Board Director, Future Corporation, Special Advisor for International Finance, Tokyo Metropolitan Government Member
Mr. Hiromi Yamaoka
President and CEO, Sumitomo Mitsui DS Asset Management Company, Limited (SMDAM)
Mr. Takashi Saruta
Representative Director, Refinitiv Japan K.K.
Mr. Hideo Tomita
Principal Sustainability StrategistDeputy General Manager of Corporate Planning Dept.Mitsubishi UFJ Research and Consulting Co., Ltd.
Ms. Mari Yoshitaka
Mr. Hiromi Yamaoka, Board Director at Future Corporation and Tokyo Metropolitan Government International Finance Fellow, was the forum's moderator. The role of finance, he said, is important in Tokyo becoming the world's leading green city. He also said that the scope of the world's ESG financing has now reached 35 trillion USD (equivalent to 3,900 trillion JPY) and introduced forecasts showing that it will continue to grow significantly. On this basis, he also pointed out that many issues still exist in ESG finance. He said that one such issue is that because there is no established methodology or standard for evaluating ESG, evaluation is conducted by certification bodies mainly overseas and carried out based on non-financial information, etc. from their individual perspectives, so evaluations vary significantly among bodies.
He also stated that liberal economies have developed by mass mining fossil fuels since the modern era, but decarbonization and greening trends are a challenge to those economies. He pointed out that it is necessary to achieve resource allocation that is truly good for humankind while making full use of a liberal economy's dynamism, rather than achieving decarbonization and greening through a controlled economy. He also said that financing—whose primary function was originally contributing to resource allocation through risk and pricing—is expected to have new functions in this context, and he emphasized that demonstrating such financial functions is extremely important for the earth, humankind, and economic prosperity.
Trends in Sustainable Finance in the World and in Japan
Mr. Hideo Tomita, President and CEO of Refintiv Japan (a London Stock Exchange Group business), pointed out that while sustainable finance often focuses on financing companies and investors, other players have very large roles in its progress—he introduced the business of the London Stock Exchange Group, which is involved in many of those roles. He said that the CEO of the Group is also actively involved in the Glasgow Financial Alliance for Net Zero, led by Mark Carney (former Bank of England Governor and United Nations Special Envoy for Climate Action and Finance). On unifying evaluation standards for decarbonization and greening, Mr. Tomita said that this is expected to progress in future discussions, but one additional challenge is insufficient statistical data. He said that because Japan has also set an interim target toward carbon neutrality for 2030, the discussion must advance based on reliable, near real-time data rather than data from two or three years ago.
Ms. Mari Yoshitaka, Deputy General Manager and Principal Sustainability Strategist at Mitsubishi UFJ Research and Consulting Co., Ltd., said that banks, insurance companies, and various financial institutions possessing 88 trillion USD (as of July 2021) in assets have committed to the Glasgow Financial Alliance for Net Zero mentioned by Mr. Tomita, and they are also setting interim goals for 2030, along with making proposals for G20. Sustainable finance certainly has a very broad scope, she said before analyzing that when looking at trends like these, decarbonization is likely the central focus. She also mentioned that the aforementioned Mark Carney's carbon credits initiative has been launched and noted that carbon credits will likely influence Japan in the future. Green money has already been flowing to various investment and lending destinations in Europe and the United States, and the biggest challenge is how to bring it to Japan and to Tokyo, she said.
Mr. Takashi Saruta, Representative Director, President and CEO of Sumitomo Mitsui DS Asset Management Co., Ltd., also recognized that the world market is moving very significantly with sustainable financing and that the major challenge is how to bring it to the Tokyo market. He then discussed Japan’s share of the global financial market and said stocks decreased from 40% in 1989 to 6.2% in September 2021. He compared the market capitalization of America’s S&P 500, which has grown 12 times between 1989 and 2021, to the first section of the Tokyo Stock Exchange, which has grown only 1.3 times in that time frame. He also noted that Japan's corporate bond market, which issues green bonds, etc. comprise 2.5% of the world's shares. Based on these examples, he analyzed that the Japanese market has not grown for the past 30 years. He pointed out that the biggest challenge in making Tokyo a global financial city is how to make its market attractive.
