Receive free Japanese business & finance updates
We’ll send you a myFT Daily Digest email rounding up the latest Japanese business & finance news every morning.
Prof Kim Schumacher is associate professor in sustainable finance and ESG at the Institute for Asian and Oceanian Studies, Kyushu University
Japan’s efforts at “greening” its financial and corporate sectors have, at times, been uneven: government and companies have shown great commitment and support for sustainability and environmental, social and governance principles on the one hand; and less rigid integration on the other.
Government and business pride themselves on their support for international bodies such as the Task Force on Climate-related Financial Disclosures, which advises companies on how to report climate-related risks. Yet such support does not automatically equal tangible action or positive impacts.
Japan’s self-proclaimed world-leading status on corporate sustainability and ESG does appear to be borne out on the streets of Tokyo. Pin-badges supporting the UN’s Sustainable Development Goals are ubiquitous. So, too, is ESG or sustainability-related marketing in advertisements on trains, billboards and TV. But, without measurable impacts or data, such pronouncements could be seen as “greenwashing”.
This trend is also evident in recent sustainability reports from Japanese companies. The financial and corporate sectors say, and intend to do, the right things. But they are sometimes less clear on evidence of having the resources or capacity to live up to sustainability and ESG expectations.
This is particularly apparent in staffing, from low-ranking employees to the board. Many Japanese companies face risks of “competence greenwashing”: intentional or negligent misrepresentation of knowledge or skills relating to sustainability or ESG.
Eager to highlight their sustainability and ESG-linked activities, products, and services, many businesses have come under pressure to expand the departments responsible for them.
Given the lack of qualified personnel, however, many companies have promoted existing staff to sustainability or ESG roles, often with little material experience or relevant exposure. They have created novel managerial positions — often with sustainability or ESG-related job titles — that are basically marketing roles in disguise. Few genuine experts are filling key sustainability or ESG posts inside Japanese companies or financial institutions.
But, with ‘competence greenwashing’ now recognised as a regulatory risk by multiple financial watchdogs, including the European Banking Authority, UK Financial Conduct Authority and the Monetary Authority of Singapore, Japan’s Financial Services Agency has begun to accept the need for credible sustainability and ESG expertise in the corporate and financial sectors.
The government has also sought to emphasise a unique Japanese context that necessitates ESG and sustainable finance-related solutions that deviate from those in the EU and US. These have sometimes been labelled as greenwashing, as they usually involve voluntary or less stringent approaches.
They include, among others, the promotion of climate transition finance, including transition bonds, and support for the International Sustainability Standards Board, a corporate disclosure framework that focuses on solely financial materiality, as opposed to the EU’s proposals that require disclosure of data material to the environment and society.
Japan also supports the “Scope 4” or “avoided emissions” concept, which allows companies to take into account the theoretical carbon reductions their planned products or services are expected to generate versus a business-as-usual scenario.
This does not mean Japan is not progressing in line with international regulatory developments in several areas. Tokyo-listed companies, for instance, will have to disclose certain climate-related financial information. But more credible evidence is needed to support any sustainability or ESG-related claims, at government and corporate levels, and to reduce greenwashing and ‘competence greenwashing’ risks.