Singapore overtakes Tokyo in green finance race

Good morning from New York.

Sadly, today’s Moral Money is the last issue I write as a contributor from Nikkei. It has been such an honour to cover the transformation of ESG investing in the Asia-Pacific region as it transitioned from being a latecomer in the field to a global growth engine. From next week, my New York-based Nikkei colleague, Kaori Yoshida, will be stepping into my shoes.

Before I sign off, I would like to share the top three things which surprised me during my stint with Moral Money:

First, the speed at which the field of ESG investing has taken off has been astounding. The industry has evolved from a group of minor financial products to a $40tn behemoth.

But the backlash ballooned with equal pace. The word ESG leapt from presentations on Wall Street to people’s living rooms as commentators such as Fox News’ Tucker Carlson argued that ESG was a tool to spread liberal values and erase conservative ideals. During the US 2024 presidential campaign, I won’t be surprised if we observe some of the Republican candidates sparring over “anti-ESG” or “anti-woke” credentials.

Lastly, it’s worth noting how robust the sustainability movement remains despite this strong headwind. Many of my sources have told me that they’re continuing their efforts to decarbonise, even though they may speak less about ESG in public. Some companies said they would keep working on cleaning up their supply chains because it is what investors — as well as clients and consumers want. As one source in the finance industry told me: “Unfortunately, we have to live in the post-ESG era now. But it doesn’t mean our priority has changed.”

Thank you for sharing this amazing journey with me. I won’t say sayonara as I will keep covering the field for Nikkei. So, please stay in touch! You can reach me at shimizuishi_ny@nikkei.com.

Singapore edges out Tokyo in the race to become a green investment hub

The idea of unleashing the power of Asian investment to guide society to decarbonise was in its infancy when I started covering the region for the inaugural Moral Money in June 2019.

Back then, the term “ESG” was still rare in Japan. Yet I thought that the nation’s capital was a strong contender to become a green finance hub. Historically, Japan is environmentally conscious as a small island country without massive natural resources. Corporations have a tradition of taking into account the interests of customers and the local community — rather than just shareholder returns.

Back in 2019, many executives of large corporations were wearing rainbow-coloured badges, which celebrated the UN’s Sustainable Development Goals, like a hot fashion item. And the country’s pension fund “whale” GPIF had Hiromichi Mizuno — one of the most influential figures for the global ESG movement at the time — as its chief investment officer.

Four years later, however, Tokyo seems to be losing its pole position in the race to become the Asian capital of ESG investing.

As Hong Kong residents left their city en masse following the implementation of Beijing’s national security law and its zero-Covid policy, there was a chance for Tokyo to grab financial talent from one of its main rivals. But they didn’t head to Tokyo. Instead, Singapore became the preferred destination.

A Hong Kong-based Japanese fund manager — who has seen many former colleagues relocate in the past three years — said that many people leaving Hong Kong disregarded Tokyo because the city lacks “the fundamental infrastructure that high-skilled global financial talents would like to keep”.

Foreigners can find Japanese culture difficult to integrate into seamlessly. English is not a common language, which can make things difficult if you don’t speak Japanese. Plus, tax codes are relatively unfavourable for high earners and financial businesses. The Japanese tax on financial gains hovers at about 20 per cent, while Singapore has no such levy. And while many expats enjoy having a nanny for their kids or maids at home in other Asian cities, such services are harder to afford in Japan.

Michael Sheren, former adviser at the Bank of England and longtime advocate of sustainable finance, highlighted to Moral Money a few reasons why Singapore has emerged as a winner in green finance over other big financial service hubs such as Tokyo, Hong Kong and Shanghai. For one, in Singapore there were clear efforts taking place between the domestic private and public sectors, said Sheren, who acts as president and chief strategy officer of Singapore-based fintech company, MetaVerse Green Exchange.

For example, Climate Impact X, a global exchange in high-quality carbon credits, was jointly established by financial institutions such as Singapore’s DBS Bank and Standard Chartered as well as Singapore Exchange and Temasek, the country’s state investor. Singapore’s government has also implemented clear guidelines around voluntary carbon markets — which would help to drive green finance activity, Sheren said.

