Big in Japan

ESGBiginJapanAbstract2

Can ESG now be considered ‘mainstream’ in Japan? The pace of change has certainly been rapid.

ESG is an increasingly prominent theme in the Japanese investment world. The backing of the GPIF – at US$1.5 trillion, the world’s largest pension fund – means that fund managers are acutely aware of the importance of their stewardship duties.

It’s no surprise then that this year’s Responsible Investor Asia conference, held in Tokyo, was the largest in its eight-year history. With more than 700 attendees attending, it provided us with valuable insight as to how stewardship themes are developing in the country.

For me, there were three major talking points over the course of the two-day event:

1) Engagement

This was the subject of a panel discussion I took part in on corporate governance, and is a key focus for the GPIF. The GPIF is a super long-term investor (it has a 100-year mandate) and it is committed to fulfilling its stewardship responsibilities by promoting engagement between asset managers and companies. As it does not directly manage money, its focus is instead on how the stewardship duties are exercised through its external managers.

Discussions at the conference centred around how investors can use their voice and collective influence to drive change. Equally though, there was a great deal of focus on how investors can report on and effectively measure & monitor the success of their engagements. This latter point is particularly relevant important for us and one of the ways we measure our engagement is via our annual stewardship report, with the 2019 report just published.

2) UN Sustainable Development Goals (SDGs)

Japan is keen to show its leadership in this area, with the G20 meeting in Japan this summer and the 2020 Tokyo Olympics providing a platform to further its ambition.

One of the important discussion points here was from the Japanese business federation Keidanren. Its Society 5.0 programme wants to use technological advances to help achieve the SDGs and has a target of ‘no-one left behind’. Its call to Japanese businesses is to lead, rather than follow. Meanwhile, the Japanese regulator, the FSA, is also focused on the SDGs and how it can encourage further engagement by stakeholders.

3) Climate change

Japan has experienced a number of extreme, and deadly, weather-related events in the last few years including extreme heat, exceptional rainfall and strong typhoons all of which have focused attention on the potential impacts of climate change.

As such there is increasing pressure on companies and investors to disclose how they are approaching climate change and in particular incorporating the recommendations from the Task Force on Climate-related Financial Disclosure (TCFD). As things stand, these recommendations are a voluntary framework and form part of a confusing ‘alphabet soup’ which companies face. However, there are encouraging signs that we should see material progress over the next couple of years to the different reporting frameworks currently in place coalescing around the TCFD recommendation.

Responsible investing reaching the mainstream

Can ESG now be considered ‘mainstream’ in Japan? The pace of change has certainly been rapid. According to the Global Sustainable Investment Alliance (GSIA), between 2016 and 2018 Japan was the fastest-growing region in terms of responsible investment of professionally managed assets. For asset managers like ourselves who are committed to working towards a more sustainable investment environment, this is definitely a positive sign.


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