Following is the 2nd half of our interview with Aya Nagata and Yutaka Kikuchi, Deputy Directors for Environment Finance, Environment and Economy Division, Ministry of the Environment (MOE). Part 2 describes MOE’s effort to establish social impact as a third investment metric, along with risk and return.


What specific measures is MOE working on to promote ESG investment?

MOE is focusing on three measures to promote ESG investment:  1) expanding investments and loans aimed at positive impact; 2) implementing ESG regional finance to support solutions to regional issues; and 3) promoting dialogue based on ESG commitments and ESG disclosures in the financial sector.

Promoting the impact finance is a major part of the first measure.  To wit, the ESG Finance High Level Panel established the Positive Impact Finance Task Force to hold discussions with investors, financial institutions, evaluators, and non-financial companies.  Based on those discussions, the Task Force drafted a Concept of Impact Finance, which it released in July.  

MOE has supported green bond and sustainability bond issues by writing guidelines, conducting pilot programs to promote SDGs (Sustainable Development Goals) and supporting bond issues with subsidy.  With the help of market professionals, the market for green and sustainability bonds in Japan nearly tripled to JPY 1.0808 trillion (≒ USD 102 billion) between 2017 and 2019.  Based on that success, MOE doubled down on bringing impact investment to other asset classes.  The Concept of Impact Finance was designed to help market participants understand the idea and spur them to implement it.  The Concept is not binding or enforceable.  It is intended as a reference that defines impact finance, provides a flowchart for implementation, and outline key points at each stage of the process.   

Towards the second half of this fiscal year, we plan to assemble a “Green Impact Assessment Guide” that will list environmental indicators and criteria for assessing projects.  We will start by considering what evaluation tools are relevant to investments, financing, and various asset classes.  We will then promote impact finance to larger financial institutions and institutional investors who are most likely to engage in impact finance, and we will cite successful examples while seeking more innovative incentives to engage impact finance.

We should note, while impact investment presumably generates typical economic returns, it can result in returns below the market average.  Consequently, there is some debate whether social impact is a viable metric versus risk and return.  At present, I would say the jury is out on social impact as a reliable indicator of manageable risk and sound investment.  Nevertheless, we encourage and support its use to amass a track record that can be studied.  These initiatives represent the first phase of our efforts to expand positive impact investment and finance.

In the second phase, we envision regional financial institutions and individual investors finding opportunities to engage in impact finance and doing so on their own.  It’s crucial for regional financial institutions, who actually work with local companies, to implement impact finance.  Also, I believe some individual investors with a high level of risk tolerance will engage in impact investing.  I think it's important that the practice eventually spill over to all investors and financial institutions, not just certain entities.  It will likely take a little longer to get to that point, but we are moving forward with that goal in mind.  

As we mentioned before, in Japan, where indirect financing is the norm, it is important that regional financial institutions first get their feet wet with ESG investment, before engaging impact investment.  This idea is baked into the second measure.

IJ: Describe the second measure and how it relates to the first.

The second of our major measures is "implementing ESG regional finance to support solutions to regional issues", and we are developing projects to stimulate that.  In Japan, indirect financing by regional institutions has been the standard, therefore, they should take the lead in implementing ESG investments and loans that will improve sustainability in their communities.

We have established the ESG Regional Finance Task Force under the ESG Finance High Level Panel, which is composed of experts and regional representatives from financial associations.  This task force will develop a plan for regional finance in building a sustainable society and for the deployment of ESG regional finance.

This promotion project rests on three types of support.  The first is to help management at each financial institution take into account the elements of ESG finance; the second is to organize ESG-related dialogues for senior management in various locations; the third is to hold workshops about ESG finance for financial workers including people in charge of day-to-day investment and loan practice. 

Management support for regional financial institutions “taking into account the elements of ESG finance” means identifying ESG risks and opportunities in their regions, revealing and supporting the value of local businesses.  This year, for example, we helped a local fishery industry understand how climate change will directly impact its business and how the bank could help it achieve sustainability.

