Shigeharu Suzuki, the Chairman and CEO of the Japan Securities Dealers Association, told the RI Asia 2018 audience that social issues “shake the foundations of our society”. Some “have become so serious that economic activities have been threatened” he said. As a result, the JSDA has set up a dedicated council for the promotion of the SDGs, made up of market participants. The Council, created in September 2017, is currently working – via three subcommittees – on decent working conditions, women’s inclusion, protecting vulnerable people, poverty, starvation and protecting the natural environment. Japanese corporates have been quicker to embrace the UN’s Sustainable Development Goals than their US counterparts, according to experts at EY. Speaking on a panel on the topic, Heather McLeish, Senior Manager of Climate Change & Sustainability at EY Japan told the audience: “I can say from an EY perspective, our team has been doing more work with companies around the Sustainable Development Goals than the teams in America”. She added that in some cases, companies are doing it “just to improve their reputation” and differentiate themselves from their peers. “There’s nothing wrong with that, but it doesn’t actually address the key issues that the SDGs are meant to represent,” she warned.
Credit Agricole CIB’s Head of Asia-Pacific said she predicts growth in the green bond market “of about 20-25%” in 2018. Dominique Duval said although the market had been slower so far this year than last year, that was “mainly due to market conditions [more broadly] and not about green and sustainability bonds”. “We remain confident that there will be more transactions and good growth this year,” she concluded.
GPIF – the world’s largest pension fund – and the World Bank will release the first paper as part of theirpartnership on integrating ESG into fixed-income. The pair will release the paper – which is expected to focus in part on pricing in the green bond market – at the World Bank’s Spring meeting in Washington later this month.
The recently-released Japanese Green Bond Guidelines, hoped to spur on its domestic market, received a mixed reception from speakers at the event. Yoshihiro Fujii, a Visiting Professor at Sophia University and the Executive Director of the Research Insitute for Environmental Finance, said the guidelines were not strict enough and did not go as far as even the Green Bond Principles. The guidelines offer examples of eligible projects, but are not prescriptive. Bertrand de Mazieres, Director General of Financial Directorate at the European Investment Bank, on the other hand, praised the guidelines for improving on the GBPs by insisting there must be a net environmental benefit from the use of proceeds.
The Japanese Government is also launching a support scheme this month, which will offer subsidies to issuers to cover the costs of second-party opinions. Speaking on a panel, Aya Nagata from the Ministry of Environment, said that even though eligible projects were not specified under the programme, expectations around net benefits meant that “it would be difficult” for an issuer to come to market with a green bond that included ‘clean coal’ – a topic that has caused great controversy for China’s green bond market.
Climate Change and biodiversity
Carbon pricing experts have predicted that average prices could rise to around $40 per tonne in certain regions by the end of the decade. Neil McIndoe, Head of Environmental Finance at S&P’s Trucost, said that flagging prices looked set to rise significantly by 2020, driven by government commitments on reducing global carbon emissions.
Benjamin McCarron, Managing Director of Asia Research and Engagement – and a collaborator with Fish Tracker, the sister organisation of Carbon Tracker,
launched to provide analysis of sustainable fisheries and related business activities – said Fish Tracker plans to ramp up its activities over the coming year, and will turn its focus to targeted engagement with banks that finance the industry. Fish Tracker launched last year.
The Principles for Responsible Investment are preparing to publish a report on ESG in passive management. “It’s a very important piece of work, because we have to move away from the thought that passive investment and responsible investment are not compatible,” said Kris Douma, the PRI’s Director of Investment Practice and Engagement. “They are, and it could be done in several different ways.” Douma also highlighted contradictions in the market around how prescriptive asset owners should be when giving ESG-related mandates to asset managers. In an on-stage interview to kick-start the three-day event, Hiro Mizuno, Chief Investment Officer of Japan’s GPIF said he didn’t want to be too specific when asking managers to explain how they incorporate ESG, Douma pointed out, “which I think is a perfectly feasible approach”. It was reiterated on an asset owner-focused panel by investment figures from AP1 and Calstrs. On the other hand, he noted: “I heard Christopher Greenwald at UBS saying [on a panel focused on asset managers] that major innovations in their asset management strategies are initiated by specific requests from asset owners. He basically said ‘we would like to see some specific requests from our asset owners about what they want’. And I think that is an important element as well. We see at PRI that not enough asset owners are specific enough about what they want. If you don’t know what you’re asking for and what your goal is, then any direction is okay. But you have to be increasingly specific about what you expect your managers to do.”First State Investments will work with academics on retail investment and ESG, according to Global Head of Responsible Investment, Will Oulton. “We’re just about to do an online experiment with the Department of Psychometrics at Cambridge University… to test different ESG information as presented to the choosers of financial products, to try and figure out what triggers them to choose one over the other when there’s a lot of similar information about returns and the strategy,” he told the audience. “That might inform us on how we move forward in terms of measuring and presenting these [ESG] outcomes in a way that gives people a better sense of what we’re trying to achieve beyond actual performance.”
GRESB is currently working with financial data providers on a study to establish whether infrastructure companies with better ESG performance have better financial performance. Speaking on a panel on the topic, Rick Walters, Director of Infrastructure at GRESB, said it would use its ESG data alongside financial information to work out whether there was a correlation. The results are expected to be launched next year in order to shed more light on sustainability in infrastructure – a relatively nascent topic. The non-profit, which specialises in green performance of property and infrastructure, will also Infrastructure players are being invited to participate in GRESB’s dedicated initiative. Companies’ ESG performance can be assessed by putting relevant information into a ‘portal’ run online by GRESB. The portal is open until July 1st. GRESB will validate and analyse the data of all respondents and launch the results on September 5th, with a public version released the following week. “The public launch of the results is only the data points and the scores. We don’t identify anyone, so the participation is pretty low-stress,” said Walters.