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Responsible Investor Japan 2022 evaluates progress
ESG/SDGs
MAIKO MURAOKACONTRIBUTING WRITER

With a boost in the global campaign
for the United Nations’ 17 sustainable
development goals (SDGs), it seems likeeveryone is thinking about how to makea positive impact. Investors and othersin business and finance are no exception— indeed, they are the ones who need totake the initiative, not only because irresponsible business practices can hurt society, but also because making the world
sustainable requires tremendous financial
and technological resources.
To this end, one of the most important
points of discussion in recent years has
been how to evaluate and invest into companies that are making or have the potential to make a greater impact on society.
Responsible Investor Japan 2022, anannual event consisting of panel sessions
focused on sustainable finance in Japanand abroad, was held at Toranomon Hills
Forum in Tokyo’s Minato Ward on May
24 and 25. Every year, Responsible Investor produces multi-stakeholder, specialist events designed to promote strategic,sustainable change in financial markets
through leadership. This time, more than
90 speakers — including finance professionals, specialists on environmental,social and governance (ESG) issues andsustainability, academics, business leaders, government officials and policymakers — gathered to discuss the prospects
for ESG and the future of sustainablefinance.
On the first day of the event, Vice Minister of the Ministry of Environment
Tokutaro Nakai said in his keynote speechthat “it is necessary to redesign a sustainable and resilient economy to enable atransition to a decarbonized society, circular economy and decentralized society inharmony with nature.”
To do this, the Ministry of the Environment has been hosting the ESG FinanceHigh Level Panel since 2018 in a bid to takethe initiative in discussions on domestic
ESG finance based on global trends as well
as regional perspectives.
The panel’s Positive Impact Finance
Task Force created the Green Impact
Assessment Guide last year to help
regional financial institutions engage withlocal companies to make positive impacts,and has already produced some successful
cases.
Although many environmental issues,
including climate change, are global, solutions must come from regions to allow fordiverse regional conditions and maximize
their potential. “We aim to address various
regional issues while decarbonizing theregions by utilizing local characteristics,”
Nakai said.

He is optimistic about the growth of
the green finance market in Japan but
also pointed out that domestic guidelines
related to sustainable and responsible
investment need to be improved by referring to international ones.
The problem is that there have been too
many international guidelines, making it
hard for enterprises to decide which to follow, and even harder for investors to learn
which company is compliant with which
guideline and what that guideline says.
The IFRS Foundation, an international
nonprofit specializing in the developmentof global accounting and sustainability
disclosure standards, formed the International Sustainability Standards Board(ISSB) last year to create a consolidated setof sustainability-related disclosure standards that provide investors with reliable
and comparable information about companies’ risks and opportunities.

Common yet adaptable targets
In the Plenary Session 1, which dealt withthe topic of international standardizationin sustainable finance, Janine Guillot, CEOof the Value Reporting Foundation andspecial adviser to the ISSB chair, said, “We
are simplifying the disclosure landscape.”
While admitting that some people view
the ISSB as just yet another framework,
she said it is moving forward to create aconsolidated guideline on sustainability
and climate disclosures, with a 120-day
consultation period for the two proposals
closing on July 29. Guillot said the ISSB isaiming to issue the new standards by theend of the year.
Chris Newton, executive director of
responsible investment at IFM Investors,
said investors “can’t wait for the standards
to be set” and must use what is available
because if they waited until the standards
are finalized, the market would be rolling
faster, making it harder to catch up.
Yoichi Mori, technical director of theJapanese Institute of Certified Public
Accountants (JICPA), said, “The standardssetting effort is progressing in Japan andabroad, but the important thing is how
the standards in Japan and the global onesconnect with each other.”Global standards would inevitably
have limitations when it comes to taking regional situations into consideration,and thus may lack full validity and equality. Yet having a common target helps
different countries to look in the same
direction. Using a consolidated set of international standards to design regionally
viable ones may be a balanced solution. As
Mori said, “The challenge is to how to build
a consistent architecture by connecting
them instead of separating them.”

