October 8, 2021
Ministry of Finance
ESG Investment by the Foreign Exchange Fund Special Account
Environmental, social, and governance (ESG) investment has been attracting increasing interest among institutional investors not only in equity market but also in fixed income market, and this trend is expected to accelerate further. An increasing number of market participants hold the view that ESG factors affect the sustainability of issuers and thus medium- to long-term investment performance.
In this context, considering ESG factors has grown more important also in managing foreign-currency assets held by the Foreign Exchange Fund Special Account (hereinafter referred to as the "FEFSA").
* The term "ESG investment" in this context does not merely mean investing in specific financial products (ESG-related financial instruments, etc.) but refers to an "investment stance that considers ESG factors when investing in a certain financial product."
Given this background, the Ministry of Finance (MOF) has decided to adopt an investment stance of considering not only environmental factors but also social and governance factors, while firmly maintaining the basic principles concerning safety, liquidity, and profitability for management of foreign-currency assets in the FEFSA.
Specifically, while accumulating expertise including through outsourcing, MOF strives to enhance the sustainability of asset management by incorporating the impact of ESG factors on the asset values into the processes of analysis, selection, and management of the investment targets (so-called "ESG integration") from the viewpoint of strengthening risk management. This effort is also expected to contribute to an increase in investment in ESG bonds by the FEFSA as the ESG bond market expands and develops in the future.
MOF expects that the promotion of such initiative will make asset management by the FEFSA more sustainable and accelerate similar initiatives in a broad area, including other major countries' foreign reserve authorities and private organizations, thereby leading to the progress toward the resolution of environmental and social issues.