NextGen ESG Japan 2023 Annual Report – Foreword

May 12, 2024

We need more than net positive businesses; we need a net positive movement. At SDG Impact Japan, we believe there is a way to achieve practical and actionable change, across businesses large and small.

NextGen ESG Japan fund invests in listed midsize companies in Japan. The fund is a focused, long-term oriented impact fund with engagementsto create tangible impact. Deeds rather than words are the guiding principles closely linked to its core investment.

We are honored to receive special award for NextGen ESG Japan from the Japanese Ministry of Environment. The Ministry noted especially our pioneering deep engagement with portfolio companies on sustainability.The award is a huge encouragement for us to continue doing what we are best at -engaging in companies that transform their business models and their products and services.

The Japanese stock market rallied strongly last year, demonstrating confidence in financial markets. Equities are seeing their highest inflows in 20 years. Improving economic fundamentals aside, the positive sentiment is being fueled by cyclical tailwinds and structural reforms. Foreign investors have been buying Japanese stocks and pushing the market to 33-year highs.

Japan’s ESG investing scene has also undergone substantial transformation. Early 2023, the Japanese government rolled out the Green Transformation (GX) policy aimed at achieving the country’s ambition for net-zero carbon emissions by 2050. The policy’s objective is to shift Japan from being heavily dependent on fossil fuels to a green energy-driven industrial framework. It lays out comprehensive plans affecting around 22 industrial sectors over the coming decade, including initiatives from nuclear energy use to renewable energy expansion, and introduces a carbon pricing strategy to aid the transition towards sustainable energy.

To promote ESG principles, Japanese regulators have introduced several measures, such as developing a behavioral code for ESG information and assessment providers, creating guidelines to delineate ESG Funds, and requiring publicly listed companies to disclose ESG-related information. Furthermore, the establishment of the nation’s inaugural guidelines on impact investing reflects a heightened interest in sustainable investment opportunities. The push towards environmental sustainability has been particularly pronounced in Japan, thanks to the concerted efforts of both the government and the private sector, whereas progress in the social and governance domains has been comparatively modest.

Japanese Small and Medium Enterprises represent the large majority of all listed companies in Japan and employ millions of people and support as many communities across the country. The opportunities for investment are clear, since the majority of these companies will need to, or are in the process of, transforming their business model to become more sustainable.

Portfolio companies of NextGen ESG Japan are continuously searching for competitive edge where their products and services can deliver better sustainable solutions for their clients. The Japanese impact voyage is gaining traction and interest across the world, and we will do our best to generate positive outcomes that matter from both economic and ESG point of views!

For full report, please contact us

Wataru Baba
Managing Partner

Senior Fellow, Climate and Sustainability at Panasonic Group since 2022, where he accelerated the company’s growth through an integrated strategy for creating positive impact on climate change and established Sustainability Committee, chaired by the Group CEO. Board Member of Japan Professional Football League (J.League) and Independent Director for a civic technology nonprofit, Code for Japan, and a web3 startup, Financie, Inc