Japanese banks offer loans for environmental innovation
Perhaps it’s no surprise that a country boasting the world’s leading environmental technology is also looking for finance that’s gentle on the environment. Lenders are looking to put loan practices on eco-friendly principles and offer low-interest loans for environmental innovation.
As of March 2010, the Development Bank of Japan (DBJ), a formerly government-affiliated financial institution in Tokyo, had approximately ¥283.2bn in outstanding eco-loans, representing a little less than 2% of its total loans, based on an in-house assessment of companies’ environmental credentials.
The in-house rating system was introduced by the bank in April 2004. In order to qualify for the highest of three ratings, loan applicants must obtain 160 points or more out of a possible 250, based on such criteria as whether the company has developed a high-level environmental management system.
Typically, companies to which the DBJ loans eco-funds are business-to-business, according to Keisuke Takegahara, senior vice-president and head of corporate responsibility. “Gaining a DBJ eco-rating helps business-to-business companies promote their environmental activities,” he says. As of March 2010, there were 200 companies that had qualified for the loans, including manufacturers, chemical engineering companies and machinery makers.
Tokyo-based Sumitomo Mitsui Banking Corporation (SMBC) has, since 2006, been offering eco-loans, including SMBC Environmental Assessment Loans. It uses ratings drawn up by The Japan Research Institute, a member of the Sumitomo Mitsui Financial Group. It has built up a portfolio of approximately ¥150bn extended to around 35 companies.
The bank has shown its commitment to promoting eco-friendly finance by hiring a certified environmental auditor for its environmental portfolio.
Yuumi Fujisaki, a certified ISO 14001 environmental management system lead auditor and ISO 9001 quality management system auditor, is vice-president of the environment team in SMBC’s corporate banking unit.
In the almost three years she has been at SMBC, Fujisaki has successfully raised awareness regarding environment-friendly business by hosting study groups for staff.
Fujisaki’s team has highlighted business opportunities in industries that have not usually considered environmental impact, such as real estate. It has also helped SMBC make eco-loans to companies outside the Sumitomo Corporation Group – an achievement in a country where four or five vertically integrated industrial conglomerates continue to dominate business activity.
“Eco-banking is a sales cue that helps create relationships,” Fujisaki says.
Compared to Japan’s mega-banks, the regional banks’ environmental concerns tend to be closer to home. In December 2005, Shiga Bank, based in Otsu, Shiga Prefecture, started offering small to medium-sized companies low-interest loans, as low as 0.5% below the bank’s prime rate, based on the “Principles for Lake Biwa” (PLB) Support Fund – named for efforts to help sustain the largest freshwater lake in Japan.
Environmental objectives outlined by companies in loan applications need not directly help the lake, but should have a strong local connection, and the bank has so far loaned funds to companies for solar cells, equipment which reduces CO2 emissions and energy-saving devices.
Mizue Tsukushi is known as the mother of socially responsible investment (SRI) funds in Japan. In 1999, her Tokyo-based investment advisory company, The Good Bankers, helped launch the first SRI fund in Japan.
The Nikko Eco Fund, launched in conjunction with Nikko Securities Group (now Nikko Cordial Securities), was a hit, selling ¥23bn within its first 10 days on sale, and topped the ¥100bn mark four months after release.
Within six months the entire Japanese eco-fund market had grown from zero to ¥200bn, and the United Nations Environment Program was referring to Japanese eco-funds as the most successful of their kind in the world.
Dampened market
But the bursting of the dot-com bubble in 2001, combined with the global financial crisis of 2008, and the view of some fund managers that the SRI concept is politically motivated and incompatible with pursuit of the high returns implied by fund management, have together worked to dampen the market. Japanese eco-funds are currently estimated at around ¥400bn.
The development of SRI funds in Japan has been hindered as successive Japanese governments failed to appropriate pension funds for SRI, unlike other Group of Eight governments. The 2009 change in national government to a left-leaning coalition – with strong trade union support – fuelled hopes that this may change.
The Japanese trade union confederation, RENGO, is reportedly drawing up plans to incorporate environmental and socially based considerations into its investment decisions. RENGO-linked pension plans comprise almost half of Japan’s ¥50 trillion corporate pension sector.
In the final analysis, Japanese women may have a major voice in the future of eco-financing, according to Tsukushi. Unusually amongst societies in the industrialised world, Japanese women control the household budget, and are likely to have a big say in disposing of the ¥1,440 trillion in individual assets.
“The decision-makers at Japanese banks have predominantly been male,” Tsukushi says. “But, they leave the household budget – including decisions on their pocket money – to their wives.
“Japanese men have no understanding of the real value
of money.”