Japan is slowly changing its approach towards ESG?

Japan has had a complicated relationship with ESG (environmental, social, and corporate governance) for years now. But as the changing climate is striking the country more and more often nowadays, it has been a matter of time when Japanese citizens decide to take some actions. Natural disasters have always been occurring here, but the few last years have been increasingly plentiful.

Only in 2018, the floods in the west of the country forced more than 2 million people to abandon their houses. The disaster claimed more than 200 lives. In Japan, the temperature is rising at an alarming pace, which is more than three times faster than the average increase measured globally. Over the last 120 years, the temperature in Tokyo has increased by 2.9 degrees Celsius.

The disasters are not only a danger for people’s lives and belongings, but also for the country’s economy. Osaka and Yokohama, two megacities (third and second largest in Japan), have assets worth over $200 billion that are in danger because of the sea level rising.

If you add all of these up, there is nothing peculiar in the fact, that the public demand for solutions to those pressing issues has become intense. In the wake of the 2015 UN SDGs (Sustainable Development Goals), local banks (Nomura for instance) have been pushed to consider new, more climate-friendly solutions and investment opportunities.

Nomura’s Sustainability Finance Section’s Head, Kazuyuki Aihara, believes that disasters such as Hagibis Typhoon woke people up. The Japanese citizens are finally realizing that the global warming is knocking on their doors. Therefore, the investors are currently expected to look into social and sustainability products and services more.

Besides that, banks from Japan have always been following the trends from the United States and Europe, and what we are currently seeing in the West is the immensely increased consciousness regarding the planet and sustainable development.

East Asian trouble with introducing green energy

But in Japan, there is a slight issue with ecology, as the country is heavily coal-dependent in terms of energy. Of course, nuclear plants have been built in the country, but in the wake of the Fukushima tragedy, the social trust in this solution has been close to zero. The power stations have been closed and remain so since. Japan’s ability to cut the emission of carbon has been limited because of that, as nuclear energy is simply much cleaner. This also influences banks’ possibilities in terms of investments.

This is an issue for all the East Asia region, as the economies depend on thermal coal. Many of the countries do not really have any alternatives, and the willingness to invest in green energy is not enough. This is the reason why any transition to solar, hydro, or nuclear power is a difficult task, and for now, it seems impossible.

It has proven to be really challenging for the investors, as there are not enough ESG-based options available. The investors grapple with the need to invest in ecologically friendly solutions for energy when there are not enough of them on the market.

This causes stagnancy, which limits companies’ possibilities. And another problem is that the Japanese banks would rather sit on cash in their safes rather than invest it and take some risks. This reduces investments (of course), but also the scale of innovation. If the innovators are aware of the fact, that they will not receive funding, they will not focus fully on their projects, even if they have brilliant and world-saving ideas.

But this does not mean that these trends are not changing. In recent months, we have seen impressive voting results during companies’ AGM (annual general meetings). Although the votes’ results have not all been in favor of pro-climate ideas, they still show the increased awareness and need for changes. Sumitomo Corp and Mitsubishi UFJ Financial Group are the latest examples of companies that faced such resolutions from shareholders.

To read, how it all went, use the link and read a great piece by Harry Clynch: how https://disruptionbanking.com/2021/08/04/what-is-changing-the-japanese-approach-to-esg/.

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