JFSA to promote impact and release guidelines for ESG mutual funds

Q&A with the regulator on what's next for ESG investing in Japan

With its ESG code of conduct set to be finalised by the end of this year, the Japan Financial Services Agency (JFSA) is making strides in the regulation of sustainable investing in the region. And with more guidelines and working groups in the pipeline, ESG Clarity Asia asked the agency to outline what’s to come and where Japan fits in the global ESG investment landscape.

What developments can investment firms in Japan expect when it comes to ESG regulation?

The JFSA is working on anti-greenwashing efforts, such as releasing a code of conduct for ESG evaluation and data providers (published in July this year and scheduled to be finalised by the end of the year) and publishing expectations for ESG mutual funds (published in June this year). We are also planning to draw up supervisory guidelines for ESG mutual funds.

In addition, we published Supervisory Guidance on Climate-related Risk Management and Client Engagement while working on enhancing corporate disclosure. We would continue to contribute to the development of a robust sustainable finance market.

What should investment firms look out for in the upcoming code of conduct?

The Code of Conduct for ESG Evaluation and Data Providers focuses mainly on ensuring transparency, developing human resources, avoiding conflicts of interest, and communicating with companies.

In particular, ensuring transparency is a useful reference for investors as it discloses the objectives, concepts, and basic methodologies of evaluation institutions.

See also: – ‘A convenient scapegoat’: Japan’s draft code of conduct rankles ESG data providers

As well as the Code of Conduct, we have recommendations for investors, which include clarifying how investors use ESG evaluation in their own investments.

What is the biggest ESG challenge for investment firms in Japan at the moment?

It is important to develop a robust sustainable finance market not only in Japan but around the world.

We would like to create a virtuous cycle in which the lineup of investment products will increase and funds will flow into the market where the robustness is ensured.

Where does Japan fit in the global ESG landscape right now?

ESG finance has a variety of aspects and so it’s a little hard to answer. For example, in anti-greenwashing policies and the development of information platforms, Japan is leading the world with regard to the enhancement of market functions.

On the other hand, the amount of impact investment in Japan is not as large as other developed countries yet, for example, and the JFSA has decided to set up a working group within the JFSA to promote it in the market.

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Natasha Turner

Natasha is global deputy editor at ESG Clarity, part of the Bonhill Group, and has been a financial journalist for six years. She has been shortlisted for Story of the Year and Investment Journalist of...