Promote Decarbonization at Japan Companies via Investments, Loans

To achieve the government’s goal of reducing greenhouse gas emissions to net zero by 2050, it is essential to attract significant funds. An environment must be created that encourages corporate behavior through investment and loans.

There is a growing trend to focus not only on corporate profits but also on sustainable growth when selecting investment targets. This is called ESG investment, focusing on environmental, social and governance efforts.

This concept was put forward by the United Nations in 2006, and it spread as it was adopted by institutional investors such as U.S. and European public pensions, which manage large amounts of assets over the long term. The outstanding amount worldwide was about $31 trillion (about ¥3,200 trillion) in 2018.

In Japan, too, pension funds and life insurance companies are increasing their investments in ESG fields. The global trend is to demand that companies not only maximize short-term profits, but also contribute to society. In particular, the promotion of decarbonization to reduce greenhouse gas emissions is an urgent task.

Technological innovations such as renewable energy, large-scale storage batteries and the utilization of hydrogen will be necessary if Japan is to meet its goal of net zero emissions. It is important to encourage companies to focus on these areas through investment and loans.

To create a mechanism for this, the Financial Services Agency has said it will hold discussions by an expert panel to map out concrete measures around May.

To make it easier for investors to invest their money, it is important for the companies receiving investments to actively disclose information, and there are already an increasing number of cases in which companies are voluntarily doing so.

In the manufacturing industry, many companies have set targets for reducing CO2 emissions and are explaining how they are improving the energy-saving performance of their products. Some manufacturers are promoting themselves through the disclosure of their development schedule for materials for electric vehicle batteries and the production times for their products.

Many companies are participating in an international framework that aims to utilize renewable energy sources for 100% of the electricity used in their businesses.

However, unlike financial information, disclosure methods on ESG efforts vary from company to company and are sometimes difficult for investors to understand. The government should consider unifying disclosure standards and fair evaluation methods.

It is also important for financial institutions to encourage the companies they finance to strengthen their environmental measures. The three megabanks in Japan have announced that they will, in principle, suspend new loans for coal-fired power generation.

Furthermore, it is desirable to accurately identify areas where technological innovation can be expected and effectively allocate funds.

Rather than viewing global warming countermeasures as an increasing burden, companies should view them as promising growth projects and develop strategies to attract funds.