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ESG financing

最終更新日:2021/07/28

“ESG financing” is an approach to investment and lending activity with consideration for Environment, Social, and Governance (ESG)-related information to emphasize long-term strategy when the value of a company is analyzed and evaluated. The trend toward ESG-conscious financing is rapidly gaining momentum around the world.
Issues that should be addressed through ESG financing include various environmental and social challenges that exist globally―among them are climate change, biodiversity conservation, and the advent of a circular economy. Looking at climate change in particular, steps toward decarbonization are currently underway in Japan based on the government’s 2050 Carbon Neutral Declaration, which aims to “reduce greenhouse gas emissions in Japan to net zero by 2050.” Additionally, Ministry of the Environment and Ministry of Economy, Trade and Industry prepared a document titled “Disclosure and Engagement Guidance to Accelerate Sustainable Finance for a Circular Economy” and released it to the public on January 19, 2021.
As economic recovery from the COVID-19 pandemic picks up speed throughout the world, a concept called “green recovery” is gaining traction. Rather than prioritizing economic policies over environmental and social policies, this concept aims to use the current opportunity to further promote climate action, achieve a circular economy, and shift toward social and economic models that are more resilient against disasters and infectious diseases. In view of this global trend, it seems certain that the ESG perspective will continue receiving special attention in investment and lending.

Transition Finance

To achieve carbon neutrality and a decarbonized society by 2050, it will be important to promote financing to businesses that are already at a decarbonized level, such as those in renewable energy, and for high GHG-emitting industries to transition toward decarbonization. The “Basic Guidelines on Climate Transition Finance” published in May 2021 spell out the importance of evaluating the appropriateness of investment and lending by looking at not only the allocation of funds that are raised but also the credibility of fundraisers’ strategies and practices.

Human Rights Risk

“Human rights” are representative of risks falling under the social aspect―the “S”―of ESG. In October 2020, an action plan for “Business and Human Rights” was formulated and presented to the public to promote respect for human rights in corporate activity. This reflects the fact that, as in other countries, there is growing demand in Japan for companies to pay attention to human rights when engaging in business activity. The occurrence of human rights violations among a company’s employees or in its supply chain can present risks in terms of compliance issues, boycotts, and other impacts on business.

Climate Change Risk

In a speech given in September 2015, Mark Carney, Chairman of the Financial Stability Board (FSB) said, “There are three broad channels through which climate change can affect financial stability: (1) physical risks (impacts on the value of financial assets that arise from climate- and weather-related events); (2) liability risks (impacts that could arise if parties who have suffered loss or damage from the effects of climate change seek compensation from those they hold responsible); and (3) transition risks (loss generated from the reassessment of the value of assets).”

SERVICEExamples of Services Provided by E&E Solutions
ESG Support Services
Support for Sustainable Bonds and Loans (Issuance, Framework Establishment)
Transition Support (Quantitative Analysis of Environmental Improvement Effects, Consulting, Review)

Sustainable bonds and loans are similar concept with ESG investment and lending, and their market has been growing rapidly in recent years. We provide extensive sustainable finance support services, ranging the stage from financing arrangement to investment decisions, by leveraging our experience and expertise as an environmental consultant for the financial world. In addition, aiming to facilitate the transition to a low-carbon society, we provide consulting services covering broad range of transitioning by taking advantage of scientific expertise and international good practices gleaned from our accomplishments in supporting various initiatives to address climate change. We can support business operators to build transition-oriented efforts. And when financial institutions are planning transition finance-related investment and lending, we support them to assess the validity of the transition-related proposal.

Support for Environmental/Social Consideration in Investment and Financing
Support for Environmental and Social Risk Assessments
Support for Human Rights Risk Assessments
Support for Climate Change Risk Assessments
Support for Evaluation of Environmental Effect (Green Effect) and ESG Factors

Many financial institutions in Japan and abroad conduct environmental and social risk assessments (called “environmental and social due diligence” or “verification of environmental and social considerations”) when providing investment or lending for large-scale projects executed in Japan or other countries. Financial institutions are required to assess projects’ environmental and social risks, giving attention to whether they satisfy international standards (such as the Equator Principles, the IFC’s performance standards, and the World Bank’s Environmental and Social Framework). Recently, their responsibilities have expanded to evaluate the level of contribution based on ESG factors within the context of sustainable finance. Over the years, we have built up a vast store of experience, scientific knowledge, and international good practices. Using this store, we support financial institutions to evaluate the effects and risks of their investment and lending.

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