The second phase of the Impact Investing Roundtable, which has been held since June 2020, has begun, and the first meeting of Phase 2 was held online on Thursday, March 3, 2022. The purpose of this Roundtable is to deepen the understanding of impact investing among leaders involved in the financial market and the government administrations, to clarify the roles and challenges of impact investing in solving domestic and global social issues, and to discuss approaches to promoting impact investing that will contribute to the sustainable development of the financial industry in Japan.

At the first roundtable, the discussions and recommendations of the Impact Task Force (ITF), which was launched at the initiative of the UK government, the host country of the 2021 G7 Summit, were shared, and participants exchanged opinions on the global discussions on impact investing and the actions to be taken in Japan, as well as expectations for the Phase 2 Roundtable were also discussed.

At the beginning of the session, Dr. Takeshi Mizuguchi, the Chairman of the Roundtable and the President of Takasaki City University of Economics, and Mr. Satoshi Ikeda, the Vice Chairman of the Roundtable and the Chief Sustainable Finance Officer of Financial Services Agency (FSA) of Japan, gave opening remarks. They touched on the recent situation in Ukraine and commented that the role of impact investment in creating a sustainable society is being recognized again, and also expressed the expectation that the participants will discuss the "phase change" of this Roundtable, noting that the phase of climate change has changed from the 2°C to the 1.5°C target following COP26 and that ESG investment is gradually shifting to impact investment. They also introduced the situation surrounding impact investing, including the development of infrastructure and ecosystems, such as the establishment of the International Sustainability Standards Board (ISSB).

Next, Ms. Yuka Ogasawara, Impact Officer of Japan Social Innovation and Investment Foundation (SIIF), gave an overview of the Impact Task Force (ITF), its achievements, and major recommendations. She also explained that the purpose of Phase 2 of the Roundtable is to "share cases for promoting impact investment while enhancing its quality," that the Roundtable will be held once every three months hereafter, that new members from asset owners have joined the Roundtable. She also introduced the potential topics to be taken up at the roundtable in the future.

Next, three Japanese members of the Impact Task Force (ITF), Mr. Akira Sugano, President & CEO of Asset Management One, Dr. Ryohei Yanagi, CFO of Eisai and Dr. Naoko Ishii, University Tokyo executive vice president and director of the Center for Global Commons, presented the discussions at the ITF. (From Dr. Yanagi, pre-recorded presentation was given).

Mr. Sugano shared his experience as a member of the ITF Steering Committee and the process and actual discussions at the ITF. He also shared his impressions from his participation in the Committee, including the fact that European members led the discussions by an overwhelming majority, that Just Transition, which has been emphasized in Japan for a long time, is becoming more prevalent, and that in Europe, the concept of risk-return-responsibility as a fiduciary responsibility has become more widely accepted. He also introduced the ITF's efforts to disseminate its recommendations.

Next, a video of Dr. Yanagi's presentation at the 19th meeting of the GSG Domestic Advisory Committee held in October last year was projected. Dr. Yanagi explained that he participated in the discussion as a member of Workstream A (Transparency, Integrity, and Harmonization for Impact) of the ITF and particularly emphasized the importance of incorporating practitioners' perspectives. He also explained that case studies are important to ensure that the content resonates with practitioners, and he provided input on the case study of Eisai in collaboration with Harvard Business School on the use of Impact-Weighted Accounts (IWAI).

Then, Dr. Ishii shared the discussions and recommendations from Workstream B (Mobilising capital towards the SDGs and a Just Transition), where she served as a committee member. Some of the key issues discussed were: how to present concrete pathways for "Just Transition"; how to price natural and social capital and incorporate them into the market economy; how to address the issue of the division between the global North and South; and how financial institutions can be more effective in addressing the blended finance. She also introduced a blended finance project in South Africa.

After the presentations by the three ITF committee members, a panel discussion was held under the facilitation of Chairperson Mizuguchi with Prof. Yasuyuki Kato of Kyoto University of Advanced Science and Technology in addition to Mr. Sugano and Dr. Ishii.

