Investors risk overlooking Japan’s green investment opportunities

Completely satisfied Monday, and welcome again. In right now’s e-newsletter, we have a look at two emergent alternatives within the environmental, social and governance house, amid a hunt for brand spanking new funding performs.

First, I’ve a bit on Japan’s inexperienced transition bonds and the way one 12 months on, consciousness could also be slowly rising past the home market. Additionally right now, Patrick seems at a resurgence of investor curiosity in psychological well being start-ups. 

Thanks for studying, and see you on Wednesday. — Kaori Yoshida, Nikkei

TRANSITION FINANCE

The largely untapped potential in Japan’s inexperienced transformation technique

Roughly a 12 months has handed since Japan’s inaugural sovereign local weather transition bond issuance. Whereas the bonds attracted consideration domestically, overseas investor curiosity has been meagre. However a shake-up within the inexperienced funding house could also be altering that.

Aniket Shah, world head of sustainability and transition technique at funding financial institution Jefferies, argues that traders ought to be paying extra consideration to Japan’s Inexperienced Transformation (GX) technique, an initiative geared toward attaining internet zero greenhouse gasoline emissions nationwide by 2050. Over the subsequent 10 years, the Japanese authorities will challenge ¥20tn ($129bn) in GX transition bonds to spur greater than ¥150tn of public-private investments in the direction of this inexperienced transformation.

“Shopper curiosity in our work [on Japan’s GX strategy] has been distinctive,” Shah instructed me, including that he felt that he had been a uncommon voice within the worldwide monetary group writing concerning the subject.

Till now, consciousness of GX had been shockingly low, Shah mentioned. Solely 4 individuals had heard of GX in a worldwide survey he performed within the second half of 2024 with 400 shoppers, which included senior portfolio managers and ESG professionals. “Individuals simply missed this necessary growth on the earth” and are actually speeding to be taught extra, he mentioned.

Up to now couple of years, “the US was sucking a lot oxygen out of the room” with the Inflation Discount Act, he mentioned. And with Europe seething with concern about its financial competitiveness, the area isn’t being considered as an thrilling place to speculate. Traders are actually “trying to Japan for brand spanking new alternatives due to this pivot away from the US and Europe”, he defined. 

Shah argued that finally President Donald Trump’s anti-green insurance policies could grow to be a tailwind for Japan, serving to it entice capital from green-minded worldwide traders. “My inkling is that we’re not going to see any slowdown in Japan,” he careworn.

However this rush of inexperienced funding to Japan has but to materialise in earnest. Simply final week, Japan’s Treasury held one other public sale spherical the place it bought roughly ¥350bn price of five-year transition bonds.

The end result was disappointing. Issuers of inexperienced and transition bonds usually intention for a “greenium”: a decrease price of borrowing, as green-minded traders agree to simply accept a barely smaller yield than for typical bonds. However no greenium was seen eventually week’s GX bond public sale; nor on three of the 5 gross sales that have been held final 12 months.

A rising rate of interest setting and liquidity dangers because of the GX bond’s small market dimension seem like weighing on traders’ minds. Inadequate investor demand means a big portion of GX bonds are being bought by the Financial institution of Japan and Japan’s Authorities Pension Funding Fund (GPIF). Of the five-year transition bonds issued in February final 12 months, roughly half have been bought by the 2 entities.

Whether or not a pivot away from the US will translate to a lift in demand for Japan’s GX bonds stays to be seen. Deployment of proceeds from these bond issuances will in all probability be some extent of focus for traders. Whereas the federal government introduced plans for the funds, “if they’ll begin getting cash out the door to corporations to begin analysis and growth, that may be an necessary signal of success”, Shah mentioned. (Kaori Yoshida, Nikkei)

Psychological well being

How the Trump period might give well being start-ups a shot within the arm

Robert F Kennedy Jr is poised to affix the Trump administration because the president’s high well being official after his contentious hearings within the Senate final week. Kennedy’s “make America wholesome once more” agenda — geared toward persistent illness, dietary and environmental well being considerations — could supply a approach for traders to play well being elements of the “S” in ESG.

Morgan Stanley not too long ago revealed a report titled “Has the time come for social investing to take centre stage?” Whereas local weather change investing has struggled amid Trump’s return to the White Home, a renewed curiosity in private well being might assist social investing, together with in psychological well being sectors from sleep to vitamin and stress, the funding financial institution mentioned.

The large enterprise capital agency Andreessen Horowitz, led by Trump donor Marc Andreessen, has began this 12 months with a wager on this space. Final month it introduced an funding in Slingshot AI, which has constructed the cell app “Ash” to supply well being assist and training companies.

One of many different traders in Slingshot was TMV, a enterprise agency with $200mn of property below administration. Slingshot is a part of TMV’s new $25mn “Lifecycles” fund, which launched final month to deal with start-ups addressing world psychological well being issues. The fund’s basic associate is Azzi Agnelli (the Italian Agnelli household co-founded the Fiat automobile firm).

Agnelli mentioned the make America wholesome once more idea wanted to incorporate a powerful deal with psychological well being. “It [has] by no means been extra obvious that individuals need change and have a dialog that 5 to 10 years in the past individuals weren’t prepared to have” as a result of psychological well being was extra stigmatised, she mentioned.

Psychological well being has drawn investor curiosity earlier than. Talkspace, a web-based remedy firm that matches customers with therapists, went public in 2021 amid a inventory market mania that 12 months. However its share value rapidly dropped, and is now buying and selling down 67 per cent from its preliminary 2021 pricing.

Different such companies embrace Open, backed by Twitter co-founder Jack Dorsey and raised $14.5mn in a 2022 funding spherical, which prices $20 a month for guided meditation. Headspace, one other meditation app supplier, has raised $285mn because it was based in 2010.

Now, the addictive results of social media have drawn renewed consideration to psychological well being. The Anxious Era, a 2024 guide alleging that social media and gaming are having disastrous results on teenagers, stays on the New York Occasions bestseller listing. As concern grows about these dangers, traders are more likely to discover alternatives within the sector — regardless of the place taken by the brand new US well being secretary. (Patrick Temple-West)

Sensible reads

Dim outlook The way forward for the principle US company for overseas support is unsure after its web site went darkish and President Donald Trump mentioned it was run by “radical lunatics”.

Alarm bells The EU’s high insurance coverage regulator mentioned governments and banks will wrestle to deal with the rising prices of disasters reminiscent of floods and wildfires.

Below the ocean Traders have been sluggish to understand subsea cable makers as a promising wager on the inexperienced transition.