Supporting Companies and Organisations【Companies and Groups】■

Obayashi Corporation■

Kao Corporation■

Kamakura Investment Management Co., Ltd.

■

Shiga Bank■

Daiichi Sankyo Company, Limited■

Daiwa Securities Group Inc.

■

Takashimaya Co., Ltd.

■

Nissay Asset Management Corporation■

Government Pension Investment Fund (GPIF)■

Fast Retailing Co., Ltd.

■

Marui Group Co., Ltd.

■

Mizuho Financial Group, Inc.

■

Sumitomo Mitsui Trust Asset Management Co., Ltd.

■

Mitsubishi Chemical Holdings Corporation■

Mitsubishi Estate Residence Co., Ltd.

■

Mitsubishi UFJ Financial Group, Inc.

■

Resona Bank, Limited

August 2020, Japan
This is the English translated version of the Japanese report published in February 2019.
Authors:
Shinji Onoda, Policy Researcher, Sustainability Governance Centre, IGES
Maiko Morishita, Programme Manager, Finance Taskforce, IGES
Noriko Shimizu, Programme Manager, Finance Taskforce, IGES
Tetsuro Yoshida, Research Manager/ Senior Policy Researcher, Sustainability Governance Centre, IGES
Nobue Amanuma, Research Manager/ Senior Policy Researcher, Sustainability Governance Centre, IGES
Overall Coordination:
Secretariat of the Global Compact Network Japan
Acknowledgement:
The authors would like to express their sincere appreciation to all external and IGES colleagues who reviewed
and provided valuable comments on the draft, namely Toshihiko Goto (Board Member, GCNJ/CEO, Sustainable
Management Forum of Japan), Masahiro Kawatei (Leader, GCNJ SDGs Task Force/Hakuhodo DY Holding),
members of the GCNJ SDGs Task Force, and Hidefumi Imura (Senior Fellow, IGES).

Contents
1. Introduction

1

2. Global and National Developments on the SDGs

3

3. An Introduction to ESG Investment/Financing

6

4. ESG initiatives by financial institutions in Japan10

5. Yearly Comparisons of Initiatives on the SDGs

17

6. Initiatives on ESG and the SDGs by
Companies in Japan22

7. Conclusion

29

Annex: Interviews & Initiatives on ESG and the SDGs

32

Source: UN website

1. Introduction

1.1 Background and objectives
This report is the fourth in the "SDGs and Business"series produced jointly by the Global Compact Network
Japan (GCNJ) and the Institute for Global Environmental
Strategies (IGES).
Since 2015, GCNJ and IGES have conducted joint researchon SDGs awareness and the state of initiatives on theSDGs, focusing mainly on GCNJ member companies andorganisations, and shared results through reports. One
feature of the "SDGs and Business" series is the inclusionof changes over time in SDGs awareness and initiatives
among GCNJ members. Every year the report examines
a designated topic and includes interviews and relevantcase studies.
The SDGs are sustainable development goals for 2030
agreed upon in the United Nations in 2015. They aregoals for all nations, both developed and developing.
Not only governments are called upon to work towardachieving the SDGs, companies and private funding arealso expected to play a role.
Meanwhile, ESG refers to the three factors of"Environmental", "Social" and "Governance". Whenthese ESG factors are evaluated in addition to financial
information in the investing process, it is termed ESG
investment. Moreover, when financing is included inaddition to investing, it is referred to as ESG investment
and financing, and when insurance is also included, as ESG
finance.
To date, financial institutions have placed emphasis on
past business achievements such as sales and profits andfinancial conditions when evaluating companies. However,as environmental destruction on a global scale and social
issues such as human rights violations escalate, financial
information alone is increasingly viewed as insufficient1

1

to evaluate the sustainability and long-term corporate
profitability. It is in this context that ESG investment andfinancing developed. From the company's perspective, ESG
evaluation has a direct impact on financing and enhancing
corporate value. As such, ESG investment and financing
has become a strong driving force for actions contributing
to the SDGs and solutions to environmental and social
problems, areas that have generally been handled under
the concepts of CSR (corporate social responsibility) andCSV (creating shared value).
The SDGs can be viewed as concrete goals forapproaching ESG factors and issues, and conversely, theESG factors can be found within the SDGs. There is an
inseparable relationship between the two.
Even though the term "ESG investment and financing" maybe used in a general sense, methods and approaches
vary. What are some specific approaches to ESG
investment and financing, and what shifts are taking placein the market? What are financial institutions in Japan
doing to promote ESG investment and financing, andwhat assumptions are they operating under? How arecompanies responding to such expectations related to
ESG while contributing to SDGs implementation? Whatissues are financial institutions and companies facing intheir ESG initiatives aimed at achieving the SDGs? This
report will examine these questions while sharing thevoices of individuals actually dealing with ESG and SDGs
related matters within companies and financial institutions.
Furthermore, in 2019, GCNJ and IGES releasedtranslations of two reports in the "Business Reportingon the SDGs" series issued by the UN Global Compact
and GRI, "Integrating the SDGs into Corporate Reporting:
A Practical Guide" and "In Focus: Addressing Investor
1
Needs in Business Reporting on the SDGs". Reading thesereports is recommended to gain further understanding on
the current state of initiatives in ESG and the SDGs.

Available for download on the GCNJ website (http://ungcjn.org/sdgs/) and the IGES website (https://www.iges.or.jp/jp/pub/list/series/4309).

1. Introduction

1.2 Overview of research
Research was conducted to examine how Japanesecompanies and organisations are working to realise the17 goals outlined in the SDGs and in ESG investment andfinancing in the context of promoting sustainable business.
Methods included desk research, on-line questionnaires
and interviews.
Fact-finding research targeting GCNJ members using
online questionnaires began in 2015, with this reportaccounting for the fifth survey. The survey targeted regular
GCNJ members (335 companies/organisations 2 ) andincluded questions on level of awareness on the SDGs,
the state of actions and future plans. Questions related
to ESG initiatives, the focus theme for this year's report,
were also included. The survey was conducted between 1
September and 11 October 2019 and garnered responses
from 186 companies/organisations. The questionnaire
was divided into two parts, one with items identical topast surveys to follow changes over time, and one withquestions designed specifically for this year.

Additionally, seven companies and nine financial
institutions with leading initiatives were interviewed inperson, along with one operating company that wasinterviewed in writing by sending questions and receiving
responses back. Interviews were conducted between 11
October 2019 and 7 January 2020. Companies selected
for interviews were those highly recognised for their
ESG initiatives, including companies on the Dow Jones
Sustainability World Indices (DJSI World), an ESG index
presented by US-based S&P Dow Jones Indices andSwitzerland-based RobecoSAM. For financial institutions,
efforts were made to include all major players in ESG
investment and financing, ranging from asset owners,
asset managers, securities and banks (megabanks andregional banks). Advice was received from GCNJ's SDGs
Task Force in this selection.
Approximately 80% of GCNJ members that responded
to the questionnaire are classified as large corporations,with 66% having gross sales of over 100 billion JPY (Figure1), and 73% indicate engagement in global or regional
markets (Figure 2). Accordingly, it is necessary to bear inmind when reviewing survey results that very few small
and medium-sized enterprises are included.

3%

6%
10%

8%
10%

11%

13%
66%

Over 100 bil. JPY

25 bil. - less than 100 bil. JPY

2.5 bil. - less than 25 bil. JPY
Less than 2.5 bil. JPY
Not applicable

Figure 1: Sales of respondent companies/organisations(n=186)

2

International-Global
73%

International-Regiona
Domestic-National
Domestic-Local

Figure 2: Markets of respondent companies/
organisations (n=186)

GCNJ membership as of 1 September 2019.

2

2. Global and National Developments on the SDGs

2.1 Various reports on global
environmental and social issues
From 2019 and into 2020, reports addressing
environmental and social issues faced by today's world
were published by various organisations. Several of these
key reports are introduced below.3
In May 2019, the International Science-Policy Platform on
Biodiversity and Ecosystem Services (IPBES), called theInterngovernmental Panel on Climate Change (IPCC) forbiodiversity, released the summary of a report assessing
global biodiversity and ecosystem services. The summary
points to the fact that an estimated one million species
are threatened with extinction, and that the contributionsof nature to our society and economy (e.g. regulatory
functions such as climate, maintenance of water andsoil, and disaster reduction and prevention, and naturein the context of local culture) are being considerably
impaired. The report asserts that the natural environment,
encompassing biodiversity, forms the foundation forachieving the SDGs, and that if damage to nature
continues, most of the SDGs cannot be achieved.
Regarding the SDGs, in September 2019, the UN releaseda Global Sustainable Development Report (GSDR) entitled,"The Future is Now: Science for Achieving Sustainable
Development", ahead of the below-mentioned SDG
Summit. While a certain level of progress has been
seen since the SDGs were adopted four years ago, thereport asserts that as a whole, the current state of affairs
has gone considerably off-track pathways to achieving
the SDGs. The report also indicates that not only is it
becoming impossible for the SDGs to be achieved, if
anything, there has been backsliding on goals related toinequality, climate change and biodiversity.
On the topic of climate change, in November 2019, theUnited Nations Environment Programme (UNEP) released
the "Emissions Gap Report 2019" ahead of the 25th
session of the Conference of the Parties to the United
Nations Framework Convention on Climate Change

3

3(COP25). The report warns that even if all countries
achieve the national emission reduction targets submitted
in accordance with the Paris Agreement, the global
average temperature will potentially rise by 3.2℃, andthat even more wide-ranging and catastrophic impacts
could result. To keep the rise in temperature below 1.5℃
/2℃, the report indicates that the levels of ambition of
Nationally Determined Contributions (NDCs) must be
raised by fivefold/threefold respectively, and accordingly
calls upon all nations to implement even stronger
measures.
Ahead of its annual meeting in January 2020, the World
Economic Forum (WEF) released the results of its Global
Risks Perception Survey, conducted annually targetingbusiness and political leaders around the world. The
report lays out risks with a high probability of occurrence
and risks with a high level of impacts. For the former
category, all top-five ranking risks, and four out of five forthe latter, are risks related to the environment, making it
evident that most respondents are concerned about the
failure of environmental policy.
In time for the annual meeting of WEF, the United Nations
and Oxfam International released reports respectively
on the state of disparity and inequality. The UN's "World
Social Report 2020" indicates that inequality is rising inboth developed and developing nations, and that this maylead to even greater division in societies and slow down
economic and social development. It further points outthat highly unequal societies are less successful in poverty
reduction. Further, Oxfam called attention to the fact thatthe assets of the top 2,153 world's wealthiest people are
greater than the assets of 60 percent of the world's total
population, or 4.6 billion people. Factors contributing to
the rise of economic disparity include tax concessions forthe wealthy and large corporations and gender inequality.
A common message that can be read in all of thesereports is that there is no time to keep responding
separately to various global environmental and social
issues that the SDGs address and that an integrated
solution for a “trasnformation” involving major changes ofsocial systems is required.

See the following IGES website pages for information on the IPBES Report, GSDR and Gap Reports: https://www.iges.or.jp/en/projects/20191015
https://www.iges.or.jp/jp/natural-resources-and-ecosystem-services/20190417

2. Global and National Developments on the SDGs

2.2 Global Developments on theSDGs
In the context of this global state of affairs, 2019 marked
a milestone with major events held related to the SDGs.
Furthermore, demonstrations took place around the worldin response to climate change and inequality as citizens
called for change.
In April, the first Climate and SDGs Synergy Conference
was held in Copenhagen to discuss climate change andthe SDGs together, organized by the United Nations
Framework Convention on Climate Change (UNFCCC) andthe United Nations Department of Economic and Social
Affairs (UNDESA). The second conference is scheduled tobe held in Geneva in April 2020. At a COP25 side event,Japan's Minister of the Environment, KOIZUMI Shinjiro,
expressed Japan's intention to host the third conference.
The annual High-level Political Forum on Sustainable
Development (HLPF) was held in July in New York.
Reviews conducted over the last four years werecompleted for all 17 of the SDGs. Discussions are ongoingon how to make post-2020 future HLPF meetings more
effective.
In September, the first SDG Summit since the adoption of
the SDGs in 2015 was also held in New York. This HLPF,
held once every four years at the heads-of-state level,
included sharing of information on the state of progress on
the SDGs. In the political declaration of the SDG Summit, UN
Secretary General Guterres is called upon to organise an"SDG Moment" during the high-level week of the UN General
Assembly every year. Furthermore, the Secretary General
himself called for a "Decade of Action" to deliver on the
SDGs.
For the Climate Action Summit held at the same time as
the SDG Summit, UN Secretary General Guterres called
upon participants to bring concrete action commitments,
not beautiful speeches. The heads of state of 65 nations
declared commitments to net-zero CO₂ emissions by
2050. They were joined by 10 regions (including the stateof California), 102 cities (including Tokyo and Yokohama)and 93 businesses that also declared a commitment to4
net-zero CO₂ emissions. Business and banks noted theimportance of creating mechanisms to withdraw financing
from activities that destroy the natural environment andto conversely concentrate financing on activities that bringabout positive impacts on the natural environment.
COP15 of the Convention on Biological Diversity isscheduled to be held in Kunming, China, in 2020, where
post-2020 global biodiversity targets are to be formulated.
Additionally, full-fledged implementation of the Paris
Agreement is to start. In the midst of an escalating senseof crisis, debate on global issues is expected to progressin the international community.

2.3 National Developments on
the SDGs
In 2019, various actions were taken to accelerate
initiatives to deliver on the SDGs in Japan. Among
government-led initiatives, the SDGs Implementation
Guiding Principles, which make up Japan's medium- tolong-term national strategy, were revised for the firsttime in December 2019.5 For this revision, an event washeld for stakeholders involved in the implementation of
the SDGs. Based on outcomes, recommendations werecompiled by volunteer members of the SDGs Promotion
Roundtable Meeting and submitted to the government.6
Furthermore, public comments were solicited on a draft
revision outline, and a portion of the many comments
received were reflected on the guiding principles.7
The revised Implementation Guiding Principles reinforce
the function of the SDGs Promotion Headquarters headedby Prime Minister Abe and the organisation of roundtable
and stakeholder meetings, and also clearly state theroles of the next generation and Parliament as major
stakeholders. In addition, accelerating actions based on
backcasting, an approach key to achieving the SDGS, isalso mentioned. However, descriptions of the ideals forwhich Japan is aiming and priority issues that are theprerequisite for backcasting are merely qualitative, and thefact that measurement and concrete reviews of progresscannot be carried out remains a major issue.
Also in 2019, the Uomachi Shopping Street Promotion
Association of Kitakyushu City, Fukuoka Prefecture, wasannounced as the recipient of the Chief's Award in the 3rdJapan SDGs Award. The association promotes activities
focused on social inclusion, such as support for the selfreliance of the homeless and support for the independent
living of persons with disabilities, as well as activities inlocal food for local consumption, including reductionof food loss in cooperation with restaurants and saleof non-standard vegetables. The award recognised theassociation's exemplification of the "leave no one behind"principle and its integrated approaches to address
multiple SDGs, in a context where shopping streets facechallenges for its continued existence.8

UN Department of Global Communications (2019) “Climate Action Summit 2019”, https://www.un.org/en/climatechange/assets/pdf/CAS_main_release.pdf
SDGs Promotion Headquarters (2019), https://www.kantei.go.jp/jp/singi/sdgs/pdf/jisshi_shishin_r011220.pdf
Volunteer members of the SDGs Promotion Roundtable Meeting (2019), "Recommendations for revision of the SDGs Implementation Guiding Principles"
https://docs.wixstatic.com/ugd/d7b557_d7039fbd37e543d78c864c86dd443639.pdf
7Ministry of Foreign Affairs (2019) https://search.e-gov.go.jp/servlet/PcmFileDownload?seqNo=0000195997
8
Ministry of Foreign Affairs (2019) https://www.mofa.go.jp/mofaj/gaiko/oda/sdgs/award/index.html

4

5
6

4

2. Global and National Developments on the SDGs

In local government related initiatives, in continuation fromlast year, 31 cities were selected as SDGs Future Cities,
and ten projects were selected as SDGs Model Projectsof local governments. These initiatives aim to promote
engagement in the SDGs by local governments towardsustainable town planning over the medium and longterm. According to the Cabinet Office, a similar numberof "SDGs Future Cities" and "SDGs Model Projects" will beselected in 2020.9
In March 2019, a new page was launched on the IGES
website. The "VLR Lab" enables visitors to the site to view
lists of the voluntary SDGs activities of local governments
around the world and their respective states of review.
VLR (Voluntary Local Review) is an international initiativethat is gaining a foothold around the world, whereby
local governments voluntarily review the state of activities
related to the SDGs and publicly release reports with
their results that can be compared to other local
governments.10
Local governments announcing their intent to become
zero carbon cities by 2050 through net-zero carbon
declarations are on the rise, as are local governments
issuing climate state of emergency declarations to call for
immediate action.11
Regarding the business world, the Ministry of Economy,
Trade and Industry (METI) compiled "The Guide for SDG
Business Management" in May 2019. The guide lays
out how businesses should engage in "SDG business

management", and from what viewpoint investors should
evaluate such initiatives.12 Further, the Japan Associationof Corporate Executives released a report in Julycompiling ideas for engaging in SDG-related initiatives.13
Various initiatives have also begun on specific issues.
In April 2019, the Japan Sustainable Palm Oil Network(JaSPON) was established to encourage the use of RSPO
certification throughout the industry. Retailers, consumer
goods manufacturers, NGOs and others, including
Ajinomoto, Aeon and Kao, make up the 18 inauguralmember companies/organisations of the network. 14 In
September, a group of companies, local governments,
educational institutions and medical institutions launched
the "RE Action" project, aimed at meeting electricity usage
with renewable energy sources by 2050. This initiative isaimed at companies and organisations that are not eligible
for the "RE100", an international initiative, accounting
for a total electricity demand that is approximately 4050% of Japan's domestic demand, and representing a
total of approximately 40 million organizations. Member
companies and organisations are required to report onannual power consumption and their renewable energy
ratio.15
As explained above, initiatives to achieve the SDGs areunderway in Japan led by an array of stakeholder groups.
As progress on the SDGs has fallen behind, hopes are
pinned on each of these initiatives producing steady andtangible results.

Cabinet Office (2019), https://www.kantei.go.jp/jp/singi/tiiki/kankyo/teian/sdgs_2019sentei.html
IGES (2019), https://www.iges.or.jp/jp/news/20190325
Ministry of the Environment (2019) https://www.env.go.jp/policy/zerocarbon.html
e's Future Co-Creation Forum (2019) https://www.es-inc.jp/ced/
12
Ministry of Economy, Trade and Industry (2019), "The Guide for SDG Business Management",
https://www.meti.go.jp/press/2019/05/20190531003/20190531003.html
13
Japan Association of Corporate Executives (2019) "SDGs for the sustainable growth of business and human society" https://www.doyukai.or.jp/
policyproposals/uploads/docs/190731a.pdf?190731
14
JaSPON Secretariat (2019) https://www.wwf.or.jp/file/20190411_forest01.pdf
15"RE Action – Declaring 100% Renewable" https://saiene.jp/
9

10
11

5

3. An Introduction to ESG Investment/Financing

This chapter will provide an introductory overview on
ESG investment/financing, with particular attention given
to ESG investment - current practice and rationale, therelationship with fiduciary duty, and corporate ESG
disclosure which plays a critical role in ESG investing.

ESG investment is rapidly spreading in Japan as well
(Figure 4). Mainstreaming of ESG investment progressed
even more in 2019, with the investment balanceexceeding 330 trillion JPY, accounting for 55.9% of thebalance of total managed assets.

3.1 The present state of ESG investing

Types of ESG investment and trends by asset class
The Global Sustainable Investment Alliance (GSIA) classifies
ESG investment into the following seven categories.
1. NEGATIVE SCREENING: the exclusion from a fund or
portfolio of certain sectors, companies or practices
based on specific ESG criteria;
2. P O S I T I V E S C R E E N I N G : i n v e s t m e n t i n s e c t o r s ,companies or projects selected for positive ESG
performance relative to industry peers;
3. NORMS-BASED SCREENING: screening of investments
against minimum standards of business practice basedon international norms, such as those issued by theOECD, ILO, UN and UNICEF;
4. E SG INTEGRATION: the systematic and explicit
inclusion by investment managers of environmental,social and governance factors into financial analysis;
5. SUSTAINABILITY THEMED INVESTING: investment inthemes or assets specifically related to sustainability(for example clean energy, green technology orsustainable agriculture);

The ESG investment market is growing, and when examinedby region, as of 2018, Europe accounts for 46%, and theUnited States for 40% of the total (Figure 3).
The spread of ESG investment is also evident in institutions
signing the Principles for Responsible Investment (PRI) that
advocate the incorporation of ESG into the investment
process. The PRI declaration originated in 2005 when
UN Secretary General at the time, Kofi Annan, called on
20 of the biggest institutional investors to join. The PRI
declaration was created by this group of institutional
investors in cooperation with other stakeholders, andwas launched in April 2006 with the United Nations
Environment Programme Finance Initiative (UNEPFI) andthe United Nations Global Compact serving as secretariat.
The number of signatory institutions has risen from 63 in2006 to 2,968 institutions (as of 27 February 2020).16

400

35000
30000

2118
1626

25000
20000
15000

8

141
771

6572

491
1148

521

0

10991

2014

2016

60％
50％
40％

150

13682

EuropeUnited States
CanadaAustralia-NZ
Japan

2018

Source: Created with current exchange rate on 27 December 2019 basedon JSIF (2019), "Sustainable Investment Survey 2018"

17

70％

200

8723

12280

80％

250

Figure 3: Change in global ESG investment balance(unit: billion USD)17

16

90％

300

717

11995

10000
5000

100％

350

30％

100

20％

50
0

10％
2016

2017

2018

2019

0％

ESG investment balance (billion JPY)

Ratio of ESG investment in balance of total managed assets

Figure 4: Change in ESG investment balance in Japan

Source: Created based on JSIF (2020), "Sustainable Investment Survey
2018/2019"*Subjects of the surveys included 31 companies (2016), 32 companies(2017), 42 companies (2018), and 43 companies (2019).

 earch results (PRI)https://www.unpri.org/searchresults?qkeyword=&parametrics=WVSECTIONCODE%7c1018
S
JSIF refers to the "ESG Integration" category of the ESG investment categories mentioned above as ESG investment, and refers to ESG Integration andinvestments in all other six types collectively as "sustainable investment" (see the JSIF website for details). This report will use the term ESG investment toconform to GSIA usage. Further, the "sustainable investment balance" referred to in the sources above can be interpreted as "ESG investment balance".

6

3. An Introduction to ESG Investment/Financing

6. IMPACT INVESTING: targeted investments aimed atsolving social or environmental problems, and including
community investing; and7. C ORPORATE ENGAGEMENT AND SHAREHOLDERACTION: the use of shareholder power to influence
corporate behavior, including through direct corporate
engagement, filing shareholder proposals, and proxyvoting that is guided by comprehensive ESG guidelines.

