The deepening climate crisis has made clear the urgent need to finance the world’s transition to a greener future. Tokyo is now positioning itself as a global nexus where sustainability innovators and investors can find new opportunities.
Tokyo is in many ways an excellent contender for the title of global green finance hub. Not only is it the bustling capital of the world’s third largest economy; households in Japan also sit on a mountain of cash amounting to nearly 2,000 trillion yen. Given the right incentives, this treasure trove could be deployed for a greener purpose.
“There is a lot of interest in Tokyo when it comes to sustainability,” said Takayuki Higuchi, Senior Director, Strategic Projects Section, Office of the Governor for Policy Planning, Tokyo Metropolitan Government (TMG). “It is also being recognized that finance has the power to greatly facilitate the resolution of social issues, such as the growing climate crisis. through investment and financing.”
Tokyo’s dedication to sustainability is reflected in its goal to reach net-zero carbon emissions by 2050. Given this commitment, and Japan’s role in shaping the global agenda as the only Asian member in the G7, it is perhaps no wonder that the city’s green finance market is continuously reaching new heights. The volume of sustainability, social and green bonds sold domestically grew 47 times from 2016 to 2020 to a total of more than 2,100 billion yen.
Attracting Sustainability Innovators
To accelerate Tokyo’s green finance momentum, the TMG set up the Green Finance Subsidy Program for Tokyo Market Entry in 2021. Under this brand new scheme, foreign asset managers and fintech companies focused on sustainability can receive subsidies for starting and expanding new businesses in Tokyo.
In its first year, the TMG had 48 applicants from 17 countries and regions around the world. One of them was a credit card company that measures the carbon footprint of every purchase. Another measures employees’ CO2 emissions to encourage organizations to think green. The TMG is now in the process of selecting the firms that will receive support.
Arabesque Group, a green fintech company offering sustainable investment, advisory and data services, can attest to the benefits of setting up an office in Tokyo. Having done so in 2018, the firm now counts Japan’s Government Pension Investment Fund, the world’s biggest pension fund, among its customers.
“Tokyo is like London or New York,” says Hiroshi Amemiya, Head of Japan and Korea at Arabesque S-Ray, the group’s global data provider arm. “It’s convenient for a start-up like ourselves to reach as many companies and institutional investors as possible just within the city.”
To Georg Kell, Chairman of Arabesque Group, setting up in Tokyo was a logical step. He joined the company after 15 years as the founding Executive Director of the United Nations Global Compact, the world’s largest voluntary corporate sustainability initiative.
“At the UN Global Compact, the Japanese network was always very strong,” says Kell. “Japanese companies are quite serious about what they say and do. When it comes to ESG disclosure, Japanese companies take it seriously.”
Arabesque S-Ray uses artificial intelligence, big data, and Environmental, Social and Governance (ESG) metrics to assess the performance and sustainability of some 9,000 listed companies, covering 97% of global market capitalisation.
“Technology is an enabler when it comes to ESG goals,” said Kell. “Without technology, we wouldn’t have the transparency we have today. Without technology, we wouldn’t be able to analyse the huge amount of quantitative data out there and make it comparable and digestible.”
Building an Ecosystem for Green Finance
To guide the sustainability journey of Tokyo-based companies, last November the TMG updated its Global Financial City: Tokyo Vision to better reflect the city’s green ambitions and digitalization efforts.
As part of the TMG’s green ambitions, the Tokyo Green Finance Initiative (TGFI) was launched. The plan is a key element in Tokyo’s post-Covid sustainable recovery strategy and takes a holistic approach to bolstering green finance, including information disclosure on ESG; measures to reduce the burden of issuing green bonds, and promoting sustainable management in cooperation with financial institutions.
To lead by example, the TMG will continue to issue Tokyo Green Bonds and Tokyo Social Bonds totaling about 100 billion yen in the next fiscal year to drive the market’s growth.
In addition, a new Social Impact Investment Fund will be established for companies in the wellness sector, such as medical and nursing care companies, to accelerate the flow of new funds toward the resolution of social issues through public-private collaboration.
A global issue holding back green finance from its full potential is the lack of skilled personnel capable of screening sustainability data and developing ESG strategies. However, recent tax reforms, including to corporate taxation and inheritance tax, have helped to make Japan a more attractive proposition for global financial players. Thus, Tokyo’s burgeoning green finance ecosystem is expected to attract a range of firms with valuable know-how, including asset managers, green fintech start-ups and human resource specialists.
Ryann Thomas, Partner at PwC Tax Japan, says these reforms are positive. “The changes that the government made during last year’s reforms are a step in the right direction and should help.”
Backed by initiatives and reforms such as these, Tokyo is moving to establish itself as a sustainable finance hub, building an ecosystem where investors, asset managers and technology innovators can meet and create the green finance solutions the world needs.
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