New stock markets can hasten climate efforts and decarbonization: CDP head
January 03, 2022
CDP Japan Director
With the Tokyo Stock Exchange’s Prime market set for launch in April, CDP Japan Director Michiyo Morisawa expressed hope in an interview with The Japan Times that it will attract foreign investors and accelerate the business community’s decarbonization efforts.
The Prime market will be the highest-ranking of the three markets that will replace the existing four: the first and second sections, Mothers and Jasdaq. They are expected to be more open and attractive to foreign investors because of the higher requirements they are subject to, such as less cross-shareholding — companies within a supply chain mutually owning shares — better corporate governance in line with global standards, and greater commitment to climate-related disclosures.
Disclosures need to be in line with the recommendations of the Task Force on Climate-Related Financial Disclosures, and CDP offers such a system to measure and manage the environmental impacts of companies and municipalities worldwide.
CDP recently published the A List of 2021 to recognize over 270 companies that made notable efforts and disclosures in the fields of climate change, forests and water security around the world.
“Japan has the greatest number of companies that made their way into the A List,” Morisawa said. She added that those are the kinds of companies that should also be listed in the Prime market. She said its launch is a “good opportunity” to call for companies to accelerate their sustainability efforts and disclosures and attract foreign investors.
She also pointed out another key factor toward boosting investment from outside Japan: making it easier for foreign asset management companies to set up branches in Japan, for example by relaxing regulations or establishing a special zone. She said this would allow them to gather and analyze information on Japanese companies more efficiently.
“They cannot invest into companies they don’t know much about. Japanese companies need to disclose and make clear announcements about what they do in terms of sustainability for foreign asset management companies to take interest in them.”
Attracting foreign investors is not just about more money flowing in. It means Japanese companies will be subject to more attention and pressure in a positive way from the outside, especially from the nations in the EU, where the Sustainable Finance Disclosure Regulation took effect last March. “This change will be a big step forward toward the achievement of carbon neutrality in 2050,” Morisawa said.
Among the various methods for decarbonizing society, renewable energy plays a major role. Morisawa said one of the reasons why Japan was a late starter in this field is because the liberalization of the electricity market progressed very slowly and was not achieved until 2016.
Now that there is competition, there are more choices for electricity and more opportunities for new technologies in renewable energy. Morisawa said that demand and external pressure are what changed the market. The same should be true for Japan’s new stock markets.