When looked at by asset class, listed stocks account for
51% of ESG investment and bonds 36%, with real estate andprivate equity/venture capital accounting for approximately
3% each. In recent years, the ratio of bonds is on theincrease. The context for this increase encompasses theissuance of ESG bonds such as green bonds and expanding
trends toward incorporating ESG factors in investment
decisions for bonds, rather than only for stocks.19

According to GSIA, of the ESG investment balance shownin Figure 3, the most utilised investment approach is"Negative Screening" (2018: 19.7 trillion USD), followed by"ESG Integration" (2018: 17.5 trillion USD), and "Corporate
Engagement and Shareholder Action" (2018: 9.8 trillion
USD). Further, use of these three investment approaches
has increased compared to 2016.18

Concerning the above overview of the current state of
ESG investment, it should be noted that globally-accepted
definitions of "sustainable" and "green" do not exist in thecontext of ESG investment and financing. There is currently
a movement to establish these definitions in groups at
the regional, national and industry levels (See Column 1:
Trends in defining the term "sustainable").

Column 1: Trends in defining the term "sustainable"
Progress is being made at national and regional levels and among market stakeholders on standardisation of thedefinition of terms such as "sustainable" and "green" in the context of ESG investment and financing.
The proposal for a "taxonomy" as the core of the EU's "Sustainable Finance Action Plan" has drawn particular attention in
Japan. The technical selection criteria in the mitigation areas (targets) of the taxonomy proposal are ambitious, including
a threshold in line with the objective to create net-zero emission economies by 2050, and some have indicated this is ahigh order for the industrial sector.
In China, the People's Bank of China formulated a project list indicating use of funds for green bonds. Green coal isincluded (but not included in the EU's taxonomy). Further, in February 2019, the "Green Industry Guidance Catalogue",released as national green standards by seven public institutions in China, also included high-efficiency coal-fired power
plants, a distinctly different classification of "sustainable" then that as defined by the EU.20
Developments in the formulation of taxonomies have also been seen in Canada and Malaysia. Further, in actions by market
stakeholders, in June 2019, the International Capital Market Association (ICMA) established a working group on "(Climate)Transition Finance", and is carrying out deliberations on this topic (as of the end of January 2020).21＜Key terminologies for ESG investment and financing＞〇 Investment⃝ Passive management: In a broad sense, management in general without market forecasting. In a narrow sense,
index management aimed at securing an earning rate equal to the market average by in principle holding all stockcomponents of the market according to component proportion ratios.
⃝ Active management: management method aimed at producing a relatively high excess earning rate compared tobenchmark indices of various markets (e.g. TOPIC) by creating portfolios that differ from market averages.
⃝ Green bonds: bonds issued to procure financing required for green projects.
〇 Financing⃝ Green loans: loans whereby funding procured can only be allotted to the financing or refinancing (part of a) green
project(s).
⃝ Sustainability linked loans: loans that provide motivation for achieving ambitious sustainability performance targets
set in advance by the borrower.

 he rate of increase from 2016-2018 is 31% for "Negative Screening", 69% for "ESG Integration" and 8.3% for "Corporate Engagement and Shareholder
T
Action".
Ota, Tamami (2019), "ESG Investment Expanding for Bonds", Daiwa Institute of Research, https://www.dir.co.jp/report/research/capital-mkt/
esg/20190110_020570.pdf
20CBI, IISD and Foreign & Commonwealth Office (2016) "Roadmap for China: green bond guidelines for the next stage of market growth", https://www.
climatebonds.net/files/files/CBI-IISD-Paper1-Final-01C_A4.pdf
Mitsubishi UFJ Research and Consulting Co., Ltd. (2019) "Investigative report on initiatives in standardisation of finance related to green finance/sustainable finance promoted by the EU, China and the International Organization for Standardization (ISO)", https://www.fsa.go.jp/common/about/research/0529murcreport.pdf
ICMA, GBP, SBP (2019) "2019/2020 Working Group Climate Transition Finance",https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/Climate-Transition-Finance-WG-ToR-FINAL221119.pdf
21
ICMA, GBP, SBP (2019) "2019/2020 Working Group Climate Transition Finance", https://www.icmagroup.org/assets/documents/Regulatory/Green-Bonds/
Climate-Transition-Finance-WG-ToR-FINAL221119.pdf
18

19

7

3. An Introduction to ESG Investment/Financing

3.2 T he origins of and motivations
behind ESG investing
The origin of ESG investing is said to lie in socially
responsible investing (SRI), which began as excluding frominvestments, business that violated morality or religious
values (e.g. weapons, gambling, tobacco, alcohol).
Subsequently, investments taking a range of environmental
and human rights issues into account began to grow, andcame to be called responsible investing or sustainable
investing.22 The term ESG was first used in the abovementioned PRI, and the term ESG investing spread aroundthe world.
The motives investors have for engaging in ESG investingthat takes non-financial information into consideration aresaid to focus mainly on the following three points. First,
investors began to reflect back on the excessive pursuitof short-term profit that was the impetus behind the 2008
Lehman Shock. Moreover, the argument that managed
funds were not the property of financial institutions
and should give back to society also came to be more
widely accepted, further boosting reconsideration of pastpractices.23
Secondly, recognition of the importance of global
environmental and social issues by investors following
adoption of the SDGs and agreement on the Paris
Agreement in 2015, also become a motivating factor.
Moreover, calculations have shown that approximately 90
trillion USD will be required over the next 15-year period
to achieve the goals of the SDGs and Paris Agreement24.
Thus, it goes without saying that funding will be needed toachieve these goals.
Thirdly, the financial risks (e.g. regulatory risk, reputationalrisk, physical risk) and opportunities (e.g. new profit)
posed by ESG factors are another aspect of motivation.25
Financial risk due to ESG factors, for instance in the caseof predicted long-term temperature rise due to climatechange26, could involve financial impacts from damage
to property, fragmentation of supply chains and policychanges in the shift to low-carbon economies. There has
been debate on financial opportunities brought about by
ESG, and further empirical research is needed before any
conclusions can be made, but there are many examples ofresearch results that indicate ESG has positive impacts onfinancial performance.27 For these reasons, taking ESG into
consideration is logical from the perspective of long-term
investors. Furthermore, as the managed asset portfolios
of universal owners cover the entire capital market, it islogical for them to consider ESG factors (e.g. air pollution,
GHG emissions, low-emission products), which can impact
the market as a whole, and not only the risk-return ofindividual companies.

3.3 ESG investing and fiduciary
duty
The responsibility taken on by institutional investors whoare entrusted by asset holders with managing the assetsof other entities is called "fiduciary duty".28 There are two
types of duties in fiduciary duty. The first is the "duty ofloyalty", which requires the trustee to act at all times tomaximise the profit of the entrustor (client). The second isthe "duty of care", which requires the trustee to act withthe care, skill, prudence and diligence befitting an expert.29
A debate has been ongoing, mainly in Europe and theUnited States, on the "duty of loyalty" and whether ESG
investing violates fiduciary duty due to having objectives
other than investment returns, namely societal benefit.
As it turns out, the argument that consideration of ESG
factors does not violate fiduciary duty has become
predominant. This argument was backed by reports frominternational organisations and law offices. In 2005, UNEPFI
and the law firm Freshfields Bruckhaus Deringer released
a report concluding that consideration of ESG factors ininvestment analysis is allowed in all countries. Further, in
2015, PRI and UNEPFI released "Fiduciary Duty in the 21stCentury"30, which indicated the view that, although theimportance of fiduciary duty remains unchanged, failing toconsider factors in investment practice that drive corporate
value enhancement over the long-term, including ESG

Ito, Masaharu (2012) "Principles for Responsible Investment", Daiwa Institute of Research, https://www.dir.co.jp/report/research/capital-mkt/esg/
keyword/023_pri.html
Sueyoshi, Takejiro (2017) "On Sustainable Finance", https://www.oecc.or.jp/wp-content/uploads/2017/08/004_%E3%82%B5%E3%82%B9%E
3%83%86%E3%83%8A%E3%83%96%E3%83%AB%E3%83%95%E3%82%A1%E3%82%A4%E3%83%8A%E3%83%B3%E3%82%B9_%E6%9C%AB%E5%90%89%E5%85%88%E7%94%9F.pdf
24
The New Climate Economy (2017) “The Sustainable Infrastructure Imperative: Financing for Better Growth and Development”, http://newclimateeconomy.
report/2016/wp-content/uploads/sites/4/2014/08/NCE_2016Report.pdf
25
Mizuguchi, Takeshi (2017) "ESG Investment: the new shape of capitalism", Nikkei Publishing.
26
The Intergovernmental Panel on Climate Change (IPCC) predicts in its Fifth Assessment Report that the global average temperature at the end of the 21st
century, compared to the end of the 20th century, will rise by between 0.3 and 1.7℃ in the case of major GHG reductions, and between 2.6 and 4.8℃ in
the case that extremely large GHG emissions continue.
27
For example, Deutsche Asset & Wealth Management and the University of Hamburg reviewed the research results of approximately 2,250 studies related
to the relationship between ESG and corporate financial performance. The review revealed that only 10% of studies concluded there to be a negative
relationship between the two, while 62.6% of studies concluded there to be a positive relationship.
Deutsche Asset & Wealth Management (UK) Limited (2015) "ESG & Corporate Financial Performance: Mapping the global landscape", https://institutional.
dws.com/content/_media/K15090_Academic_Insights_UK_EMEA_RZ_Online_151201_Final_(2).pdf
28
In some cases, referred to as "fiduciary duty".
29
Ito, Masaharu (2017) "Are ESG factors imperative in fulfilling fiduciary responsibility: ESG investing and fiduciary duty in the 21st century" "Feature:
Pressure to engage in ESG", Autumn edition, Vol. 28, Daiwa Institute of Research seasonal report, https://www.dir.co.jp/report/research/capital-mkt/
esg/20171201_012495.pdf
30
Ibid.
22

23

8

3. An Introduction to ESG Investment/Financing

issues, is a violation of fiduciary duty. Subsequently, PRI
and UNEPFI issued recommendations making similar
points to national governments and regulatory agencies,
including those in Japan.31
Policy trends in the United States and the United Kingdom
are also noteworthy. For instance, an Interpretive Bulletin(released on three occasions since 2015) on the Employee
Retirement Income Security Act by the US Departmentof Labor, recognises consideration of ESG factors while
securing returns in investment practice for corporate
pensions.32
Recent debate on fiduciary duty has come to incorporate
the concept of impacts. In 2019, UNEPFI launched the"Legal Framework for Impact" project. The project is
expected to release recommendations in late 2020 basedon an analysis of how investors can balance fiduciary duty
and sustainability impact duty, and what happens whenthese two types of duties run contrary to one another.

3.4 Information disclosure
Information disclosure on ESG by companies is imperativein ESG investing. Of major ESG information disclosure
standards, the GRI Standards of the Global Reporting
Initiative (GRI) have the longest history and haveestablished items and related KPI that companies should
disclose regarding economic, environmental and social
factors.33
Meanwhile, it is increasingly recognised that factors
determining corporate value also have non-financial andintangible characteristics, and some have pointed out that
disclosure focused on conventional financial information
has led investors and corporate management being short-term oriented.34 In the context of this growing awareness,in 2013, the International Integrated Reporting Council(IIRC) released the "International Integrated Reporting
Framework", a framework for integrated reporting offinancial and non-financial information by corporations.35
In addition, the US-based Sustainability AccountingStandards Board (SASB) formulated the SASB Standards
in 2018 based on the participation of 2,800 experts inbusiness and finance. Similar to GRI, these standards
determine in detail items and indicators (KPIs) that
corporations should disclose. A feature of these standards
differing from GRI is that they establish items to discloseand indicators customised to 11 different sectors and 77
different industries.36
A significant outcome in the context of climate change
was the Final Report from the Task Force on Climaterelated Financial Disclosures (TCFD). In 2015, in response
to a request from the G20, the Financial Stability Board(FSB) established the TCFD with 32 members andMichael Bloomberg as its chair. The TCFD Final Report
was released in 2017, encouraging businesses to engage
in climate-related information disclosure. Already, 930
organisations (including 239 in Japan) have signed the
TCFD (as of December 2019).37
Ultimately, these multiple disclosure standards havebecome confusing for businesses engaging in information
disclosure. Accordingly, the Better Alignment Project
led by the IIRC was launched in 2018 to enhance
consistency among disclosure standards. In addition to
the aforementioned organisation, other major participants
include the International Organization for Standardization(ISO), as progress on this debate has attracted muchattention.

 or Japan, the "Fiduciary Duty in the 21st Century—Japan Roadmap" was released in April 2017. Recommendations were made to relevant ministries andFagencies indicating responses to ESG issues in Japan and the current state of fiduciary responsibility.
Ariyoshi, Naoya & Mitsumoto, Shunsuke (2019) "ESG investing and fiduciary responsibility", Financial newsletter, Nishimura & Asahi law firm.
https://www.jurists.co.jp/sites/default/files/newsletter_pdf/ja/ja_newsletter_20190930_finance.pdf
33
Hayashi, Toshikazu (2019) "The role of and issues related to diversifying ESG information disclosure standards: a comparative analysis of GRI, IIRC, SASB,
TCFD", Capital Markets Monthly, July 2019 (no. 407). http://www.camri.or.jp/files/libs/1314/201908011157137646.pdf
34M ishiro, Mariko (2014) "What is 'Integrated Reporting'?", Monthly PR publication (Sendenkaigi), http://www.fbicom.co.jp/pdf/integrated_reporting_01-03.pdf
35
Amundi Japan (Ed.) (2018) "Introduction to ESG", Nikkei Publishing36Hayashi, Toshikazu (2019) "The role of and issues related to diversifying ESG information disclosure standards: a comparative analysis of GRI, IIRC, SASB,
TCFD", Capital Markets Monthly, July 2019 (no. 407). http://www.camri.or.jp/files/libs/1314/201908011157137646.pdf
37
FSB “TCFD Supporters” https://www.fsb-tcfd.org/tcfd-supporters/
31

32

9

4. ESG initiatives by financial institutions in Japan

This chapter will introduce and discuss the initiatives
in ESG investment and financing of Japanese financial
institutions. The main objective in discussing interview
results and specific examples is to introduce a selectionof actual initiatives, not to draw conclusions on trends ormake assessments of the market overall. Moreover, thischapter will focus primarily on the "E" and "S" of ESG.

4.1 Initiatives by ESG investing approach
Examples of ESG investing initiatives in Japan andinterview results are introduced below categorised into
major ESG investing approaches.
(1) Negative Screening/Norms-based Screening
Negative screening (including divestment) is the mostcommonly utilised approach among ESG investors in
Europe and North America. This approach has drawn
attention in recent years due to indications of the riskof coal-related assets becoming "stranded assets" andrelated campaigns by NGOs. In Japan, financial institutions
advocating active engagement in ESG investing, including
the Government Pension Investment Fund (GPIF), havedeclared that they will not divest, and there is little
visibility of initiatives taking this approach. Meanwhile,it should be noted that results of the most up-to-datesurvey on the balance of ESG investments by management
approach indicate a spike in growth of 663% compared tothe previous year.38
In respect to loans, three Japanese megabanks haveeach indicated a policy on the financing of new coal-fired
power generation since 2018. While the specific wordingused by each bank differ, none of the policies end coalfinancing, but rather limits or places restrictions on thefinancing of new coal-fired power plants.
(2) Positive Screening
Positive screening is a method of investing by which
companies with high ESG ratings are selected. Investingin an ESG index that comprises stocks based on their
ESG ratings is an example of this approach for passive
management. This approach has gained footing, due
to the development of ESG indices, including GPIF's
public call for and the adoption of ESG indices in 2017,
companies have begun to take initiatives on information
disclosure and related measures with an awareness of the
ESG evaluations required to be included in these indices.
3839(3) ESG Integration
Integration is often referred to as the most mainstream
approach to ESG investing at present, and Japan is no
exception. ESG integration refers to integrating ESG factors
in the management process, but specific approaches andmethods of decision-making differ by company (Table1). In most cases, an overview of what departments are
involved in considering ESG factors and what sort of
PDCA cycle is used for management can be found in theinformation disclosed by asset management firms.
Methods of obtaining the ESG information utilised in the
ESG integration approach also vary. While some investors
purchase data from data services providers and ESG rating
agencies, other institutional investors do not rely on thistype of information, rather carrying out evaluation based on
their own unique standards and judgments. The approaches
and perspectives of data services providers and ESG rating
agencies are also varied, with each company having different
strengths and distinguishing features. With no one company
that can provide all the information needed, the point ofview of an institutional investor is often reflected on whether
or not such companies are utilised and the standards bywhich options are selected.
(4) Sustainability Themed Investing/Impact Investing
One example of an ESG product that is classified assustainability-themed investing is the eco fund. Eco funds
are investment trusts, mainly for individual investors, whichinvest in the stocks of companies engaged in businessactivities that incorporate an environmental perspective.
The pioneer of eco funds in Japan is the Nikko Eco Fundlaunched in 1999. While the investment balance of this typeof investment trust exceeded 200 billion JPY in six months
after they were initially introduced, they were subsequently
sluggish. Investment balances in recent years have shifted
toward an increase, but it would be difficult to call them39
mainstream.
Impact investing is investing carried out with the objectiveof wielding impacts in the form of solutions to social andenvironmental. In Japan, a domestic advisory committee
was set up in 2014 to respond to the "G8 Social Impact
Investment Taskforce" that aims to expand social impact
investing at the global level. Discussions and initiatives
are ongoing. Various new developments have takenplace in recent years, such as the release by prominent
financial institutions of products in line with UNEPFI's"Principles for Positive Impact Finance", that advocate a SIF (2020) https://japansif.com/archives/674
J
Japan Sustainable Investment Forum (2019) https://japansif.com/archives/615

10

4. ESG initiatives by financial institutions in Japanbalance between social impact and financial returns.40 41
While consideration of impacts is shaping into one of theinternational trends in ESG investment, concrete initiatives
in Japan currently remain limited.
(5) Corporate Engagement
Although many asset managers purportedly engage in"engagement initiatives", similar to the integration approach,in reality initiatives are diverse. Not only are there differencesin the topics given priority in engagement, there are also
wide-ranging interpretations of the concept of engagement
itself (Table 2). Japan's stewardship code, defines"engagement" as "purposeful dialogue". Yet the reality andimplications differ depending on whether the purpose isto "change coroporate policy and/or behaviour" or "share
information and exchange opinions".

Table 1: Examples of ESG integration approaches

Company A

The purpose of ESG evaluations is for utilisation in active management. We conduct our own ESG evaluations
utilising internal company resources. We have created a consistent system whereby our analysts not only
conduct evaluations and analysis but make recommendations on buying and selling, and also engage indialogue with companies.

Company B

We obtain our ESG information from research institutes within our group as well as from external ESG data
vendors. We conduct ESG evaluation and scoring by asset class and management strategy. For domestic stocks
and industrial bonds in particular, we have formulated our own framework for evaluating non-financial factors
as we further sophisticate our ESG integration.

Company C

We have adopted ESG integration approaches that differ for each asset class and product. A portion of theseare explained in our stewardship report.

Company D

We incorporate ESG into investment decision-making processes in our responsible investment meetings. Eachmanagement unit participates from an active management perspective, while the responsible investmentgroupparticipates from a passive management perspective. We do not utilise information from ESG rating
institutions. We place importance xon information from stakeholders with high awareness of ESG issues.
*Created by the authors based on interviews and publicly available information on companies.

Interview Highlights(1) On Negative Screening/Norms-based Screening✓ Although we may consider it in the future, at present we do not make automatic exclusions in the form of negative
screening. We view corporate value as future cash flow discounted to present value, and make decisions on a caseby-case basis from the perspective of corporate value.
✓ For instance, while we do not have an exclusion policy on coal-fired power generation, we do make decisions fromthe perspective of impacts on future corporate value related to coal-fired power.
✓ For some weapons, we exclude potential investments in cases where we cannot practice engagement due to thecircumstances of the manufacturer concerned. Otherwise, we do not engage in divestment. Even if we sell off stocks,
they will only be bought by investors more tolerant of weapons, so we believe holding the stocks and engaging ismore effective. Meanwhile, some clients (asset owners) want to hold stocks identical to benchmarks, and in thesecases, we honor the wishes of the client.
✓ We do not think it is appropriate to uniformly withdraw funding from all coal-related projects. We would like it
understood that various issues must be considered, including Japan's energy policy and baseload power.
✓ Coal-fired power is a part of Japan's basic energy plan and infrastructure export policy. Discussions are carried out
yearly to review these policies in light of the social significance of supporting (financing) a stable supply of electricity
as well as international views on climate change.
(4) On Sustainability Themed Investing/Impact Investing✓ We are interested in how impacts generated by investing are ascertained. With investment decisions made from theperspective of corporate value as a major premise, we would like to consider what else we can do in the future.
✓ In the past, social and environmental issues were viewed mainly from the perspective of investment risk. Of late, thetrend to see solutions to social and environmental problems as opportunities is gaining ground. However, it is difficult
to identify impacts directly linked to enhanced corporate value, and the issue remains on how to deal with the timelag between financing decisions and the realisation of impacts.
✓ We believe that the development of measuring methods for impacts and accumulation of this know-how will
become a strong point for our company.
✓ Our investments are premised on the companies we invest in being both profitable and socially aware. We placeemphasis on both economic returns and social returns.

40
41

11

Industrial and Infrastructure Fund Investment Corporation (2019) https://www.iif-reit.com/
Sumitomo Mitsui Trust Bank, Limited (2019) https://www.smth.jp/news/2019/190328.pdf

4. ESG initiatives by financial institutions in Japan

Table 2: Views on engagement and priority issues
View on engagement

Priority issues

CompanyA

Engagement is defined as "determination of issues thatmust be addressed, discussion on issues and work
to produce results," while dialogue is defined as the"promotion of mutual understanding through two-way
communication between companies and investors", withseparate roles for both. Further, views and policies on
engagement are indicated for passive management ofdomestic stocks, active management of domestic stocks
and active management of domestic bonds, respectively.

Global issues (top-down approach)・C limate change (response to and disclosureof climate change risks and opportunities)/
participation in Climate Action 100+・Sustainable palm oil procurement
・Deforestation risks and human rights issues
・Risk management in supply chain management
・Agriculture
・Risk management in the area of labour practices
・Marine plastics issue
・Food safety (factory farming and drug-resistant bacteria)
Local issues (bottom-up approach)
・Enhanced corporate governance・Promotion of anti-corruption measures
・Improved disclosure of non-financial information/
integrated reporting
・Diversity of board of directors

Company
B

Engagement is designated as "opportunities to require bestpractices from companies", and opinions are delivered
to contribute to medium- to long-term corporate valueenhancement. Only activities in the process of "preparing
opinions/advance checks/opinion delivery/documentation/
monitoring" count as engagement, and a clear distinction ismade with what is referred to as data collection.

・Climate change issue
・Water resources and marine pollution issue
・Boost governance reforms
・Promotion of ESG information disclosure

CompanyC

Engagement goes hand in hand with shareholder action
in stewardship activities and isconsidered a core activity
in ESG integration. As a basic apparoach, emphasis isput on solving social issues, achieving medium- to longterm financial stability, corporate value enhancement andreturns. Methods include identifying appropriate ESG issues,
meticulous milestone management, extensive engagement
materials, and organic coordination with investment chains.

