16 Jul 2015

Is the social investment market in Japan set to blossom?

By Anna Hyde

Our newest BGV team member Anna joins us from the bustling capital of Japan. During her time in Tokyo, working in corporate law for one of Japan’s biggest trading houses, she observed the seeds of change happening in the social impact investment market there.

I moved back from Japan in April, having lived and worked in Tokyo for the last 2 and a half years.  I had an amazing experience, working for the biggest trading house in Japan – Mitsubishi Corporation (MC).   Trading houses are strange beasts, taking varied roles in a huge varieties of deals, acting as middlemen, lead investors or raw material suppliers, and handling just over half of the country’s exports and two-thirds of its imports. Consequently, they have a huge influence on how business is done in Japan.  Having seen how social impact investment is very much on MC’s radar, with the launch of the Mitsubishi Corporation Disaster Relief Foundation in March 2012, which invests up to US$1m in social enterprises, I’m looking forward to seeing how this area grows and develops.

It was in response to the Great East Japan Earthquake which struck Japan in March 2011, which brought social impact investment onto the agenda at MC and other corporates.  The earthquake devastated the Tohoku region and triggered a huge tsunami, killing thousands and causing a nuclear meltdown at the Fukushima Daiichi plant.  It was the Kobe earthquake of 1995 that catalysed the NGO movement in Japan, and commentators believe that the same can be said of the 2011 earthquake in relation to social impact and activation of non-profit groups in Japan.  This draws strong parallels with the rise of impact investing in the UK in recent years – where, following a financial crisis, rather than natural one, a renewed effort was made to ensure that finance contributes to a healthy society.

The ‘Triple Disaster’ brought to light the core strength of Japanese society – its resilience, collectivism and the orderly response of the Japanese people to the chaotic aftermath of such an enormous crisis – and triggered a huge response from the corporate world.   Whilst charitable resources are remarkably limited in Japan in comparison to countries such as the UK, they are growing rapidly.  Contributions almost doubled from US$7bn in 2008 to US$12bn in 2012, mainly in response to the 2011 earthquake. The most marked characteristic is the level of corporate giving – which makes up 58% of the overall market, in comparison to 5% in the UK.

A number of corporates established social investment funds as part of the recovery efforts – the MC Disaster Relief Foundation, as mentioned above, which has invested US$15m in 30 business so far, the Tohoku Common Benefit Investment Fund and the Tomodachi Fund which target social enterprise development in the region most affected by the earthquake. Music Securities, the largest social investment fund manager in Japan, established a fund to put half its money into donations and half into investment and Mercy Corps together with a number of Japan’s leading banks implemented a programme which provided start-up funding to entrepreneurs, in order to achieve long-term growth in the area.

For individual investors in Japan, greater consideration is being given to how their capital is invested – fuelled by a stronger sense of social solidarity since the earthquake. There is a trend for individual investors to choose socially responsible investment financial products which match their values.  These products include impact investment bonds, crowd-funding and micro investment.  The earthquake triggered the rapid expansion of crowd funding, with more than 28 crowd funding platforms now in operation.  However, with only 6.1% of the Japanese population being aware of the concept of crowd-funding, this area is still ripe for expansion.  Small-scale social investing, particularly by young people, is a growing trend and it’s anticipated that impact investment bonds will be a way to encourage a shift from saving to investment – which could help to redirect some of the estimated US$16 trillion in individual financial assets.

With these various channels of social impact investing opening up in Japan, commentators have recognised a need for a more systematic framework. Japan looks to the UK as an example of how such a systematic approach could be developed, by introducing a specific legal status for social enterprises, like the CIC in the UK and drawing on ideas such as a the Big Society Capital to release assets from dormant bank accounts.

Whilst I don’t claim to have first hand experience of social impact investment in Japan, I find this a really interesting area. I’m looking forward to gaining more experience of social impact investment in the UK and getting involved in the Summer BGV accelerator programme, which kicked of a few weeks ago. So if anyone wants to have a chat about anything linked to social investment in Japan, Japan in general, or anything BGV related, then get in touch!

Photo credit: coniferconifer CC BY 2.0