Food for thought: Japan’s booming impact market and CEO pay #JapanFinance

Japan’s impact investment market soars 150% | Exploring the dangers of excessive executive pay | Unlocking community finance in the UK | How Europe can take the lead on climate tech | Impact investing in alternative markets.

Our editorial team has made a selection of recently published research papers and sector reports which will add to the debate on impact investing.

GSG Impact JAPAN National Partner: Japan’s rising impact market

The size of the impact investing market in Japan jumped by 150% last year to ¥17.3tn ($115.3bn), according to the Current State and Challenges of Impact Investing in Japan – FY2024 Survey published in March by GSG Impact JAPAN National Partner.

The majority of the increase in investments came from banks and life insurance companies, new or existing players, which were driven by a number of actions stimulating impact investing taken by both the private and pubic sectors in Japan, the report said.

These include the Japanese government backing impact with new policy frameworks, the ministry of health, labour and welfare including impact investing in a government pension investment fund and the authorities governing the city of Tokyo starting a public-private impact growth fund.

In addition, the Japan Association for Private Public Collaboration has begun investing in dormant bank accounts while the Japan Association of Corporate Executives published a document saying it would consider impact-weighted accounting and other corporate evaluation methods in the future.

“Momentum is being created by the public and private sectors, and issues are expected to be addressed with the support of this tailwind and encouragement,” the report concluded.

Triodos on executive pay

In June 2021, Amazon founder Jeff Bezos, then the world’s richest man, travelled to space in his own spacecraft, while at the same time, one-tenth of the world’s population didn’t have enough to eat. Since then, the gap between rich and poor has widened, and will have serious consequences for society and the environment if it isn’t addressed, Triodos Investment Management concludes in its report ‘Enough is Enough. Why investors should take a stance against excessive CEO pay’.

The Dutch sustainable lender uses a comprehensive framework to analyse companies’ executive pay and to engage with them to improve their remuneration practices. This includes excluding firms with the most excessive and unequal remuneration.

In the report, Triodos calls on its fellow impact investors to follow its lead, and encourages balanced and fair remuneration policies and practices at the companies they invest in, as well as setting limits for executive pay and reduce pay differences in listed companies.

Although Triodos acknowledges that this won’t be an easy process, it warns a growing divide between the poor and the rich could eventually lead to social and political instability.

Impact Investing Institute: Unlocking community-based finance in the UK

While the US has built a thriving $100bn community development finance institution sector which successfully pours local investment into firms, housing, and social innovation, British cities and regions have traditionally struggled to access finance, according to a new report.

In fact, the UK is one of the most underinvested countries in the Organisation for Economic Cooperation and Development (OECD), with total overall investment into its economy currently standing at just 17% of gross domestic product, compared to an OECD average of 22%.

That’s why Connected Places Catapult, UK-based innovation accelerator for transport, the built environment, cities and local growth, asked the Impact Investing Institute to undertake a short research project on the opportunities for expanding community-based finance in the UK.

In its report, titled ‘The art of the possible: Unlocking the potential of community-based finance’, the Impact Investing Institute outlines a number of  recommendations for local government, central government, regulators, and market builders to provide a clear framework for advancing community-based finance and for fostering inclusive, place-based growth. In order to succeed, stakeholders need to coordinate their efforts to implement the recommended strategies.

“By aligning resources, building capacity, and driving innovation, these actions will create a sustainable, thriving community finance ecosystem that empowers local communities and supports long-term, equitable development throughout the UK,” the report concluded.

World Fund: Europe’s now or never moment

‘The Importance of Climate Tech for European Resilience’, a white paper written by World Fund, one of Europe’s biggest climate tech investors, alongside strategic advisory firm Kaja Partners and Nordic institutional investors advisory firm Worthwhile Capital Partners, makes the case for long-term strategic policy and investment action in energy, food security, frontier technologies, and raw materials, as Europe finds itself at a critical juncture in its history.

According to the paper, Europe faces a “now or never” moment. In order to make Europe strong again, the authors called for grid modernisation and an increase in investments in alternative energy carrier and battery storage development, as well as in frontier technologies such as AI, biotech and quantum computing.

Although Europe lost its global lead in climate research & development in the 2010s, it can now regain the top spot.

“Climate tech with a high resilience impact is an area where Europe can lead the world. The continent already hosts more than twice as many climate tech startups and scaleups as the US, with nearly 30,000 companies compared to 14,300,” the white paper said.

Impact investing in alternative investments

Alternative investments in private markets are well equipped to generate impact compared to public market investments, a position paper published by a working group on the topic made up of Germany’s Bundesinitiative Impact Investing, the Bundesverband Alternative Investments and Advanced Impact Research concludes.

Alternative investments include private market asset classes such as infrastructure, private equity, private debt, real estate, hedge funds or commodities as well as other specialities such as aircraft, ship financing, or crypto assets.

According to the paper, these types of investments have the potential to generate both a financial return as well as sustainable impact. That’s because they can wield direct influence on assets, either through operational control, or through their direct financing in less efficient capital markets.

“Consequently, they can make a significant contribution to solving global challenges by successfully implementing impact generating investments,” the working group concludes.