Social issues tend to vary mostAmong many aspects associated with ESG
and sustainable finance, social factors tend

At the Plenary Session 2 (from left): moderator and PRI Senior Lead Michiyo Morizawa; Masaaki
Amma, executive officer at PricewaterhouseCoopers Sustainability; and Takeshi Mizuguchi,
President of Takasaki City University of Economics THE JAPAN TIMESPlenary Session 3 (from left): Moderator and head of the Nomura Research Center of Sustainability,
Akane Enatsu; Will Oulton, global head of responsible investment at First Sentier Investors; Hideki
Takada, director for strategy development at the Financial Services Agency; and Takeshi Kimura,
executive officer and special adviser to the board at Nippon Life Insurance Co. THE JAPAN TIMES

to vary the most by region. In the Plenary
Session 2, speakers touched on the growing emphasis on social factors and some ofthe pressing social issues that companies
and investors in Japan need to address.
Peter Reali, managing director for
responsible investing at Nuveen, said
many of the topics that responsible enterprises are expected to deal with — such as
diversity and inclusion, human rights andgender equality — fall under the social category in ESG. “I think that attention to ‘S’issues is going to continue to develop overthe next few years. While I still think thatclimate risks and environmental issues
will be a top priority, I do see more attention being paid to the ‘S’ elements,” he said.
The president of Takasaki City University of Economics, Takeshi Mizuguchi,
who specializes in responsible investment
and disclosure of nonfinancial information, said Japan has its own social contexts.
“There is an issue of income divide
between regular and nonregular employees, and there is gender inequality, as seenin the fact that there are more female nonregular workers. This may be the result of
the conventional working style of regular
employees,” he said. A culture of strong
commitment to the company — long
working hours, never turning down transfers — makes it harder for people whoare, for instance, taking care of aged family
members or babies.
“Unless we address this structural problem, the birthrate will continue to decline
and about half of the human resources
will remain untapped,” Mizuguchi said.
He added that companies and investors
must address economic inequality for
their own sake to prevent the depletion ofhuman resources, with particular priority
on changing the way regular employees
work and improving training for nonregular employees.
Mizuguchi argued that it is rational in
the long run to spend money on solving
this issue, and companies should encourage investors to help them. He also notedthat investors need to encourage companies to disclose their efforts associatedwith social issues and incorporate theminto their investment evaluation.

‘Ratings is just a starting point’

Among the criteria available to investors
are ratings by ESG rating agencies. In the
Plenary Session 3, speakers discussed therole and challenges of ESG ratings as wellas what to expect from the European
Union’s Sustainable Finance Disclosure
Regulation (SFDR), which was implemented in March 2021.
Takeshi Kimura, special adviser to theboard of Nippon Life, said that “some kindof guidance on quality control is necessary
for ESG ratings agencies” to maintain credibility. He said it is important for investors to conduct their own research andPeter Reali, managing director for responsible
investing at Nuveen, joined the Plenary Session
2 remotely. THE JAPAN TIMES

Priscilla Luk, managing director of global
research and design, APAC, at S&P Dow Jones
Indices at Plenary Session 2. THE JAPAN TIMESTokutaro Nakai, Vice Minister of the Ministryof the Environment gave the keynote speech.
THE JAPAN TIMES

analysis instead of relying entirely on ESG
ratings, so as not to miss the buds of innovation. “Ratings is just a starting point, notthe goal,” Kimura said.
Antonio Fuentes, head of sales at
RepRisk, said: “It’s a black box when it
comes to ESG ratings and methodologies.
I’m not a big supporter of man-made ESG
ratings, because they could be biased toa certain extent.” He added that a clear
methodology would be key, and would
also need to be made public.
The director for strategy development
at the Financial Services Agency, Hideki
Takada — who is also the founder of theGreen Finance Network Japan (GFNJ),
which brings together key players ingreen finance in Japan — pointed out that
although some enterprises are demanding
clearer evaluation criteria from ESG rating
agencies, some of the agencies complainthat not all companies are providing comprehensible data. “We are beginning toAntonio fuentes, head of sales, RepRisk
participated remotely of plenary 3
THE JAPAN TIMES

