Japan's financial watchdog to step up scrutiny of ESG claims, says new chief

Women walk under a sign of Japan
Women walk under a sign of Japan's Financial Services Agency in Tokyo, Japan June 29, 2017. REUTERS/Issei Kato/File Photo

By Takashi Umekawa and Takahiko Wada

TOKYO (Reuters) -Japanese regulators will step up scrutiny of financial products claiming to be environmentally friendly and look out for "greenwashing," or the exaggeration of green credentials, the new head of its financial watchdog said on Wednesday.

The comments by Junichi Nakajima, who became the commissioner of the Financial Services Agency last month, come as global regulators have been trying to protect investors from greenwashing.

"It's necessary to establish a framework to verify the eligibility of products that relate to environmental, social and governance (ESG) issues...That's one of our priorities for this current year," Nakajima said in an interview.

The new verification system should be equivalent to the international standard level, he added.

The volume of money flowing into funds that tout ESG attractions has risen sharply, but regulators worry about the lack of reliability and comparability of ESG data asset managers disclose.

The global issuance of green bonds, one high profile ESG-related product, reached $290.1 billion in 2020, according to data compiled by Japan's Ministry of the Environment.

When issuing ESG-related products, it has become common for Japanese companies to obtain certification from private rating institutions such as Rating and Investment Information (R&I) and Japan Credit Rating Agency.

From the perspective of customer protection, Nakajima said, there should be a separate organization that would give additional certification to make such products more legitimate as ESG.

(Reporting by Takashi Umekawa and Takahiko Wada; Editing by Ritsuko Ando and Kim Coghill)

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