Covid-19 triggers fall in Japanese sustainable assets

July19, 2021

The use of ESG integration strategies have increased by 15.4% year on year in Japan, despite a decrease in the country’s sustainable investment balance, a Japan Sustainable Investment Forum (SIF) White Paper has found. 

In a survey of 45 Japanese institutions, the organisation found that an increase in the number of businesses adopting ESG approaches was being offset by a fall in sustainable assets under management. 

Japan’s sustainable investment balance was ¥310trn ($2.8bn), a decrease of ¥26trn compared with the organisation’s 2019 survey. 

Sustainable assets attributable to Japanese stocks totalled ¥97.8trn, a decline of ¥30trn in two years, while the balance for non-Japanese stocks decreased by ¥31.3trn to ¥50.1trn, marking a significant decline.  

The percentage of total funds under management accounted for by sustainable investment also fell, from 55.9% in 2019 to 51.6% in 2020. 

The Japan SIF report says that Covid-19 and the slump in the Tokyo stock market played a major role in the 2020 declines. The TOPIX 500 index fell by 26% between 3 January and 13 March last year as the pandemic took hold – although it subsequently recovered to finish up 5% for the year in yen terms. 

The report also highlighted an increase in engagement between institutional investors and companies, with the adoption of the 2015 Paris Agreement on climate change and the UN’s Sustainable Development Goals being important drivers of dialogue. 

Investor activism has become more prominent, the report acknowledges. Recent proposals against ExxonMobil and Mitsubishi UFJ Financial Group have resulted in mixed outcomes – but the report suggested that more shareholder proposals were likely, with the number of institutional shareholders supporting the proposals increasing. 

The Japan SIF also voiced concern over the confusion surrounding the term “ESG investment”. It said that one source of confusion was the fact that the terms “ESG integration” and “ESG incorporation” were not well understood in Japan. This meant that “ESG investment” had taken root, omitting important additional aspects of sustainable investing. 

The paper also highlighted the “extremely important” role of Japanese technology companies in global efforts to achieve decarbonisation targets, and acknowledged the progress that needed to be made to achieve better board representation.