・Climate change
・Human capital management
・Regional revitalisation
・Supply chain
・Formation of circular economies

Engagement is "purposeful dialogue", as written in theJapan's Stewardship Code

Uniform engagement issues are not determined by a
top-down approach (issues that require engagement
are identified from the perspective of corporate valueenhancement through bottom-up ESG evaluation andcorporate analysis. Individuality is great from company
to company, and content covers a wide range ofissues, so identifying uniform issues is not fitting.)

CompanyD*Created by the authors based on interviews and publicly available information on companies.

Although ESG investing began focused on stocks, it
has expanded to other asset classes including bonds,
private equity, real estate and loans. The following is
an introduction of market trends in Japan along withinterview results, mainly for bonds and loans.

additional costs involved in issuing green bonds compared
to conventional bonds, including external reviews andconsulting on the green bond framework, supported
market growth. The Development Bank of Japan was thefirst issuer in Japan to issue a green bond in 2014. As of
2019, there have been 58 issuances with a total issuanceamount of approximately 823 billion JPY, a roughly 24fold increase in market size.43(1) B onds (e.g. green bonds, social bonds, sustainability bonds)
In the balance of ESG investments according to asset
class, bonds come in second (11%) after stocks.42 The
introduction of a subsidy programme to cover theSocial bonds and sustainability bonds remain low, bothin the number of issuances and in the amount financed.
Aside from the continued issuance of social bonds by
the Japan International Cooperation Agency (JICA) since

4.2 Growing diversity in financial products

42
43

JSIF (2020) http://japansif.com/200207.pdf
Ministry of the Environment of Japan (2019) http://greenbondplatform.env.go.jp/policies-data/current.html

124. ESG initiatives by financial institutions in Japan

2016 and sustainability bonds by the Development
Bank of Japan since 2015, there had been almost noother issuances until 2019, when issuances by operatingcompanies and financial institutions raised expectations
for future market growth (Table 3).
(2) Loans (e.g. green loans, sustainability linked loans)
There are high expectations from all directions for loans
considering ESG factors (otherwise referred to broadly as
ESG financing) in Japan, including the High Level Meetingon ESG Finance, due in part to the large role indirect
financing plays in Japan. Japan's first ever green loan andsustainability linked loan were announced in 2018-2019,and expanded market options for green financing (Table
4). As of February 2020, guidelines for green loans andsustainability linked loans are under deliberation in the
Ministry of the Environment of Japan (MOEJ).44

In addition to the above green products, loans supporting
SDG business management have been introduced froma number of companies in Japan. Examples include,loans accompanied by the provision of data/information
services during the loan period meant to contribute to
the achievement of SDG business management plans,45
and loan products with added-on consulting services46.
Additionally, SDG-related financial services have beenpromoted in the context of regional revitalisation andthe rebuilding of regional banks, giving rise to initiatives
led by regional banks. One example involves loans withpreferential interest rates offered to medium and small
enterprises engaged in projects with social impact
contributing to building sustainable societies in line withthe objectives of the SDGs.47

Table 3: Examples of social bonds and sustainability bonds issued in Japan (2019)
Issuing bodyIssuing amount

Use of Proceeds

10 billion JPY

Allocated by JICA to ODA loan projects (yen denominated) in developing
countries
Project content: transportation infrastructure improvements, improvements
and planning in electricity and natural gas, enhancing access to social
services (water, education, health), irrigation and flood control projects, etc.

Examples of social bonds
Japan International
Cooperation Agency(JICA)48 49

ANA Holdings50

Mitsubishi UFJ Financial
Group51

10 billion JPY
12 billion JPY
5 billion JPY

Universal design upgrades and improvements for domestic airport facilities
and equipment

90 million USD(10 billion JPY)

Plans to allocate to loan funds below via Mitsubishi UFJ Bank
(1) loans contributing to restoration after natural disasters such as
earthquakes and typhoons(2) loans to public hospitals in Japan and overseas, and hospitals in Japan
managed by social medical corporations and social welfare corporations(3) loans to public schools(4) loans to public housing providers registered with the UK public housing authority

Examples of sustainability bonds
Asics52

20 billion JPY

Japan Railway

Research expenses for the Institute of Sport Science, establishment and operationof nursing care prevention projects, installation of rooftop solar panels
Improvements to transportation infrastructure essential for daily community
life that have low impact on the environment (railway construction, joint
shipbuilding)Construction, Transport
94 billion JPY*令和元年度グリーンボンド・グリーンローン等に関する検討会資料「資料④（グリーンボンド・グリーンローン等の国内・海外動向）」（環境省2019）や各社公開資料を基に筆者作成
and Technology Agency(JRTT)53 54 55(issued 9 times)

Obayashi Corporation56

10 billion JPY

Construction of environmentally-sound buildings, fostering leadershipand trusting relationships in the construction industry, implementation ofrenewable energy projects

Ministry of the Environment of Japan (2019) http://www.env.go.jp/policy/greenbond/gb/conf/conf_r0107.html
Sumitomo Mitsui Banking Corporation (2019) https://www.smbc.co.jp/hojin/financing/sdgs/
Resona Bank (2019) https://www.resonabank.co.jp/about/newsrelease/detail/20190807_1a.html
47
Shiga Bank (2018) https://www.shigagin.com/pdf/topics_20180417.pdf
48
JICA (2019) https://www.jica.go.jp/press/2019/2019061420.html
49
JICA (2019) https://www.jica.go.jp/press/2019/20190905_31.html
50
ANA Holdings (2019) https://www.anahd.co.jp/group/pr/201904/20190417-2.html
51
Mitsubishi UFJ Financial Group (2019) https://www.mufg.jp/dam/pressrelease/2019/pdf/news-20191206-001_ja.pdf
52
Asics (2019) https://corp.asics.com/jp/investor_relations/stock_information/sustainability_bond
53
JRTT (2019) https://www.jrtt.go.jp/ir/asset/sustain-20190220Press.pdf
54
JRTT (2020) https://www.jrtt.go.jp/ir/bond/
55
Programmatic certification by the Climate Bonds Initiative for issuance after May 2019 (first in Asia) JRTT (2019) https://www.jrtt.go.jp/ir/asset/sustain-20190523Press.pdf
56
Obayashi Corporation (2019) https://www.obayashi.co.jp/sustainability/esg/sustainabilitybond.html
44
45
46

13

4. ESG initiatives by financial institutions in Japan

Table 4: Examples of green loans and sustainability linked loans issued in Japan (2018-2019)
Examples of green loans
Borrower

Loan amount

Use of Proceeds

Japan Excellent57

2 billion JPY

Allocated to funds for refinancing loans involving acquisition of DBJ Green
Building certification for Akasaka Innercity Air.

2 billion JPY

Allocated to funds for construction of chemical tankers using methanol as fuel.

9 billion JPY

Green syndicated loan. Allocated to scrubbers (apparatus used to comply
with strengthened regulations on sulfur content in marine fuel).

500 million JPY

Allotted to manufacture and development costs of new model main
components for hydrogen fuel cells.

Nippon Yusen

58

Enomoto Co.59

Examples of sustainability linked loans
Borrower

Loan amount

Sustainability performance target (SPT)60

50 billion JPY

SPT: Maintenance of high rank in CDP

Toyoda Gosei61

5 billion JPY

SPT: Reduction of CO₂ emitted in business activities and waste based on
output level

Nippon Yusen

Interview Highlights✓ The advantages of green bonds include the opportunity to publicise ESG initiatives and expansion of investor base
based on purchase by green investors. The disadvantages include issuance amount limitations based on the sizeof green assets and the burden of continuous information disclosure on the state of allotment and environmental
improvement impacts.
✓ The market for green bonds has grown to a certain size due to the availability of subsidies from the MOEJ, but thelack there of for social bonds make (social bond issuance) difficult.
✓ One of the advantages of green loans is their effectiveness in publicity for the business and the bank issuing the loan.
Remaining isssues includelimited usitlization by the conventional manufacturing sector, as use of proceeds remain
mainly for renewable energy and energy efficiency.
✓ Tied loans (use of proceeds designated loans) are only a portion of loans made by financial institutions. If corporateloans to companies active in environmental management or companies with high ESG ratings could be consideredadmissible assets, there would be increased opportunities for issuance. Moreover, the stricter the standards arefor impact assessment, or for what can be considered green and/or social, the higher the hurdle will become forcompanies to issue.
✓ Challenges and remaining issues include; improving the ESG literacy of individual sales representatives, pursuing ofadvantages for the borrower in the effort of expanding ESG loans, and achieving balance and consistency between
regulations in the more advanced European market and promotion measures for expansion of the nascent Japanesemarket (particularly in the context of the loan market).
✓ For ESG investment and financing in the future, "social" aspects, in addition to "green" aspects to date, will attract
more attention as demand by investors for funding with specified uses expands. Further, initiatives in which theusage of funds is not specified, such as sustainability linked loans, are attracting attention.
✓ For sustainability linked loans, there are limits to interest rate reduction in the low-interest rate environment for yen,and loans that consider ESG factors tend to require more work than regular loans on the part of both clients andbanks. Supporting measures are needed, especially in present conditions when the market is nacsent.

Japan Excellent (2019) https://www.nikkei.com/nkd/disclosure/tdnr/b9g7gm/
Nippon Yusen (2019) https://www.nyk.com/csr/envi/greenloans/
Enomoto Co. (2019) http://www.enomoto.co.jp/information/info20190930.pdf
60
Nippon Yusen (2019) https://www.nyk.com/csr/envi/sustainabilitylinkedloan/
61
Toyoda Gosei (2019) https://www.bk.mufg.jp/houjin/info/pdf/toyodagosei_sllp.pdf
57
58
59

14

4. ESG initiatives by financial institutions in Japan

4.3 ESG investment and financing
for achieving the SDGs
Following the above overview of ESG initiatives byJapanese financial institutions, this section will consider
ESG investment and financing that contributes to
the SDGs. The PRI has compiled a list of reasons for
institutional investors to engage in the SDGs (Table 5).
The list is written to show that consideration of the SDGs,
similar to consideration of ESG factors, makes sense fromthe perspective of ascertaining the risks and opportunities
of investments. However, "consideration" of the SDGsand "contribution" to the SDGs are two different things.
The former is a process and the latter is an outcome,and international trends in ESG investment and financing
are moving in the direction of the latter. Chapter 4 willconclude by raising three critical factors in making suchcontributions, from a standpoint suggesting investors andfinancial institutions should contribute to the objectives of
the SDGs and the Paris Agreement.

Table 5: R easons institutional investors should engage
in the SDGs according to the PRI
Reason 1

The SDGs are a globally agreed
sustainability framework

Reason 2

Macro risks: the SDGs are an unavoidable
consideration for "universal owners"

Reason 3

Macro opportunities: the SDGs will drive
global economic growth

Reason 4

Micro risks: the SDGs as a risk framework

Reason 5

Micro opportunities: the SDGs as acapital allocation guide
Source: PRI (2017) “The SDG Investment Case”(1) Promotion of non-financial information disclosure
Disclosure of non-financial information is an absolutely
essential prerequisite for engaging in ESG investment
and financing. Although progress has been made as aresult of various support measures by MOEJ and METI as
well as through companies becoming signatories to the
TCFD, many financial institutions are still facing issues
with regard to information disclosure. In a questionnaire
survey targeting asset management firms conducted in2019 by METI, the number one barrier to consideration of
ESG factors for asset management firms was found to be
insufficient information disclosure on ESG by businesses(95%). 62 While information disclosure is extremely
important and must be prioritised, it is also importantto remember that it is the content included in thisinformation that must be evaluated.
(2) Expansion of sustainable (green/social) financial products
The expansion of sustainable financial products is
welcome because it increases sustainable investment
options from the perspective of investors, and increases
financing options for sustainable projects from theperspective of businesses. The green bond market has
seen exceptional growth, both globally and in Japan, yet
only accounts for under 2% of the global bond market
as a whole (as of 2018), indciating further potential formarket growth.63
In recent years, an array of new financial products havebeen released. Still, a pathway to the continued expansionof the market must be established to ensure this trend
is not temporary. Caution should be exercised to avoid
the expansion of green financial products becoming an
objective in itself. For instance, priorities are reversed if
the definition of "green" is unnecessarily broadened inorder to expand the market. These financial products
must be examined in light of the primary objectives for
expanding the market.
(3) Consideration of impact assessment
According to GSIA statistics for 2018, impact investingaccounts for the smallest amount of the seven ESG
investing approaches. Likewise, impact investing is
not included as an independent item in JSIF's survey
on investment balances in Japan. Unified standards
for measuring impacts and evaluation methods arealso unestablished. However, in the context of the"greenwashing" and "SDG washing" concerns being raised,
the measuring of impacts and (ensuring) transparency
are becoming regarded as important, and investors andstakeholders requirements are expected to increase inthis regard in the future.
The PRI argues that responsible investment is shiftingfrom processes and ways of doing business to actual
impacts on societies and contributions to the SDGs, andthat investment decisions should be made adding impact
as a third factor, in addition to risk and return.64 Recent
initiatives include the UNDP's "SDG Impact" project, inwhich standards are being formulated to certify funds andprojects that contribute to the SDGs. These standards
are expected to be released in 2020.65 As discussed in
Chapter 3, UNEPFI has been examining how investors canmanage fiduciary duty and sustainability impact duties. If
legal hurdles can be cleared, impact investing is expected
to become more mainstream as (an investor) "duty".66
In the coming years, it will be critical to see if projects

Ministry of Economy, Trade and Industry (2019) "Questionnaire survey for asset management companies on ESG investing", https://www.meti.go.jp/
press/2019/12/20191224001/20191224001-1.pdf
Climate Bonds Initiative (2019) "Green Bonds: The State of the Market 2018" https://www.climatebonds.net/files/reports/cbi_gbm_final_032019_web.pdf
64
PRI (2017) "The SDG Investment Case", https://www.unpri.org/download?ac=5909
65
SDG Impact (2020) https://sdgimpact.undp.org/#who-we-are
66
UNEPFI (2019) https://www.unepfi.org/investment/legal-framework-for-impact/
62

63

15

4. ESG initiatives by financial institutions in Japan(labeled as) ESG or claiming to contribute to the SDGs,
actually are what they are and do what they claim todo. Although there are a wide range of interpretations of
the relationship between impact assessment and economic
returns on the part of investors, at present, the trend is to view

solutions to environmental and social challenges as investment
opportunities and in light of innovation. Expectations arehigh that impact assessment will be actively considered ininvestment and financing decision-making to contribute torealising the goals of the Paris Agreement and the SDGs.

Interview Highlights(1) On promoting non-financial information disclosure✓ Accurate ascertainment of the circumstances of the companies we invest in is a prerequisite for dialogue andengagement. Thus, increased disclosure of meaningful information by companies would lead to more in-depth
analysis and understanding.
✓ The TCFD is merely a framework, so we would like to see more ingenuity on the part of companies in the methods
and content of their information disclosure. While it is not necessary for disclosure to be uniform, it is important thatbest practices become more widespread.
✓ J ust as there are international standards for financial accounting, information disclosed would be easier tounderstand if based on set rules. We ask the companies we invest in to base disclosure on frameworks that havebecome global standards (e.g. GRI, SASB, TCFD). Moreover, it is not enough for only leading companies to promote
disclosure. Rules and/or regulations are need to assure a more comprehensive participation of the entire investment
universe.
✓ As investors, we view the EU taxonomy trend positively. However, from the standpoint of data providers, a lack ofrules allows room for originality. Thus, some may view uniform standards in a negative light.

16

5. Yearly Comparisons of Initiatives on the SDGs

This chapter will take a look at the questionnaire survey
targeting GCNJ member companies and organisations,in particular changes that have taken place compared
to last year and the year beforeas well as ESG initiatives
that are the focal point of this report. Further, trends
among companies with sales exceeding 100 billion JPY,
accounting for roughly two-thirds of total responses thisyear (122 responses), will be appropriately introduced.
Table 6 shows the number of responses and response
rates for each year. For new response options in question
items, distinctions are made by the number of asterisks (*)
placed next to the response (*one asterisk for 2016 new
response options, **two asterisks for 2017 new response
options, ***three asterisks for 2018 new response options,and ****four asterisks for 2019 new response options).

Table 6: Number of responses and response rate forquestionnaire survey
2015

2016

2017

2018

2019

Number of responses

134

147

163

180

186

Response rate

64.1％

63.1％

64.2％

62.7％

55.5％

5.1 Awareness on SDGs
This year showed another considerable increase inawareness on the SDGs among top management.
Specifically, awareness level rose from 59% the previous
year to 77%, equal to awareness level among CSR staff(Table 7). Moreover, growth was seen in awarenessamong middle management and employees, withawareness for middle management in particular increasingfrom 18% to 33%.
When companies with sales over 100 billion JPY areexamined alone, an even higher figure is indicated forawareness among top management and CSR staff, at 84%
and 86% respectively. Meanwhile, awareness among
middle management and employees is 28.7% and 14.8%
respectively, with figures falling lower than of those for total
responses. These results suggest that because the scale ofcompanies with sales exceeding 100 billion JPY is large, ittakes longer for awareness to spread through the company.
Activities taking place within companies to raise the levelof awareness also showed an increase for nearly all items,
revealing the diligent efforts of many companies (Table
8). Of these, items that showed growth of over 10%
compared to the previous year include employee training(including e-learning) (39 to 54%), communication on

17

website (44 to 56%), management training (24 to 35%),
inclusion in corporate charter/code of conduct (5 to 15%),and distribution of promotional items, like SDG badges, toemployees (27 to 45%).

Table 7: Level of awareness in organisations
Q. ‌Please select the applicable status of SDGs awareness in yourcompany/organisation (multiple responses)

2015 2016 2017 2018 2019
Well known by CSR division

61%

84%

86%

84%

77%

Well known by top
management

20%

28%

36%

59%

77%

Well known by middle
management

4%

5%

9%

18%

33%

Well known among
employees

―

―

8%

17%

21%

Well known acrossaffiliated companies
and other stakeholders

―

3%

2%

4%

7%

Do not know

15%

12%

7%

3%

2%

Table 8: Activities to raise awareness on SDGs
Q. ‌What activities are in place to raise awareness on the SDGs inyour company/organisation? (multiple responses)

2016 2017 2018 2019
Training (including e-learning)

24%

31%

39%

54%

Communication on website

24%

31%

44%

56%

Communication in company
newsletter (print media)

28%

40%

52%

61%

Message from the top

27%

40%

56%

65%

Launch of a specific organization

1%

2%

8%

13%

Orientation for new hires **

―

23%

36%

44%

Management training **

―

15%

24%

35%

Linked to performance reviews **

―

1%

2%

2%

Inclusion in corporate charter/
code of conduct **

―

4%

5%

15%

Mentions at management policy
explanatory meetings **

―

17%

32%

40%

Distribution of promotional items,
like SDG badges, to employees

―

―

27%

45%

Promotional posters, etc. ***

―

―

10%

14%

Other

20%

21%

24%

54%

Nothing in particular

31%

15%

4%

1%

5. Yearly Comparisons of Initiatives on the SDGs

5.2 State of initiatives on the SDGs
For the question concerning progress on the SDG
Compass, the most commonly referred to guidelines
for engaging in the SDGs, responses for Step 1,"Understanding the SDGs", and Step 2, "Defining
priorities", decreased (Step 1: 31 to 19%; Step 2: 28 to26%). Responses for Step 3, "Setting goals", and beyond
increased (Step 3: 17 to 26%; Step 4: 12 to 15%; Step 5:
12 to 14%) (Table 9).
For companies with sales exceeding 100 billion JPY,
10.7% remained on Step 1, while the other roughly 90%
of companies had entered the implementation stage ofengaging in the SDGs.
In a survey question for companies/organisations thatreported progress in the steps of the SDG Compass
compared to the previous year on the primary factors
behind progression, a major increase was seen in"increased public awareness" and "change in awarenessat the top", from 43 to 65% and 33 to 51% respectively.
The increase in "signature on UN Global Compact"
responses can be accounted for by a 36% response bycompanies/organisations with sales under 100 billion JPY,
among which group signatures have recently been on theincrease (Table 10).

Table 9: State of progress on SDG Compass
Q. ‌Which step indicates current progress on the “SDG Compass”?

2016 2017 2018 2019
Step 1
Understanding the SDGs

54%

43%

31%

19%

Step 2
Defining priorities

22%

28%

28%

Step 3
Setting goals

11%

13%

Step 4Integrating

9%

Step 5
Reporting and communicating

4%

Table 10: Factor behind progression of SDGs initiatives
Q. What‌was the primary factor behind progression of initiatives?
(For 161 companies/organisations which reported progress inthe steps of the SDG Compass compared to the previous year)(multiple responses)

2017 2018 2019
Increased public awareness

37%

43%

65%

Improved information transmission
from the UN Global Compact

13%

11%

13%

Change in awareness at the top

21%

33%

51%

Heightened activities of CSR division

36%

35%

39%

Actualisation of business
opportunities

12%

11%

19%

Signature on UN Global Compact

9%

9%

16%

Other (please specify)

6%

7%

6%

Do not know

2%

1%

0%

Continuing from the previous year, companies/
organisations selecting CSR staff in response to thequestion on the main actors in SDGs promotional activities
fell in number (71 to 60%) (Table 11). On the other hand,increases were apparent for CEO, board of directors,
management executive committee and management andplanning division (CEO: 14 to 19%; board of directors:
6 to 9%; management executive committee: 6 to 16%;
management and planning division: 25 to 38%).

Table 11: Main actors in SDGs promotional activities
Q. ‌Who are the main actors in SDGs promotional activities withinyour company/organisation (multiple responses)

2016 2017 2018 2019
CEO**

―

8%

14%

19%

26%

Board of directors

2%

5%

6%

9%

17%

26%

Management executive
committee

4%

8%

6%

16%

8%

12%

15%

Management and planning
division**

―

17%

25%

38%

8%

12%

14%

CSR division

68%

77%

71%

60%

IR division**

―

7%

5%

12%

New business development**

―

2%

6%

6%

Business division

7%

6%

12%

13%

Cross-cutting projects**

―

7%

9%

8%

General affairs division****

―

―

―

2%

Legal division****

―

―

―

22%

PR division****

―

―

―

15%

Nothing in particular

12%

7%

15%

Others

7%

12%

3%

18

5. Yearly Comparisons of Initiatives on the SDGs

In a question on SDG-related partnerships over the past
year, responses increased for partnerships with almost all
stakeholder groups (Table 12). In particular, partnerships
with employees (59 to 71%), customers (36 to 47%),
suppliers (46 to 55%), shareholders/investors (27 to 33%)
and local governments (37 to 45%) showed considerable
growth.
Partnerships with local governments can be attributed tothe progression of initiatives at the local level, such as the
SDGs Future City initiative, and agreements between local
governments and companies. Meanwhile, partnerships
with consumers have stagnated. Changes in this area, in
expectation of trends in ethical consumption, remain anissue to be addressed going forward.
For companies with sales over 100 billion JPY,
partnerships with shareholders/investors rose to 45.1%,
the only figure that exceeded those for total responses bymore than 10%.67
Further, in a question on information released or disclosed
in the past year in which the SDGs are included, in
continuation from last year, increases were observed in all
main options. In particular, the responses "message fromthe top recognising issue", "reflection on priority issues/policies" and "declaration of SDG goals of focus" eachshowed a 10% increase (Table 13).

