Trend of ESG in Japan: Based on ESG Investment

Abstract

Purpose: Japan is experiencing a rapid increase in ESG investment in addition to the SDGs in response to the tide of the times surged by global ESG. With global efforts to build a sustainable society, the recognition that non-financial information affects the sustainability of long-term companies is spreading. The Japanese government is making a struggle to achieve its target after declared to achieve “carbon neutrality” by 2050. After GPIF has led the way in ESG investment from 2015, ESG investment increased up to 55% during the last five years. However, Japanese ESG ranking by ESG rating agencies is still not high. Japan is expected to focus on ESG investment by financial institutions for the time being. While the correlation between ESG investment and performance is still unclear, the question of persistence of ESG investment is also being continued. The supporting SDGs through ESG Investment of considering the environment and society is important. This paper is to survey the trends and issues of ESG in Japan related to ESG investments and insurance industry in Japan. Research design, data, and methodology: The paper focused on the trend of ESG in Japan through previous ESG-related literature and the related articles retrieved from homepages of institutions for verifying recent data. This paper is composed by three areas, first, the trend of each ESG engagement of Japanese companies, second, the trend of ESG investment and third, the ESG trend of Insurance industry in Japan. Results: ESG investment in Japan has been leading the long term strategies of Japanese companies to be more actively involved in ESG. The correlation between ESG investment and financial performance is positive until now according to previous studies. However, after the face of huge risks such as COVID-19, the evaluation of ESG investment should be considered as a risk mitigation effect. Japanese companies see ESG as an opportunity to improve the value of existence and future business opportunities. It is also true for Japanese companies to see ESG as the critical issues for meaningful to stakeholders, higher ROE and positioning with SDGs. The empirical researches on the criteria for ESG investment are suggested to need more time series data and risk mitigation effects. The correlation of ESG-related indexes, the standardization ESG rating and the correlation of ESG and corporate value creation also should be further studied in the future. Implications: After the 2020 declaration of carbon neutrality, Japan is committed to achieving the goals of SDGs through ESG investment. However, it is true that it has yet to be evaluated lower by the ESG rating agencies compared to the rapid increase in ESG investment. Long-term research on the correlation between ESG investment and financial performance be emphasized specially under COVID-19 and low growth. ESG-related social environment is expected not to end in a short-term boom in Japan. Korea and Japan have also similar financial and business structures, and this paper can be referred to study Korea’s future ESG policies.