Making Impact Investible: The Implications for Japan

 

Maximilian Martin

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Maximilian Martin

Maximilian Martin

The 4th Impact Economy Symposium & Retreat will be held from June 13-15, 2014 at the shores of Lake Constance in Switzerland. The event annually convenes key influencers, thought leaders, and practitioners from the worlds of investment, business, government, and philanthropy in order to surface the most effective solutions, innovations, and opportunities that have surfaced in the promotion of impact. In this exclusive Alliance magazine blog series, Impact Economy’s Dr Maximilian Martin provides a sneak peek preview of content covered at the conference.

Impact investing, or the simultaneous and intentional creation of economic and social and environmental value, in and by all sectors of the economy and society, is quite possibly the biggest innovation opportunity in finance in at least a generation. The concept is closely connected to the next wave of transformation that is hitting our global economy. Even so, the implications of this nascent field for Japan, one of the most advanced industrial nations in the world, have been unclear. But Japan, like other G8 members, can now play an important role in nurturing impact investing for its own benefit and that of the international community by capitalizing on its unique approach to business and value creation.

Currently the world’s third-largest economies by nominal GDP, Japan faces a whole host of challenges and opportunities both at home and in relation to its business interactions with the world in the first half of the twenty-first century. Some of the challenges are geostrategic, while others are social and economic in nature. Whereas building out education and health systems, and providing housing and jobs for the rising middle class on a massive scale are on the minds of leaders in an Africa that is on the ascent, decision makers in Japan, much like those in Europe, need to figure out financing solutions to issues such as the transitions occurring in the demographic profile of their regions, spiralling fiscal deficits, and modernization of public good provision. This is where impact investing comes in.

The Nippon Foundation, a leading Japanese philanthropy, hosted a high-level meeting in January 2014 in Tokyo on the potential of Social Impact Bonds. I had the pleasure to participate in the meeting, which confirmed for me the level of interest in impact investing and the present early stage of exploration of it in the country. Achieving long-term competitiveness and sustainability in Japan will require more efficient ways to fund solutions to social and environmental challenges going forward, as well as corresponding financial instruments and strategies for enhancing the total resource productivity of business. The underlying potential is real and enormous. Today, roughly JPY 850 trillion, or 55 percent of financial assets in Japan, is held in commercial banks as cash deposits—a scenario that invites the question of what would be possible if only a fraction of these assets were invested with purpose.

“I believe that social financing has great potential to help our country address the many challenges and opportunities we face, which would otherwise be difficult to address using conventional approaches,” argues Ms. Junko Chano, the Executive Director of the Sasakawa Peace Foundation. These variables set the stage for the debate in Japan that we hope to help stimulate by partnering with the Sasakawa Peace Foundation to release a Japanese edition of my report “Making Impact Investible,” which is being published today in Tokyo by the Foundation and Impact Economy, the global impact investing and strategy firm. This report is a companion to the “Status of the Social Impact Investment Market: A Primer” I prepared last year for the first-ever social investment forum held at the G8 level.

The report explains how impact investing can be a very powerful use of finance that helps fast track the transformation of our current economy into far more sustainable and competitive one in the future. The report outlines the critical role that impact investing can play to drive both the modernization of public good provision and private sector value creation on an unprecedented scale. To succeed, impact needs to first be made investible if it is to deliver on capital formation, business opportunities and new jobs, social inclusion and effective operational implementation in Japan and elsewhere. Necessary conditions for a functioning impact-oriented capital market are:

  • A sound impact investment ecosystem composed of investors, investees and intermediaries;
  • A generally competitive social sector; and
  • An enabling policy and regulatory environment.

Japan has a large number of unique assets at its disposal for making this happen. Among them is its growing access to ASEAN’s 600 million consumers, thanks to the ASEAN-Japan Comprehensive Economic Partnership; an inspiring track record of innovation; and world-class automotive and electronics clusters. Yet the days of the post-war economic miracle lie several decades behind us, and issues like aging and public indebtedness are growing in importance and urgency.

Impact investors can play an active role in designing the solutions now needed, and there is remarkable interest in fresh solutions that link civil society, the world of investments, corporations and the public sector, as is highlighted by Mari Kogiso, Senior Research Fellow at the Sasakawa Peace Foundation: “I believe Japan can play a unique role in promoting impact investing in Asia. Since the great earthquake and tsunami in Tohoku, there have been several notable efforts among corporations and civil sectors to utilize social financing to help rebuilding the community and industry. Their experience has been very positive and many corporations are now rethinking how they should restructure their CSR and corporate venturing functions to use their money more effectively to realize social impact and helping their business at the same time.”

With the Japanese Edition, we aim to inform and encourage stakeholders in Japan to examine the lessons that have been learned in the pursuit of linking impact to enable capital formation, business opportunities and new jobs, social inclusion and effective operational implementation.

Momentum is building and the power of impact investing can help shape a more prosperous and inclusive Japan, Asia and global community in the twenty-first century. I am convinced that the time for Japan and others to act in scale is now—a strategy that will be explored at the upcoming Symposium.

About the Author:

Maximilian Martin, Ph.D. is the founder and global managing director of Impact Economy, an impact investment and strategy firm based in Lausanne, Switzerland, and the author of the report Making Impact Investible.

Tagged in: Impact investing Japan


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