2024 Foreign Investor Perspectives on ESG - Japan in Focus

Japanese companies are becoming increasingly attractive to foreign investors. Strong returns, untapped potential, and overall value makes them alluring to investors.

We see continued interest from Japanese firms in foreign investment – with good reason. Such investments bring insights and expertise that help drive innovation, sustainability, and long-term success.

Yet, despite positive developments, gaps remain between Japan’s corporate practices and foreign investors’ expectations.

We hope this report is a valuable tool for all stakeholders that increases understanding, bridges gaps, and helps to build stronger, more sustainable partnerships in Japan.

Key Findings:

• Significant ESG performance gap - Foreign investors’ assessment of Japanese companies’ average ESG performance is 45 out of 100. Japanese companies seen as national leaders on ESG scored 68 out of 100. The results highlight substantial room for improvement.
• The influence of ESG - Perceived ESG performance influences foreign investor interest in a company and is linked with a positive influence on company valuation metrics. Further, investors seem to have a clear preference for MSCI and Sustainalytics data over other providers.
• Focus on key material issues & communication - Japanese companies should align ESG initiatives with core business objectives and focus on key material issues to ensure their sustainability efforts contribute to long-term success while meeting investor expectations. Clear, realistic and measurable goals are pivotal, as is authenticity and transparency in ESG reporting and communications.
• Strengths identified - Japanese companies are recognized for embedding ESG strategies into their business models and for efforts in building sustainable supply chains, which align with investor priorities. However, Japanese companies are not seen as leaders in ESG.
• Weaknesses identified - Investors perceive weaknesses in Japanese companies’ initiatives on tackling climate change, decarbonization, human rights, diversity, and inclusion.
• Governance - Foreign investors view governance factors as the most important for investment decisions, followed by environmental factors and societal factors in that order. Board diversity, transparency and more proactive engagement with investors and stakeholders on ESG and sustainability are also among key areas of concern.