The Latest Impact Investment Trends in Japan

In June 2023, Prime Minister Fumio Kishida’s Cabinet endorsed the Basic Policy on Economic and Fiscal Management and Reform, and part of this policy incorporated “promoting impact investing.” Concurrently, the Cabinet greenlit “The Grand Design and Action Plan for a New Form of Capitalism (2023 Revised Version).” This plan champions addressing societal challenges through public-private partnerships and positions these endeavors as key growth drivers. These strategic government decisions are spurring rapid advancements in impact investment research and development in Japan.

Private Sector Dynamics: A Surging Interest in Impact

A pivotal question emerges: How is the private sector responding to this movement by the government? An annual survey titled “The Current State and Challenges of Impact Investing in Japan” (FY2022 Survey), undertaken by the National Advisory Board of the Global Steering Group for Impact Investment (GSG), provides a better understanding of the question. The findings are illuminating. Japan’s impact investment balance soared to 5.8480 trillion yen in FY2022, marking a significant 4.4-fold escalation from the 1.3204 trillion yen reported in FY2021.

Launched in November 2021, the Japan Impact-driven Financing Initiative heralds a commitment to impact investing from the vantage point of financial institutions. The initiative, which began with 21 Japanese financial institutions and has tripled in size to 68 institutions (as of November 2023.11), is developing various efforts. Apart from regular operational meetings, the signatory institutions have birthed several Working Groups — from the Regional Finance and VC (Venture Capital) groups to those dedicated to IMM (Impact Measurement and Management), AO/AM (Asset Owner/Asset Management), and Social Indicators. These groups thrive on the proactive involvement of signatory staff members, ensuring rich and dynamic dialogues.

Top-Down Commitment: A Crucial Catalyst for Impact Investing

Two primary implications emerge from the initiative for the furtherance of impact investing in Japan. First, for membership, a top representative of a financial institution must endorse the initiative. This ensures that impact thinking permeates the whole organization, not just selected departments. The importance of this top-down commitment is further echoed in the GSG survey, where 40% of respondents identified “Top management’s interest in and understanding of impact creation” as a pivotal promoting factor.

Secondly, the initiative fosters collective wisdom on impact investing in Japan. With the practice still nascent, there needs to be a predefined roadmap. However, through active discussions within the Working Groups, institutions showcase their approaches and transparently share their hurdles. This shared discourse remains consistent within firms; it evolves into a community knowledge pool, enriching the Japanese impact investment sector. Given the overarching mission of addressing societal challenges through impact investing, the initiative’s role is undeniably monumental.

Bridging the Gap: Impact Analyst Training in Japan

In response to the burgeoning interest in impact investing, the Social Impact Management Initiative (SIMI) unveiled a robust training named “The Impact Analyst Training.” Partnering with the Japan Foundation, this program is designed to develop impact analysts — professionals adept at synergizing an investment with social and environmental outcomes.

Driving this training was an evident vacuum in specialized human resources. The Financial Services Agency also addressed this perspective in its Third Report of the Expert Group on Sustainable Finance in June 2023, highlighting “human resource development” as a pivotal challenge. A startling 70% of financial entities lamented the dearth of professionals in sustainable finance. This underscores the pressing need for specialized training, a void SIMI is keen to fill.

Anatomy of the Training: A Blend of Theory and Practical Insight

Delineated into two Courses, Basic Course and Practice Course, the program also offers a customizable Selective Course for the participant’s interests. Distinctively, each session sees an infusion of global expertise. Renowned impact leaders from regions like North America, Europe, and Japan share the dais, offering pragmatic insights. For instance, the Advanced Course partners with Impact Frontiers, a notable name promoting impact investing across multiple areas.

What sets the training apart is its emphasis on forging trust-based connections among its diverse cohort. The program fosters a fertile ground for candid discussions as impact investing grapples with nascent challenges like metric standardization. With representatives from leading financial institutions to local financial endeavors and foundations, it serves as an incubator for collaborative learning. Adhering to the Chatham House Rule, ensures confidentiality and open discourse.

Participants emerged from the training with more than just enhanced knowledge. Many echoed transformative takeaways, with statements highlighting a “paradigm shift in impact investing perceptions” and the invaluable “interconnections established with fellow practitioners.” The feedback underscores the program’s depth as an educational platform and as a catalyst for shaping perspectives and broadening professional networks in the impact investing landscape.

Japan’s Call for Impact Specialists

The urgency to cultivate impact specialists in Japan cannot be overstated. Beyond just expertise, constructing a trust-based community of practitioners accelerates the path to resolving societal challenges – a core tenet of impact investment. The growth, sustenance, and ongoing evolution of this sector demand skill, collaboration, and an innate understanding of societal needs.

Forecasting the Future of Impact Investing in Japan

With the escalating interest and an expanding roster of stakeholders, Japanese impact investing stands at a crucial juncture. The stage is set for it to transcend its formative phase, directing energy towards genuine impact generation. It’s anticipated that as the market matures, a greater diversity of impact-driven products will emerge, further integrating social goals with financial returns. SIMI will continue to foster collaboration and community in this transformative domain.