- Japan’s Big Banks Bet on Infrastructure + ESG. In anticipation of increased infrastructure spending worldwide to meet countries’ net-zero carbon targets, Japanese banks Sumitomo Mitsui and MUFG have recently launched infrastructure funds that include a focus on mitigating climate change impacts and other ESG considerations alongside typical infrastructure commitments.
- Sumitomo Mitsui DS Asset Management launched its first international infrastructure debt fund of approximately $96 million USD (￥10 billion) in December 2020 to purchase debt for projects including solar and offshore wind farms, airports and toll roads. Due to high investor interest, Sumitomo is eyeing a similar $20b USD fund for launch in 2021.
- Mitsubishi UFJ Financial Group (MUFG) is planning a 2021 launch of an infrastructure fund that will include ESG assessments in its investment decisions. Elsewhere in MUFG, on February 22, 2021, MUFG Union Bank, N.A., announced its Green Deposits offering for commercial and corporate clients, generating liquidity for ESG investment by allowing clients to invest deposits for use in projects including energy efficiency; renewable energy; green transport; sustainable food, agriculture, and forestry; waste management; and greenhouse gas reduction.
Sources: Nikkei Asia, “Japan's top banks back zero-carbon infrastructure with new funds”, January 22, 2021; MUFG Press Release, February 22, 2021.
- Carbon Neutral Commitment is Clear; Next Steps are Emerging. In a winter 2021 address, Prime Minister Suga linked his goal of a carbon-neutral Japan by 2050 to economic recovery from the coronavirus, promising to support clean technological development through the establishment of a ￥2 trillion fund and to develop financial market structures meant to attract environmentally-interested investment from overseas.
- Overseas investment in subsidized markets can get complicated, however. A Hong Kong energy fund has made the first-ever arbitration claim against Japan regarding pullbacks to solar subsidies affecting investments made under a Hong Kong-Japan investment treaty. The initial 2012 investment program encouraged investment in solar and other alternative energy sources by assuring high feed-in tariff pricing. Japan’s subsequent regulatory changes and drop in feed-in tariff amounts may have contributed to investor losses. Japan is familiar with such legal challenges – as four Japanese companies have similar claims pending against Spain due to Spain’s solar subsidy reduction.
- Japan is aiming for 100% electric vehicles by 2030, but Toyota chief executive Akio Toyoda warned in January 2021 that aspiring for a blend of hydrogen, electric and hybrid vehicles might be a more sustainable approach as the demand for electricity triggered by a massive addition of electric vehicles would, per Toyota’s calculations, require 10 additional nuclear power plants or 20 coal-powered stations. In a country that has been cautious about nuclear power following the 2011 Fukushima nuclear plant accident, all-electric vehicles could cause increased carbon emissions, not less.
Sources: Financial Times, “Hong Kong energy fund sues Japan in groundbreaking case”, March 3, 2021; Financial Times, “Toyota barbs at Suga energy plans bare tensions on green future”, January 11, 2021; The Japan Times, “Suga vows to restore ‘safety’ and ‘hope’ amid declining approval rate”, January 18, 2021.