Asia | September 9, 2019

Japanese investors push to take impact investing mainstream

Dennis Price
ImpactAlpha Editor

Dennis Price

ImpactAlpha, Sept. 9 – Japan is staking out a leadership position in sustainable investing.

Sustainable investing assets under management quadrupled from 2016 to 2018 to 18% of managed assets. Japan is now the third-largest center for sustainable investing, after Europe and the U.S.

The $1.6 trillion Government Pension Investment Fund, led by Hiro Mizuno, has become a global catalyst for environmental, social and governance, or ESG, investing.

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Japanese corporates, including Softbank and Mitsubishi, are leaning in on impact. Just last week Softbank invested $10 million in Stockholm-based Exeger, a maker of a “solar” cell that can convert any type of light into energy. In August, Mitsubishi invested in BBOXX, one of the most well-funded off-grid solar players in Africa. 

And Japanese Prime Minister Shinzo Abe has embraced impact investing as a key mechanism for mobilizing private capital for the U.N. global goals. At the G20 in Osaka in June, Abe said in a speech that Japan would lead efforts “to employ innovative financing schemes such as social impact investing” to fund the goals. 

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The commitment from Abe came as G20 leaders included in their declaration a recognition that “international public and private finance for development as well as other innovative financing mechanisms, including blended finance, can play an important role in upscaling our collective efforts.”

Business and sustainable investing leaders gathered in Tokyo last week for an impact investing forum aimed at putting Japan’s post-G20 commitments into action. 

Follow the money

Japanese corporates, institutions and early stage impact investors have executed a steady flow of deals over the last two years targeting sustainable energy and reductions in inequality, domestically and abroad.

Take Japan’s SoftBank. In August, Softbank’s Vision Fund, the firm’s $93 billion venture capital arm, invested $110 million in utility-scale renewable energy storage developer Energy Vault. Axios’ Dan Primack said the deal suggests the fund’s “deep pockets are turning toward storage tech and other capital-intensive forms of clean energy.” Last year the fund backed a Saudi solar project that would have created one of the world’s largest (the deal was later shelved), and a solar project in India that will add four-gigawatts of solar generating capacity.

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Masayoshi Son, chairman and CEO of the SoftBank Group Corp. has touted technology’s potential to address global challenges. “The businesses working to solve these problems will require patient long-term capital and visionary strategic investment partners with the resources to nurture their success,” he says.

In May, Japan’s Dai-ichi Life invested $9 million in Japan-based tech investor Energy & Environment Investment, which is raising its fourth fund to invest in tech startups in renewable energy, electric vehicles and energy storage. Last year the insurance company backed Tokyo-based Molcure, which is developing a machine learning-powered platform to support faster drug development and the discovery of new treatments for cancers and other diseases.

Last year, Japanese seed-stage social enterprise investor ARUN invested an undisclosed sum in Indian startup BookMyBai, which connects households to domestic workers like cleaners and gardeners. “We see this as an opportunity to be able to support a startup which is not only sustainable but also has a large social impact amongst the rural households,” ARUN’s Satoko Kono told the Economic Times

Action agenda

And yet, sustainable investing “has not otherwise gained traction with Japan’s mainstream financial community,” says William Burckart of The Investment Integration Project. TIIP, with the Sasakawa Peace Foundation, released “Sustainable Investing in Japan: An Agenda for Action” alongside the Tokyo impact investing forum with recommendations for a series of “breakthroughs” needed to grow the practice.

Among those breakthroughs are evidence and tools, says Burckart, who consulted with more than 50 experts on Japan’s financial industry for the report. 

Sustainable investing myths common in other parts of the world also persist in Japan, according to TIIP report: Sustainable investing is a form of philanthropy; it hurts financial performance; only government can impact environmental, social and governance, or ESG, issues. 

Japanese investors success cases. Among those cases are Neuberger Berman East Asia, Robeco Japan Co., Sompo Holdings and Sumitomo Mitsui Trust Asset Management Co. Ltd., which were recognized this year by the first-ever Tokyo Financial Award in ESG Investing from Tokyo’s metropolitan government.