Japanese Financial Services Agency steps up plans to establish new ESG framework

The Japanese Financial Services Agency (FSA) has revealed it is planning to develop a new framework for the certification of ESG-related products.

According to Regulation Asia, the FSA is also exploring the potential mandatory climate risk disclosures.

The head of the FSA – Junichi Nakajima – said last month in an interview that one of the regulator’s priorities for 2021 is to establish a framework to certify the eligibility of products that relate to ESG issues.

Nakajima noted that any new verification system should be equivalent to international standards in order to ensure the reliability and comparability of ESG data that asset managers disclose.

To date, many companies in Japan that launch ESG-related products commonly secure certification from private rating agencies. However, Nakajima said there should be a separate organisation that provides additional certification to add legitimacy and ensure protection for the customer.

In June, a report by a panel set up by the FSA provided recommendations on how to promote sustainable finance in Japan.

The report detailed that institutional investors should enhance ESG investments and investee engagement in order to ensure capital market functions promote sustainable finance. It also highlighted that asset managers explain carefully the characteristics of an ESG-related investment trust at its establishment and distribution and subsequently be accountable for these areas on an ongoing basis under FSA monitoring.

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