I am very pleased that Nomura Group has established the Nomura Research Center of Sustainability.

Sustainability is becoming increasingly important. Since the start of the 21st century, three matters have become acuter than expected. The first is an increase in aging population, and the second is the imbalanced distribution of wealth on our globe, which in turn, has resulted in low interest rates and inequality. The third is the revolution of technology, whose speed has accelerated over the past few years. Meanwhile, there are three new risks that were not predicted during the 20th century, all of which might threaten the survival of human beings. The first is the risk of natural disasters and climate change, the second is the risk of spreading of epidemics, and the third is the risk with cyber security. We must be aware that our economic activities, including financial and capital markets, are exposed to these risks everyday.

The Nomura Institute of Capital Markets Research has been showing leading initiatives, by bolstering its research activities related to sustainability, publishing numerous research papers, and undertaking research in collaboration with industry, government and academia as a part of the “Research Group on the Sustainable Development of the ESG Bond Market.” Going forward, I expect the center to keep expanding these efforts and maintain leading initiatives by undertaking research about sustainability and the risks in our modern society mentioned above, making proposals for policy action and promoting activities unique to Nomura Group on a global level, so as to support the prosperity of our economy and society.

Sustainability is a concept advocated to prevent economic entities from compromising total optimization when they take partial optimization actions and eventually failing to achieve even partial optimization. If we view partial optimization and total optimization as contradictory concepts, sustainability promoters will be criticized for placing importance on companies before society as a whole. This same Zen riddle has been repeated at Toyo University, where I currently work, and at the Development Bank of Japan, where I previously worked. The solution to this contradiction which seems to be a paradox at first glance is to build a model in which actions targeting total optimization also facilitate the pursuit of profits by individual companies.

Regional finance employs the relationship banking model. For example, say a young bank employee provides insight to improve the management of a client company, and works hard to seek the cooperation of all involved parties. His or her effort may end up helping to halt the region’s decline and even start a new industry. However, this employee’s boss will likely tell this him or her that this effort is fine and well, but that rather than thinking about such lofty goals for the future, he or she should instead go out and search for some immediate business. This is how motivated young people lose their direction. Relationship banking resolves this contradiction. Improving the sustainability of clients will contribute to regional revitalization, but at the same time it can boost the bank’s profits by lifting its credit rating and reducing its provisions for bad loans. In other words, the regional promotion section of a financial institution is a profit center. By researching this topic, the Nomura Research Center of Sustainability is working to build a social model that resolves the contradiction. I applaud Nomura Group’s courage, and pledge to contribute to the center in any way that I can.

“Capitalism is standing at the crossroads”
I believe that many people get this feeling. In fact, various movements such as ESG investment, sustainable finance, and impact investment have been born, and the term stakeholder capitalism has started to be used. However, society still doesn't seem to be sustainable. Rather, the crisis has become even clearer.

I think this is a great time for the establishment of the Nomura Research Center of Sustainability. After all, the capital markets are the center of capitalism, and for many years Nomura Group has been the driving force behind the Japanese capital markets as the country’s largest securities firm.

That is why I would like the Nomura Research Center of Sustainability to make full use of its strengths. And I hope that the center will conduct research that other research institutes are unable to. Of course, this strength is that the center is a member of Nomura Group. I hope that the experience and integrated strengths amassed within Nomura Group will be put to good use in sustainability research. At the same time, I hope that the center’s research will be actionable, and that the research findings will first be reflected in Nomura Group’s corporate behavior, and then spread to the entire market, making our society more sustainable. The center’s duty is to create mechanisms so that a better society is naturally realized through decision-making in the markets.

One of the reasons why asset-building through securities investment has not become widespread enough in Japan is that there is a strong negative sentiment toward securities investment among people. Looking at the results of the nationwide survey on securities investment conducted by the Japan Securities Dealers Association (JSDA), only about 5% of the respondents answered that they view securities companies as “useful for society.” However, initiatives in ESG finance and SDGs finance (i.e., sustainable finance) to solve societal issues and create the future through finance will likely cause a 180-degree change in people’s opinion. I hope that the Nomura Research Center of Sustainability will be that type of game-changer.

In the 2018 revised edition of my Financial Economics textbook, I discuss ESG finance for the first time and explain that finance can solve social issues. In fact, if you look at other textbooks on financial economics, you will find that hardly any of them discuss sustainable finance at all. Unfortunately, sustainable finance has not yet been a widely-known topic in Japan.

Notably, sustainable finance will not be sustainable unless various stakeholders in society, such as customers, shareholders, and communities, support the efforts of sustainable finance by companies and financial institutions. In order to receive support, it is crucial to make people understand what sustainable finance is. I genuinely hope that the Nomura Research Center of Sustainability will provide high-quality information and suggestions regarding sustainable finance. In doing so, it is essential to provide not only advanced-level information to professionals and financial institutions but also easy-to-understand information to the general public.

I look forward to participating in this significant challenge as an advisor.