Skip to main content

Socially Responsible Investment Takes Root in Japan

Japan has been much slower to adopt SRI than European and North American countries for a number of reasons; however, a number of SRI vehicles do exist, and informed observers agree that SRI will only grow. By William Baue

In March 2003, the Mutual Aid Association for Tokyo Metropolitan Teachers and Officials launched the first socially responsible investing (SRI) pension fund in Japan. Japan has been much slower to adopt SRI than European and North American countries for a number of reasons; these include Japan's recent economic woes as well as its different cultural values. However, a number of SRI vehicles do exist, and informed observers agree that SRI will only grow.

"The association’s leadership on SRI is very significant -- their policies are definitely raising the profile of SRI and its significance to pensions investment," said Tessa Tennant, executive director of the Association for Sustainable & Responsible Investment in Asia. "It's a fair bet that other pension funds will soon adopt SRI policies or invest at least some of their portfolio in SRI funds."

The association, which serves about 112,000 public school teachers and officials in the Tokyo metropolis, committed two billion yen of its 84 billion yen pension portfolio to SRI strategies. The association is similar to the California Public Employees Retirement Pension System in the U.S. and the University SuperAnnuation Scheme in the U.K., two other public pension funds that employ SRI strategies. And as with many SRI institutional investments, separate firms provide research and fund management services.

"The Good Bankers provides the Association with tailor-made SRI research, covering environmental as well as social performance of each company focusing on three aspects, namely employee and community education, promotion of females, and contribution to the community," said Sho Ikeda, director of the Good Bankers.

About 100 companies passed the Good Bankers SRI screens, which also covered environmental issues such as environmental accounting and waste reduction.

"Nikko Asset Management provides fundamental financial research and serves as the fund manager," Mr. Ikeda said.

Collaboration was not foreign to Nikko and the Good Bankers, which jointly launched the first SRI mutual fund in Japan in August 1999, the Nikko Eco Fund.

"When we established the Eco Fund, we focused on ecology and the environment," said Eiichi Takeda, a corporate planning official with Nikko. "Japanese are keen on the environmental issue, because Japan faced serious environmental pollution in the 1960s and 1970s."

"Then we aimed at women, young people, and new investors, who are interested in ecology and the environment very much," Mr. Takeda said.

The Eco Fund, which focuses more on positive than negative screening, quickly attracted more than 100 billion yen in sales not only through brokerage firms, the traditional channel for fund sales in Japan, but also through banks.

"Observing the success of the fund, about ten similar retail funds were put into the market by various investment trust companies," Mr. Ikeda said. "However, since then, Japanese stock market has been terribly bad and no other SRI fund had been launched until recently."

Also in 1999, Asahi Life Asset Management Company (ALAMCO) launched an SRI fund named Asunohane, or "Feather of the Future." In January 2003, ALAMCO contracted the Ethibel Group, a Belgium-based SRI research and consultancy agency, to provide SRI screening services.

"ALAMCO came to us for our capacity to examine Japanese companies beyond Japan's borders," said Kyoko Sakuma, project manager for Ethibel's Pacific Project.

Ethibel evaluates Japanese companies' international presence throughout their consolidated groups and supply chains, examining overseas sales and employment practice. Ethibel also conducts dialogue with relevant stakeholders throughout the world.

The proliferation of Japanese SRI vehicles, both at the individual and institutional levels, as well as the spread of SRI research beyond Japan's borders, bodes well for the growth of SRI in Japan.

"There is now a critical mass of individuals and funds involved with SRI for the industry to be self-perpetuating," Ms. Tennant said.

"There is much discussion about the contribution SRI can make toward helping Japan out of its current problems and toward a sustainable economy."

Attitudes and actions behind the growth of SRI in Japan

Alongside the highly visible events that demonstrate the spread of socially responsible investing in Japan are shifting attitudes and less visible actions.

