Stockholm (NordSIP) – At the beginning of January 2020, the Sustainable Active Investment Lab (SAIL) announced the launch of Sustainable Insight Japan.com. The website is a platform to support Japanese companies who are proactively taking initiatives to integrate ESG and the SDGs to solve social issues through their own business. According to SAIL, the launch followed six months of discussions among its members, CEOs, CFOs, IROs and PROs of companies and other institutional investors.
Sustainable-Insights Japan.com will publish information such as news, interviews and opinion columns on ESG, as well as matching services connecting listed company and investors. As a next step, it expects to launch a paid service providing access to proprietary ESG scoring based on its own methodology.
The Company View of Japan
In a discussion about the state of ESG and sustainable investment in Japan, SAIL focused on the perspectives of companies and asset managers. “From the company side, Japanese companies have historically cared about CSR and about whether they are making progress in their environmental and social activities. There is a huge difference between what companies do to ‘fulfil social responsibility (as listed companies)’ and to ‘increase corporate value’. CSR is the former and ESG is the latter. When the Lehman shock occurred in 2008, most of the companies realised that companies with short-term perspective could not survive. So they asked themselves ‘What is important for long-term growth?’ They realised that ESG integration was still quite weak and that it represented a source of risk, which could also use to create corporate value.”
The Asset Manager Perspective
“From the asset manager side, the largest Japanese asset owner – GPIF (Government Pension Investment Fund) is driving ESG investment and engagement,” SAIL explains. “Some major asset management companies have set up ‘ESG Metrics’ within their companies, and have concluded that their top management is under healthy pressure from investors.”
“In terms of ESG and sustainable investment, many institutional investors are following suit. The national and local governments in Japan are pushing SDG campaigns to promote the activities to change the mindset of individual and businesses organisation.”
The Japanese Experience
The interest in sustainable investing from Japanese investors is not a fad, but a natural extension of the country’s history, geography, culture and economic concerns. “Japan is a small country with limited land and natural resources; many Japanese companies have historically focused on the environment. Japan, like other countries around the world, faces the same challenges of changing the employment system and improving governance as times change.”
“On the other hand, Japan’s uniqueness is its lack of diversity,” SAIL adds. “More than 90% of the population is Japanese. Since the official language of business is Japanese, it has its own social character and governance that makes the country very different from global standards. Sustainable investors need to be reminded of Japan’s unique historical and cultural background as well as the lack of diversity.”
However, interest has been tempered by caution. “We also think sustainable investors need to have a good performance in Japan like that of their counterparts in Europe. It may take more than ten years, but if ESG investments perform better than non-ESG investments in Japan, institutional investors around the world will come. Japanese listed companies will need to take it seriously as it becomes a reality. It boils down to the incentives a company faces. If by receiving a higher ESG rating, it can capture more investment funds, this will increase corporate and shareholder pressures for increased ESG integration.”
Olympics and the REIWA Era
Looking ahead at the coming 12 months, SAIL is keen to single out the two main issues on everyone’s dashboard: The 2020 Summer Olympics in Tokyo and the start of the new REIWA era. The REIWA Era of emperor Naruhito, which started last year with the beginning of his reign, will be dominated by Japan’s efforts to manage its ageing population.
In 2020 Japan “1 in 3.5 people is already over 65 years old. The ratio of the elderly to the working-age population is 1 to 2.0. This is a society in which 2 or 3 young and middle-aged people support one person aged 65 years old or older ones. In the super-ageing society, young Japanese leaders understand the importance of sustainability and take action for the next-generation by UN SDGs Goal in 2030, which will only come in 10 years,” SAIL concludes.