Between Japan and the world
A session moderated by the publisher andchairperson of The Japan Times, Minako
Suematsu, consisted of realistic discussion
from a panoramic perspective with consideration for regional characteristics andthe importance of disseminating information from Japan to the world.
Shinji Miyaji, representative director
and senior executive vice president of
AGC Inc., said, “The world seems to be alittle more realistic than it was a while
ago, when everyone did nothing but bring
down companies emitting large amountsof CO2 by calling them evil.”

He pointed out that such a mindset may
have prevented companies from advancing their technologies to continue manufacturing domestically and instead led to
low-quality products being shipped fromafar — emitting large amounts of CO2during transportation. “We need to have abroader view and optimize the entirety,”he said, adding, “We will see the progress inthe optimization of entire supply chains,
and who will be covering the cost for that— this would be the kind of discussionthat is going to take place.”
Fumiyo Harada, the chief manager of
the Sustainability Management Office atthe Development Bank of Japan Inc., said,“It is about identifying every aspect of yourproducts or services, starting from whatmaterials are used.” She admitted that carbon emissions are rather simpler to measure than natural capital or human rights,
and also that the rules often come from
Europe. “But these elements have locality. Attitudes toward nature vary according to region,” Harada said. In addition,
she stressed the importance of Japanese
engaging actively in global discussions
from a Japanese standpoint.

Symposium examines financial
pathways to net-zero future
ESG/SDGs
JACOB REEDCONTRIBUTING WRITER

A symposium sponsored by the Financial
Services Agency (FSA) on May 26 invited
finance and industry experts both in Japanand from abroad to give their views on thefinancial sector’s role in creating pathways
toward a net-zero future.
After the opening remarks by Shunichi
Suzuki, the minister of state for financial
services, came a prerecorded dialogue on
the state of sustainable finance between
Mark Carney, the U.N. special envoy forclimate action and finance and chair of the
Glasgow Financial Alliance for Net Zero
(GFANZ), and Hiromichi Mizuno, the U.N.
special envoy for innovative finance andsustainable investments.
Mizuno observed that momentum isbuilding within sustainable finance as evidenced by COP26, the 2021 U.N. climate
conference. Carney agreed, saying, “The big
news at COP26 was the scale and enthusiasm of commitment and involvementfrom the private sector.” He estimated thatin 2020 there were only around 600 companies with science-based net-zero commitments. “Now there are over 7,000,” heexclaimed.
Furthermore, GFANZ has been instrumental in getting financial institutions
and asset managers to commit $130 trillion in capital toward the transformation
to net-zero. “And these are not just far-off
2050 targets,” Carney continued. “Theyhave short-term targets, 2030 targets, andannual reporting of all emissions of portfolio companies.”
The Japanese finance sector’s early
adoption of the framework created by
the Task Force on Climate-Related Financial Disclosures has helped to tip thescales in favor of transition finance globally. Not only are other countries such as
the United States explicitly basing theirclimate disclosures on TCFD, but theguidelines are expected to become mandatory in the future. Japan’s continued
leadership will be paramount for global
decarbonization.

Scramble for energy

CFOs View: Moderator and Japan Times chairperson and publisher Minako Suematsu; Shinji Miyaji,
representative director and senior executive vice president at AGC; Ryohei Yanagi, Eisai CFO andvisiting professor at Waseda University; and Fumiyo Harada, executive officer (GRIT) and chief
manager of the Sustainability Management Office at the Development Bank of Japan THE JAPAN TIMES

understand that there is a communication
challenge among the stakeholders, whichneeds to be addressed for them to function as a unified ecosystem,” Takada said.
On the other hand, the EU has taken a
step forward and created the SFDR, a regulation that requires financial service providers and owners of financial products toevaluate and disclose not only their own
ESG factors but also those of their investees. Fuentes explained that the merit of
the SFDR is that data comes from outsidecompanies themselves, minimizing thepossibility of hiding risks and preventing
so-called greenwashing.
Takada said Japan is currently in thephase of calling for voluntary action by
investment stakeholders before discussions on legal regulations take place. He
added, “Before anything, there is this principle that no one should sell products that
deceive customers regardless of ESG.”

