## (2) Examining Carbon Offsets in Japan

The Ministry of the Environment launched a study group in September 2007 to study ways to implement carbon offsets and summarized its findings in a guideline “Guidelines for Carbon Offsetting in Japan” in February 2008. The guideline laid out basic principles for implementing carbon offsets, covering subjects such as methods for calculating emissions from carbon offset activities, carbon offset credits, and registration procedures, with a view to enhancing understanding of carbon offsets, building public trust in carbon offset activities, and establishing a foundation for promoting offset activities. In line with the guideline’s principles, the Ministry expressed its intention to support and popularize carbon-offset activities, such as by establishing a carbon offsets forum to provide information and consultation services, in order to encourage voluntary emissions reduction activities by the actors that will make up a low carbon society.

## 5 New Development in the Financial Market

In this chapter so far, we have discussed expansion of the eco-business market and emissions trading market. Today, there is wide perception in the society that a business' response to environmental issues may affect its corporate value. At the same time, financial institutions, which provide funds to businesses, have developed greater interest in the environment.

The financial function, which facilitates economic activities, plays an important role in the creation of a low carbon society. More specifically, if the financial sector takes into consideration not only financial gains for its investment and financing decisions but also social values, such as benefits to the environment, it will change the monetary flow and bring forth immense changes to our economic society.

To promote environmentally conscious investment and financing, companies must make environmental information available to enable investors to make investment decisions from an environmental perspective. The environmental report is one of the tools companies use to disclose environmental information. In recent years, financial statement reports also began to include environmental information.

In view of these trends, we will present examples of environment being used as a criterion in investment and financing decisions.

## (1) Socially Responsible Investment on the Rise

Socially responsible investment (SRI) refers to investment made not just from the financial perspective of profitability but also from the perspective of investing in businesses that take a proactive approach in tackling environmental and social issues.

SRI was begun in the 1920s by American churches, which excluded companies that were repugnant to their religious belief or ethical standards from their asset management. Such a selective investment approach, known as negative screening, screened out specific brands and businesses based on religious and ethical reasons. In the 1970s, riding the tide of civil rights and anti-war movements, shareholders actively demanded corporate social responsibility from the companies in which they invested, giving rise to the shareholder proposed SRI approach. Another type of SRI approach also emerged. It was a form of community investment aimed at boosting economic independence by providing low-interest loans to the poor to purchase housing and providing funds to small businesses. Since the 1990s, with the heightening interest in corporate social responsibility, the social activities of companies came under scrutiny and companies that scored high in their social contributions were selected as investment targets, popularizing the use of this social screening approach. Among the social screening approaches, positive screening is gaining wide acceptance today in western countries. It uses a specific standard to evaluate companies that excel in activities tackling social and environmental issues.

International organizations also appeal to investors to take the environment and society into consideration when making investment decisions. In 2006, the UNEP Financial Initiative (UNEP FI), in partnership with the UN Global Compact, issued the Principles for Responsible Investment (PRI), a standard for institutional investors to evaluate their investment. The objective of PRI is to reflect the factors—environment (E), society (S), and governance (G)—in the investment decision-making process of institutional investors worldwide. As of April 2008, 352 institutional investors and asset management organizations (including 13 organizations from Japan) have signed up. The assets managed by these signatories total approximately 13 trillion dollars. In the financing field, the Equator Principles have been adopted. They are a project-financing benchmark for the financial industry to ensure that large-scale projects are carried out with