Table 12: Partnership in the past year
Q. ‌In the past year, what stakeholder groups have you partneredwith related to the SDGs? (multiple responses)

2016 2017 2018 2019

67

19

Table13: Inclusion of SDGs in information disclosure
Q. Of‌ information released/disclosed over the past year by yourcompany/organisation (including reports and online sources),
how was SDGs-related information included? (multiple responses)

2017 2018 2019
Expression of issue recognition by leaders

44%

62%

72%

Reflection on priority issues and policies

35%

51%

61%

Mapping of CSR activities

33%

57%

53%

Declaration of SDGs goal of focus

18%

27%

37%

Connections to business

28%

53%

60%

Announcement of launch of new project

5%

8%

10%

Other (please specify)

9%

6%

3%

No information included

28%

11%

8%

5.3 Future initiatives on the SDGs
In a question on plans for future initiatives, responses for"reflect on company's priority CSR issues" decreased forthe third consecutive year, while those selecting "reflect oncompany's strategy and management plan" increased forthe third consecutive year, in a turnabout for two options(Table 14). Responses for "discuss system/indicator forevaluation", "launch new project to contribute to SDGs"and "strengthen external collaboration and partnerships"
also showed increases for the third consecutive year.

Table14: Future initiatives on the SDGs
Q. ‌Q. What are your plans for future initiatives on the SDGs?
(multiple responses)

Employees

53%

54%

59%

71%

Customers

36%

34%

36%

47%

Consumers

16%

18%

17%

17%

No particular plans to make changes
to current situation

9%

7%

10%

Suppliers

35%

38%

46%

55%

Launch of a specific organisation

1%

3%

3%

Shareholders/investors

15%

21%

27%

33%

10%

18%

22%

Government/governmentalorganisations

Launch new project to contribute to
the SDGs

30%

26%

34%

37%

4%

9%

9%

(Domestic) Local governments**

―

26%

37%

45%

Philanthropic activities related to the
SDGs (donations, etc.)

Foreign governments/local
governments/governmentalorganisations

Reflect on company’s priority CSR issues

63%

58%

47%

18%

20%

24%

21%

Reflect on company’s strategy andmanagement plan

48%

59%

68%

UN/international organisations

27%

26%

32%

30%

34%

46%

49%

NGOs/NPOs

45%

42%

52%

47%

Strengthen external collaborationand partnerships

Academia

22%

23%

29%

31%

Enhanced internal promotional
activities

63%

69%

69%

Other (please specify)

7%

5%

6%

9%

Nothing in particular

24%

23%

14%

6%

Discuss system/indicator forevaluation

18%

25%

31%

Other (please specify)

3%

3%

3%

Do not know

3%

3%

1%

2017 2018 2019 oreover, in a question asking about key partners, responses for "shareholders/investors" were 48% of total responses for companies/organisations. In
M
contrast, this figure was 59% for companies with sales exceeding 100 billion JPY, a difference of over 10%.

5. Yearly Comparisons of Initiatives on the SDGs

Table 16: State of initiatives in engagement

5.4 ESG-related initiatives
Several questions on ESG, this year's topic, were also
included in the survey questionnaire. A look at the results,
separating companies with sales exceeding 100 billion JPY
and companies with sales under 100 billion JPY, follows(Tables 15 to 19).
First, we will have a look at companies with sales
exceeding 100 billion JPY. In a question on the priority
level of ESG initiatives, over half selected "making a major
priority", and when combined with "making a priority tosome degree" responses, this figure rises to 92%. Thisshows that major corporations today recognise that
ESG compliance is essential. 68 Concerning the details
of initiatives, when responses for "actively engaged"
and "somewhat engaged" are combined, roughly 80%
of companies, or more, were engaged in or responding
to engagement, risk analysis and understanding of ESG
issues, strategy revision and information disclosure. Of
these, active engagement was highest for information
disclosure (44%), followed by strategy revision (30%) andengagement (37%), with a 10% gap.
For companies with sales under 100 billion JPY, responses
on ESG initiatives for "making a major priority" were19%, but when combined with "making a priority tosome degree" rose to roughly 60%. When looking at the
breakdown of types of initiatives, only 37% of companies
are carrying out information disclosure, while roughly
50% have initiatives in engagement and strategy revision.
A likely explanation of the low value for information
disclosure is a number of companies/organisations thatfeel ESG initiatives are unnecessary because they are
unlisted, or have no excess capacity to dedicate to them.
Meanwhile, for the other three types of ESG initiatives,a certain level of implementation can be credited
to overlapping as initiatives in sustainable business
management.

Q.P lease answer the following on the state of ESG initiatives
in your company/organisation from the four options.
(1. Actively engaged, 2. Somewhat engaged, 3. Not very
engaged, 4. Not engaged)* Question and response options below are the same throughTable 19.
〇Engagement (e.g. dialogue with investors, dialogue with
community members, dialogue with experts)

１

2

3

4

Under 100 billion JPY (n=53)

9%

40%

32%

19%

Over 100 billion JPY (n=122)

37%

50%

13%

0%

Table 17: State of initiatives on risk analysis andunderstanding of ESG issues〇Risk analysis and understanding of ESG issues (e.g. reexaminationof supply chain, analysis and understanding of climate risks,
governance system)

１

2

3

4

Under 100 billion JPY (n=53)

6%

36%

42%

17%

Over 100 billion JPY (n=122)

35%

45%

18%

2%

Table 18: State of initiatives on strategy revision〇Strategy revision (e.g. creation/revision of long-term goals,
revision of business portfolio, reorganisation/restructuring)

１

2

3

4

Under 100 billion JPY (n=53)

11%

42%

30%

17%

Over 100 billion JPY (n=122)

30%

48%

19%

3%

Table 19: State of initiatives on information disclosure〇Information disclosure (e.g. compliance with CDP and TCFD,
revision of contents disclosed and disclosure method, responseto rating institutions)

１

2

3

4

Under 100 billion JPY (n=53)

9%

28%

26%

36%

Over 100 billion JPY (n=122)

44%

39%

15%

2%

Table 15: Priority level of ESG initiatives
Q. ‌What level of priority does your company/organisation placeon ESG initiatives? Please select one of the four options.
(1. Making a major priority, 2. Making a priority to somedegree, 3. Not much of a priority, 4. Not a priority) (required)

１

2

3

4

Under 100 billion JPY (n=53)

19%

42%

26%

13%

Over 100 billion JPY (n=122)

56%

36%

7%

1%

68

In addition, the question "How do you perceive/define
the relationship between the SDGs and the promotion of
ESG initiatives?" was asked with a free response option.
Accordingly, diverse views were expressed on both the
ESG and the SDGs, as well as on the relationship between
the two. Responses seem to suggest that connections
between initiatives on ESG and the SDGs are not wellmade within companies. A portion of these responses areshown below.

This question refers to ESG initiatives in a broad sense.

20

5. Yearly Comparisons of Initiatives on the SDGs

Free responses to questionnaire (excerpts)
・We understand ESG to be concrete actions towards
achieving the SDGs.
・W e have defined the correlation between ourcompany's materialities on ESG and the SDGs
referring to the SDG Compass.
・T he SDGs are goals for contributing to society
through business, while ESG is foundational strength
or the base of business activities.
・As shown in the GPIF approach, ESG is a framework
for investors to evaluate the content of initiatives on
the SDGs, and this is how we define these terms.
・W e recognise that initiatives geared towardachieving the SDGs themselves are strongly
connected to ESG initiatives. Moreover, we strongly
dissent with the view that ESG is merely a way of
dealing with investors and that emphasis shouldbe placed on information disclosure. The business
we practice is the prerequisite of the content of
information we disclose, and therefore they musttake place in conjunction.

21

5.5 Summary of survey results
The above discussion of survey results has examined
yearly changes in the SDG-related initiatives of GCNJ
member companies/organisations, and the state ofinitiatives related to ESG. The major changes seen thisyear include, more than anything, the awareness level of
top management reaching the level of staff in charge ofthese issues. Likewise, more companies now consider
the SDGs to be a genuine management issue. If thesedevelopments begin to reinforce each other, they could
serve as a boost to initiatives on the SDGs, including
raising awareness within companies and information
disclosure. As discussed in the following chapter,companies with sales over 100 billion JPY are recognised
as important partners, particularly by shareholders andinvestors, and have become the drivers of SDG-related
initiatives.
As initiatives in the SDGs are advanced, evaluation ofprogress and establishment of indicators have becomepressing issues. For finance as well, deliberation on theseissues will need to ensure that SDG-related initiatives
are appropriately evaluated in the context of ESG. Thisis particularly key for companies to maintain harmony
between initiatives in the SDGs and ESG.

6. Initiatives on ESG and the SDGs by Companies in JapanAs discussed in the previous chapter, the ESG initiativesof companies in some cases refer only to responding
to inquiries from investors and rating institutions, suchas information disclosure, responses to surveys andengagement. In other cases, ESG initiatives include
carrying out reforms to make business management
more sustainable, such as the formulation of long-termgoals and the creation of systems for concrete activities
to contribute to the SDGs and the Paris Agreement. This
report refers to the former as "ESG initiatives (narrowinterpretation)" and initiatives that include both the former
and latter as "ESG initiatives (broad interpretation) (Figure5).
Depending on the company, ESG initiatives in the broad
sense are called CSR management, CSV management,
SDGs management, ESG management and so on. In thisreport, these are referred to collectively as "sustainability
management". Aspects of the broad interpretation of ESG
initiatives (corresponding to sustainability management),
excluding those in the narrow interpretation, were also
examined in the previous year's reports and can serve asa reference.69
This chapter will first discuss the views and awarenessof companies on ESG/SDGs/CSR. Next, we will examine
the current state of affairs and introduce the results ofinterviews concerning long-term goal setting, strategies
and company-wide awareness rasing, and building
structures for carrying out initiatives, viewed as essential
to ESG initiatives in a broad sense (corresponding tosustainability management). Lastly, we will examine
the current state of affairs and introduce the results ofinterviews concerning information disclosure, engagement
and financing for sustainable projects as aspects of ESG
initiatives in a narrow sense.

ESG initiatives(narrow interpretation)

・Information disclosure
・Engagement
・Sustainable ﬁnancing

ESG initiatives(broad interpretation,corresponding tosustainability management)・Long-term goal setting
・Strategies andcompany-wide awareness raising
・Building structures for initiatives
・Implementation of projects
・Promotion of diversity management
・Measurement and evaluationof initiative results

Figure 5: Broad and narrow interpretations of ESG
initiatives

6.1 Approaches to ESG, theSDGs and CSR
Terms such as the SDGs, ESG and CSR are interpreted
and used in a variety of ways depending on what points
companies want to emphasise and the audiences
they target. 70 These differences are also expressed inmanagement policies, the set-up of departments andpositions in charge of these issues, and in the naming of
relevant reports.
Nevertheless, a commonality can be seen in companies
engaging with the SDGs and ESG issues. These companies
recognize the risks (physical, legal and reputational) andopportunities which can be identified within the issues
as presented by the SDGs and or ESG factors (can) havea definitive impact on (future) business operations andperformance. With such recognition, these companies aim
to contribute to realizing sustainable societies throughenhancing and preventing the erosion of corporate value.
In addition, the SDGs are utilised as a communication
tool when engaging with customers, employees and othercompanies, and companies are making efforts to raise
their ESG ratings.

In particular, the "SDGs and Business for the Future" report from year before last examined the following six areas for establishing the perspectives of theSDGs and sustainability in business management: (1) Philosophy (corporate philosophy and vision); (2) Leadership; (3) Strategy (medium and long-term
management plan and goal setting); Structure (CSR division and executive committee); (5) System; and (6) People (understanding of middle management
and business units). These areas are highly compatible with areas examined in this report.
70
In general, ESG is the perspective from which financial institutions and investors are evaluating companies and CSR is corporate responsibility to society,while CSV refers to the co-creation of economic value and social value based on providing solutions to social problems via business activities. The SDGs
are global goals to be achieved based on the efforts of all stakeholders.
69

22

6. Initiatives on ESG and the SDGs by Companies in Japan

Interview Highlights✓ ESG and the SDGs represent the demands of society to which businesses must respond, and this response is linked
to decreasing future risks as well as enhancing corporate value. The SDGs have helped our company make course
corrections by becoming of aware issues faced and reconfirming our policies.
✓ We end up engaging in SDG washing because we do not truly understand the value of the SDGs.
✓ ESG is a yardstick by which investors assess corporate value, and the SDGs are a tool for visualising the social
significance of a company's business activities. Many aspects of both are overlapping, and promoting initiatives in the
SDGs is linked to improved ESG ratings.

6.2 ESG initiatives in the broadinterpretation (corresponding
to sustainability management
initiatives)(1) Long-term goal setting
As mentioned in Chapter 2, the report on global risks
released annually in conjunction with the World Economic
Forum indicates that awareness of environmental risks has
increased. Japanese companies are particularly cognisantof climate change, and actions on long-term goal setting
towards achieving decarbonisation have become more
dynamic. These include participation in international
initiatives like SBT and RE100. In Japan as well, theJapan Business Federation has called upon companies/
organisations to formulate long-term visions and launched
the Challenge Zero concept.71
Initiatives such as these correspond to the outsidein approach of the SDG Compass and are headed in agood direction. Yet, the number of Japanese companies
whose long-term visions are limited to qualitativedescriptions like slogans are not few. Meanwhile, actions
within international initiatives such as SBT and RE100
require scenario analysis and creation of roadmaps,
making companies indicate more concrete attainment
goals and forecasts on how to achieve them. Although
long-term goals are often said that it should be theideal or outcome to be aimed for, rather than mustachieve targets, the indication of outlooks that meetthe standards of international initiatives are evaluatedhigher and more trustworthy from an ESG perspective.
Companies that cooperated in interviews also noted theopinion that, aside from evaluation, long-term goal setting
led to changes in awareness on job sites and expanded
networks.
SBT is often given as a representative example of theoutside-in approach. There has been a movement inrecent years to expand science-based target setting toother areas such as water, biodiversity, land and oceans,
not only reduction of greenhouse gases. This movement is

led by the Science Based Targets Network in which over
20 organisations participate, including CDP, UN Global
Compact, SDSN, Future Earth, World Resources Institute,WWF and WBCSD. A guide has already been releasedon water.72 Moreover, the Future-Fit Business Benchmark,also listed as an example of the outside-in approach in the
SDG Compass, is used in the e-learning course “Academy”
and also mentioned in other reports by the UN Global
Compact. The number of companies utilising this tool is
gradually increasing (Column 2).
The SDGs are global goals formulated based on anawareness of planetary boundaries, as well as poverty
and human rights issues. SBT and Future-Fit demonstrate
methods for business management and goal setting
premised on not exceeding these planetary boundaries.
Going forward, the call for companies to engage in
ambitious science-based responses is expected to
become even greater.
(2) Strategies and awareness raising
In order to achieve long-term goals, companies will
be required to review business portfolios, identify
materialities, set KPIs, make structural adjustments
for implementation, promote understanding among
employees and strengthen relationships with suppliers
and stakeholders.
Interviews revealed that in the process of formulating
mid-term management plans and action plans, many
companies carried out backcasting from their ideal future
image to deliberate on what to do over five- or tenyear periods. As a part of this process, companies weresetting up forums to collect opinions from employees
and managers with a view to identify materialities andset KPIs that incorporate a bottom-up perspective as wellas ensure awareness raising among middle management
and employees whose low level of awareness has been
an issue. Companies engaged mainly in business in Japan,
while premising initiatives on the goals and plans of
the Japanese government and local governments, wereconcerned about how far they should go in setting KPIs
that took future overseas expansion into consideration.
Business-to-customer (B2C) companies were working to or example, 794 companies around the world, including 86 Japanese companies, have declared they will take action in the SBT initiative (as of FebruaryF2020). Further, 97 companies/organisations have formulated and released long-term visions in response to the Japan Business Federation's call, and 166
companies/organisations have begun deliberations (as of the end of December 2019).
72
For details, see the Science Based Targets Network website (http://sciencebasedtargetsnetwork.org/).
71

23

6. Initiatives on ESG and the SDGs by Companies in Japan

spread awareness internally based on a strong recognitionof the risk of being unable to change and survive as acompany without each and every individual on the jobtaking action, while as a matter of course deliberating on
strategies that factored in consumers in Europe, North
America and Asia. Business-to-business (B2B) companies
also sensed the risk of not being able to bring in young
human resources without contributing to sustainability. For
these reasons, several companies were holding trainings
at the division manager/director level.
(3) Building structures for initiatives
When it comes to building structures for initiatives,attention is usually called to the election andcompensation system of board members in the context of
ESG evaluation, but the responsible departments play animportant role in carrying out the ESG initiatives.
The survey results discussed in Chapter 5 show a trend tointegrate sustainability initiatives into management, andin some cases responsibility for the SDGs is being shiftedto corporate planning. For example, some companies
are not only formulating visions and ESG strategies,
but have also set up departments to take charge ofsustainability issues to ensure these visions and strategies
are practiced. Furthermore, in some cases companies are
establishing top decision-making bodies on sustainability
management operating under the board of directors tofacilitate decision-making at the management level, withcommittees set up subordinate to these bodies comprisedof staff in charge of sustainability to manage progress on
initiatives.
However, this is not to say that all companies shouldallocate responsibility for the SDGs to the corporate
management department. Certainly, there are avariety of structures that can be set up according to
the characteristics of the industry and the respective
strategies and situations of companies. Companies may
indeed opt to place emphasis on the true meaning of CSR
and not make any quick decisions on changing the nameof departments. In any case, changing department names
in order to not fall behind recent trends could potentiallylead to a misinterpretation of the substance of the SDGs
and ESG.
There are a variety of operating procedures available otherthan setting up special departments. These include thefacilitation of decision-making and integrating perspectives
based on review of directors in charge, electing externalboard members well versed in sustainability issues,and facilitating communication based on reduction of
the physical distance between relevant departments.
Regardless of the adopted approach, structuring must be
firmly based in a company's objectives.

Column 2: A KPI tool to measure progress on initiatives in ESG and the SDGs
Future-Fit Business Benchmark
The Future-Fit Business Benchmark (latest version: Release 2.1) is a tool developed by the UKbased Future-Fit Foundation following multi-year discussions with scientists, private business andinvestors aimed at enabling individual businesses to practice the four principles of sustainability73
advocated by The Natural Step, an international NGO. Internationally, leading companies in ESG
and the SDGs, such as Maersk, a marine shipping company aiming to achieve carbon zero by 20352040, as well as The Body Shop, Novo Nordisk and Hermes, an investment company, are utilising
this tool.
The Future-Fit Business Benchmark, also discussed in the SDG Compass, lays down sets of imperative goals that were
determined through backcasting from the ideal nature of a company in an ideal sustainable society of the future basedon the natural and social sciences. The most remarkable feature of the Future-Fit Business Benchmark is the KPI tool,
which is not based on comparisons with current best practices or other companies in the same industry, rather elicits
actions required to ensure the sustainability of the planet and human beings. Moreover, because the tool can be usedby any company to set social and environmental commitments and monitor progress, it does allow for comparison
among businesses on progress. Of course, it also enables a company to compare its state of progress with its own
previous situation. The tool is not only geared to the SDGs, but is useful for ESG as well, including TCFD reporting.
The Future-Fit Business Benchmark is based on the view that the existence of a company must first and foremost wield
no negative impacts on humanity or the planet in order to realise an ideal future. To do so, all companies, regardlessof industry or product, are required to at the very least take action on 23 Break-Even Goals in the following four
categories: "foster wellbeing", "respect nature", "optimise resources" and "strengthen society". The term "break-even"does not refer to goals in an economic sense, rather the threshold of businesses' social and environmental performance.
The benchmark also indicates 24 "Positive Pursuits". These include actions that support the achievement of Break-Even73

 he four principles of sustainability are: (1) nature is not subject to increasing concentrations of substances extracted from the earth's crust; (2) nature isT
not subject to increasing concentrations of substances produced by society; (3) nature is not subject to degradation by physical means; and (4) in society
there are no structural obstacles to people’s needs being met (specifically regarding health, influence, competence, impartiality and meaning) (see https://www.bcon.jp/keywords/4rule/).

24

6. Initiatives on ESG and the SDGs by Companies in Japan

Goals on the part of other companies. The benchmark contends that positive impacts rarely offset negative ones, anddoes not recommend implementing Positive Pursuits alone. Accordingly, companies are to prioritise taking action on the
23 Break-Even Goals.
Each Break-Even Goal has one or more indicators, with level of attainment calculated as a percentage. For instance, forthe goal "energy is from renewable sources", the "energy consumption from renewable sources (ER)" out of "total energy
consumption during reporting period (ET)" is calculated as a percentage (ER/ET).
To promote use by as many companies and investors as possible, Future-Fit is available free of charge. In Japan,
Business Consultants, Inc., has released a translated version online and offers a consulting service to help businesses
make use of the tool.
English URL: https://futurefitbusiness.org/resources/
Japanese URL: https://www.bcon.jp/news/topics_news/future-fit/

Interview Highlights(1) On long-term goal setting✓ The influence on our group of announcing SBT certification has been highly significant. We felt positive developments
in initiatives including formulation of plans conscious of SBT.
✓ Long-term goals are absolutely necessary for ESG investing, and short-term action plans, scenarios and concreteplans must be used to explain what will be done in the next five years.
✓ Short-term profits are looked at when creating medium-term plans, but it is more convincing to explain earningthese profits from the perspective of backcasting. Forecasting of short-term profit and loss alone does not lead toconstructive debate.
(2) On strategies and awareness raising✓ Our basic position is that trade-offs cannot be made on laws and compliance.
✓ Our initiatives in environmental protection and human rights have progressed in recent years by engaging together
with relevant internal departments based on an understanding of the demands of ESG.
✓ We have nearly 10,000 companies in our supply chain. We are engaged in earnest deliberations on how to create
relationships based on mutual prosperity. Further, we are strongly conscious of Generation Z whose members will
become our main consumers after 2030.
✓ At present, we need to determine our KPIs focused on domestic business. We are experiencing a dilemma on how
to include the overseas business that we intend to focus on in the future.
✓ A working group made up of 120 volunteer employees recruited group-wide deliberated on actions to be taken toachieve "our ideal for 2030" using backcasting and made recommendations for an action plan.
✓ We have spent two years conducting training for division managers and directors who are in a position to takeaction based on long-term plans. If we wait ten years to start thinking about these issues, it will be too late.
(3) On building structures for initiatives✓ In order to promote initiatives from a more organisational approach, we transferred responsibility for sustainability
issues from our general affairs and human resources divisions to a specialised department.
✓ We previously had a separate corporate planning office, CSR office and environmental division. We set up a groupmanagement strategy office comprised of departments in charge of ESG, business operations, corporate planningand innovation. One person serves as both head of office and director, thereby facilitating communication between
departments. The name of our CSR committee, also administered within this office, was left unchanged to continue
to address the issue of social contribution.
✓ Our environmental management committee was expanded and reorganised into an EHS management committee.
The committee's office, previously administered by our CSR division, is now administered jointly by the CSR andhuman resources divisions. In 2017, we defined our policy on global health initiatives in our mid-term management
plan and launched a global health team in our CSR division to carry out more unified projects on global health.
✓ We have a sustainability division (combined with ESG promotion division), IR division and public relations office. The
sustainability division began as our CSR promotion division and was later reorganised. Our IR division was formerly
part of the finance division, but was set up as an independent division based on advice from investors.

