National | G20 Osaka Summit Special

Green Finance

Eco-friendly financing for a more sustainable world

by Maiko Muraoka

Contributing Writer

The Green Finance Network Japan (GFNJ) was established late last year with the aim to make green finance mainstream in Japan’s financial market.

Green finance is a term often used to refer to the ways of financing and investing that are more environmental or sustainable, which has been becoming a global trend since the Paris agreement was signed in 2016.

Hideki Takada, secretary general of GFNJ | YOSHIAKI MIURA
Hideki Takada, secretary general of GFNJ | YOSHIAKI MIURA

Hideki Takada, secretary general of GFNJ and counsellor of IR (Integrated Resort) Promotion, Government of Japan, came across the idea of green finance when he was assigned by the Ministry of Finance as a senior policy analyst of the Green Finance and Investment at the Organization for Economic Co-operation and Development (OECD) in Paris from 2015 until the summer of 2018.

“Japan was a slow starter in green finance. It has been gaining momentum over the past one to two years,” said Takada. He met main players of green finance from around the world through his career at the OECD. “I wanted to maintain and utilize the extensive network I built there, even after I returned to Japan to work in other fields within the government,” he said.

Takada consequently set up GFNJ with two other founders, Takejiro Sueyoshi, CEO of Green Finance Organization Japan and special advisor to the United Nations Environment Programme — Finance Initiative in the Asia-Pacific region, and Rintaro Tamaki, president of the Japan Center for International Finance and former deputy secretary-general of the OECD.

GFNJ organizes events and symposiums on green finance, gathers and shares information on various green finance activities conducted by its members and outside the organization, and provides a platform for connecting Japanese and international stakeholders.

The group is made up of more than 120 individuals from over 70 organizations including government ministries and agencies, private companies, academic institutions, local municipalities, financial institutions, international organizations, think tanks, media and nongovernmental organizations. GFNJ members vary in age, but Takada explained that professionals account for a sizable proportion of the network, which he hopes will drive rapid changes based on a common awareness of issues.

“The members belong to GFNJ as individuals, instead of representing an organization or company. This allows for open discussions and continuation of relationships across all sectors,” said Takada.

GFNJ serves as a platform for building long-lasting, person-to-person connections as a starting point to bring about bigger changes across all sectors. This is because bureaucrats are regularly transferred to different sections of the government. The contents of their work and people they work with tend to change after a few years. The same can be said for many private companies.

This is one of the causes of vertical divisions among different areas because cross-sectoral relationships and exchanges do not continue or mature. GFNJ serves as a platform for building long-lasting person-to-person connections as a starting point to bring about bigger changes across all sectors.

GFNJ also provides channels to and from key persons in the public and private sectors as well as financial and academic institutions from around the world. The organization’s broad network serves as a gateway for foreign government officials and other key players in green finance who are looking for their counterparts in Japan. “Japan is receiving global attention now due to the size of, and capacity for its green finance market to grow,” said Takada.

For example, green bonds are a financial instrument in green finance whose issuance increased dramatically in Japan in the last few years. According to market analysis published in February by the Climate Bonds Initiative, a major NGO and the first in the world concerning green bonds, Japan’s green bond market is the 12th-largest in the world and second-largest in the Asia-Pacific region.

The Environment Ministry launched Japanese Green Bond Guidelines in 2017 to ensure transparency and integrity in the fast-growing market. The ministry also introduced the Financial Support Programme for Green Bond Issuance in 2018 to offer subsidies that partially cover the issuance cost of green bonds.

“From a global perspective, this kind of governmental initiative is quite groundbreaking because green bonds in the rest of the world, especially Europe, have been led mainly by the market and the private sector,” said Takada. GFNJ aims to facilitate effective learning from looking at the various approaches taken by different countries.

“Japan tends to make a late start in many fields, but it is often because we want to be fully convinced before we kick-start. We have been through the process of pursuing logic and confirming matters systematically when we actually put something into practice. I think this is Japan’s strength,” said Takada.

Another advantage in Japan is that individuals tend to adhere to high moral and ethical standards. While economic and market values may be green finance’s most powerful driver in some countries, “Japan’s national character may see an ethical approach being more effective. There may be social messages that only Japan can transmit to the world,” said Takada.

The high level of individual ethics and standards is reflected in investment decisions at the personal level. “The Tokyo Metropolitan Government offered some of its green bonds to individual investors for the first time in 2017, and they were sold out within a day,” said Takada. “I think there is latent demand for making greener choices in investment. It is, in a sense, a democratic way of participating in green finance.”

As part of its outreach to individuals, GFNJ organizes and sponsors events to promote and share information on green finance. The first two symposiums held in November 2018 and May 2019 featured speakers from diverse sectors. Approximately 200 participants attended the seminars. “Our network smooths channels among organizations. We want to help companies succeed and overcome their various hurdles,” said Takada.

In addition to green bonds, green finance covers diverse environmental topics from climate change and conservation of biodiversity and marine resources to food loss and circular economy. Both individuals and organizations are becoming increasingly concerned and interested in such topics. “I hope that Japan will take initiative in some of the fields where we are ahead of the rest of the world,” said Takada.

Investment based on environment, social and governance (ESG)factors is also gaining increased recognition. The Government Pension Investment Fund in Japan, the world’s largest pension fund, has announced that it will incorporate ESG factors in all of its investments.

Takada also stated that gatherings among the private sector, municipalities and NGOs are equally important as intergovernmental meetings such as the G20 Summit. “All of the countries share the same awareness of global issues, but it takes time to form consensus on each topic and take action,” he said. Private companies, financial institutions, local governments and the like are more flexible, and accelerating their efforts and involvements in green finance. “We expect that notice of their achievements will reach the leaders of the G20, and we want to be part of the force to boost the governments’ efforts in green finance,” said Takada.

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