Why ESG investment will remain crucial

After years trailing Europe, ESG investment in Japan is taking off, attracting intense demand from institutional investors such as pension funds and life insurers. The trend is being led by the Government Pension Investment Fund (GPIF) - by most measures the world's biggest pension fund, with roughly US$1.5 trillion in assets under management.

In 2019, GPIF made a game-changing pivot to ESG bonds, investing more than US$3 billion in green, social and sustainability bonds in one year alone. Overall last year, Japan saw a record 50 green bond issuances worth US$6.34 billion - compared to just one issuance worth $314 million five years before.

Japan's rapid green bond growth reflects a long-term societal shift rather than a short-term fad. One reason is the increasing frequency of climate-related disasters in Japan, such as Typhoon Hagibis which killed dozens and caused massive destruction in October, 2019.

"Due to events such as Typhoon Hagibis, Japanese people are awakening to the fact that global warming is at their doorstep," says Kazuyuki Aihara, Head of the Sustainability Finance Section in Nomura's Debt Capital Markets Department. "Today's investors see a massive stake in investing in green and social sustainability products.”

Summary from a Nomura Connects article published in August 2020.

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