25

6. Initiatives on ESG and the SDGs by Companies in Japan

6.3 ESG initiatives in the narrowinterpretation(1) Information disclosure, engagement
It goes without saying that information disclosure andengagement are essential to ESG initiatives in the narrow
sense of the term. Similar to building structures for
initiatives, the media used for and the objectives of ESG
information disclosure vary by company (Table 20). 74
Although there has been a rapid increase in the last few
years in the number of companies issuing integrated
reports75, still other companies do not see an issue with
not issuing integrated reports. In addition to integrated
reports and databooks, some companies have issued
reports on individual issues, such as health-oriented
or diversity management, and others have released
information separately, for instance on factories, in order
to be prepared for inquiries from the media.

Table 20: Instruments and main objectives for
information disclosure
CompanyA

Integrated report (financial and non-financial
information pertaining to management
strategy), SDGs databook (comprehensive
information on ESG and the SDGs), SDGs
booklet (digest version of databook)

Company
B

Website (detailed information), sustainability
report (abridged for diverse stakeholders),
databook (for investors)

CompanyC

Integrated report (for investors), website(detailed information, ESG data), environment
databook (information from integrated reportand environmental data of website andsupporting information)

CompanyD

Integrated*ヒアリング結果や各社公開資料をもとに著者作成
report, vision book, co-creationwellness report, ESG databook, website

As noted in Chapter 3, although the various tools for
information disclosure, such as GRI, SASB and TCFD,
can be confusing, companies were using different tools
for different purposes according to the recipient andobjective of the information. Of companies subject tointerviews, none mentioned any confusion (although thecomplexity was noted).76 Furthermore, companies noted

difficulties early on reading into the intent of questions andinformation collection on the surveys of rating companies,
but reported that their understanding deepened the as
they repeated the process. While some companies did
mention some within the company responded negatively
or with discontent to information disclosure and or to theadditional burden of data collection, they did note that
understanding on disclosure improved when high ratings
were achieved, and that they were working to further
understanding and to promote internal cooperation. On
the subject of engagement, in some instances, companies
were favorably inclined to accept advice from investors
and were applying it to improving their initiatives.
There are many technical aspects to information
disclosure, requiring a sizeable effort to obtain high
ESG ratings. Every year, GPIF, WICI Japan, MOEJ and
Nikkei announce award-winning and highly-rated
reports. Moreover, the Institutional Investors Collective
Engagement Forum sends out letters that explain themindset of investors on agendas set by ultra long-term
investors and include concrete requests for companies.77
The quality of reports issued by companies is expected
to improve as they refer to the content of such featured
reports and the opinions of investors and experts on theseawards, ratings and requests.78
Meanwhile, investors and rating agencies also face many
issues in relation to corporate information disclosure andengagement. Examples given in interviews include a lackof understanding of industry and business models, unclear
logic for and definitions of impacts, and work burdens.
Companies and investors/rating agencies should work
together to deepen mutual understanding and make
improvements on these issues.
(2) Financing for sustainable projects
As discussed in Chapters 3 and 4, ESG initiatives in theform of financing with green and sustainability bonds
has been steadily growing. As financing based on suchbonds includes the burden of external review costs, somecompanies felt they were not realistic without subsidies.
Meanwhile, some companies expressed their intent toimplement initiatives even without subsidies in order tobroaden the range of their financing and investor base, orto demonstrate their management stance on sustainability
issues both externally and within their companies.

For example, Disclosure & IR Research Institute Ltd. explains that roughly 30% of companies release an integrated report alongside their CSR reports,
which are used for investors and stakeholders in a broad sense respectively. https://rid.takara-printing.jp/res/report/uploads/2019/02/190220_reportcsr_report.pdf
75Although there are various points of view on what should be deemed an integrated report, the Corporate Value Reporting Lab reports that only 16
companies issued integrated reports in 2009, with this number rising to 513 in 2019. http://cvrl-net.com/archive/pdf/list2019_202002.pdf
76
GPIF has released a report on the significance of each tool. For details, see "Study of ESG Information Disclosure", https://www.gpif.go.jp/investment/
research_2019_full.pdf
77Institutional Investors Collective Engagement Forum website, https://www.iicef.jp/
78
GPIF (2019) https://www.gpif.go.jp/investment/20200207_integration_report.pdf
WICI Japan (2019) https://www.wici-global.com/wp-content/uploads/2019/11/201911074789289.pdf
MOEJ https://www.env.go.jp/policy/j-hiroba/report.html
Nikkei https://adnet.nikkei.co.jp/a/ara/index.html
74 

26

6. Initiatives on ESG and the SDGs by Companies in Japan

Interview Highlights(1) On information disclosure and engagement✓ Investors these days work hard to engage in communication. They ask questions about a wide range of issues andgive advice, for which we are extremely grateful.
✓ We have been putting a lot of effort into engagement. By ardently engaging in dialogue with rating agencies andinvestors, we have developed an understanding of the questions they ask. As a result, we have seen improvements
in areas where our responses were insufficient and scores were low.
✓ The range of ESG-related topics is extremely broad, and areas of interest are varied according to the rating agency
or person in charge. Determining what areas of focus are effective for disclosure is difficult.
✓ The impact of ESG evaluation on stock prices should be made clearer. We have problems with the burden of theenormous amount of survey responses and some questions are undefined. When information disclosure is requested
on new topics with a certain amount of freedom in interpretation, sufficient guidelines should be provided.
✓ Content requested differs by investor and rating agency. In some cases, points are made from a 180-degree
difference in perspective.
✓ When management is committed, or a company is selected for DJSI, employees know about it. On top of that, if
issues involving the entire supply chain, such as human rights, are also communicated, understanding is deepened.
The values and passion of separate divisions is important.
(2) On sustainable financing✓ We practice ESG management. In our financial affairs, we intend to expand the range of fundraising and investors.
We heard from a securities company we commission that more investors are raising their hands for us than before.
For investers as well, awareness of sustainability and the SDGs makes it easier to invest.
✓ I once heard a negative comment on social bonds from someone in a financial institution. Our view of social bonds
is that the returns are small in contrast to the work they require, and we feel it is still too early for our company tostart utilising them. When we estimate the workload required to collect and provide environmental information,
there are not enough benefits of appealing by this kind of bonds.

6.4 ESG initiatives for the SDGs
The discussions in this chapter were based on interview
results focused on companies actively addressing theSDGs, particularly those engaged in information disclosurethat has been rated highly on a global scale, including
selection for DJSI. Most had not only set long-term goals,
but had also committed to TCFD and set targets basedon SBT at an early stage, and were making efforts toindicate pathways consistent with scientific information.
These companies are creating a cycle for skillful utilisationof information disclosure and engagement leading to
improved sustainability management in their companies,
and they are striving to strengthen ties between business
units and employees or between suppliers and consumers
within these processes. Nevertheless, these companies
mentioned a range of issues faced as they grappled toadvance initiatives, as well as the huge burden involved incarrying out ESG initiatives, whether in the broad or the
narrow sense.
As initiatives by companies in ESG and the SDGs
overlap in many areas, this chapter does not make aclear distinction between the two. However, there issome value in stopping to take a look at the targets of
information disclosure. For information disclosure in ESG

investing, companies are required to provide information
requested by investors and information that will assist
investors in investment decision-making. Specifically,
companies must convincingly demonstrate the role of ESG
and SDG elements in enhancing medium- to long-term
corporate value, how these impact the sustainability ofcorporate business models and the feasibility of strategies,
or how they can be translated into a competitive edge.
On the other hand, the SDGs are relevant to business
management in its entirety. While they may not necessarily
appear attractive from an investment perspective, theSDGs represent the vital role companies play, and must
play, a role that is essential for the sustainability of theenvironment and society, including from the perspectivesof employees and local communities. Generally, SASB,IIRC and METI's Guidance for Collaborative Creation are
geared to investors, while GRI is considered a framework
for information disclosure geared to a broader range of.
In Japan, some studies have shown that multistakeholderoriented information disclosure is more common, andsufficient information is not provided from an investor
79
perspective. Companies must engage in thoroughdeliberations to determine what type of information they
will disclose, for what purpose, and by what method.
Aside from climate change and human rights issues,
the public's interest is also expanding, including factory

Examples include the "2018 Integrated Report: Materiality" by Edge International (http://www.edge-intl.co.jp/library/s2019_17.html), and "Initiatives
in 'stock market revitalisation' and 'realising sustainable societies' through the asset management of life insurance companies" by The Life Insurance
Association of Japan (https://www.seiho.or.jp/info/news/2019/20190419_3.html).

79 

27

6. Initiatives on ESG and the SDGs by Companies in Japanfarming issues and methods of producing down feather,used as material in down jackets, with minimal animal
suffering. Topics of interest to stakeholders, including
investors, are constantly changing, making it essential forcompanies to remain alert to information both in Japanand coming from around the world.

80

Lastly, another issue raised in interviews that was notaddressed in this chapter is the lack of progress on ESG
investing in corporate pension funds. It is our hope that
corporate pension funds, as asset owners, will more
actively promote ESG initiatives alongside GPIF, to keep
pace with ESG initiatives and contributions to SDGs being
advanced by the companies themselves.80

 lthough 23% of corporate pension funds showed a willingness to engage in ESG investing, only 5% actually are. (Nikkei "Study shows 20% of corporateApension funds 'willing to engage in ESG investing'" (https://www.nikkei.com/article/DGXMZO36473540U8A011C1NN1000/).

28

7. Conclusion

In the final chapter, we will take a look at how financial
institutions and companies can strengthen their ESG and
SDGs efforts to achieve the SDGs by 2030 and realisesustainable societies in the future. The expected future
trends including the perspectives of governments andconsumers will be discussed.
Maintaining a prudent sense of crisis based on science
The starting point must be an awareness of the criticalsituation the world is in today. Chapter 2 discussed
worsening environmental challenges such as those ofclimate change and biodiversity, and growing inequalityand disparities in both developed and developing nations.
We have gone off-track of the pathways to achieving theSDGs and have fallen behind on several goals. Merely
professing to have "referred to the SDGs in defining
materialities" or "addressed SDG number x" does not tell
us whether the work that is required to achieve the SDGs
is being done. Companies are now being asked about
their "level of commitment" to confronting the SDGs headon, the key to which is responding to the demands ofscience.
Bolstering ESG initiatives by financial institutions
Chapter 3 confirmed that ESG investing is on the rise,
and that investing approaches and financial products
are diversifying. For companies, enhancing corporate
value is the primary objective for taking ESG factors into
consideration. Yet, a distinction must be made between
consideration of ESG factors and the level of contribution
to international objectives such as the SDGs and Paris
Agreement, both closely related to ESG. Relevant tothis concern, Chapter 4 argued that impact assessment
must be actively considered in investment decisions
henceforth. UNEPFI is currently examining fiduciary duty
and sustainability impact duties, and based on a similarawareness of this issue, UN Secretary General Guterres
has stated that fiduciary duty must be updated to include
a broader perspective on sustainability.81
Moreover, in the climate change area of EU taxonomies,
economic activities are classified according to consistency
with achieving the goal of net-zero emissions by 2050.
Strict standards are applied that even exclude hybrid
vehicles. While differences in approach are evident
depending on the country or region, from the standpointof reacting to the demands of science, Japan may alsoneed to create standards or adopt price signals to judge
compatibility with the 1.5/2℃ target and the SDGs,
including for transition technologies.
Augmenting initiatives in ESG and the SDGs by companies
Chapter 5 noted that the number of companies engaging
in SDG-related initiatives as a management issue is on theincrease. For companies, there are two sides to initiatives
in the SDGs: one is their responsibility to address
various environmental and social issues, and the otheris their response to the risks and opportunities theseissues represent for business management. In practice,companies will be increasingly called upon to ascertain
the extent of their impacts, including that of their supply
chains, and also to incorporate an outside-in perspective.
Utilisation of the Science Based Targets Network and
Future-Fit Business Benchmark introduced in Chapter 6
could be options to consider.
Governments, local governments, consumers andindividual investors as driving forces
Quite a few financial institutions and companies
mentioned in interviews that government policies at
the national and local level were a reference point forcompany policies and target setting. Yet, major criticisms
at COP25 of the Japanese government's climate change
policy and handling of coal-fired power generation are
still fresh in people's minds. Moreover, the revised SDGs
Implementation Guiding Principles do not describe any
concrete targets that Japan is working to achieve.
A look at the most robust examples of ESG investment andfinancing initiatives shows that, in most cases, ambitious
target setting for addressing social issues exist on the part82of relevant countries or companies. When objectives areambitious and the roadmaps to achieve them are indicatedin a way that is consistent with scientific knowledge, ESG
investment and financing and increase of sustainablefinancial products will be facilitated.
It is also important for individuals to raise their awarenessand take action as consumers or individual investors. For
example, research results show that roughly 70% of the
carbon footprint arising from the lifestyle of an average
Japanese person is attributed to the areas of "food", NSG (2019) “Progress toward sustainable development is seriously off-track” https://www.un.org/sg/en/content/sg/articles/2019-11-04/progressU
toward-sustainable-development-seriously-track
Morishita, Maiko; Shimizu, Noriko & Mori, Naoki (2019) "Sustainable Finance in Japan: Initiatives and Issues" https://www.iges.or.jp/en/pub/cop25financecommentary/ja
83
Koide, Ryu; Kojima, Satoshi & Watanabe, Atsushi (2020) "1.5℃ Lifestyles: Targets and Options for Reducing Lifestyle Carbon Footprints" (Japanesesummary) https://www.iges.or.jp/en/pub/15-lifestyles/ja
81

82

29

7. Conclusion"housing" and "transportation". 83 In a study targeting
individual investors, respondents who selected the"consideration for environmental contribution and social
responsibility" as a response in a question regarding
important factors when purchasing investment trusts,
were a mere 3.5%. 84 It is strongly advisable to rethinklifestyles and the use of money on the individual level, andin so doing send a message to financial institutions andcompanies.

84

In closing
Going forward, the relationship between ESG and
the SDGs must be further strengthened and linked toambitious initiatives with a sense of urgency that willproduce high returns in multiple meanings of the term. For
better or worse, the future depends on the consequencesof each and every person's daily choices. We hope that
this report will serve to support the next step forward.

 apan Securities Dealers Association (2019) "Attitude survey on the securities investments of individual investors [online survey] (summary)" http://www.
Jjsda.or.jp/shiryoshitsu/toukei/2019kozintousikaishikichousa.pdf*URLs included in this report were active as of the time of writing.

30

Annex: Interviews & Initiatives on ESG
and the SDGs by Companies

Annex 1. Featured Interview■

Hitoshi Ochi, President and CEO, Mitsubishi Chemical Holdings Corporation

Annex 2. Example Initiatives of Financial Institutions on ESG and the SDGs■

Kamakura Investment Management Co., Ltd.

■

Shiga Bank■

Daiwa Securities Group Inc.

■

Nissay Asset Management Corporation■

Government Pension Investment Fund (GPIF)■

Mizuho Financial Group, Inc.

■

Sumitomo Mitsui Trust Asset Management Co., Ltd.

■

Mitsubishi UFJ Financial Group, Inc.

■

Resona Bank, Limited

Annex 3. Example Initiatives by Operating Companies on ESG and the SDGs■

Obayashi Corporation■

Kao Corporation■

Daiichi Sankyo Company, Limited■

Takashimaya Co., Ltd.

■

Fast Retailing Co., Ltd.

■

Marui Group Co., Ltd.

■

Mitsubishi Estate Residence Co., Ltd.

*The SDGs-related initiatives described were compiled by the authors of this report based on the content ofinterviews. For a more comprehensive explanation of initiatives, please refer to the respective websites of companies.

32Annex 1. Featured Interview

Contributing solutions to social issues based on
the KAITEKI managementwith long-term perspective

Hitoshi Ochi

President and CEO, Mitsubishi Chemical Holdings Corporation

Our management philosophy,
vision and domain
Faced with numerous issues ranging from climate change,
resources and energy, and unequal distribution of water andfood, to burgeoning medical expenses in our aging society, ourcompany developed the "Realising KAITEKI" vision, based on
our intention to provide innovation-based solutions according
to the three core values of Sustainability, Health, and Comfort.
"KAITEKI" refers to "the sustainable well-being of people, society
and our planet Earth," sometimes shortened to "sustainable
well-being".
Sustainability
Contributing to the well-being of our planet Earth whileachieving a sustainable corporation and a sustainableglobal environment.
HealthAnswering people's medical needs, and supporting
disease treatment, pre-symptomatic healthcare, healthmaintenance, and healthy activity.
ComfortEnsuring the well-being of society and building safe, secure,comfortable lifestyles through improved quality of life aswell as diversifying values and lifestyles.
The Three Core Values of KAITEKI Management

The context for KAITEKI management
Our "Project 10/20" that we launched in 2006 is the origin of
KAITEKI management. In early 2000, when Japan's economy
was doing poorly, we were focused on the immediate future
and cutting back on any business was that was not profiting.
Before long, we realised that we had neglected to engage inmanagement from a medium- to long-term perspective. For thisproject, we deliberated on the ideal state of our company in
10 years while hypothesising the state of the world in 20 years.
Also at the time, the corporate value of diversified chemical
corporations was not accurately understood. While the range ofour business is very broad, we believe one reason for this lackof understanding arose from the fact that we had not clarified
our significance as a corporation. Thus, we also examined what
the proper role of a chemical company should be in the world.

33

As we considered the future of our company, we made a list ofissues, including the global environment, resources and energy,
water and food, and humanitarian issues, and thought about
how each of our areas of business could make contributions.
When we came across the term "sustainable development"coined by the Brundtland Commission, we decided toincorporate this concept into our management policy.
In 2009, I participated in the second of GCNJ's "Management
Leadership for Tomorrow" (known as AKK) seminars, and I
found the discussions extremely helpful. CSR is interpreted invarious ways these days, from "good company management"
to "donating and volunteering", but I agreed with what Mr.
Toshio Arima, the Chair of GCNJ's Board was saying—that
CSR is "providing solutions to societal problems through ourbusinesses". I came to believe that, essentially, that is indeed
what CSR is all about.
As we began to explore what we could do through ourbusiness, we realised that we were contributing to social value
creation in the areas of sustainability, health and comfort with
our wide range of outstanding products, technologies andmanagement bases. By explaining this, we could promoteawareness and understanding of our corporate value.
Yet, contributing to sustainability and comfort does not alone
enhance corporate value. Companies must elevate their earning
power, and to do this, technology is essential. Accordingly, theaim of KAITEKI management became clear—to enhance ourcorporate value by establishing integrated practices on threeaxes—sustainability (MOS), innovation (MOT) and resource
efficiency (MOE).
We launched KAITEKI management in earnest in 2011. In order
to communicate the difference between corporate value basedon KAITEKI and conventional CSR, we created the KAITEKI
Promotion Office within the Management Strategy Department
at Holdings and subsequently established a post in charge ofpromotion at each of our operating companies. From thereon, the Management Strategy Department took the lead inpromotion, going around to plants and branch offices likemissionaries working to get people to understand our message.
We also focused considerable effort on quantification, so thatpeople could see our KAITEKI corporate value. Previously, we
had collected data mainly for the purpose of complying withlaws and regulations and had not compiled data, such as theeffectiveness of our environmental measures and resource
conservation. There was some resistance to the additional

Annex 1. Featured Interview

Enhancing corporate value through KAITEKI Management

burden of collecting and analysing data. So, we began bycompiling statistics for major items only and using these as
indicators, spending about three years to get this process
thoroughly instilled in the company.

Meeting the demands of the SDGs and ESG
When the SDGs were formulated in 2015 and privatecompanies were designated as key players in theirimplementation, investors became oriented by PRI. In recent
years, evaluation based on ESG investment has progressed,and companies and investors have become linked in a virtuous
cycle with sustainability as a keyword. In other words, twomechanisms began to function in parallel—the investors
supporting companies clarify evaluation standards for "E", "S"and "G", and the companies engaged in activities take action
with these standards in mind.
The environmental, social and people’s issues illustrated by the
SDGs also reveal both risks and opportunities for companies.
Climate change and plastic waste are major risks in the
management of our company. For instance, discussions oncarbon taxes are emerging, making it imperative to reduce useof fossil fuels, and there is also a trend to do away with plastics
together. Meanwhile, most of the material used in products that
contribute to reducing greenhouse gases is chemical. Also, we
recognise that chemicals are central to the solutions required torealise a sound material-cycle society with reduced disposable
plastics.
We are also at a turning point in how humans approach theirwork. As the rapid development of technology changes thenature of the tasks we perform, people are finding it harderand harder to gain a sense of satisfaction from their work.
Meanwhile, the standards by which young people choose
their employers are changing with more focus the social
contributions of companies.

Our Group spent the entirety of last year examining what typeof society we would like to realise by 2050. Then we analysed
in detail the risks and opportunities involved and formulated
a long-term vision for 2030. Through this process, we lookedat what our company could make come true with the newcapabilities that could arise if we utilised our technologicalcapabilities and access to markets and partnered with diverse
stakeholders that share a common sense of values. For the firsttime, our management and the pursuit of sustainability wereunited in real terms.
Yet is it not enough to merely establish a policy based on
the fact that ESG investments are long-term investments.
Management must tell the story of what promises are being
made across time and how these promises will be kept, whichcalls for a detailed roadmap. For example, when we promise tobring CO2 to net zero by 2050, if we do not indicate a scenario
for the reduction we will make by 2030, what we will do next,
and a concrete plan for what technologies will be developed,
how and based on what setup, we will not gain any trust.

Further strengthening KAITEKI
management
Since last year we have been implementing trainings forbusiness division managers and others of manager rank aimed
at discussing issues faced and actions that must be taken in
the practice of KAITEKI management. A total of 400 people has
participated during the current term. They are the ones who
must determine the problems faced in their work, think about
what they need to do over the long term, and then carry out
the work. Each and every person must view the intensifying
problems facing our society as their own, contemplate themin depth, and formulate aggressive action plans. These plans
must be incorporated into the company's business strategy, andeveryone must be involved in order to resolutely carry out themout. I believe this approach is key.

34

Annex 2. Example Initiatives of Financial Institutions on ESG and the SDGs

Kamakura Investment Management Co., Ltd.

