# Financial Institutions' Efforts on the Environment

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We introduced the “Equator Principles” as an example of efforts by financial institutions to voluntarily integrate environmental issues in their lending operations. Aside from institutional efforts, it is also important for individuals to act by altering their consciousness about the environment.

For example, a major international financial institution encourages employees to take part in volunteer activities by treating their participation in environmental practices of a non-profit organization (NPO) as “business trips.” In volunteer activities, this financial institution supports a project, among others, to investigate a linkage between climate change and coastal ecosystems, helping the collection and analysis of data on seaweed beds for marine plants and rocky intertidal zones, which play important roles as habitats for animals and plants in coastal areas in temperate marginal zones.

Environment-friendly financial flows may be expected to accelerate going forward if financial institution employees become more conscious about A Scene of Financial Institution Employees Participating in Volunteer Activities

Source: HSBC Holdings plc, "HSBC Community Activities"

the environment and loans to finance initiatives that contribute to environmental conservation and sustainable development become commonplace practices.

# Section 4 Global Environment and Economic and Social Activities

The environment provides the foundation for sustainable development of the economy and society. Hence, a variety of environment problems are important challenges that threaten stable economic and social activities and at times, even their continuation. The Japanese economy, meanwhile, remains under difficult circumstances, though it is recovering from the latest economic crisis. The progressing decrease in the labor force and the declining savings rate are feared to have adverse impacts on Japan's economic growth going forward, while the Japanese economy is exposed to competition not only from longstanding rivals in the developed world but also from China, India and other emerging economies that have moved into the global market on the back of cheap and abundant labor and the large-scale introduction of foreign capital.

In order to overcome these difficulties concerning the environment and the economy, it is necessary to maintain and reinforce the international competitiveness of the environmental industry, the strong point for Japan, by striving toward further development and spread of environmental technologies through creative innovation. With these environmental technologies and the environmental industry as the driving power, it is also necessary to sever the linkage between economic growth and increases in resources/energy consumption accompanied by environmental loads, and strive to reduce environmental loads while sustaining economic growth.

Along the line of this approach, in this section, we give an overview of policies necessary for the development of the environmental industry going forward, centering on the promotion of innovation in the environmental field (green innovation) and consider a new socioeconomic system that creates a virtuous circle for the environment and the economy.

## 1 Promotion of Green Innovation by Environment Policy

## (1) Environment policy that creates green innovation

Internalization of social costs of environmental loads (external diseconomy) through environment policy should increase demand for environmental technologies and lead to the creation of green innovation. As demonstrated by the dramatic advance in low carbon technologies since the adoption of the Kyoto Protocol in 1997, it is important to send clear messages to the market for business investment decisions in research and development for low-carbon technologies in the private sector (Figure 5-4-1).

When multiple policies can be considered for the identical goal, it is desirable to take flexible policy approaches to allow options to develop and introduce various new technologies. Given this point of view, for the promotion of green innovation, it is important not only to introduce direct regulations specifying the reduction