The Current State of Impact Investing in Japan 2018

Market

The Japanese impact investing sector is a product of its unprecedented super aging demography, its advanced economy led by powerful corporates, and its nonprofit sector with strong expertise in disaster relief, elderly care, and healthcare. The key features of the demand and supply sides of the impact investing sector include the following:

Demand side

Japanese society faces major structural issues such as the world’ s fastest ageing demographic, poverty among children, and shrinking regional economies. The government-led resource reallocation model from the post-war economic growth period has its limit in addressing these social challenges. Developing a new flow of private money to social challenges is critical. Healthy growth in the number of nonprofit organizations especially in the period immediately following the devastating earthquake and tsunami in eastern Japan in 2011. Emergence of social enterprises in the recent past, leading to approximately 200,000 ventures in number and employing 5.8 million people. Given the lack of a legal organization, many social enterprises operate as for-profit entities. Expansion of corporate engagement in social issues, particularly with the spreading of concepts such as creating shared value (CSV) and base of the pyramid (BOP).

Supply side

Substantial role of crowdfunding platforms to mobilize individual donations and investments for impact investing projects. Involvement of mainstream financial institutions, notably the largest pension fund in the world, Japan's Government Pension Investment Fund (GPIF), which has made a commitment to ESG investing. Entrance of major private foundations that are willing to provide risk capital that enables other investors with lower risk appetite to participate in impact investing projects.

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