Yui 2101 : A mutual fund that supports"good companies"
Kamakura Investment Management is an asset managementcompany that manages and sells Japanese investment trust
funds (mutual funds), particularly specialising in the direct
sales of the "Yui 2101 " public-offered fund. Before the SDGs
and ESG began drawing attention, Kamakura Investment
had an operating policy based on its own unique investment
philosophy. Even now, the company does not actively discuss(or explore) its policy in the context of SDGs or ESG investment.
The reason is Kamakura Investment believes that supporting
unique companies is most important, rather than worrying
about compatibility with or differences in ESG investment.
Development is impossible without solutions to the social
problems Japan has been facing and Kamakura Investment
feels that it is imperative to invest in companies that are bothprofitable and socially aware.
The investment policy for the "Yui 2101 " is one of the mostnoteworthy features of Kamakura Investment Management's
business. Since launching the "Yui 2101 " in 2010, Kamakura
Investment has invested in "good companies" that are bothprofitable and socially aware, with all listed companies inJapan and a portion of unlisted companies as the investment
universe. The three elements of "good companies" are "people","coexistence", and "craft". "People" looks at how companies
utilise their human resources, from internal organisation to themotivation of employees. The "coexistence" perspective asks
whether companies are working to create sound material-cycle
societies based their approaches to local communities andthe natural environment. "Craft" looks at whether companies
have ingenious Japanese technologies and superior corporate
culture, or are providing impressive services.
The company divides the three elements of "people","coexistence" and "craft" into three subcategories respectively
and uses these nine components to select companies forinvestment. It avoids individual decision-making wheneverpossible, rather carries out decision-making on investments
based on a group decision-making system, while sharing
information and know-how within the company. While financial
aspects and liquidity are taken into consideration, Kamakura
Investment places the highest value on whether or not acompany is a "good company".
As of November 2019, the number of Kamakura Investment's
portfolio companies had risen to 67, with investments
in companies with small to medium-scale market values
outnumbering those in large corporations. Ultimately, it issociety that determines what defines a "good company", andKamakura Investment aims to invest in companies that anyone
would call "good companies". Once it begins investment,
Kamakura Investment continues to retain investments, as longas the company remains consistent with the above-mentioned
components. On the other hand, for companies with mattersof concern, additional investment may be withheld, or sold off

35

entirely if an intent to make improvements is not seen. In thelast fiscal term (from 20 July 2018 to 19 July 2019), investments
were sold off for a total of three companies.
With the above asset management, Kamakura Investment's
management has produced economic returns. Its goal for "Yui2101 " is a 4% annual return (after deduction of managementfees). Performance for the past five years stands at 4.8% (after
deduction of management fees, as of 19 July 2019). While thisfund does not have a benchmark, performance is slightly higher
than TOPIX.
Generally, asset management companies do not disclose theirportfolio companies because doing so would expose theirinvestment know-how. However, investments for "Yui 2101 "are disclosed on the company website. Moreover, scopeof disclosure is not merely names of company. Kamakura
Investment actively introduces these companies and provides
opportunities for dialogue with investors at events, including
management briefing sessions and the "Beneficiaries Meeting".
Kamakura Investment supports "good companies" not only
through its investment activities, but also by highlights theirbusiness activities.

Components of "good companies"

Components
companies"
People of "goodCoexistence
Customers /Craft
Superiority/originality
Craft
of products
or services

Respect forindividual
employees
Peoplesuppliers
Coexistence

Respect forindividual
employees
Corporate
cultureCustomers /Localsuppliers
communities

Corporate culture
Management approach

Local communities
Natural environment

Marketability/
Adaptability
to change/
profitability
innovativenessManagement approach

Natural environment

Adaptability to change/
innovativenessSuperiority/originality
Marketability/of products
or services
profitability

1
本資料の無断転載・複写を禁じます COPYRIGHT KAMAKURA INVESTMENT MANAGEMENT CO., LTD.

The components of a "good company"
1
本資料の無断転載・複写を禁じます COPYRIGHT KAMAKURA INVESTMENT MANAGEMENT CO., LTD.

* The "Beneficiaries Meeting" is a registered trademark of Kamakura
Investment in Japan

Annex 2. Example Initiatives of Financial Institutions on ESG and the SDGs

Shiga Bank

Environmental management under the motto "Protecting
the global environment through the circulation of money"
In November 2017, the Shiga Bank announced the "Shiga Bank
SDGs Declaration" and was the first regional bank to declaresupport for the SDGs. The Shiga Bank's motto is “Be tough onourselves, kind to others and serve society”. Its management
philosophy is based on the prosperous coexistence of local
communities, executives and staff, and the global environment.
Therefore, engaging in the SDGs was reportedly "a matter ofcourse that came naturally". In February 2019, the bank was
the first financial institution in the nation to receive the “SDGs
Partnership Award” at the 2nd Japan SDGs Awards, hosted by
the SDGs Promotion Headquarters.

on the SDGs, they think of Shiga Bank. Behind the scenes are
a number of steadfast initiatives. From its conceptualisation
to announcement, the SDGs declaration purportedly took ayear, and during this time the bank worked hard to enhanceawareness within the company. It circulated basic knowledge
on the SDGs on its intranet and put an SDGs logo on the backof business cards. All employees of branch manager rank andhigher began wearing SDGs badges. When customers posedquestions about the logo on the business card or badge, theyneeded to know how to respond, so all executives had to learn
about the SDGs. Furthermore, by incorporating the SDGs into
its management strategy and setting and announcing KPI, thebank established a framework for promoting the SDGs.

Shiga Bank engages in the SDGs from a variety of approaches,
focusing on three priority areas: establishing a regional
economy, sustainability of the global environment, anddevelopment of human resources to take on the responsibilityof carrying out the SDGs.

In the future, Shiga Bank intends to further develop methodsof evaluating the businesses it invests in from environmental
and societal perspectives. It believes that accumulating anddeveloping further know-how and evaluation methods will
To establish a regional economy, in addition to financial
be an advantage in the future. More than anything, the bankproducts such as the "New Business Support Loan (SDGs Plan)"
places great importance on funds coming into and circulatingand "SDGs private placement bonds", the bank is actively
in its region. From this perspective, it also promotes the plan
engaged in providing consulting services for businesses,
to create a “Regional Circular and Ecological Sphere” in Shiga
including the "Saturday School for Entrepreneurship" andPrefecture, and is working to advance this endeavor together
Sustainability Vision (long-term vision)
assistance in obtaining GAP certification. The "New Businesswith diverse stakeholders and the Ministry of the Environment.
With major changes in people’s values and economic structures, the society of today is said to be at a turning point. What is expected ofSupport Loan" is a loan with preferential interest rates that
Overall, regional financial institutions are operating undercompanies is for management to maximize corporate value with a long-term perspective, instead of short-term for-profit management. In
supports the financing and capital investment of clients taking
severeconditionsdue
tonecessary
the forshrinkingscaleof istheeconomythe financial industry,in addition
to the role as a providerof funds
economic activities,
importance
now attachedon theon new businesses that contribute to the achievement of SDGs.
impact it gives toaccompanying
society through financing. a decreasing population. In the midst of theseIn light of this social demand, the Bank, upon compilation of the 7th Medium-Term Business Plan, thoroughly discussed topics such
An example is a loan to a company engaging in land-based
conditions, discovering strengths, developing new businessas “What is the vision for regional communities that we should aim to materialize?” and “What should be done to create social impacts
blowfish-farming utilising a water purification technology. Using
modelsthat
settheaSustainability
company
apart,
tapping
into thenewnecessary to achievethat vision?” andformulated
Vision (long-term
vision) asandthe vision
for regional communities
Bank should aimmarkets
to materialize. is essential. This sense of crisis is also pushing ahead
an original technology, water quality is maintained without
In order for the Bank to continue development in partnership with local communities, it strives for a sustainable society by resolving
releasing waste water, thereby reducing costs without harming
the initiatives of Shiga Bank.
issues facing regions based on the concept of backcasting.
the surrounding environment. This business was
included as a pioneering example in the ESG Regional
Sustainability vision (long-term vision)
Finance programme promoted by the Ministry of the
The Bank’s motto: Be tough on ourselves, kind to others and serve society
Environment.
<Unchanging spirit>

The 7th Medium-Term Business PlanCSR Charter: Mutual prosperity with the regional communities, all employees, and environment

In the area of sustainability of the global environment,
Shiga Bank promotes initiatives in "environmental
finance", protecting the global environment throughthe circulation of money. Based on the independentlyestablished "Shiga Bank Principles for Lake Biwa", thebank performs an environmental rating and basedon this assessment, finances at preferential interest
rates. For its "Eco-plus fixed deposit", when customers
make fixed deposits, Shiga Bank makes donations andgives grants to be used for environmental purposes.
In addition to these initiatives involving financial
products offered to customers, the bank also engages
in initiatives of its own, working to conserve use ofresources and energy through its "eco-office creation"
initiative.

<Vision for regional
communities that the Bank
should aim to materialize>

A society where everyone can define their future and live happily—Realization of sustainable society through co-creation with the community—

Linking the economy, environment and people (Integrated development)
Milestones for 2030 (Target 2030)<Establishing the regional economy>
Investment and financing to promote
Sustainable Development
New investment and financing for a
cumulative total of ¥1 trillion<Sustainability of the global environment>
Reduction in greenhouse gas
emissions by 30 % or more (comparedto fiscal 2013)<Training a diversified workforce>
Activities for promotion andimprovement of SDGs and financial
literacy; training of a next-generation
workforce
Aim to target at 10,000 persons

We create and reconcile the twin imperatives of economic value and social value through the three benchmark
challenges, and achieve sustainable development of regional communities.

Collaborative creation with the community

Realization of recycling-oriented society

Localgovernment

Industry

Peoplein thecommunity

Collaborative
creation
Corporation
with thecommunity
NPO,
etc.

Agriculture,
forestryandfisheries

Recyclingoriented economy
centered on
renewableenergyMedical/nursing care

Commerce

Tourism

Turning SDGs into business

Enhancement of management structure

Goal-based support

Management Principles
Corporate culture

Ability tolistenContribution to
the community
Establishment ofsystems

GovernanceCapital policy
Training workforce
Human resource evaluation

Ability to
makeproposals

Goal-based
supportAbility tostand bycustomers

Ability tounderstand“Four abilities necessary for realization”

Use of digital technologies (AI, IoT, big data, etc.)

Shiga Bank's brand image has begun to catch on.
When people think about regional banks working*Co-creation with the community: creation based on shared values
Collaborative creation with the community: creation through collaboration

Shiga Bank's Sustainability Vision24

36

Annex 2. Example Initiatives of Financial Institutions on ESG and the SDGs

Daiwa Securities Group Inc.

Participatory strategy-making for the SDGs
The Daiwa Securities Group (Daiwa Securities) has a long historyof engaging with environmental and social issues. In 1972, thegroup established the Daiwa Securities Health Foundation to
subsidise research on disease prevention for middle-aged andelderly people, and in 1999, set up its Corporate Community
Affairs Department. Since underwriting Vaccine Bonds issued
by the International Finance Facility for Immunisation (IFFIm)
to procure funds to provide vaccines to children in developing
countries in 2008, Daiwa Securities came to recognise social
contribution within its core business activities and to focus
efforts on this type of "impact investment".1 Accordingly, ofthe total 1,407 billion JPY in SDGs bonds (impact investment
bonds) targeted at individual investors in Japan and soldbetween March 2008 and March 2019, Daiwa Securities' sales
accounted for 697.4 billion JPY (roughly 50%) (based on a
Daiwa Securities study).
SDGs-related initiatives became a full-fledged part of thecompany's core business after Seiji Nakata became Chief
Executive Officer (CEO) in 2017. The company set up the
SDGs Promotion Committee, chaired by Mr. Nakata, in2018. Moreover, the company formulated a medium-term
management plan entitled "Passion for the Best" 2020,
incorporating the SDGs perspective as the foundation of its
management strategy, and the "Passion for SDGs 2018 - Daiwa
Securities Group’s SDGs Declaration" outlining its commitment
to balancing economic value and social value, namely sharedvalue creation. Because there are many areas of overlap
between the SDGs and ESG, Daiwa Securities is of the viewthat incorporating the SDGs into its core business will lead toenhanced ESG evaluation.
One very interesting aspect of Daiwa Securities' initiatives in
the SDGs is the formulation process of the "Daiwa Securities
Group SDGs Promotion Action Plan - Passion for SDGs 2019 -".
The process was divided broadly into two parts. First, an SDGs
Promotion Meeting comprised of representatives from eachheadquarters and group company deliberated on "what we cando now" based on current business. Second, an SDGs Working
Group made up of 120 employee volunteers recruited groupwide, including overseas offices and branch offices, deliberated
on the ideal image of Daiwa Securities Group in 2030. In
brief, the group engaged in backcasting to determine from theideal image what initiatives should be carried out, and maderecommendations for the action plan.

financial products that supply funds to entities with capitalneeds for achievement of SDGs. The third is directly supporting
industries and companies that contribute to the SDGs throughinvestment and consulting. Finally, the fourth is to provide
feedback to capital managing entities on appropriate evaluationof impacts of corporate activity on society, thereby to contributeto the creation of additional investment opportunities.
To deliberate on the fusion of the SDGs and business, Daiwa
Securities established an SDGs Promotion Office within its
Corporate Planning Department in April 2018. The office isworking to roll out SDGs promotion initiatives to the entire
group. A further restructuring was carried out internally in
October of the same year, whereby ESG and CSR functions
under the CSR Group of the Corporate Communication
Department, were integrated into the SDGs Promotion Office.
This integration took place in the context of Daiwa Securities'
approach—making business that benefits society while
generating a profit central to its core business and carrying out
all initiatives that contribute to society within the framework of
the SDGs.
When Daiwa Securities launches a new business venture, itdoes so through the lens of the SDGs. The SDGs Promotion
Office is reportedly often asked by employees how theperspective of the SDGs should be interpreted in their own
work.

SDGs Promotion Action Plan: "Passion for the SDGs" 2019

The resulting action plan aims to create a sustainable flowof funds based on the following four points. The first is thepromotion and marketing of the SDGs to arouse investment
needs in the SDGs. The second is expanding the line-up of

1

37

‌
Impactinvestment is a type of investment that limits usage of funds to purposes aimed not only at economic benefit, but also at providing solutions to issues
such as poverty and environmental problems.

Annex 2. Example Initiatives of Financial Institutions on ESG and the SDGs

Nissay Asset Management Corporation
are also incorporated into the enterprise value, which is cal-

ESG integration varies depending on the stage at which

culated from the total present value of future cash flows,Everysectoranalystalso
put in charge of ESG
and the theoretical stock price as well, which is calculated
approach changes significantly depending on whether itfrom the enterprise value.
applies to active or passive investment.
analysis
ESG factors are incorporated. In addition, the integration(2) Nissay AM’s ESG Evaluation

2) ESG Integration in Active Investment
Nissay Asset
AM focuses
its strengths
on active(Nissay
investment.
What
The Nissay
Management
CorporationAM) isan

can betaken forwith
activegeneral?
assetapproach
managementcompany
13investment
trillion JPYin in
managedassets. One
The example
companyofhas
attention
to conduct
global information
ESGpaid
integrationis toenterpriseand trends surrounding ESG from a relatively early stage, having
valuation and ESG evaluation separately, and then constructsigned the UN Principles for Responsible Investment (PRI) ina portfolio(stockselection,
portfolio
weighting,Governanceetc.) by uti2006,
and joined
theInternational
Corporate
Network(ICGN),
aglobalinstitutional
investors
group,
in not2007.
lizing each of them. In this case, ESG evaluation may
In May 2014, Nissay AM announced its acceptance of the Japan
necessarily have a direct link to enterprise valuation.
Stewardship Code, and again accepted the revised version in
On the other hand, there is another approach that incorMay 2017.
porates ESG evaluation into the enterprise valuation process

As corporations step up responses to climate change and theitself. Generally, enterprise valuation is essential for active
SDGs, Nissay AM promotes ESG initiatives based on the belief
investment management.
Without
examination
cannotvia
bethat ascertaining
the sustainabilityof it,
portfolio
companies
ESG evaluation
important.
There
carried out will
as tobecome
whetherincreasingly
or not the current
marketpriceareisfour pillars to the company's ESG approach. First, from therelatively high or low compared with its intrinsic value. If one
perspective of improving the risk-return of long term investment,
believes that
ESG tofactors
affect corporate
financialperforthe company
strives
understandESG-related
issuesandmance, thenmakes
to incorporate
ESG evaluations
the impacts
they ithave
onsensethe valueof its investment
assets(Understanding
issues).valuation
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from the perspective
directly into of
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enterpriseof fiduciary duty, the company works to consider ESG-related
issues in its investment process (Considering ESG in the3) ESG process).
Integration
at Nissay
AM
investment
Third,
the company
is developing andmanaging
products
thatfactorin
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to respond
While there are various methods for enterpriseto the investor demands for contributing to building sustainable
Nissay AM adopts the discounted cash flow method.
societies through investment (Taking ESG in account in theSpecifically,
in-houseanalysts makeestimationsof thedevelopment
ofour
financial
products).
Fourthand lastly,company
communicateswith portfolio
future actively
cash flows
and discount theseestimationscompanies
by theand uses its voting rights appropriately from the perspective
cost of capital to calculate the total present value of futureof ESG-related issues such as enhancement of corporate
cash flows.
financial
impact ofvalue
ESG overfactorsreflected
governanceand Theincreasing
corporatetheis long
term
in
these
estimations(Figure1-4-2).
(Communicating with portfolio companies).

In other words, ESG evaluations are incorporated into
these cash flow estimates. This means that ESG evaluations1)Specifically,
ESG Evaluation
Long-Term
NissayinAM
strives toInvestments
provide medium- and long-The
discounted
flow method
is adegreecommonlyusedterm
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with a itself
higherof confidence
by incorporating
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so what is the reason
to incorporate
ESG evaluations

which is a framework for understanding the sustainability of
portfolio companies. Specific perspective of evaluation for "E"
NissayAM focuseslong-term(Environment)
are oninitiatives
thatinvestments.
address environmental issues
includingclimatechange,which
is receiving
attention
For enterprise valuation, we havemade it a increasing
rule to foreby TCFD, and its linkages to preventing damages to andcast a company’s financial performance for, at least, theimproving corporate value. For "S" (Society), the relationships
next
five
are
betw
e eyears.
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a n y a n d forecasts
its stakeholders(e.g.
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and its linkages tonotalwayseasy. Actually,
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challenging.
enhancement of corporate value. Likewise, for "G" (Governance),
However, there are concrete reasons why we performmechanisms and structures for governance and linkages to
this
task.
enhancementof corporate value are examined. The company
The
firstsetup
reasonis that we believethese long-term
fore-whereby
has also
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for appropriatemonitoringitreevaluates
thecompanies
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casts help us zero in on the intrinsic value of companies
intervals (at least once a year).

into cash flow estimates? The reason lies in the fact thatthe market has yet to sufficiently recognize. Taking into

account
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In orderthe
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price.
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investment
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to facilitate
the sharing
anddeepeningofESGknowledge.
Moreover,while
Furthermore, making long-term financial forecasts ismany asset
management companies utilise external ESG companies for
extremely important from the standpoint of fulfilling ouranalysis of ESG factors, Nissay AM in principle conducts ESG
socialresponsibility
an company's
institutional system
investor.does
Recently,
theevaluation
in-house.asThenot distinguishbetween for
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believethat engagement with a company from a long-term
this manner, the company makes investment decisions thatperspective
is an ESG
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certain enterprise value and thereby the theoretical stock

Figure 1-4-2: Reflection of ESG Factors in Enterprise Valuation
Medium- to long-term ESG factors
Changes in profitability

Sustainable growth(e.g.) ∙ Growth in products that addressenvironmental issues∙ Improvement in corporate image
and brand loyalty∙ Improvement in employee
motivation(e.g.) ∙ Production cost reduction∙ Distribution cost reduction∙ Relationships with customers andsuppliers(e.g.) ∙ Coexistence with society, handlingsocial problems, building
relationships with communities inthe surrounding area of production
facilities∙ Governance structure

Cost of capital
Discount rate

Enterprise value

Sales growthCF
Total present value of future
cash flows

t+1

CF
t+2

CF

CF

t+3

t+4

CF

CF

t+5

…

Source: Nissay Asset Management Corporation

16

Reflection of ESG Factors in Enterprise Valuation

38Annex 2. Example Initiatives of Financial Institutions on ESG and the SDGs

Government Pension Investment Fund (GPIF)

Serving as a driving force for ESG investment
as one of the world's largest pension funds
The Government Pension Investment Fund (GPIF), one of thelargest pension funds in the world with 159 trillion JPY in
managed assets (as of March 2019), is a "universal owner" that
distributes investments broadly in domestic and foreign bonds
and stocks. It is also a "cross-generational investor" that makes
long-term investments aimed at leaving necessary reserves tothe next generation of insured persons. From this standpoint,
GPIF has actively engaged in ESG investment based on the
belief that sustained and stable growth of the entire capital
market is critical to achieving stable returns over the long term,
and that reducing the negative impact of environmental andsocial issues on the capital market is essential.
GPIF's management policy has considerable influence on capital
markets due to the scale of its assets. In 2017, GPIF conducteda public offering and selection of ESG indices, garnering muchattention from the media and market participants when it
commenced utilising them. In 2018, GPIF selected global
environment stock indices and increased the amount ofmanaged assets linked to ESG indices to 3.5 trillion JPY (as ofMarch 2019). Many market participants recognise that thesetrends were a factor in stimulating ESG related measures bycompanies as they responded to evaluating institutions andengaged in information disclosure with an awareness of being
selected for these ESG indices.
GPIF endorsed TCFD in December 2018, and in its ESG Reportof the same year disclosed information related to climatechange in line with the TCFD recommendations. Specifically,
it conducted analyses of the greenhouse gas emissions andscenario analyses for its portfolio and released these results.
While the report acknowledged that analytical methods
and reporting were not perfect, it explained the conclusionthat the disclosing of information itself incited discussion on
ESG initiatives and that the benefits of disclosing information
outweighed the negatives. This stance is recognised as one ofthe driving forces in ESG investment in Japan.
GPIF also runs other initiatives to promote information
disclosure. For instance, it asks its consignee managementcompanies to select exemplary integrated reports or thosethat show a high level of improvement and releases the namesof companies that achieve high ratings. Furthermore, in fiscal
2018, it commissioned the Nissay Asset Management Company
to conduct a study on ESG information disclosure. Basedon an awareness of the yawning gap between companies
leading in their responses to information disclosure and others
lagging behind, GPIF realised that if support were provided
to companies that were bewildered by the array of different
guidelines, the quality of GPIF's ESG investment could be
improved.
While GPIF recognises the importance of the SDGs, the SDGs
are not considered an objective of its investing (see the39

figure below for the relationship between ESG investment
and the SDGs). The objective of GPIF's investments are firstand foremost to manage reserve funds to extend the pension
system, and ESG is viewed as important for achieving thisobjective. Meanwhile, ESG and the SDGs are highly compatible
and can be considered two sides of the same coin. In June
2019, GPIF reached an agreement on joint research with the
Keidanren (Japan Business Federation) and University of Tokyo
to link "Society 5.0" and ESG investment with a view to realisinga "Society 5.0 for SDGs". Moreover, GPIF's Executive Managing
Director and CIO, Hiromichi Mizuno, became a member of the
Global Investors for Sustainable Development (GISD) Alliance in
September of the same year.
Future issues include how an asset owner identifying as auniversal owner should approach climate change risk, and how
ESG can be applied to asset classes other than stocks whichhave lead the way. There is no doubt that any indication of
GPIF's policies on these major issues will wield a great impact
on the direction and nature of ESG investment in Japan. The
activities of GPIF should continue to be closely watched going
forward.