He also noted that Ravi Menon, the managing director of Monetary Authority of Singapore, the city-state’s central bank, concurrently serves as chair of the Network for Greening the Financial System, which brings together more than 120 central banks to develop recommendations for central banks’ role in climate action. Last year, the Glasgow Financial Alliance for Net Zero selected Singapore as a location for its Asian headquarters.

But some still believe that Tokyo has an advantage over Singapore.

Keiichi Aritomo — executive director of FinCity.Tokyo, a partnership between the Tokyo Metropolitan Government and financial institutions to promote Tokyo as a global financial city — noted that it is not just a financial trade centre like Singapore, but a gateway to the world’s third-largest economy.

Aritomo argued that ESG investors in Tokyo have a chance to make a larger impact on green transformation — and collect bigger returns — compared to those in other Asian cities due to Japan’s extensive industry coverage, from high-tech manufacturing to agriculture. Aritomo also emphasised that Japan is fully democratic and politically stable.

Yet he acknowledged that Tokyo has some quirks that push foreign businesses away.

Despite its reputation for high-tech gadgets, many business transactions in the country are still conducted in an analogue fashion rather than by digital tools. As a result, documents are often required to be submitted by mail — or by fax (do you remember that?).

“We need to get rid of fax,” Aritomo told me. Trade transactions in Japan also involve too much paperwork and were unnecessarily complex, spanning a multitude of different regulators, he added.

Asia is home to the world’s largest emitters, so intensifying competition among cities to become a green financial hub in the region is welcome news — even though the winner may not be my hometown. (Tamami Shimizuishi, Nikkei)

You might remember activist investor Carl Icahn’s high-profile but unsuccessful bid to stop McDonald’s use of gestation crates for female pigs last year.

The latest shareholder challenge to McDonald’s is about human health, rather than animal welfare, as scientists warn that eating burgers from cows fed a cocktail of antibiotics to promote rapid growth can build our resistance to life-saving drugs.

In the coming weeks, the fast-food giant will announce whether the ballot at its annual general meeting in May will include a proposal for it to comply with World Health Organization guidelines on reducing antibiotic use. Asset managers Amundi and LGIM, as well as Hesta, one of Australia’s largest pension funds, are behind the proposal.

There is a strong business case for tackling antibiotic and antiviral resistance. Drug-resistant illnesses could compromise the profitability of some healthcare business models, proxy adviser Institutional Shareholder Services warned in a blog in March. “Humanity is in an arms race with pathogens that are increasingly outsmarting our current stock of weapons,” it wrote.

As the world’s largest buyer of beef, McDonald’s could lead the way in mitigating these risks, Kim Farrant, head of responsible investments at Hesta, told me. “When the efficacy of life-saving drugs [is] compromised, the entire economy suffers,” she said. “It’s important for our portfolio but also for our members.”

Most of Hesta’s pension fund members work in healthcare. It says it now puts antibiotic resistance on a par with climate change and biodiversity loss as a systemic risk to strong and stable markets.

But two similar proposals it co-filed earlier this year at US food processing companies Hormel Foods and Tyson Foods failed to get majority support from shareholders. And despite ISS’s warning in March, the world’s largest proxy adviser recommended that shareholders vote against these two resolutions.

ISS’s own research points to a lack of focus of the issue — just 4 per cent of pharmaceutical companies to which it gives an ESG rating are developing antibiotic or antifungal treatments.

As activist shareholders experiment with new types of health-related proposals, Simon Rawson, deputy chief executive of ShareAction, told me the responsible investment charity focuses its health-related investor engagement on issues such as obesity, tobacco and alcohol use and air pollution, because these disproportionately affect lower-income communities.

“There’s been increased awareness of health as a responsible investment topic over the last few years,” Rawson said. “It is basically a less political way of tackling inequality.”

From antibiotic resistance to animal welfare and air pollution — it seems likely that health will stay a part of the ESG debate. (Kenza Bryan)

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