When it comes to attracting to the world’s most advanced finance and technology companies, Japan is relying on environmental activism. Today’s emerging companies, in fact, are on the hunt for the most the proactive cities and the best workers, all of which is requiring eco-minded and carbon-friendly policies.
As such, the Tokyo Metropolitan Government hosted a conference last week to highlight its mission — to attract so-called FinTech companies using environmental, social and governance principles. In other words, today’s financial firms that rely on digital technologies want to associate with other eco-conscious companies and environmentally-friendly cities. And Tokyo thinks it is the right city at the right time.
“If we can allocate Japanese savings in a sustainable society that will be a major driver,” says the Governor of Tokyo Yuriko Koike, in a response to this reporter’s question. “We can recruit more foreign companies to Japan. If we have more green initiatives, it will contribute to Japan’s overall economy.”
Japan has a lot of advantages, namely that it can provide a highly-skilled work force as well as the capital — cash that has been sidelined in money market funds: $17 trillion, which could be invested in not just large-cap companies but also small-to-medium sized enterprises. That could infuse the FinTech industry — everything from PayPal to Revolut to Venmo.
At the same time, it is demonstrating leadership. While the United States has bowed out, Japan is active in the Paris Climate Agreement and it has adopted a policy to become carbon neutral by 2050. Other financial capitals such as London and Hong Kong, meanwhile, are undergoing internal strife whereas Japan is politically and economically rock solid. “Japan is not difficult,” says David Shirt, chief executive of Astris Advisory. “If you can navigate it, you can build a business here. But you have to understand the regulators.”
For its part, the Tokyo Metropolitan Government has established public funds to support environmental, social and governance investment in renewable energy. It is also issuing $20 billion green bonds that earmark revenues for environmentally-friendly projects like energy conservation and energy-efficient buildings. The city plans to highlight those themes during its 2020 Hydrogen Olympics in which clean electricity will provide power where the games will be played.
Specifically, Governor Koike, who had previously been a member of parliament and the minister of the environment, says that since 2000 Tokyo has employed a cap-and-trade scheme for its office buildings, which has reduced CO2 emissions by 26%. Going forward, the country’s goal is to focus on advancing the production of green hydrogen that is CO2-free while relying on renewable energy to provide 22-24% of the energy mix by 2030.
Prospering in the 21st Century economy means going green. Consider: The US SIF Foundation’s 2018 biennial Report on US Sustainable, Responsible and Impact Investing Trends found that sustainable, responsible and impact investing assets now account for $12 trillion —or one in four dollars— of the $46.6 trillion in total assets under professional management in the United States. This represents a 38% increase over 2016.
For Japan to maximize its potential as a global financial center, it realizes it must make the transition to a low-carbon economy. And the leadership there says that the country is poised to take a piece of that action: corporate profitability remains high while it has 2.5% unemployment rate. At the same time, it is increasing its capital expenditures that is driving its domestic economy.
“Sustainable development is becoming a mega trend,” says Hiroshi Nakaso, chairman of FinCity Tokyo, at the conference. “The financial industry is trying to embrace this and it is supported by the authorities. Transparency is a critical element in fostering this move. Japan is ‘Number One’ in terms of companies that have signed up for disclosure.”
Several companies are endorsing FinCity, which leverages Tokyo’s strengths with its newfound emphasis on eco-activism: Accenture, KPMG, PriceWaterhouseCoopers, Mitsubishi and Morgan Stanley, to name a few.
And according to Yasumasa Tahara, who is the director of strategy for Tokyo’s Financial Services Agency, new governance measures are encouraging corporate disclosure. Any information that would affect stock prices must be revealed. Indeed, The Principles for Responsible Investment says businesses should divulge their environmental, social and governance data to investors so that they can make informed decisions. It says that climate issues are the “number one” risk in their portfolios and that avoiding disruption is paramount.
Take Tokyo-based Rheos Capital Works, which is Asia’s largest mutual fund: It says that its mission is not just to make money for investors but to improve lives. Twenty years ago, it says that environmental concerns were lacking in Japan but that today, they are at the forefront. Most funds have a “sustainable vision,” it says, noting that the government there is seeking a dialogue with industry and money managers.
“Our company has a focus in sustainable growth,” says Hideto Fujino, who is the founder of Rheos. “Whenever I have communications with companies, I talk about sustainable growth topics.”
The political and economic landscapes have criss-crossed to give Japan a competitive edge in its bid to win new FinTech businesses. Other places in the hunt have their internal issues, allowing cities like Tokyo to potentially trump New York, London and Hong Kong. And the fundamentals favor it, given its skilled workforce, available capital and proactive policies — an ideal formula for success in the 21st Century.