A new report exploring the extent to which institutional investors in Japan are required to invest for sustainability impact has found that a lack of clarity on the legal requirement is hindering climate finance.
In a June 19 announcement, the Principles for Responsible Investment (PRI) unveiled the study compiled in collaboration with the United Nations Environment Programme Finance Initiative (UNEP FI) and the Generation Foundation.
The report outlined that despite Japanese investment law permitting, and in many cases requiring investors to pursue sustainability impacts when deemed financially material, this is “not well understood by investors.”
The PRI said that the lack of clarity in Japanese regulation is likely to blame, and that it is “hindering climate finance, potentially discouraging investors from taking action.”
To remedy the situation, the group called for existing rules, standards, and guidance in Japan to be updated to include a clarification of the extent to which investors’ duties permit or require them to consider pursuing sustainability impact goals.
Other suggested changes include ensuring better investor access to corporate sustainability information, clarifying when and how investors can use stewardship activities to pursue sustainability impacts, enhancing transparency and market discipline on responsible investment claims, and ensuring better communication between investment managers and their clients and beneficiaries on sustainability objectives and preferences.
“Japan can assume stronger leadership in the area of responsible investment by providing investors with legal clarity and enabling policies,” said PRI CEO David Atkin. “Doing so can also help empower investors to support national sustainability goals as well as the economic transition required across Asia.”
“The report describes how regulators and policymakers in Japan can ensure investors have the clarity and guidance needed to take action and manage systemic sustainability risks to their investments and take advantage of opportunities more effectively, added Generation Foundation director Grace Eddy.