Dr. Kato began by sharing his impressions of the discussions and presentations to this point. First, Dr. Kato commented that ESG investments have already been integrated into traditional investments, and that the next trend is now shifting to discussions on social impact. In light of the discussions at the ITF, Dr. Kato also pointed out the importance of evaluating overall performance in impact investing, the fact that transitions have a large return opportunity, and that in Europe, impact itself is evaluated and risk-return-impact is pursued as a fiduciary responsibility. He also emphasized the importance of how impact is linked to economic return. He also stated that the issues of the global North and South are important, and that the pricing of natural and intangible capital is a very important theme, which may lead to the evaluation of impact.

In response to a question from a participant, "Isn't the ITF discussion focused on development finance and emerging economies?", Mr. Sugano responded that impact investment is still considered niche in Japan, but in Europe it has become mainstream, and in order to grow in scale in the future, it will be necessary to create a north-south flow of funds. Dr. Ishii introduced the discussion in Glasgow, in addition to the ITF discussion, and stated that the financial sector should lead the paradigm shift to realize a sustainable world, as exemplified by GFANZ. She commented that the tide is turning, and also pointed out that, in the age of stakeholder capitalism, companies are now aware that the pursuit of sustainable impact is not an altruistic movement, but a response to the threat to their own business bottom line. Mr. Kato stated that many impact investments deal with issues in the global South, and while there are opportunities, the risks are also high, so the concept of blended finance is important.

In the discussion on potential of large-scale blended finance mobilised in Asia, Mr. Sugano answered that the government should take the lead by arousing the enthusiasm of the relevant institutions, and that the ADB, government financial institutions, institutional investors, and companies should cooperate in order to develop a successful scheme. If Japan can take the lead in drawing a pathway to net-zero in Asia and promote transitions using blended finance, he said, there is great potential for Japan. Ms. Muto of the Japan International Cooperation Agency (JICA), one of the Roundtable members, also commented that Convergence, a global platform for blended finance, is also actively discussing the issue with a sense of urgency, and that new schemes are being developed in collaboration with governments and market participants. She shared her views on the need to design the new system in collaboration with the government and private sector.

Regarding the measurement of impact, it was pointed out that, while measurement is extremely important to conduct operations with the intentions of impact, not all ESG factors can be measured. For example, quantitative measurement method regarding climate change such as decarbonization-related factors has been developed, but the measurement of other ESG factors, social aspects such as human rights, and biodiversity is still being developed. It was suggested that the challenge is how to quantify the various ESG factors, since institutional investors are bound by medium- and short-term risk/return performance if impact cannot be clearly measured.

In wrapping up the panel discussion, Mr. Sugano stated that in the long investment chain (beneficiaries, asset owners, asset managers, and investees), it is meaningless if we alone have a high level of awareness; society's perception needs to change, but instead of waiting for society to change, companies and financial professionals are required to act to change the society. Dr. Ishii also stated that finance, as a global actor, needs to take the lead in building momentum. Mr. Kato stated that the most important premise for impact measurement is what kind of impact and issues are defined by the companies and organizations.

A participant commented that there is always a shortage of human resources when implementing impact investments, and asked why it is possible to secure the human resources needed to increase impact investments in other countries. In response to this question, panelists expressed the view that overseas, non-state actors have strong power, NGOs as a group of intellectuals have developed, and because of the fluidity of society, there is a great deal of lateral movement of human resources between financial sector and NGOs. It was also suggested that in Japan, organizations tend to be closed each other in nature, and that it is necessary to break out of this tendency, promote mobility, and connect with each other on a global scale.

The panel discussion was followed by a breakout session, in which participants were divided into several groups to discuss "What are the actions for Japanese financial institutions to take in the context of international trends?" and "What are the expectations for Phase 2?

Regarding the former, a view was expressed that it is important to move individuals, the ultimate beneficiaries, and to utilize their financial assets, and to this end, it is necessary to provide good examples of impact investment, disseminate information, and engage with them. There were also opinions that it is important to have both a macro perspective (social transformation and decarbonization) and a micro perspective (how to implement as a financial institution), and that quantification and monetary valuation of social impact should be promoted.

For the latter, the following suggestions were raised: hold practical discussions that lead to actual implementation; create an ecosystem that extends beyond the boundaries of financial institutions (collaboration with academia and NGOs); consider actions after sharing case studies; pursue perspectives that simultaneously achieve financial return and impact; and promote the use of this roundtable to provide good examples.

The meeting was attended by 35 Roundtable members from the financial market, business, and industry sectors, and about 170 people observers participated including related ministries and others.

The next meeting is scheduled to be held on June 17.