charge of these areas.
|IJ:||What are you doing to promote ESG?|
One of our efforts is a newly created website called “Green Finance Portal” (http://greenfinanceportal.env.go.jp/), which disseminates information about green finance policies and movements in Japan and abroad. Before the website, Japanese policy information barely reached the public, which we recognized as a problem. When we created the platform, mainly to support the sale of green bonds, there was virtually nowhere to find accurate information about Japan’s green bond market. The market was practically invisible, so there was no progress. We started the Green Finance Portal, in Japanese and English, to inform people worldwide of the Japanese effort.
Basically, we want to highlight Japan’s ESG initiatives for professionals in direct financing markets, such as securities. However, Japan’s financial market also includes a significant component of indirect financing by regional financial institutions, and we want to highlight their ESG activities, too. We are planning to produce content in English that describes ESG efforts in Japan by region. It would be interesting for foreigners to see things that are particularly Japanese.
The previously mentioned ESG Finance Award was started last fiscal year with a goal of expanding ESG financing both in direct and indirect financial areas. We need to examine every entity in the investment chain, including investors and private companies, and consider how they can contribute to ESG goals. By publicly recognizing prominent and advanced ESG efforts, we hope other entities will take notice and pursue their own ESG efforts. We would like to bestow more awards this fiscal year, especially to those projects that demonstrate Japan’s progress.
To realize a decarbonized society, a sound material-cycle society, and society in harmony with nature, what areas of ESG are you focusing on?
The underlying problem in promoting ESG is that there are many cross-sectoral issues, for instance, how to proceed with disclosures and dialogues, how to increase the number of ESG investors, how to evaluate impacts, and so on. Among those issues, it is especially important to be able to measure the actual impact of any particular investment. I think promoting impact finance is one of the duties MOE needs to take on.
“Impact finance” is a big part of ESG in the U.S., i.e. investing in things that will produce a measurable environmental, social, or governmental impact. In Japan, ESG investments are gaining stream. MOE summarized the basic ideas of impact finance and the flow of the finance.
< continued in Part 2: https://investmentjapan.jp/esg/1261/ >
Policy and Coordination Division, Environmental Regeneration and Material Cycles Bureau
Ministry of the Environment
Aya Nagata joined MOE in 2005. She has been serving as deputy Director of the Environment and Economy Division, MOE since July 2017 to August 2020. She was in charge of the environmental finance policies such as promoting Green Bond, impact finance, Green Fund which is to mobilize private investment into low-carbon project.
Environment and Economy Division, Minister’s Secretariat
Ministry of the Environment
Yutaka Kikuchi joined MOE in 2019. He has been serving as deputy Director of the Environment and Economy Division, MOE since July 2019. He is in charge of the environmental finance policies such as promoting ESG regional finance, Green Fund which is to mobilize private investment into low-carbon project.