Japan compiles guidelines for ESG investments

TOKYO (The Japan News/ANN) - The government will soon release new guidelines it has compiled to attract ESG (environmental, social and governance) investments from overseas.

 In ESG investments, investors choose companies based on factors such as the company tackling or having a good record on environmental and social issues, such as efforts to cut carbon dioxide emissions, and corporate governance.

 The guidelines, which cover five industries such as automobiles, steel and chemicals, specify what types of information are desirable for each industry to disclose. Steel companies, for example, should reveal the carbon dioxide emissions per production amount, according to the guidelines, which are expected to be released within this month.

 Japan is apparently the first country among the Group of Seven advanced nations to compile such guidelines. The government hopes that Japanese companies will disclose the desired information about their efforts against global warming and other ESG activities through clear-cut standards as a means to expand ESG investments from overseas and boost economic growth.

 In Japan, there are many companies that have strengths in making products that can lead to reductions in carbon dioxide emissions, such as cars and tires with good fuel economy, as well as lightweight and long-life fabrics and materials. However, it has been pointed out that many such companies are overlooked by overseas investors and financial institutions because the country lacks clear standards to appraise their strengths.

 The five industries are: automobile, steel, chemical, electric machinery and electronics, and energy (electric power, gas, petroleum).

 The guidelines detail what information each industry should disclose. For example, the automobile industry is encouraged to disclose carbon dioxide emission levels while a vehicle is moving, and the electric machinery and electronics industries are advised to disclose the status of their developments in energy-saving technologies.

 The guidelines are nonbinding and companies are left to decide whether or not they disclose the information covered in the guidelines. The government intends to make the guidelines more comprehensive by covering more industries, among other measures in the future.

 Globally, ESG investments expanded from about $18.3 trillion (about ¥2 quadrillion) in 2014 to about $23 trillion (about ¥2.5 quadrillion) in 2016. In contrast, ESG investment in Japan remains at $474 billion (¥50 trillion). Therefore, it is seen that there is much room for expansion.

 Regarding ESG investing, the Group of 20 major economies has also begun discussions on making relevant international rules. By compiling the guidelines now, Japan hopes to expand investments under the guidelines and take the initiative in discussions.

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