Following the previous article ("Financial Seminar for Tokyo Citizens: Understanding Finance from the Basics and Sustainable Finance: Event Report (1/2)"), this article is an outline of the latter half of "Sustainable Finance Basics and Investment Practices" seminar. You can see the footage of the day on YouTube(Japanese only). Each speaker's materials(Japanese only) are also available.
Senior Manager at Center for the Strategy of Emergence, the Japan Research Institute, Ltd.
Ms. Makiko Hashizume
■ Sustainable Finance Basics
Sustainable finance is a form of financing that promotes protecting the global environment, resolving human rights issues, and becoming a sustainable society. Against the backdrop of the world starting to pay attention to environmental and social issues through the Sustainable Development Goals (SDGs) and the Paris Agreement, the time has come for financing that will improve the environment and society, such as investing in clean energy businesses and financing companies that are actively trying to improve their work environments. Stagnant economic activity caused by COVID-19 spreading led to changes in the way we work, a temporary improvement in environmental pollution, etc., and those led to rethinking traditional corporate activities.
Sustainable finance includes everything from new methods of financing (such as crowdfunding and impact investing) to traditional financing (such as investments, financing, and bonds), diversified to help solve environmental and social issues. Sustainable finance is expected to serve as a source of market stimulation by creating new products and services that will solve these issues and challenges, etc. It is also attracting attention as a catalyst for rethinking traditional business practices—such as environmental pollution and gender disparity—that could hamper future corporate growth.
■ Thinking from the ESG Perspective
ESG investing is a method that determines where to invest based on environmental, social, and governance perspectives from which consumers also choose products and services. The increasing number of investors choosing companies to invest in from these perspectives has led to companies starting to consider ESG as well. The way companies and societies exist changes in response to the influence of various indications of intent, including investors buying and selling stocks, consumer boycotts, the 4 Rs (Reduce, Reuse, Recycle, Refuse) movement, sharing, etc.
Prominent examples of consumer intent include chocolates and apparel that have been boycotted due to backgrounds of child labor and forced labor. A certification system was created to protect workers, and more and more companies are starting to consider their suppliers in response to consumer opposition, which shows that individual investment and consumption behavior have a great impact on companies and society.
On the other hand, it is important to be aware of greenwashing and SDGs washing, which are increasing as people become more and more aware of SDGs and ESG. There are companies putting the SDGs logo on their homepage or using packaging that reminds consumers of environmental protection, all for show. I hope that people can avoid investing in such companies and use careful judgement based on actual efforts and past performance, to influence investment and consumption behavior.
Store Manager (Machida) at Marui Group Co., Ltd. (Former CEO of tsumiki Securities Co., Ltd.)
Ms. Asumi Kantake
■ How to Select Investment Trusts, for Beginners!
Investment trusts are services in which professionals invest in financial products (such as stocks and bonds) both nationally and internationally on behalf of customers. They are financial products with low hurdles for beginners and with the benefits of starting to invest from a small amount—even 100 yen—and reducing risk by combining financial products for diversified investments.
Since there are a vast number of investment trusts sold in Japan (approximately 6,000), when beginners start one, I recommend these three steps first: (1) narrow down their focus to Tsumitate NISA products, which meet the criteria set by the FSA, to ensure risk diversification and stable management; (2) compare investment regions, management methods, costs, etc. to select something that matches their own values; and then (3) purchase from a management company that communicates its management information in an easy-to-understand manner.
I would like them to always reference the issue prospectus when purchasing an investment trust. The four important points to confirm are: (1) the purpose the investment trust aims for and characteristics, etc. of its destination, (2) risks arising from the investment, (3) performance trends in investment periods and net assets up to the present, and (4) procedures and commission prices. It is important to thoroughly understand and agree before purchasing.
■ Investing from a Sustainable Perspective!
People mainly made decisions about companies based on their financial information in the past, but in recent years, non-financial information—which describes measures such as those addressing environmental and social issues—has become an important criterion for making decisions. In 2020, approximately 600 Japanese companies were disclosing financial and non-financial information with integrated reports, etc., and the number of companies that are actively engaged in information disclosure is rising. However, the number of ESG investment trusts in name only that are pretending to respect ESG is increasing. People must avoid being fooled by carefully reviewing companies' homepages and issue prospectuses.
The progress in information disclosures can be attributed to the high level of awareness of environmental and social issues among young people, who are responsible for the next generation. Since young people tend to be more cautious about products and services that exist just to make a profit, continuing corporate activities without consideration for ESG and providing unclear information may become riskier in the future.
Finally, some may question whether companies can continue to grow while making efforts from an ESG perspective. However, efforts toward ESG are linked to corporate value from a medium- to long-term perspective; Marui Group's stock price performance can be seen as an example. While all companies may not fare the same, I think this shows the link between ESG-minded efforts and company growth.
The talk session included both Ms. Makiko Hashizume and Ms. Asumi Kantake, who had given speeches, as well as Ms. Tomu Muto (Investment Basics), who came back to the stage after the first half to answer audience questions.
■ Theme (1): How to Measure a Company's Level of Consideration toward Environmental Issues (Ms. Asumi Kantake)
Although it is difficult to judge consideration levels given that companies' environmental impacts vary by industry type and business conditions, I think one measure to use is the standard adopted by the Government Pension Investment Fund (GPIF), which manages pensions. Looking at the environment-related indices within the several ESG indices GPIF uses to select an investment destination can help determine how seriously the company is tackling environmental issues.
■ Theme (2): Tips for Identifying Greenwashing and ESG Investments in Name Only (Ms. Makiko Hashizume)
It is important to judge not only a company's image or the look of their product packaging but to also check facts from a trusted information source. Recently, many companies disclose information on their homepages and in integrated reports, so I would like people to thus make objective decisions based on data and figures, etc. They must also take action carefully, such as putting decisions on hold if they cannot find relevant data or results.
■ Theme (3): How to Increase the Number of People Investing from an ESG Perspective (Ms. Tomu Muto)
I thought that the first step in considering ESG investment should be to consider environmental and social issues as one's own. While people may feel unsure about how the future will be, they can perhaps see nature that should be protected and the society that should be aimed for when thinking in relation to their own life plans. I would like them to think actively about investing as a way to realize the future they envisioned and from the viewpoint of building their own assets.
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