He has extensive leadership experience gained while running the APAC operations of two Xinhua Finance-portfolio companies: cross-border investor relations boutique Taylor Rafferty and proxy advisory service Glass Lewis. James was since the Executive Director in charge of ISS's commercial initiatives in APAC until June of 2016. In September, 2016 he established the Sustainalytics Tokyo office.
1. When did Sustainalytics start and how many staff are there today globally? What is your focus in Japan, and have you closed any deals of note in Asia?
An
early pioneer and driver of the environmental, social and governance (ESG)
movement, Sustainalytics’ current CEO Michael Jantzi originally founded Jantzi
Research Associates in 1992. Following years of successful collaboration with
several leading European ESG research providers, Jantzi Research Associates
merged with these firms in 2009 and formed what is known now as Sustainalytics.
Today,
Sustainalytics is an independent ESG and corporate governance research, ratings
and analysis firm with 13 offices worldwide. We support hundreds of
the world’s leading asset owners and investment managers with the development
and implementation of responsible investment strategies. Our company consists
of more than 350 staff members, including 170 analysts with varied
multidisciplinary expertise of more than 40 sectors.
Our
size and history are worth noting because both position us to leverage our
three decades of experience and global footprint to develop cutting-edge
solutions such as our ESG Signals, a quantitative artificial intelligence (AI)
solution that combines ESG big data, quantitative modeling, and machine
learning to identify portfolio risk and opportunities.
Sustainalytics
continues to be a growing global company with an interest in entering new
markets where the integration of ESG and corporate governance considerations
into the investment process appears promising. Japan is such a market since it
is the fastest growing market for sustainable and responsible investment,
according to recent industry reports. With our office in Tokyo, we are well
positioned to capitalize on these market opportunities and better serve our
Asian clients directly and global clients with portfolio holdings in the APAC
region. In Japan, we have been fortunate to expand our footprint with leading
firms such as the Development Bank of Japan, Mitsubishi UFJ Financial
Group, Mitsubishi UFJ Trust and Banking, Nissay Asset Management, and Sumitomo
Mitsui Asset Management. We hope over time to partner with increasing
numbers of assets managers who are looking to incorporate ESG into their
investment processes.
2. Where do you see the opportunity for
your firm to grow? is there any key advantage you have today in Japan or Asia?
While
there continues to be growth opportunities in every major region worldwide, we
are seeing significant growth in ESG investing in Japan, followed by Australia. In
both Australia and New Zealand combined, responsible investment assets have grown
from 2014 to 2016 to reach $515.7 billion, and to a point where in Australia,
sustainable investments now account for 50 percent of all professionally
managed assets. Our clients in Australia and New Zealand are turning to us for
our ESG research to help inform their ESG integration and exclusionary
screening practices. We anticipate continued organic growth in both countries
for our products and services.
We
also anticipate strong growth in Japan as more asset managers incorporate ESG
into their investment processes. As one of the largest, most established ESG
firms in the world, we believe our key advantages in Japan lie with our ESG
company coverage (7,000+ companies) as well as our strong on-the-ground
presence. Our Head of Asia Pacific Research is now based in Tokyo, and we have
a team of four ESG analysts, who leverage our broader global research
infrastructure. In addition, we have a client services manager, and myself,
leading the commercial side of growing the business here. In Japan, we see large-scale
growth opportunities across asset classes: equities, fixed income, and
infrastructure. For equities, research, data, and screening tools are in
demand. For fixed income, green bond issuances, for which we write second party
opinion research, are at an all-time high and growing rapidly. And for
infrastructure, we are seeing new demand for our expertise as Tokyo transforms
into a green metropolis.
3. What attracted you to this opportunity
to pursue research on the ESG risks of corporates in Japan?
I
had been working in the corporate governance-related space since 2002, but I
have been interested in environmental and social issues since I was a
university student. Since the fall of 2013, Japan started on a path of drastic
reform in corporate governance while a quieter movement into ESG also started
to gain momentum. At the time, investor engagement was almost completely
limited to proxy voting, but following a series of market developments such as
the Japanese Stewardship Code, the launch of the JPX-Nikkei 400 governance
index, the Corporate Governance Code, MITI’s Ito Review, the Corporate Law
amendment on governance, and the large-scale changes in the GPIF’s asset
allocation, governance reform had become the centerpiece of Prime Minister
Abe’s Third Arrow. When the GPIF signed the UN Principles of Responsible
Investment in the fall of 2015, the heavy lifting was well on its way to
completion, and the transition from governance-based shareholder engagement to
ESG-based stakeholder engagement was in full swing, and Japan was poised to go
from an ESG laggard to an ESG leader seemingly overnight.
Sustainalytics
had long been on my radar, and while governance always interested me, ESG was
my passion. So, I jumped on the opportunity to open the subsidiary in Tokyo and
build the team and business. The ESG market globally, and especially in Japan,
continues to rapidly expand and evolve, and Sustainalytics, with its singular
focus on ESG, its well-developed reputation as the quality play in ESG
research, and its commitment to Japan with a team of seven, is well positioned
for long-term growth in the country.
