sustainability in Japan

ESG in Japan

ESG investing scale in Japan

In 2022, according to the Quick ESG investment research, the ESG investment balance in Japan amounted to ¥114.4 trillion, which represents a decrease of ¥13.8 trillion compared to the previous year in 2021. ESG investment accounted for 66% of the total Japanese stock market.

Similarly, the Japanese Sustainable Investment Forum reported that Japanese sustainable investments totaled ¥119.8873 trillion, showing a 10% decrease compared to 2021. Despite the surge in energy prices due to the Russian War in Ukraine, Japan is expected to remain a strong player in the ESG investment landscape. Prime Minister Kishiwada emphasized the country's commitment to investing in people and human resources development.

ESG historical background

Looking at the historical context, the Japan Stewardship Code was launched by the Financial Services Agency in February 2014. In the same year, the Ministry of Economy, Trade, and Industry (METI) published the ITO Review to enhance dialogue between corporate businesses and sustainability initiatives. This initiative evolved into the Study Group on Dialogues that Contribute to Long-term Corporate Management and Investment for the Creation of Sustainable Corporate Value (SX Study Group) in May 2021. The SX Study Group's materials culminated in the ITO Review 3.0 (ITO Review SX Edition) report and the formulation of Guidance for Collaborative Value Creation 2.0.

In 2015, Japan introduced the Corporate Governance Code, followed by the publication of "Recommended Directions for Further Promotion of Corporate Governance Reform." These initiatives, led by the Financial Services Agency and the Tokyo Stock Exchange, aimed to promote sustainable investment and engagement. The Corporate Governance Code was subsequently revised in 2019 and 2020 based on public comments and discussions.

ESG - Japan and the world

According to data from the Climate Bonds Initiative, Japan is the second-largest country in ESG investing after China. Japan's ESG investments primarily contribute to the green transformation of industries such as energy, manufacturing, construction, and transportation, among others, followed by social and sustainability investments.

However, according to MSCI, Japan lags behind other developed countries in terms of ESG performance, with relatively lower average scores in various indices.

ESG perception gap in Japan

The ESG Disclosure Study Group's report in June 2022 highlighted a gap in materiality evaluation among Japanese companies. Approximately 46% of surveyed companies rated their materiality assessments as "not so good" or "insufficient," while only 8% considered them "almost perfect." Furthermore, 35% of companies expressed confidence that investors were aware of their materiality assessments, but 46% felt that investors were not well-informed. This gap is attributed to limited investor understanding and interest in materiality.

ESG challenges

Challenges in Japan's ESG landscape include limited disclosure aspects, a gap between corporate ESG performance and investor perception, and the need for greater sustainability education for investors. To address these challenges, there is a need to adapt and localize European disclosure frameworks to the Japanese context, considering Japan's unique corporate culture and historical aspects that may pose disclosure challenges.

As a response to these challenges, In March 2023, the Tokyo Stock Exchange announced its request for listed companies to disclose the status of dialogue between management and shareholders in annual reports and on their corporate websites. This initiative aims to promote management practices that consider capital costs and stock prices.

Prominent ESG companies in Japan

The "CSR Corporate Ranking" conducted by Toyo Keizai Inc. since 2007 is Japan's largest CSR/ESG/SDGs/Sustainability comprehensive evaluation corporate ranking. It assesses both financial and non-financial aspects based on data from the "CSR Corporate Survey" covering over 1,600 companies.

It presented in February 2023, TOP ESG companies, and here we present 10 most prominent from this list:

  1. Fujifilm Holdings Corporation - Imaging and Photography
  2. Nippon Telegraph and Telephone Corporation (NTT) - Telecommunications
  3. Chugai Pharmaceutical Co., Ltd. - Pharmaceuticals
  4. NTT DOCOMO, INC. - Telecommunications
  5. Sekisui House, Ltd. - Construction and Real Estate
  6. Mitsui & Co., Ltd. - Trading and Investment
  7. Kao Corporation - Consumer Goods (Personal Care and Chemicals)
  8. KDDI Corporation - Telecommunications
  9. NTT DATA Corporation - Information Technology and Services
  10. Japan Tobacco Inc. - Tobacco and Consumer Goods


Japan's ESG investment scene presents a complex yet promising landscape. Despite recent decreases in ESG investments, Japan remains a global player with a strong commitment to sustainability. Key regulatory frameworks and codes have been established to promote sustainable investments and corporate governance reform.
To fully harness the potential of ESG investments, Japan must address existing challenges, including limited disclosure practices, the gap between corporate ESG performance and investor perception, and the need for investor education on sustainability matters. Additionally, aligning European disclosure frameworks with Japan's corporate culture is crucial.

As Japan continues its journey in the ESG investment realm, ongoing efforts to enhance disclosure, engagement, and investor education will be essential in realizing its sustainability goals and contributing to global ESG initiatives.

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