Issues Related to Corporate Disclosures in Companies Surrounding ESG Finance and their Evaluations
Mr. Tomita first explained how ESG information is generally gathered in Refinitiv and further explained that it is developing and supplying tools that allow companies being evaluated to provide data themselves, so they can enhance expansion, reliability, and update frequency of data by modifying and adding to data collected by Refinitiv, or adding new disclosure items. Mr. Tomita shared that many people harshly point out the low correlation of evaluations among certification bodies, as Mr. Yamaoka said at the beginning, and said that a reason for this is that unifying evaluation standards is difficult because ESG itself is a very broad concept. He continued by saying that since progress in companies' information disclosures has led to further expansion of reliable data, if current efforts continue to progress, the correlation may increase.
Mr. Saruta said that when bond credit ratings were introduced, rating companies and rated companies spent considerable amounts of time trying the find the best method through trial and error. He said that with ESG, it is important that each certification body explains to investors and companies what it focuses on and what corporate information it collects and analyzes in making certain evaluations. Also, he said, taking into account the considerable trial and error in bond rating methods, while more time is necessary to establish an ESG evaluation method that qualitatively evaluate and judge non-financial information, he believes that continuing current efforts and endeavors will eventually lead to some degree of a standard being formed.
How to Promote ESG in a Wide Range of Fields, Including Rural Areas and Small- and Medium-Sized Enterprises
Ms. Yoshitaka first shared that in speeches, etc. in rural areas, she talks about ESG potentially becoming a catalyst in those regions. She said that on one hand, financial institutions may find it difficult to determine what is ESG, so she explained that the first steps may be to decide which companies they invest and lend likely have ESG potential by referencing the 14 priority fields listed in the Ministry of Economy, Trade and Industry's Green Growth Strategy, then using that as a basis and moving on to information disclosures. She also said that as more financial institutions join the international Partnership for Carbon Accounting Financials initiative and use carbon pricing to evaluate assets, and hopes they will prepare for information disclosures related to their portfolios while incorporating this new information.
What Tokyo Should Do in Relation to ESG Finance
Mr. Tomita said that as one part of the Global Financial City: Tokyo vision, the Tokyo Metropolitan Government and the City of London Corporation signed a Memorandum of Understanding on exchanges and collaboration in December 2017 and are working together in collaboration on financial events, financial education programs, ESG investment, green finance, and more. He explained that there are many efforts like these around the world, but comparatively, the Tokyo Metropolitan Government and the City of London Corporation are taking more active measures than others. He also said that in that sense, collaboration and cooperation with the UK and London could be a major force for Tokyo.
Mr. Saruta said that while Japan has the third largest GDP in the world, the Tokyo Stock Exchange (one of the world's biggest), and a variety of investment partners, the biggest problem is that the market has not grown in 30 years, as mentioned above. He emphasized that growing out of this and achieving transformation into a growing market is a top priority. He then commented that despite the common conception that sustainability is decades away, continuing into the future would not be possible without the current growth. He continued by saying that it is important for investors to ensure that companies commit to continuing the efforts in strengthening corporate governance, and do so with an awareness of improving management and continuous growth.
Ms. Yoshitaka said she hoped that the Green Growth Strategy would play a role in the growth of the Jpapanese market that Mr. Saruta mentioned. In particular, she said, many companies in Tokyo have technology related to decarbonization, and the number of Japanese patent applications for decarbonization is said to be the highest in the world. She pointed out that this advantage has not yet been applied to the growth strategy, but there is a potential for it. She also said that being tough against physical risks, i.e., disasters—one type of risk arising from climate change—is an important factor in becoming a global financial city and that such facets should be shown as part of the "Global Financial City: Tokyo" vision.
Finally, Moderator Mr. Yamaoka said that increases in disasters due to climate change lead to increased government spending and tax burdens, and more importantly, threaten people's lives. Thus, he said, metropolitan cities like Tokyo are major stakeholders in climate change and need to work toward a solution as a problem of their own. He stressed that financial institutions will be expected to play a greater role than their traditional risk and return decisions. He concluded that in order to develop sustainable finance, along with evaluating more complicated risks than the traditional ones and contributing to resource allocation through pricing, financial institutions can propel the cycle of project evaluation and information disclosure to help lead to better resource allocation and improve lives of people in Tokyo.
Produced by Media Business Division of Jiji Press, Ltd.