I imagine most people know about the U.N.’s Sustainable Development Goals and, possibly, ESG investment. From working as a strategic advisor on corporate sustainability in Japan since the mid-1990s, I feel these two concepts represent major drivers of innovation for businesses across the world.

ESG investment is a global movement that picked up speed around 2006, when the Principles for Responsible Investment (PRI) were launched at the New York Stock Exchange with more than 100 institutional investors as signatories. PRI was first proposed in 2005 by Kofi Annan, then-secretary-general of the U.N., and today has more than 1,800 signatories, including many Japanese financial institutions.

Since then, screening corporations from an ESG perspective has rapidly become the norm rather than the exception, in particular for large institutional investors, including Japan’s Government Pension Investment Fund, the world’s largest pension fund, which on July 3 launched three ESG indexes. Globally, around 30 percent of all corporate assets held by investors are now screened through an ESG lens and the figure is set to grow. Responding to such investor demands for a strong sustainability performance is no longer merely a question of corporate social responsibility, but of future competitiveness. To compete globally, Japan Inc. needs to speed up its capabilities for green and socially aligned innovation.

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