Asset Management One International: Japan’s journey to net zero

Creating a sustainable future through the power of investment presents challenges, but also many opportunities, argues Asset Management One’s Kanako Tanaka.

 Kanako Tanaka
Kanako Tanaka

This article is sponsored by Asset Management One International.

As one of the 30 initial signatories of the Net Zero Asset Managers initiative and the only Japanese firm among its founding members, Asset Management One has committed to making its portfolio carbon neutral by 2050. The firm has also set an ambitious interim target of making ¥30 trillion ($209 billion; €209 billion), or approximately 53 percent, of its AUM net zero by 2030.

To assist with the challenges ahead, AMO has built a sustainable-investment team, featuring senior sustainability scientist Kanako Tanaka.

“This was a big commitment for the company,” says Tanaka. “But this is how we will create investments for a more sustainable society, through incorporating quantitative, qualitative and scientific perspectives.”

What role can the asset management industry play in decarbonising society?

I was attracted to the asset management industry because I wanted to become more involved in efforts to drive decarbonisation, and use my expertise in related scientific areas. Specifically, I am interested in how resources and finance, when properly allocated, can contribute to change.

As a member of committees that advise the Japanese government and international partners on policies and strategy, I’ve built firm relationships with government, academic and industry stakeholders. I’ve also developed expertise in energy efficiency and decarbonisation, as well as recycling and the circular economy.

We need to develop stable, widely accessible and sustainable energy systems and technology infrastructure that can be used by everyone. To do that, we must invest in tech research and development, along with social infrastructure such as buildings and transportation. We need to fully consider how to use low-carbon materials and create a circular economy through efficient investment, with decision-making based on both quantitative research and economic evaluation that reflects social change.

What challenges does the asset management industry face in helping the world to decarbonise?

“We want to create a world in which capital is directed to companies that are taking credible actions towards decarbonisation”

The latest report of the Intergovernmental Panel on Climate Change, in which I was the lead author of the industry chapter, looked closely at the role that financing can play in achieving climate goals. Unfortunately, we are not yet on track to limit global warming to 1.5 degrees Celsius. In fact, greenhouse gas emissions in 2019 were the highest since records began. To achieve our targets, we need rapid and sustained emission reductions.

There are many options currently available in all sectors to reduce net emissions in line with global targets. But there are substantial investment gaps. We need three to six times more funding than we currently have annually to limit warming to below 1.5 degrees. Although there may be plenty of potential for investment, it is often more challenging to invest in a new technology in its early stages.

But looking at the development of renewable energy, for example, the cost of solar energy and lithium-ion batteries have declined by up to 85 percent since 2010, and wind energy costs are down by 55 percent, according to the IPCC report. In some cases, the cost of renewable energy has fallen below those of fossil fuels. At the same time, there has been large increases in capacity – solar and wind energy provided nearly 10 percent of the total global electricity supply in 2020, which far exceeded expectations from just a few years earlier.

To what extent is the journey to net zero an opportunity for investors?

Although investment in technology and innovation are certainly important, there are other perspectives to consider. What kind of society do we envision? It is important to think not only about decarbonisation, but also about other elements of social change – how we work, how we will cope with an ageing society, how we will utilise smart technology, AI or robotics.

Companies should see the business opportunities in these changes. I think asset managers can support business from a financial and investment perspective, and drive positive changes through constructive engagement. We want to create a world in which capital is directed to companies that are taking credible actions towards decarbonisation and achieving real changes in their ESG performance. We are actively engaging with companies to raise awareness and encourage further steps to increase their long-term corporate value.

It is important to show businesses these benefits in a tangible way, rather than just offer some notion about how they should be environmentally friendly. Through our engagement activities with investee companies, I would love to encourage and persuade companies to think that decarbonisation is a good and beneficial thing to do, rather than just something they must do. Each company should address climate change challenges as part of their business strategy, and together we will work towards solutions for a better and more sustainable future for us all.

What are the characteristics of Japan’s carbon neutral strategy?

Japan’s carbon neutral strategy has some unique elements. In December 2020, Japan launched its Green Growth Strategy with the aim of achieving carbon neutrality by 2050. The initiative outlines ambitious plans for the adoption of renewables, advanced and safer nuclear power generation, low-carbon hydrogen production, and carbon recycling in the electricity sector. The strategy was designed as industrial policy and promotes the creation of a virtuous cycle of economic growth and environmental protection, and aims to enable the private sector to take up the challenge.

The strategy identifies 14 sectors with high growth potential for attaining carbon reduction targets. The government has pledged to mobilise all possible policies so that companies can pursue innovative research and development, and energy-efficient practices through incentives including capital investment via the Green Innovation Fund, worth ¥2 trillion over the next 10 years.

In addition, there are tax credits or special concessions for carbon-neutral infrastructure equipment and an increase in research and development tax credit limits. Alongside this, the government is to support high-value investment initiatives such as offshore wind power and other renewable energy projects to help mitigate risk.

The government is also currently discussing the national Clean Energy Strategy, which is focused on creating an economy that is centred on clean energy. The main pillars of this initiative are energy security, and the transformation of energy infrastructure and industry, using regulatory and institutional measures and a financial package.

The promotion and financing of green issues has clearly become a key priority. The government’s strategy is diverse and wide ranging, with the involvement of many stakeholders. And asset managers are playing a key role in engaging both policymakers and companies to help achieve the overarching net-zero targets in Japan.