Lost in translation? An inside outsider’s perspective on “ESG investing” in Japan

Having spent the last 15 months sharing global developments with the Japanese RI community, perhaps it is high time to reverse the direction of the information flow.

Thanks to the visible action of Japan’s Government Pension Investment Fund (GPIF), most people will be aware of the rising uptake of ESG investing in Japan. Within just a year of GPIF making its first ESG-considered index investments in 2017, the estimated total sustainable investment AUM for Japan grew to be the largest in the Asia Pacific region.

One could argue that these figures come largely from the high levels of stated investor-company engagement activities and “ESG integration”, and therefore may not reflect substantial changes in asset allocation – thus running the risk of not containing much substance.

Yet what gets disclosed gets attention, and what gets measured gets debated. In recognition of this, the revised Japanese Stewardship Code requests all managers to disclose the details of the voting direction and reason, as well as questioning the role of proxy advisors and investment consultants whose roles can be essential in delivering such action and transparency. Having also positioned the consideration of sustainability (including ESG factors) at the heart of principles of stewardship responsibilities, it is perhaps one of the most explicit and one-to-watch Stewardship Codes globally.

So, what’s the current status of the Japanese companies that would be the target for investment, lending and insurance underwriting both domestically and globally? Sadly, there are several statistics to show how far behind Japan is, especially when it comes to human and labour management.

Yet there is a sense of stress amongst the sustainability practitioners, teams and company management, as the EU taxonomy (and other regional variations), the TCFD recommendations, the constantly evolving world of data providers and standards, and the accelerated attention to social issues as a result of Covid-19 forms an ever-growing sustainability ‘alphabet soup’ – in an alphabet not native to the local tongue.

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