In response to growing public interest in sustainability investment, IJ’s sister publication, Ma-Do, surveyed retail financial institutions -- banks, OTC brokerages, and independent financial advisors -- about their ESG/SDGs-related products. What do these toshin (Japanese mutual funds) sellers think of their ESG/SDGs funds? N=119.
Translated from an article originally published in Ma-Do, vol. 63, August 2021.
Until now, most activity in ESG/SDGs investment has been among institutional investors. Recently, however, ESG/SDGs activity has made inroads in retail finance as well. Although ESG/SDGs-related funds are more visible in Japan’s retail market, they remain an amorphous and ill-defined category. Absent clear standards, greenwashing – disinformation and false claims of ESG/SDGs alignment -- is a growing problem. Japan’s Financial Services Agency identified a number of concerns in its "Report of the Expert Group on Sustainable Finance" (June 18, 2921). Ma-Do’s survey sought details from ESG retailers themselves.
Current Status of ESG/SDGs-related Sales
We asked respondents if they currently offer ESG/SDGs-related funds. Nealy half (48%) answered that “multiple products are in the mix”. Along with another 32% who offer a single product, 80% of respondents include one or more ESG/SDGs-related funds among their product lineup.
ESD/SDGs products generally sell well. Twenty-four percent of respondents said “the products are some of our best-sellers”, 18% said they were “sold consistently”, while only 14% said they sold “hardly any”.
Chart 1. Do you sell ESG/SDGs-related products?
Chart 2. How well do ESG/SDGs funds sell?
Respondents noted that since many customers are interested in environment and social issues, offering ESG/SDGs products provides opportunities for more communication with clients. Many find ESG/SDGs funds are “easy to explain to customers” (46%) and help “foster empathy with them”. (67%).
Chart 3. What are some advantages to selling ESG/SDGs-related funds?
A Kanto-area broker said, “For those who are highly interested in ESG investments, ESG/SDGs products make it easy to start investing.” “Since ESG/SDGs topics are often in the news, the related products are easier to understand,” one local Hokushinetsu banker agreed. Another local banker in Hokkaito-Tohoku, said “Many customers are interested in ESG/SDGs, so it’s easy to propose a product, especially to corporate customers.”
ESG/SDGs-related products appear to tap into a new view of investing and a new group of investors. Traditionally, an investment was seen as a vehicle to generate returns. Today, investing is increasingly viewed as a means of social contribution. A Kanto local banker said, “The theme of these products is acceptable even for customers who have a negative image of investment. I can convey an investment’s significance as a social contribution rather than as a return.”
On the other hand, respondents who offered relatively few ESG/SDGs-related products pointed out they are hard to sell to elderly customers who are uncomfortable with the acronyms and unfamiliar labels.
Impediments to ESG/SDGs-related Fund Sales
Survey respondents also acknowledged specific downsides to ESG/SDGs-related products. Most (49%) noted the “uncertainty over whether ESG/SDGs factors produce returns”. Forty-four percent said “the definition of what qualifies as an ESG/SDGs-related toshin is unclear”, a concern shared with the FSA.
Chart 4. What are some disadvantages to ESG/SDGs-related funds?
A variety of other issues emerged. “ESG/SDGs initiatives have proliferated and the selection criteria and definitions for each product are vague.” “The number of funds claiming to be ESG/ SDGs-related is increasing and some are shams.” “Investing in companies with high growth potential while having a positive impact on society and caring for the environment is not a new idea.” Some worry that interest in ESG/SDGs will fizzle out, much as it did with eco-funds and SRI funds in the past. Others pointed out that as ESG/SDGs becomes more common, the need for ESG/SDGs-focused funds will conversely diminish.
Until now, concerns about ESG/SDGs-related funds have been raised only among asset managers. As these funds become more widespread, retailers will no doubt have to address them with their clients. As one banker in Kyushu-Okinawa put it, “Due to the nature of ESG/SDGs-related products, it is important to provide customers with explanations based on the premise of long-term investment.” Some expect the products to become a new type of core fund. A Tokai local banker said, “Among equity funds, ESG/SDGs-related products are a better investment for stable growth than balance funds which include non-equity assets.” We encourage deeper examination of these and other issues and we look forward to seeing ESG/SDGs-related funds become the driving force behind a truly sustainable toshin business.