Green shoots only starting to emerge

Some issuers say they have experienced a notable uptick in engagement with environmental, social and governance (ESG) principles on the part of Japanese investors. Those present at the KangaNews-Mizuho Securities roundtable suggest uptake may be patchy and nascent in nature.

EDINBURGH One of the key things we are seeing globally is the trend for investors in all currencies to focus on the importance of ESG practices, including growing investment allocations to green, social and sustainability bonds. Have Japanese investors seen increased appetite for these products, including in Australian dollars?

DOMOTO This is something we will start studying in the future. So far we have not given ESG investment much consideration.

IKEDA It’s difficult to respond to this question. In my department our main target is to seek better spread at this moment. Whether a bond is ESG or green, our focus is on highly profitable opportunities.

ASSET MANAGER ESG is being incorporated into our investment process right now. First, we will look at Japanese and overseas corporate bonds. For green and social bonds we look at the spread and we decide whether or not to invest on a case-by-case basis.

SWISS Do you expect that the principles you incorporate will be holistic – in other words, that they will form part of the wider investment process – or might they mandate involvement in specific, labelled assets such as green bonds?

ASSET MANAGER We haven’t got that far yet. We are still studying the ESG sector.

LIFE-INSURANCE INVESTOR In yen, not just Australian dollars, we select based on return. Therefore, we don’t have any quota for ESG. This is something we need to study further.

BANK INVESTOR We are developing our responsible financing and investment policy measures internally now. We would like to clarify our investment policy including the ESG perspective. Even if we are to include an ESG perspective in residential mortgage-backed securities, only one green transaction has been issued in this sector in Australian dollars. There is no investment destination, which means it is difficult at this point.

YAMADA For our investment in Australian dollars, as we invest in SSAs there are many issuers that are well established in the ESG and green-bond sectors.
In the case of new issues, we would like to have more disclosure. Sometimes we approach issuers and ask for more disclosure.

SAKURAI We currently don’t have any exposure to ESG products nor any specific plans to start this. As the bank investor has mentioned, ESG-type products in securitisation are very rare. This is something we will study further. Thus far we have not invested in any specifically themed ESG bonds.

ISHIDE We have already selected equity ESG investments for our investment trusts. But an ESG investor mandate is practically nonexistent for bond funds.

However, investment in this area by government pension investment funds has been aggressive since last year so public issuers in Japan have been focusing on sustainability in their funding. Finally, we are starting to see some movement for fixed-income investors. But, as I say, we haven’t yet seen any mandates in fixed income.

SWISS Does this mean there is not much demand from retail investors for sustainability with regard to fixed income?

ISHIDE We are seeing ESG demand from retail investors in the equity sector, specifically interest in investments that affect or contribute to society.

Going forward, retail investors will move from equity into focusing on sustainability in fixed-income investments. However, so far we do not have much money in these funds and we don’t see any prominent phenomenon as yet.