Since August 2002, Asahi Life Asset Management Company (ALAMCO) has been hosting a once-a-month "SRI Lounge" at its offices, drawing about 20 to 30 people to discuss issues related to socially responsible investing. The substance of these discussions offers a glimpse behind the events that portend the growth of SRI in Japan, such as the Mutual Aid Association for Tokyo Metropolitan Teachers and Officials' two billion yen commitment to SRI in its pension funds (see part one of this article for more information on this and other concrete examples). Other less visible developments and commentary from other industry participants also help paint a more complete picture of the attitudes and actions fueling the growth of SRI in Japan.

"The SRI Lounge is not a one-way seminar, but a forum to discuss SRI-related issues in a relaxed mood," explained Tadashi Hayami of ALAMCO, which administers the Asunohane (or "Feather of the Future") fund, one of the first Japanese SRI funds. "SRI gurus in Japan are interested in regulations and standards, such as the Global Reporting Initiative, but regulations and standards are not SRI."

"We define SRI as connecting personal values to money," Mr. Hayami said. "We consider that thinking about social and environmental issues in daily life in more important than learning about SRI."

The SRI Lounge has focused discussion on a number of questions, including what defines SRI, corporate social responsibility, and sustainability, and how to read an environmental report, identify an eco-friendly company, or apply negative screening.

Education is an important element in the development of SRI in Japan, where understanding of SRI is low.

"Japanese know very little about SRI, because the background for SRI in Japan is different from that in Europe and the U.S.A," said Eiichi Takeda, a corporate planning official at Nikko Asset Management. The Nikko Eco Fund, which was launched in August 1999, was the first SRI mutual fund in Japan. "Firstly, Japanese are not as familiar with stocks and unit trusts, though the most Americans and Europeans have them, as Japanese prefer the bank deposit to the investment."

Secondly, many Japanese are conservative and do not consider cigarettes, nuclear power, gambling and weapons production as "anti-social," according to Mr. Takeda. Mr. Hayami echoed this characterization of the Japanese as generally conservative. Thirdly, Mr. Takeda lamented the relative dearth of nongovernmental organizations (NGOs) to promote the cause of SRI in Japan. Mr. Hayami also stressed the importance of NGOs because they work at the grassroots level.

One Japanese NGO that is promoting socially responsible corporate practice is the Women and Work Research Center, which promotes the rights of women on the job. Stock at Stake, an SRI screening company that operates under the Belgium-based Ethibel Group, prepared a report in December 2002 for the Center that established sustainability criteria for identifying best practice in equal opportunity employment and diversity.

Japanese companies are also taking it upon themselves to adopt best practice in the social and environmental arenas.

"For example, last Friday, Canon held an investor relations meeting for mainstream institutional investors on Canon's environmental initiatives," said Mr. Hayami. "This is one of the first times that a Japanese company has explained its environmental policies to mainstream investors."

Corporate awareness of the need to communicate about CSR and SRI is fueled by investor interest in these topics.

"Now, Japanese stockholders are starting to pay attention to CSR because of the corporate scandals and low stock prices these days in Japan," Mr. Takeda said. "They are also beginning to take an interest in SRI, as it is related to the CSR."

Mr. Takeda believes that when market conditions improve and when corporate investors, pension funds, and 401K plans start adopting SRI strategies, then SRI will grow more popular in Japan. This may already be happening, as Sumitomo Trust Bank announced that it will start marketing SRI products for pension fund clients.

While Mr. Takeda predicts a top-down growth of SRI, Mr. Hayami foresees a more bottom-up or even lateral development.

"In my scenario, mainstream investors will move toward SRI, though this movement may be invisible from the outside," said Mr. Hayami. "I think that in Japan, SRI development will continue without the SRI name: SRI will melt into the mainstream pot."

William Baue is a staff writer with

This article has been reprinted courtesy of Ethical Corporation. It was first printed in July 2003.

More on this topic