4. Has this opportunity within analytical
research data in Japan or Asia changed in any way due to government
actions? Where do you see ESG going in Asia and Japan over the
coming years?
When
it comes to ESG expansion, government initiatives have always been one of the
most important drivers globally, and it is no different in Japan. Japan’s
USD 1.3 trillion GPIF is part of Japan’s Ministry of Labour, Health, and
Welfare. So, when the GPIF leads, the market follows—and the GPIF has expressed
a strong commitment to develop best-in-class ESG standards, and we believe that
this commitment will translate into further appreciation of the value of understanding
ESG risk in both investment and proxy voting decision-making procedures.
5. Are there gaps in understanding that
overseas investors do not fully understand that Sustainalytics try and fill
regarding Japanese companies? Are there assumptions by overseas investors that are
not likely to be true in Japan or Asia that need education?
Yes,
one of the most important reasons for opening our Tokyo office was to build a
research team with native expertise to research Japanese companies with local
insights. Sustainalytics covers about 2,900 Japanese companies in our
Controversies research and about 600 Japanese companies for our ESG reports,
and now with a team of four Japanese-speaking analysts in Tokyo, every effort
has been made to ensure that Japanese primary source materials are researched
and used in our research reports on Japanese companies. Japan equities
constitutes a material slice of the holdings of large global pension plans, and
getting Japan right is critical to overall portfolio performance.
The
gaps in understanding that we try to fill generally stem from cultural and
linguistic differences in the name of disclosure. Japanese companies tend to
disclose less than their peers in North America or Europe. And this sense of
humility and understatement that the Japanese often try to communicate quite
often tends to get mistaken as a lack of desire to engage. This is where
Sustainalytics comes in. With our four Japanese ESG analysts in Tokyo, we are
capable of going through voluminous Japanese language disclosure, engage
directly with Japanese companies, ministries, regulators, etc., gather
feedback, and incorporate it into our internal databases.
6. Are there project partners or investors
that you are searching for at this time for your unique AI analytical product
opportunities?
Yes.
Quant funds and any other multi-strategy hedge funds that would be interested
in testing ESG Signals, which combines ESG data, quantitative modeling and
machine learning to identify portfolio risk and opportunities. In the past, ESG
integration was limited to a few indicators that showed correlations with alpha
and beta, and big data techniques were not being applied to large sets of ESG
information. Today, asset managers are looking to integrate more ESG research
into their quant models.
ESG
Signals explores past correlations between ESG factors, financial and trading
variables with three-month forward returns. Heads of research and portfolio
managers can use ESG Signals as a portfolio monitoring, alerting and investment
decision support tool.
I
believe ESG Signals is unique in its approach and could generate some real
interest in the quant community. An early adopter would be one of a small
handful of players in the market using such a tool, and I think that having
such a new and unique view on performance indicators would be enough for most
hedge fund managers to have some interest in exploring our AI capabilities.
7. Where do you see your firm growing the
most in the next 2-3 years globally? Will this continue or change into another
new direction?
There
are several market trends propelling the future growth of our business. While
equities have historically been the focus for responsible investing strategies,
we are now seeing increasing asset class diversification.
First,
we are seeing growth in ESG among retail investors. While we do not directly
serve retail investors, we are working with many of the world’s leading
investors to help them build ESG products and services for their retail
clients. We expect this will only continue to grow as investors create more
ESG-related products and services.
We
are seeing strong demand from investors looking for credible and transparent
sustainability bonds. Green bond, social bond and sustainability bond
issuances reached USD 87.6 billion in 2016, and the Climate Bonds Initiative
estimates the market to reach USD 130 billion to 150 billion in 2017. We
have leveraged our deep understanding of investor expectations and market best
practice to support a range of global issuers to provide second party opinions,
Climate Bonds Verification and ongoing compliance reviews.
Funding
the transition to a low carbon economy and supporting the UN’s Sustainable
Development Goals is also leading to more focus on impact and thematic
investing. There is a desire by our institutional clients to demonstrate what
they are doing as it relates to impact investing and how they are doing it. We
are helping investment managers to develop impact frameworks to identify
investment opportunities, and constructing frameworks to assess these
opportunities.
All
of these trends are driving us to create new products and services and enhance
existing ones, and our scale and unparalleled subject matter expertise enables
us to ensure the long-term relevance of our offerings as investors continue to
expand the role that ESG plays in their investment strategies. Those desiring to learn more about our products and services can visit us at www.sustainalytics.com
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For more Buy-Side or Sell-Side roles in Asia-Pacific, contact our TMJ Partners Japan & Asia Finance team in Tokyo.
Mark Pink Shinichi Nagasawa
Tel + 81 3 3505 3891 Tel +81 3 3505 3891
Email pinkmark@tmjpartners.com Email nagasawa@tmjpartners.com
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