GPIF and Investment Chain

Copyright © 2019 Government Pension Investment Fund All rights reserved.

The relationship between ESG investment and the SDGs
Source: Created by GPIF based on UN and other sources1Annex 2. Example Initiatives of Financial Institutions on ESG and the SDGs

Mizuho Financial Group, Inc.

Contributing to the SDGs with new sustainablefinance products
The Mizuho group (Mizuho) is a financial services group whichboasted JPY 124.3 trillion in deposits and JPY 78.5 trillion inloans as of the end of fiscal 2018. Mizuho works together asa united group to engage in a variety of issues related to the
SDGs.
Mizuho is managed under a holding company, Mizuho Financial
Group, and formulates and pursues group-wide strategies forbanking, trust banking and securities, according to customer
attributes, with five in–house companies and two units thatprovide functions across all in-house companies. It has set upa system for collaboration within its group based on customer
needs, whereby each in-house company and unit 2 identifies
risks and opportunities related to the SDGs and climate change,and establishes a concrete action plan in its 5-year businessplan and fiscal year plans.
One example is "Mizuho Eco Finance", a product developed
to leverage Mizuho Bank’s understanding of the challenges
and needs of companies and Mizuho Information & ResearchInstitute (MHIR)’s expertise in the environment and energy
sectors. This product evaluates companies for their environmentrelated disclosure of information and scores them on a 5-tierscale utilising the globally-accepted evaluation criteria listed in
the table below. Mizuho Bank provides financing to companies
that achieve one of the two highest possible scores. The
advantages of this product include giving borrowers a chance
to highlight their innovative initiatives, as well as allowing thecompanies to obtain advice on improving and maintaining theirscores from MHIR based on ongoing monitoring after financing
is arranged.

Mizuho Securities has been actively supporting sustainablebond issues, achieving rapid growth and expanding from 3 bondissuances (JPY 5.8 billion) in fiscal 2016 to 28 bond issuances(JPY 124.3 billion) in fiscal 2018. Additionally, in 2018, Mizuho
Bank signed a green loan agreement conforming to theinternationally-accepted "Green Loan Principles". The bank also
became the sole arranger for a syndicated sustainability loan
to the Japan Railway Construction, Transport and Technology
Agency in 2019.
Particularly worthy of mention is the 2018 issuance of the firstwide-region collaborative "social impact bond" in Japan for six
municipalities in Hiroshima Prefecture, which was led by Mizuho
Bank's SDGs Business Desk. This bond utilises investment andfinancing from Mizuho Bank and other financial institutions anda crowdfunding platform to provide funds aimed at increasingcolon cancer screening rates in the region. The social impacts
generated by the project are reported, and the government
makes payments to the funders according to the level ofachievement. Mizuho Bank has already participated in a similar
framework in Tokyo’s Hachioji City which—while not a wideregion collaborative project—generated impacts in improvingcolon cancer screening rates (increasing from 9% in fiscal 2015
to 26.8% in fiscal 2017).
Mizuho promotes sustainable finance in a variety ofareas. The group has announced its support for the TCFD
Recommendations and is making progress on disclosures basedon the TCFD Recommendations. Among these, the amount of"green finance/sustainable finance" is given as a monitoring
indicator, and the group is moving ahead to increase green andsustainable finance in the future.

(1) Support of the TCFD
(2) S&P/JPX Carbon Efficient Index (Status of
disclosure of carbon emissions)(3) S&P/JPX Carbon Efficient Index (Decileclassification)(4) Has set Science Based Targets (SBT) / SBT
commitments(5) Content of long-term environmental vision forgreenhouse gases(6) Greenhouse gas emissions (Scope 1 + 2)
(7) Greenhouse gas emissions (Scope 3)
Evaluation Criteria for Mizuho Eco Finance

2

‌
The
five in-house companies are the Retail & Business Banking Company, Corporate & Institutional Company, Global Corporate Company, Global Markets
Company, and Asset Management Company. The two units are the Global Products Unit and the Research & Consulting Unit.

40

Annex 2. Example Initiatives of Financial Institutions on ESG and the SDGs

Sumitomo Mitsui Trust Asset Management Co., Ltd.

Participating in global initiatives and active
ESG engagement
Sumitomo Mitsui Trust Asset Management is one of the largest
asset management companies in Japan with a balance of
70 trillion JPY in managed assets. It has declared support forcorporate value creation within the investment chain to be theobjective of its stewardship activities, and is actively involvedin ESG related measures, which is designated as a part of these
activities.

target-setting and approaches to creating added value andmaking contributions, the company can judge whether thetarget-setting is superficial, or whether it is the outcome ofdeliberations.

Sumitomo Mitsui Trust Asset Management declared its support
for the Task Force on Climate-related Financial Disclosuresin Policy
February2019,
andis planning
information
Sustainability Policy 1
Sustainability Policy (TCFD)
2
Sustainability
3
Sustainability
Policy4
Sustainability
Policy 5 for
Sustainability
Policy 6
The company's ESG initiatives are carried out based
disclosure in the TCFD-recommended areas during fiscal 2020.
on cooperation between members of the Stewardship
In a recently implemented transition pathway analysis to assess
Development Department, a department specialising inchanges corresponding to future climate scenarios, results
Identification of ESG Materiality
E (Environmental)
S (Social)
G (Governance)
stewardship activities, and the analysts
of its Researchshowed that the company's portfolio was inconsistent withWe have performed identification of ESG materiality.
Human Rights &ClimateChangeDepartment. For ESG investing, analysts
from wethehave
Research
theCompact
2℃ scenario,
and that thepermissible
emissionBehavior
volumePreviously,
used the UN Global
as ourCommunity
ESG guidelines
when developing our
response
Department conduct non-financial information
evaluation,
would
bepolicies
exceeded in 2037. Accordingly, the company intends
reviewof the SDGs,
Natural Capitalcompanies
Human Capital to engage
Structure in
Risks
i n c l u d i n g E S G e l e m e n t s , a n d c a r r yforoESG
u t iissues;n t e ghowever,r a t i o n based
i n on a torespondby beseeching
portfolio
the SASB (Sustainability Accounting Standards Board),
collaboration with asset managers. The company
also provides
greenhouse gas reduction, decarbonisation and information
etc., we have reorganized our ESG investment evaluaPollution & Waste Security & Liability Stability & Justicepassive products utilising various ESG indices.
disclosure.
tion items and response policies within a framework of“ESG materiality.”

The company's ESG topics of focus for 2019-2020 are (1)Having engaged inOpportunities
ESG investment
globally,
Opportunities actively
Opportunitiesand Improvement
climate change, (2) water resources and marine pollution, (3)Sumitomo Mitsui Trust Asset Management has raised thebacking corporate governance reform, and (4) promotion ofissue of the comprehensiveness, consistency and continuity of
ESG information disclosure. By participating in global initiatives
ESG data. While accepting the premise that advancement in®
such as the PRI, the company accumulates
information disclosure is ideal, issues remain concerning what
MBISknowledge
Evaluation on
Enhancement(ESG) issues and engagement methods, The
which
to its non-financial
efforts
aimed at risks
associatedwith ESG
and itMBISit® applies
is our proprietary,
information
information
is to bedisclosed,how
it should
be issues,
disclosed,
the “S”
which comes caninto playefforts
evaluation
tool
which Asset
we have used since
to evaluengagement activities in Japan. Sumitomo
MitsuiTrustand 2015
whetheror notis that
information
be whenusedevaluatingby investors.
aimed at commercializing and capitalizing the opportuate domestic shares and bonds. Our analysts use MBIS®
Management is the first Japanese institution
to be serving as a
Although information
disclosure has progressed among anities associated with ESG issues.
to help them gather, analyze and evaluate non-financial
lead manager (palm oil, forest resources,
water
resources)in
portionofleadingcompanies, the number of companies
Now, in line with the newly established ESG materiinformation which cannot be expressed in terms of finanPRI activities.
remains
inclusions
a comparative
approachality framework,
weintoare reorganizing
and revisingthecial data for the companies they cover;such limited,
informa- making
MBIStion includes the level and sustainabilityof addedvalue
evaluation items
to ESGisissues
and aredifficult,wherebythe ®utilizationof pertaining
information
restricted®
for a company’s
products and services,
the governanceto enhance
MBIS Sumitomo
evaluation through,The company's unique framework for evaluating
non-financial
to thatof granting working“additional
points”.
Mitsuiamong
Trust
which supports the added value the company
other means, the use of external ESG data vendor-driven
information is the MBIS tool. M is forsystem"management",
B is
Asset Management's
stance is that promoting ESG information
provides, and the company’s impact on the societal and
ESG evaluations. Although the concept of the SDGs hasfor "business franchise", I is for "industry",and S stands fordisclosure throughalreadysoft been
law a(codes)
should be considered.
environmental foundations which sustain its growth.
part of our evaluations, we are working
064"strategy". Evaluation of a portfolio company’s
information
priority the
issue
for
MBIS®ESG
to bolster disclosure
it further so thatas
weaincorporate
17 goalsis an issues
acronymfrom
which standsDesignatingfor “Management”
the perspective of risk is included in “M”,
evaluation
more fully into
engagement
and evaluation.
(M),whereas“Business Franchise”(B), “Industry”(I) and “Strategy”
engagement,
the company
hasouralso
establisheda direction for(S). opportunities,
It is the “M” which suchcomes into playof ESG initiatives from the perspective of
its whenown evaluatingrole in the effort.
as new business creation andincome generation, is incorporated
Checklist (20 items)• Strategy execution capabilities
ESG Materiality (new)Management• ESG initiatives
in “S”. Through an analysis of ESG
M• Improvement and innovation capabilities• Capital and investment efficiency
materiality, specific ESG risks andE (Environmental)
S (Social)
G (Governance)
Checklist (14 items)
opportunities are identified (see• Client value
Business Franchise
B
Human Rights &• Client base
Climate Change
Behavior
figure).
• Barriers to entry
Community
Environmental

SocialGovernanceE S G R e p or t 2 0 19/ 2 0 20

41

I

Checklist (7 items)

Industry• Market assumptions• Competitive environment• Regulations and policies

Checklist (10 items)

S

Strategy

External ESG data, etc.*

S u mitomo Mits u i Tru s t Holdin gs , I n c .

Through the above-mentioned ESG
initiatives, the company promotes
SDG-related initiatives in its
portfolio companies, with the SDGs
designated as the goal of corporate
value creation. When examining thevalidity of the SDG-related targetsetting of its portfolio companies,
the company places emphasis on
the "stories" behind the targetsetting. Specifically, by asking about
the scenarios in the backdrop of• Marketing• Earnings contributions from ESG• Business portfolio• Investments, M&A, etc.

Risks

Opportunities

Natural Capital

Human Capital

Structure

Pollution & Waste

Security & Liability

Stability & JusticeEnvironmental
Opportunities

SocialOpportunities

GovernanceImprovement

Strengthen Connection with SDGs

*Evaluated by analysts referring to external
ESG data

https://www.un.org/sustainabledevelopment/Annex 2. Example Initiatives of Financial Institutions on ESG and the SDGs

Mitsubishi UFJ Financial Group, Inc.

Setting numerical targets to implement
steadfast sustainable finance
The Mitsubishi UFJ Financial Group (MUFG) is Japan's largest
megabank and one of the largest banks in the world with abalance of 106.2748 trillion JPY in loans and 183.1741 trillion
JPY in deposits (3rd quarter 2020 performance).
MUFG has been actively engaged in a range of ESG issues
across the entire group. One major characteristic of its initiatives
is the setting of numeric targets for sustainable finance. In May
2019, as a part of efforts to contribute to realising sustainable
societies and achieving the SDGs, MUFG established numericaltargets for the implementation of sustainable finance amounting
to a cumulative 20 trillion JPY from fiscal 2019 to fiscal 2030.
Of this, 8 trillion JPY is planned for financing in the area ofenvironment, and developments are already underway in the
renewable energies sector. MUFG's achievements in this sector
include financing 3.94 billion USD in 2018, and it has taken
first place in the world for three consecutive years from 2016
to 2018 (results based on the League Table3 of finance leadarrangers for renewable energy projects).
Meanwhile, MUFG is also advancing measures to deal withnegative impacts. In May of 2019, MUFG revised the "MUFG
Environmental and Social Policy Framework", a framework forenvironmentally and socially conscious practices, and laid out
new policy on coal and other carbon-intensive projects. First,
as a general rule the group will not provide financing for new
coal-fired power generation projects. Second, forestry, palm oil,and mining (coal) were newly added to the list of “RestrictedTransactions”, in addition to coal-fired power generation andcluster munitions manufacturing.

MUFG's main subsidiary, the MUFG Bank granted the first
syndicated sustainability-linked loan by a Japanese bank in
November 2019. This loan establishes sustainability targets
that are coordinated with the sustainability performance targets
defined in the borrower's CSR strategy, linking the borrower's
performance against these targets with interest rates and otherloan conditions in a framework that provides incentives toaccomplish goals. In March of the same year, the bank enteredinto two agreements on the syndication of green loans forwhich funds can be used only for "green" purposes.
The MUFG Bank has examined a range of issues related to
the Environment (E) and Society (S) of ESG, including theSDGs, to determine priority issues (ES issues) to be addressed.
Specifically, these are the following seven issues: (1) aging
population & low birth rate, (2) business incubation & job
creation, (3) social infrastructure & town planning, (4) global
warming & climate change, (5) financial innovation, (6) workstylereforms, and (7) cross-sectoral environment and social issues. In
August 2019, the bank established a Sustainable Business Office
as a specialised unit to engage in ESG, including the above
issues, and coordinate cross-cutting sustainable business. This
office will propose and provide new financial solutions, including
advanced risk management for environmental and social
issues to address the needs of the times, the developmentof loan products in line with ESG trends, and considerationof investments. In steadfastly implementing these initiatives,
MUFG will continue to strive to achieve its corporate vision ofsustainable growth.

1

Corporations, etc., that
pursue environmentallyfriendly operations■MUFG’s Contribution to ESG-Oriented Investment and Financing
MUFG
ESG investment
The net proceedsfrom the issuance

Investors

Issuance of GreenBonds

the Trust Bank

ESG-centereddialogue/ESG-centeredasset management

Investees

the Bank

Financing

Eligible green
projects

Climate change
countermeasureconsulting

Corporates andpublic agencies

MURC*1the Securities
Business
Underwriting
and marketing
Structuring

Issuance of Green
Bonds

Issuers*1Mitsubishi UFJ Research and Consulting Co., Ltd.

MUFG’s contribution to ESG-oriented investment and financing

3‌A League Table refers to a ranking, usually released by the media, of the underwriting performance of underwriting institutions such as investment banks.

42Annex 2. Example Initiatives of Financial Institutions on ESG and the SDGs

Resona Bank, Limited (Asset Management Division)4

Responsible investment and engagement as auniversal owner
Resona Bank's Asset Management Division manages over
20 trillion JPY in trust assets, most of which are public andcorporate pensions. It engages in responsible investment
and stewardship activities based on the concept of universal
ownership. Resona Bank became a PRI signatory in 2010, andin the PRI's annual report obtained the highest rating of A+(2018, three consecutive years) in the overall assessment of
its approach to responsible investment. Further, in a 2018
customer satisfaction survey conducted by Rating & Investment
Information, Inc. (R&I), the company took the top position in
rating of stewardship activities.

in areas including information disclosure related to climatechange, the Climate Action 100+ initiative, and supply chain
risk management focused on palm oil. The company released
the details of the process and examples of its engagement in
the procurement of sustainable palm oil over multiple pagesof its Stewardship Report 2018/2019, effectively capturing thecharacteristics of the company’s approach. In fiscal 2018, thecompany added diversity of the board of directors, marine
plastic pollution and food safety (factory farming and antibiotic
drug resistance) as new areas of thematic focus.
The company incorporates the opinions of external
stakeholders in the selection process of topics of engagement.
The company initially struggled with inexperience in engaging(with companies) on environmental and social issues. Moreover,there was a considerable disparity with companies in how
environmental and social issues were perceived. Reconciling thegaps in perception took considerable time and effort.

Resona considers ESG to be the realm of investors, the SDGs
to be the realm of international society, and CSR and CSV
to be the realm of corporations. Accordingly, investors andfinancial institutions, including Resona, contribute to achieving
the objectives of the SDGs by aiming to enhance the mediumto long-term business value of corporations using ESG as an
approach. Moreover, corporations are in a position to work
toward achieving the SDGs using CSV as an approach.

Resona Bank believes that the source of its competitive edgein asset management is its human resources, and is therefore
focusing efforts on human resource development. Because thedebate on ESG is not only about profit and loss, but is alsoa discussion of right and wrong, discussions on ESG should
focus not only on "how" it is carried out, but requires a holistic
discussion. As a member of the finance sector, Resona Bank
wants to foster the development of people with a proper
understanding of this issue. It will continue to move forward inits responsible investment and ESG initiatives into the future.

The company's ESG activities are characterised by its
engagement activities, and it makes a clear distinction between"dialogue" and "engagement". Namely, "engagement" is definedas "the act of achieving results by deciding on issues to beaddressed and discussing such issues with the aim of finding
solutions," while "dialogue" is "the act of promoting mutual
understanding through two-way communication between
companies and investors".

4

43

2

Responsible Investment and
Stewardship Activities for
Passive Investment

Future Maker

Future Taker
Responsible Investment Group

Dialogue

Climate change

Engagementand dialogue

Support onproxy voting

Incomeinequality

Top-down
approach

Human rights

Cybersecurity

Network

Universal
ownership

Code ofconduct ofResona’s AssetManagement
Unit

Aging society
with a lowbirth rate

Disclosure

Enhancementof mediumand long-term
returnEnhancement ofcorporate value

Basic policy on responsible
investment

AgendaProxy voting

Anti-corruption

Framework

Creation of anew paradigm

Collaboration+Collaboration

Natural disasters

・・・New form of capital markets

External
diseconomies

Unexplored economic system

For engagement in passive management, thecompany has narrowed its thematic focus
based on back-casting from the desirable
future scenario as presented in the SDGs aswell as from the input obtained from diverse
stakeholders including NGOs and experts in thefield. In fiscal 2017, it made engagement efforts

Chapter

Economic activities

Based on this understanding, the company
acknowledges its responsibility towards asustainable society as a universal owner, andactively employs an engagement strategy
geared to finding solutions to society-wide ESG
issues in its passive management. . Specifically,in addition to global environmental and social
issues identified in a top-down approach(e.g. climate change risk, supply chain risk),
the company also practices engagement on
issues identified by a bottom-up approach(e.g. disclosure of corporate information,
governance).

Awareness

Efforts for enhancing corporate value and medium- and long-term
investment return of beneficiaries
Future Taker: Practice an engagement strategy geared to finding solutions to
ESG issues across society by identifying responsibilities forsocial sustainability.
Future Maker: Fulfill its role in acting as a responsible investor with respect toproviding support of universal ownership as a long-term
investor.

RESONA BANK

10

Stewardship Repor t 2018/2019

RESONA BANK

11

Stewardship Repor t 2018/2019

From January 2020, the Resona Bank (Asset Management Division) consolidated the asset management business of the Resona Group into Resona AssetManagement.

Annex 3. Example Initiatives by Operating Companies on ESG and the SDGs

Obayashi Corporation

Updating a vision and reorganising to bolster
ESG management
The "Obayashi Basic Principles" are consistent with theconcepts of ESG and the SDGs and are designated as thecornerstone of management at the Obayashi Group. These
Basic Principles, practiced in the group's business activities, aremade up of three components: a "Obayashi Philosophy" aimed
at realising a sustainable society as a leading sustainability
company, "Obayashi Code of Conduct" to fulfill our social
mission and ensure strict adherence to corporate ethics, andthe "Obayashi Three Pledges” of Quality, Value and Efficiency5that the company has followed since its founding. The grouphas stepped up initiatives in recent years in response to theincreasing need for sustainability in society and demands for
information disclosure from the stock market.
The Obayashi Group updated its medium to long-term
environmental vision "Obayashi Green Vision 2050" in 2011
because it believed a long-term vision was essential to realise asustainable society. In June 2019, it issued an updated version
in the "Obayashi Sustainability Vision 2050", which incorporates
ESG initiatives and contributions to the SDGs. This long-term
vision defines the ideal vision for the group in 2050.

area also serve as the heads of these departments, facilitatingeasier communication and collaboration among departments
and creating a synergy effect.
The characteristics of the group's industry make the settingof KPIs and information disclosure problematic. For example,
once legal regulations have been met, it is taken for grantedin the construction sector that a structure will be completed
that meets the demands of the customer in terms of quality
and performance. It is difficult to express a level of satisfaction
objectively without relying on the subjectivity of the persons incharge at the client organisation, and there are no indicatorsthat appropriately evaluate the know-how aspects ofcompanies. Furthermore, the supply chain is extremely vastand expands across so many sectors that no single evaluation
method applies. Nevertheless, the demand for information
disclosure from investors has heightened in recent years, andmoreover, there are different demands that require different
details. As such, the group faces difficulty in ascertaining thenature of information to disclose in a timely manner. In thiscontext, it has been conducting tours for institutional investors
and analysts for over ten years. The group believes that it
can promote mutual understanding with investors by actuallyshowing them typical construction sites.

The group's five-year Medium-Term Business Plan 2017 serves
as a roadmap for achieving this vision. In this plan, the ESGrelated initiatives that the group has been working on for many
years are first mentioned specifically, and designated one of
In addition, the Obayashi Corporation promotes ESG
three pillars in its Management Foundation Strategy in addition
management in the area of financing, issuing green bonds andto technology and human resources/organisation. In order tosustainability bonds. From a finance perspective, these activities
ensure steady progress in ESG management, in 2019, the group
have broadened the group's range of financing and investors.
reviewed its business activities from the ESG perspective andThey have also allowed the group to gain know-how andestablished "Six ESG Materialities" as priority issues on which
illustrate its management stance both within the company andto focus initiatives, as well as action plans and KPIs for eachexternally. Expectations are high for the group to continue torespective issue. The group intends to deliberate on changes
practice and strengthen its ESG management into the future.
in the business environment and the time frame of 2030 forachieving the SDGs when it formulates【Action Plans for Materiality】
its next medium-term business plan that
・Promote environmentally friendly businesses
・Promote CSR procurement
・Promote renewable energy businesswill commence from April 2022.
・Train and support skilled workers
Obayashi implemented a restructuring inJanuary 2019 to facilitate more effective
ESG and SDGs initiatives throughout
the entire group. It established a
Corporate Strategy Division to draw up
and promote ESG-based management
strategies for the group as a whole, andcreated the ESG & SDGs Department
within this division. It also set up a
Corporate Planning Department,
Corporate Business Administration
Department, and Corporate Business
Innovation & Management Foundation
Department. Directors in charge of each5・Promote decarbonization
・Contribute to realizing
a recycling-oriented society

・Pursue reliable quality
・Use technological capabilities
to further enhance productivity
・Maintain good construction
management system

・Promote the Corporate
Ethics Program・Practice rigorous information
security management

・Promote work style reform
・Promote diversity
・Rigorously apply the Occupational
Health and Safety Management System

Six ESG Materialities and Action Plans

1‌Providing quality manufactured articles in short periods of time at low prices.