Based on these activities, we compiled a “Practical Guide to ESG Regional Finance” to help financial institutions implement ESG financing.  The guide offers suggestions to resolve intra- and inter-departmental issues that may arise in financial institutions as they engage in ESG finance.

In conjunction with this project, MOE conducted the first nationwide survey of financial institutions regarding their ESG initiatives.  Ninety-two percent of financial institutions are aware of ESG/SDGs and more than half of them consider SDGs to be a management issue, indicating that they recognize the necessity of ESG/SDGs.  However, only 6% have actually organized ESG evaluation systematically and only 12% have established a department to work on ESG/SDGs, which is still a long way from putting plans into practice.  We need to work to resolve these issues.

All the efforts we’ve discussed support MOE’s goal of expanding impact finance.  The role of regional financial institutions as the main actors in impact finance is so important, that through ESG regional finance, we aim to accumulate knowledge to enable financial institutions to lend from an ESG and impact perspective.

IJ: What is the third measure?

Regarding the third measure, "promoting dialogue based on ESG commitments and ESG disclosures in the financial sector", we plan to work on projects such as helping to set ESG policies required by the PRI¹ and the PRB², promoting TCFD³ and ESG disclosures, and facilitating dialogue on ESG related issues.

With regard to establishing ESG policies as required by the PRI, we are considering hosting ESG workshops and conducting surveys of asset owners, to deepen their understanding of the PRI and ultimately increase the number of institutions that sign on to the policy.  At present, few institutional investors are involved in ESG initiatives among asset owners of corporate and public pension funds.  We also want to examine the status of ESG initiatives currently being pursued.  If we can identify a particular snag or hold-up, we can try to resolve it and get things moving.

Currently, only six Japanese financial institutions have signed the PRB, so we need to increase that number.  MOE would like to find out implementation cases of the signatories, put them together, and make the public aware of it.

With respect to TCFD, we plan to provide scenario analysis support to financial institutions regarding the impact of climate change risk on their portfolios.  We expect the climate-related risks and opportunities are unique to each financial institution; therefore, we are considering providing long term support.

One measure already in practice is the Environmental Reporting Platform Development Pilot Project, which promotes ESG disclosure and dialogue.  A dialogue platform has been developed with the aim of encouraging wider disclosure of non-financial corporate information, which is available using XBRL⁴.  Companies and investors who register on this platform can communicate with each other online, exchanging ideas and scheduling meetings.  As of late 2019, 550 companies have registered with this platform, including 215 companies that have registered their non-financial information in the platform's database.

In line with the trend toward widespread ESG disclosure in the EU, awareness of non-financial information and how to access it is increasing.  This is why investors have asked their governments to create a list of information that can be viewed at a glance.  In Japan, we were among the first to create such a system, and we are providing a place for dialogue between investors and companies.


Finally, do you have any messages for foreign asset managers?


In Japan, corporations and financial markets share sense of climate change crisis and planetary boundaries.  They have embarked on ambitious programs to enhance both corporate and societal sustainability.  I want other countries to be aware of that.  Many environmental issues, such as global warming, need to be addressed in cooperation with the international community.  Setting big goals is important and tends to get a lot of attention.  But once the goals are set, it is important as well to follow through with integrity.

Japan's policies are being implemented one step at a time, and we are making serious efforts to reduce greenhouse gas emissions 80% by 2050.  I want you to see beyond the how far or how close we are to hitting reduction targets; I want foreign asset managers to see how in Japan we are working closely with the financial sector to achieve out ESG goals.


Thank you very much.

1 PRI (Principles for Responsible Investment): see
2 PRB (Principles for Responsible Banking): see
3 TCFD (Task Force on Climate-related Financial Disclosures): see

XBRL (eXtensible Business Reporting Language): A freely available and global framework for exchanging business information. XBRL allows the expression of semantic meaning commonly required in business reporting.


Aya Nagata

Deputy director
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.


Yutaka Kikuchi

Deputy director
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.