What high energy prices due to the
Ukraine crisis have revealed is not necessarily that the transition is being pushed
too strongly. Carney believes that thescramble for energy by Europe and Japan
could be demonstrating the unreliabilityof fossil fuel-based economies. “Countries
are realizing that the relationship between
energy security and sustainability is virtually entire,” he said. In other words, thetransition away from dependency on fos-

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Mark Carney and Hiromichi Mizuno, both U.N.
special envoys, at the symposium FINANCIALSERVICES AGENCY

sil fuels cannot happen quickly enough.
Of course, investment into more green
solutions like solar and wind are welcome.
However, both Mizuno and Carney maintained that renewables are “the easy part”
of decarbonization, and that the transition is not identical everywhere. What isneeded are different base cases and roadmaps for each sector. Transitional fuelssuch as natural gas will be required in
the near term. Over the long term, Carney said, “The case for clean energy isoverwhelming.”
Mizuno estimated that only about 10%of the $130 trillion GFANZ figure is allocated to developing countries — thosemost in need of transitioning. To combat
this, financial institutions in Japan are rolling out “country packages” for nations like
Vietnam and Indonesia. The packages
include both a road map toward sustainability as well as the financial backing tohelp realize it.

Challenges, chances in Asia

“The battle for climate change will be wonor lost in Asia,” declared the symposium’s
keynote speaker, Darian McBain, the chiefsustainability officer for the Monetary
Authority of Singapore. McBain spoke
about the need for rapid decarbonization in Asia, where reliance on fossil fuelsis still high. Asia is responsible for morethan 50% of global energy consumption
and nearly half of global emissions. Furthermore, the World Bank estimates thatdemand for fossil fuels will double in theregion by 2030.
The managing director of the Instituteof Energy Economics, Yukari Yamashita,
added nuance by cautioning against
attempts to ban financing for producers ofoil and gas too rapidly. “Doing so can backfire,” she said, because of energy’s strong
relationship to food supply and domestic
economies, plus concern over causing fossil fuel assets to become stranded. Finding
ways to accelerate the transition in Asia
effectively while considering the uniquesocial and economic conditions in developing countries is an extremely difficultbalancing act.
Work remains to be done in Japan

Sonja Gibbs, managing director and head ofsustainable finance, global policy initiatives at
IIF FINANCIAL SERVICES AGENCY

Tomoko Amaya, vice minister for international
affairs at the FSA FINANCIAL SERVICES AGENCY

as well. The Transition Pathway Initiative (TPI), a free online tool for investors,
is used to assess companies’ transition
initiatives, such as alignment with their
publicly stated goals on carbon neutrality.
Unfortunately, of the 46 Japanese companies currently assessed, only a quarterare aligned with their long-term 2050
net-zero goals, and even fewer with theirshort- and medium-term goals.
But along with these challenges comeexciting opportunities. One of the panelists, Adam Matthews, the chair of the
TPI, said companies that can clearly showalignment with their goals will attract
new capital inflows from increasingly
green-conscious investors and pension
funds.
There are also opportunities for more
renewables and development of innovative technology. Yamashita explained
that, as an energy importer, Japan is wellpositioned to experience outsized growth
in renewables due to increased focus onenergy security. Carbon capture and storage solutions, innovative nuclear reactor
technologies and hydrogen projects are allof interest to investors seeking to support
transition.
What is clear is that effective transition
finance on the part of financial institutions, asset managers and even individual
investors will play a vital role in the fightagainst climate change going forward.
The Sustainable Japan section highlights
issues related to the environment and a sustainable society.
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visit https://sustainable.japantimes.com