44Annex 3. Example Initiatives by Operating Companies on ESG and the SDGs

Kao Corporation

Providing products and brands of excellent value withintegrity in business traditionally based on the Kao Way
Kao Corporation has a long history of sustainability initiatives
and throughout the 130 years since its founding, has considered
contributing to society its mission. Its corporate philosophy,
expressed in the "Kao Way", is to strive for the wholehearted
satisfaction and enrichment of the lives of people globally
through integrity in business and providing products and brandsof excellent value.
In 2019, Kao released the "Kirei Lifestyle Plan", its ESG strategy
leading up to 2030 based on the Kao Way. The strategy
sets the three pillars of (1) People, (2) Society and (3) Planet,
and four actions for each pillar. For instance, under pillar (3),"making the world healthier & cleaner", Decarbonisation, Zerowaste and Air and water pollution prevention, etc. are included.
To these 12 actions, the company added seven foundational
actions (e.g. full transparency, respecting human rights, andinclusive and diverse workplaces) to create 19 actions asmaterial themes.
To determine the material themes, Kao identified 78 social
issues, bearing in mind global trends such as ISO26000, GRI
Standards and the SDGs. It then asked for feedback fromoutside the company and around the world—not only its
customers, but also investors, experts in the environmentand other fields, and its suppliers. Based on these results,
the company examined both the level of importance forstakeholders and the level of importance for Kao, andperformed mapping based on these
two axes. Subsequently, it continued
the discussion within the ESG Promotion
Meeting and the ESG Committee, andnarrowed down to the 19 Kao Actions.
Above and beyond formulating Kao’s
ESG vision and Kao’s ESG strategy, Kao's
stance on implementing these plans surely
can be seen in the changes it has madein its organisation. In 2018, it reorganised
the Sustainability Promotion Division into
the ESG Division in an aim to step up
ESG activities. It also established the ESG
Committee as a body that discusses anddetermines policies on its ESG strategy
under the Board of Directors. Directly
under the committee, it established the
ESG Promotion Meeting comprised ofthose responsible for executing the ESG
strategy in each division of the company.
With these changes, ESG has been placedat the core of its management. The
company has always asked for the opinionof external experts, and appointing a
non-Japanese employee with a wealthof experience in global ESG-related work45

as the head of the ESG Division is another distinction of its
management. Placing ESG at the core of management is anotherreason Kao's system of promotion has been highly rated byexternal bodies.
One particular issue that Kao is currently focusing on is marine
plastic waste. This issue has gained attention around theworld and frequently arises as a topic of discussion among
investors and other stakeholder groups. In 2019, Kao released"Our Philosophy & Action on Plastic Packaging". Based on thephilosophy that "plastic should not exploit or harm nature",
Kao is implementing initiatives in the 4Rs (Reduce, Replace,
Reuse, Recycle) and working to decrease the amount of plastic
used in its packaging. It has reduced its use of plastic throughthe development of the "Raku-raku Eco-pack" refill and a newconcept in the "Smart Holder", which does not require refilling.
At present, Kao is working on the development of 100%
recyclable film bottles. Kao aims to continue to contribute tosustainability as seen in one of its initiatives, to reduce plastic in
its packaging.

Kao's initiatives in developing our packaging

Annex 3. Example Initiatives by Operating Companies on ESG and the SDGs

Daiichi Sankyo Company, Limited

Strengthening contributions to the SDGs
through ESG compliance
Daiichi Sankyo believes that its core business is one and thesame as moving toward achievement of Goal 3 of the SDGs.
Creating innovative pharmaceuticals and responding to diverse
medical needs are not only the basis of value creation, theyalso contribute to solutions to sustainability issues, including
problems in our societies and our environment. In particular,
Daiichi Sankyo works on innovation (Goal 9) to resolve unmet
medical needs6, such as cancer and other non-communicablediseases, rare diseases, malaria, tuberculosis and NTDs
(neglected tropical diseases). The company is also responding
to climate change (Goal 13) by reducing environmental impacts
and environmental risks in all its business activities and its
efficient use of resources.
In order to step up sustainability initiatives and ESG compliance,
the company has consolidated its organisational structure
and institutions in recent years. In response to internationalframeworks including the SDGs, it revised the Daiichi Sankyo
Group Corporate Conduct Charter in 2019. It also expanded
and organised its Environmental Management Committee
into the EHS Management Committee. Further, whileadministration was previously performed by the CSR Division,
joint administration is now carried out by the CSR Division and
Human Resources Division. Accordingly, the company was able
to expand its system of EHS to all group companies, including
those overseas, and set up a system for uniform managementof Environment (E), Health (H) and Safety (S), areas with a highly
probability of risk occurring simultaneously, as it contributes tocreating sustainable societies in its business activities overall.
Additionally, in May 2019, the company Chairman, George
Nakayama, became the Chair of the Committee on Responsible
Business Conduct & SDGs Promotion of the Japan Business
Federation, thereby raising awareness on the SDGs and ESG
among management and employees.
Even before ESG began to attract attention, the company
placed great importance on the environmental impacts of
its pharmaceuticals and disclosed environmental data. The
company has culture always trying to respond as early as
possible to demands from the world. In October 2016, it was
the second company in Japan to receive SBT certification for
its CO2 reduction targets (27% compared to 2015 reduction
by 2030) up to year 2030 in accordance with the targets of theParis Agreement.
In one initiative to achieve the CO2 reduction targets, thecompany decided to install a self-consumption solar power
generation facility (3.3 MW capacity), the largest facility inthe country run by a pharmaceutical company, at the group's
Onahama plant (Iwaki City, Fukushima Prefecture). The facility
is expected to be completed and operating within fiscal 2020.

6This solar power generation facility is predicted to reduce
approximately 20% (roughly 1,800 tons/year) of the plant's
annual CO2 emissions.

Concept drawing of the Onahama Plant onsite
solar power system following completion

External ESG evaluation for the company is high. For example,
from 2017 it was selected as an index component for thepharmaceuticals sector for three consecutive years in the Dow
Jones Sustainability Indices World Index (DJSI World), oneof the world's major ESG investment indices. The company
began to respond in earnest to DJSI and other indices in
2014, augmenting information disclosure including numericalinformation and analysing evaluation content to provide
feedback throughout the group. There was reportedly someresistance to information disclosure within the company at first,
but these high evaluations have made the company see it in amore positive light.
Daiichi Sankyo views ESG external evaluations as a way toenhance its reputation and corporate value. On the other
hand, because research and development and product quality
issues, which are at the core of its business, are included in
evaluation, the company places importance on evaluations thatreflect its everyday initiatives and on filtering these back into
its organisation. However, on occasion, different investors or
evaluating institutions demand different things or make different
points. At these times, the company returns to its corporate
philosophy and reconsiders the details of evaluations. In thismanner, Daiichi Sankyo strengthens its contributions to theSDGs, which are its core business, through ESG compliance.

‌Medical needs for which there is still no treatment method or medicine.

46

Annex 3. Example Initiatives by Operating Companies on ESG and the SDGs

Takashimaya Co., Ltd.

Steadily advancing initiatives based onunderstanding of the SDGs
The Takashimaya Group is currently discussing andimplementing initiatives in the seven areas of "energy","environment", "food waste", "merchandise", "universal design","workstyle" and "employee awareness" (see figure), as it aims
to both contribute to solving problems faced in our society andto grow through its business activities. Specific examples of
initiatives include reduction of plastic bags and straws towardachieving zero plastic waste, revision of sales methods toward
reducing food waste, expansion of universal merchandise andrecycling, and the enhancement of universal design for in-store
signs and customer service.

es for sustainable■Initiatives■Initiatives
forfor
growthsustainable
sustainablegrowth
growthsustainable
To growthToachieveachievesustainable
sustainable
basedgrowthongrowthabasedstrongbased
on on
a strong
awarenessa strong
awareness
awarenessofof ofs includingsocial
povertysocialissuesissuesincludingandincludingenvironmental
povertypovertyandandenvironmental
environmental
issues,issues,issues,
with
with
with
aa a
understanding
group-widegroup-wide
ofunderstanding
SDGs
understanding
principlesof SDGsof SDGsprinciples
principles

Environment

Reduce use of plastic
shopping bags andther plastic products

d lossview
methods

EnergyAnnounce
Environment
Environment
Participation inpromote discussion on solutions.
One of these initiatives, starting 1 April 2020, involves achange in material and a new charge for plastic and paper
shopping bags for food products. To decrease impacts on theenvironment, Takashimaya converted its plastic shopping bags,
used mainly for food sales, to a bioplastic with 90% plantbased material, and converted paper shopping bags for food®
products to FSC certified material. Both bags are now provided
at a charge. The group has also begun at all of its stores toencourage customers to use reusable shopping bags and to put
their purchases in shopping bags they are already carrying in aneffort to promote environmentally-friendly lifestyles.
The group intends to move steadily forward in each of its
initiatives toward realising sustainable societies based on astrong awareness of social issues and working together with its
customers and all stakeholders.

EnergyEnergyAnnounce
Announce
Products
Products
Products
Participation
Participationinin
ReduceReduceuse ofuse
plasticof plastic
RE100
and
EV100
RE100
RE100
and
and
EV100
EV100 Expand
Expanduniversal
Expanduniversal
universal
shopping
shopping
bagsbags
and and
ProductProductrecycling
Product
recycling
recyclingotherotherplastic
plastic
products
products

Food
Food
loss
loss
Review
Review
sales
sales
methods
methods
Workstyle

Equal pay for
equal work

Universalization
Universalization
Universalization
Improve
Improvein-store
Improvein-store
in-storesings
singssings
And interactions
And interactions
And interactions
withwith withcustomers
customers
customers

Raising awarenessRaising
Raisingawarenessofawarenessof ofWorkstyleWorkstylestaff members
staffstaff
members
members

Equal
Equal
paypayfor for
Organize
Organize
Organize
all-hands
all-hands
equal
equal
work
workall-hands
workshop
workshop
workshop

Initiatives for sustainable growth

The group aims to have 100% of the electricity used in its
business activities come from renewable energy sources by
2050, and to convert all vehicles under its direct management
to 100% zero emission vehicles or electric cars by 2030.
Toward this aim, in September 2019, the group joined in two
international initiatives, "RE100" and "EV100". The group also
participates in the Japan Climate Initiative (JCI), which aims
to realise a decarbonised society, and the Japan Climate
Leaders' Partnership (JCLP), a Japanese business group thatviews the shift to decarbonisation from the perspective of
business. Through this participation, the group has increased
its interactions with numerous companies and groups andexpanded its network.
The Takashimaya Group focuses on ensuring that actions aretaken based on a strong awareness of SDGs concepts. The
group's aim is for all people working in the group to havean accurate understanding of the principles of the SDGs,
and to contribute to realising sustainable societies based oncooperation with all stakeholders. The group believes that it
can contribute to achieving the goals of the SDGs when eachand every person thinks deeply about what can be done
and gets actively involved. Thus, it is unfolding programmesthat facilitate an accurate understanding of social issues and47

New design for shopping bags

mascot character "Rose-chan",holding the globe and message that
NewOurdesignfor shopping bags
says “hand down the beautiful world to the next generation” printed
them in japanese.
Our mascot characteron"Rose-chan",holding
the globe and mes
that says “hand down the beautiful world to the next
generation“printed on them in japanese.

Annex 3. Example Initiatives by Operating Companies on ESG and the SDGs

Fast Retailing Co., Ltd.

"Unlocking the Power of Clothing": Addressing global
sustainability challenges as a global apparel company
Fast Retailing has announced "Unlocking the Power of Clothing"as its sustainability statement, and placed sustainability at thecore of its business strategy. The company works to provide
solutions to issues in three areas that underpin its business,"People", "Planet", and "Community". It views changes in
consumer awareness, such as the perspective of the millennial
generation that is highly aware of sustainability, as opportunities
to create new value.

creating a global benchmark with individual topics, from plastics
to gender, the company feels that sufficient guidelines should be
provided when requesting companies to disclose information
on new topics. Furthermore, it would like to see questions
designed based on an understanding of each company's
business model and the particular characteristics of the industry
type, when ESG researchers evaluate and compare companies’
performance.

Fast Retailing believes that the SDGs and ESG represent societal
demand for responses to sustainability issues through corebusiness activities, and that responding to this request is linked
to enhancing future corporate value. Although ESG complianceis targeted mainly at investors, in practice it is typically cited as
an external assessment of initiatives. The company views ESG
as a benchmark for responding to the needs of all stakeholder
groups and for confirming whether sustainability activities andrelated information disclosure meet global standards.

While viewing the SDGs and ESG as a benchmark, Fast Retailing
actively engages in international debate on sustainability anddialogue with groups working to mainstream this debate.
Moreover, through participation in international industry
groups, the company works to compile information on a global
scale to ensure the comprehensiveness and consistency of its
activities and information for disclosure. The company intends
to future strengthen its initiatives to contribute to sustainable
development in society through the apparel business.

Two features of Fast Retailing's approach include appealing
to its customers and disclosure of diversified information with
ESG as a focal point. The company's Sustainability Report is
simplified in a way that makes it easy for diverse stakeholders
to get an overall view of the company's initiatives, with details
and technical information released on the company's website
and in its Sustainability Data Book. For instance, in the area of"People", the company engages in human rights due diligenceand promotes diversity, and has responded to issues in theindustry including through disclosure of the core partner
factories and results of workplace monitoring of partner
factories. In recent years, the company has also disclosed
detailed information based on the CHRB (Corporate Human
Rights Benchmark). For the "Planet" area, the company appeals
to its customers by taking a circular economy approach throughits products, such as collection and recycling of UNIQLO’s
down products and utilisation of recycled polyester, and isengaging in information disclosure to investors through CDP. In
the area of "Community", the company has continued to engage
in recycling and donation of its products, particularly via its "AllProduct Recycling Initiative" communicating on how the clothes
it donates are helping in an easy-to-understand manner. For
responding to expectations from investors, based on the LBG
7
Guidance Manual , the company for the first time disclosed thetotal amount of its community investment and the breakdownof these expenditures.
One issue raised by Fast Retailing, which has actively compliedwith ESG, is how to efficiently comply with the increasing
number of evaluation indices. Although there is a trend toward

7

Scene from the All-Product Recycling Initiative‌
LBG(London Benchmarking Group) is a network that provides a global standard for measuring the amounts and achievements of corporate community
investment. The LBG Guidance Manual is recommended for use in ESG evaluation.

48

Annex 3. Example Initiatives by Operating Companies on ESG and the SDGs

Marui Group Co., Ltd.

Inclusion-based "Co-Creation Sustainability
Management"
Since its founding in 1931, the Marui Group has continued to
evolve its unique business model merging retailing and financeto reflect the changes in the times and in customers. At present,
in its third period of innovation, the group is converting its
stores from department store to shopping centre-style stores.
It is also moving the focus of its credit cards business awayfrom just settling accounts like making payments and loans,to providing asset formation and a variety of financial services.
Accordingly, the ratio of recurring revenue in the group's sales
revenue has increased substantially as its foundation for stable
growth continues to solidify. Alongside these developments, thegroup's sustainability initiatives have steadily progressed. It was
selected for the Dow Jones Sustainability World Index for two
consecutive years and has been highly rated both in Japan andoverseas.
The ideal for Marui Group is illustrated in its Mission Statementand 2050 Vision. The group's mission is to "contribute to cocreating a flourishing and inclusive society that offers happinessto all". The roadmap for the accomplishment of this mission isoutlined in its vision: "Harnessing the power of business to build
a world that transcends dichotomies". The dichotomies refered
to include male and female, adult and child, able-bodied anddisabled, wealthy and low-income, and present generation andfuture generation. The Marui Group is focusing on "inclusion" as
the key to rising above these dichotomies.

April 2017, it reorganised its CSR Promotion Department into
the Sustainability Department. At the management level, thegroup established a Sustainability Committee in May 2019 todeliberate on a group-wide sustainability strategy and related
initiatives. The committee reports to the board of directors
and offers recommendations. Likewise, sustainability targets
were introduced as performance indicators of medium-tolong term incentives for director compensation to link director
8compensation to Co-Creation Sustainability Management.
To provide information disclosure, every year the group issues
the Co-Creation Management Report (integrated report) andthe Co-Creation Sustainability Report (previously the CSR
Report), which report in detail on its business model and future
initiatives. Additionally, from 2017, the group has released
ESG Data Books that compile the ESG-related data disclosed
in reports and on the group website. The group intends tocontinue its efforts in ESG compliance, gaining the understandingof its customers and employees and implementing initiatives
that serve as a driving force in furthering this trend in society as
a whole.

The group is supported by a wide range of stakeholders,
including customers, shareholders/investors, business partners,
communities/society, employees, and future generations.
It believes that true corporate value lies in expanding theintersections at which the interests (happiness) of all six
stakeholder groups overlap (see figure). Its "Co-Creation
Sustainability Management" approach is aimed at promoting
this corporate value through environmental activities, solutions
to social issues, governance initiatives and future-oriented
management that integrates all business.
The group has always aimed to contribute to society throughits core business activities. Yet, it was not always comfortablewith the term "CSR", which nuances something in addition tocore business. In this regard, the group relates more easily to
ESG as a standard of evaluation because it views contributing
to society to be one and the same as its core business.
From this perspective, in recent years the group has made somestructural adjustments to consolidate its ESG (sustainability)
management. In October 2015, it established an IR Department
independent of its Financial Department, and in October
2016, set up an ESG Promotion Department. Likewise, in

849Marui Group's view on corporate value‌Specifically,in addition to increasing the ratio of compensation linked to performance aside from fixed basic compensation, the number of shares of thecompany's stock that are to be allocated are determined according to the level of achievement of three KPI (ROE, ROIC, EPS) and ESG performance indicators
for the period from March 2020 to March 2021.

Annex 3. Example Initiatives by Operating Companies on ESG and the SDGs

Mitsubishi Estate Co., Ltd.

Aiming to be a leading company in sustainability
by responding to the demands of society
The corporate philosophy of the Mitsubishi Group draws on
150 years of history. That shared philosophy is encapsulated
in a creed articulated by the fourth president of the Mitsubishi
organization, Koyata Iwasaki, in the 1930s. Today this philosopy
is referred to as the "Three Principles" (called "Sankoryo" inJapanese). One of these principles, "ShokiHoko ", implies thatthe ultimate objective of business activities is contribution
to society. Today, this principle is interpreted as the aim
to "strive to enrich society, both materially and spiritually,
while contributing towards the preservation of the global
environment". The ongoing values of the Mitsubishi Group arehighly compatible with the concepts of the SDGs and ESG,
which are aimed at global sustainability.

Environmental Sustainability Department" to the "Sustainability
Management and Promotion Department". This department
was put in charge of ESG, with a focus on "E", promotion of
initiatives related to all areas of sustainability, and information
disclosure. The department coordinates with Human Resources
regarding "S" and General Aﬀairs regarding "G" in the promotionof initiatives.
In January 2020, the group formulated its "Long-Term
Management Plan 2030" to drive its strategy to increase bothsocial value and shareholder value. Likewise, it also formulated
the "Mitsubishi Estate Group Sustainability Vision 2050" toclarify a corporate vision for the year 2050. It then drafted the"Mitsubishi Estate Group 2030 Goals for SDGs" to serve as
milestones for concrete topics to be addressed and actions
taken to realise the corporate vision, taking into account theseven material issues.

Based on the spirit of the "Three Principles", the mission of the
Mitsubishi Estate Group is, "We contribute to society throughurban development". While the group has long been working inurban development aimed at the well-being of all stakeholders,
including the global environment, it first declared its aim tobecome a leading company in ESG within its Medium-Term
Management Plan which began in 2017. From this starting
point, Mitsubishi Estate began in earnest to accelerate initiatives
in ESG. This declaration came about within the context ofheightening external demands, such as the SDGs, adoption of
the Paris Agreement and an increase in investors signing the PRI.

The group is currently working harder than ever before on
sustainability initiatives. It became the ﬁrst comprehensive realestate company in Japan to release green bonds (June 2018).
Likewise, it joined the RE100 initiative (January 2020) andpledged support for the TCFD Recommendations (February2020). As a real estate developer going into the future, thegroup aims to do more than merely loan spaces in its building
to tenants. It aims to create the most sustainable communities
in Japan, communities that function and provide services in ahigher dimension, providing places where nature, people andcompanies to want to come together. Expectations are highthat Mitsubishi Estate will continue to expand its sustainability
initiatives into the future.

In response to these global calls, the Mitsubishi Estate Grouplaunched an internal working group in ﬁscal 2018 to determinematerial issues from the perspective of the SDGs. It establishedseven new material issues (environment, globality, community,
diversity, digital innovation, declining birthrate & aging
population, and leveraging existing properties),
put together
ESGandInitiatives
both the risks and opportunities involved in each of the material
issues. In accordance with the Paris
1. ESG Initiatives (Overview)
Agreement, group-wide Science-Based
Mitsubishi
Targets (SBTs) (medium to long term
Estate Group’s
Creation of a truly meaningful society through urban development
GHG emissions reduction targets)
Missionwere formulated in March 2019, as
Identify 7 materialities
considering environmental shift surrounding the Groupthe group stepped up its response to
climate change.
Group’sMaterialities

In fiscal 2019, the group transferred
responsibility for sustainability
issues, which had previously been
under the jurisdiction of General
Affairs and Human Resources, toCorporate Planning. This transfer
was based on the intent to further
integrate sustainability into corporate
management and put forward thecorporate stance to keep creating
value in society in the medium to longterm. The name of the department
was also changed from the "CSR &(P39)

Establish key themes and KPIs for the 2030s
Mitsubishi Estate Group Sustainable Development Goals 2030
Key Themes

1. Environment 2. Diversity & Inclusion 3. Innovation 4. Resilience

Environment
Protecting the environment

Social

(P41)

(P42)

Human resource and resilience

Governance(P40)(P43～44)

Corporate governance system

ESG value-creation initiatives
through business
Value Propositions

Sustainability
Social issue solutions

Quality Of Life

Innovative services & experiences"Materialities = the degree of relevance of an ESG initiative to the company's domain; also, such an initiative that is deemed highly material”
MITSUBISHI ESTATE CO., LTD.

ESG Initiatives (Overview)

3850