Trend of ESG in Japan: Based on ESG Investment

Purpose: Japan is experiencing a rapid increase in ESG investment in addition to the SDGs in response to the tide ofthe times surged by global ESG. With global efforts to build a sustainable society, the recognition that non-financialinformation affects the sustainability of long-term companies is spreading. The Japanese government is making astruggle to achieve its target after declared to achieve “carbon neutrality” by 2050. After GPIF has led the way inESG investment from 2015, ESG investment increased up to 55% during the last five years. However, Japanese ESGranking by ESG rating agencies is still not high. Japan is expected to focus on ESG investment by financial institutionsfor the time being. While the correlation between ESG investment and performance is still unclear, the question ofpersistence of ESG investment is also being continued. The supporting SDGs through ESG Investment of consideringthe environment and society is important. This paper is to survey the trends and issues of ESG in Japan related toESG investments and insurance industry in Japan. Research design, data, and methodology: The paper focused on the trend of ESG in Japan through previousESG-related literature and the related articles retrieved from homepages of institutions for verifying recent data. Thispaper is composed by three areas, first, the trend of each ESG engagement of Japanese companies, second, thetrend of ESG investment and third, the ESG trend of Insurance industry in Japan. Results: ESG investment in Japan has been leading the long term strategies of Japanese companies to be moreactively involved in ESG. The correlation between ESG investment and financial performance is positive until nowaccording to previous studies. However, after the face of huge risks such as COVID-19, the evaluation of ESGinvestment should be considered as a risk mitigation effect. Japanese companies see ESG as an opportunity toimprove the value of existence and future business opportunities. It is also true for Japanese companies to see ESGas the critical issues for meaningful to stakeholders, higher ROE and positioning with SDGs. The empirical researcheson the criteria for ESG investment are suggested to need more time series data and risk mitigation effects. Thecorrelation of ESG-related indexes, the standardization ESG rating and the correlation of ESG and corporate valuecreation also should be further studied in the future. Implications: After the 2020 declaration of carbon neutrality, Japan is committed to achieving the goals of SDGsthrough ESG investment. However, it is true that it has yet to be evaluated lower by the ESG rating agenciescompared to the rapid increase in ESG investment. Long-term research on the correlation between ESG investmentand financial performance be emphasized specially under COVID-19 and low growth. ESG-related social environmentis expected not to end in a short-term boom in Japan. Korea and Japan have also similar financial and businessstructures, and this paper can be referred to study Korea’s future ESG policies.