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Japan's FSA publishes "Draft Basic Guidelines on Impact Investment"

On 30 June 2023, Japan's Financial Services Agency (FSA) published a report by the Working Group on Impact Investment (the Working Group). The Working Group was established in October 2022 to discuss the role of “impact investment” and measures to encourage impact investment.

Amongst others, the report includes the draft of the “Basic Guidelines on Impact Investment” (the Guidelines), and the FSA is seeking market feedback on the Guidelines (see the FSA's website here).

The report explains that the purpose of the Guidelines is to “foster common understanding on the basic concepts and processes for impact investment by clarifying the essential elements expected for impact investment that fund-raisers, fund-providers, and other participants in the impact investment markets could refer to when structuring and financing investment projects through their own ingenuities and approaches”. The aim is to encourage impact investments, rather than to restrict any investments or other activities, that pursue a positive environmental impact or social impact. The Guidelines comprise four key principles as summarised below and emphasise the importance of engagement with investee companies.

The four key principles

The Guidelines indicate that, in order to achieve both a “social or environmental impact” and a “financial return”:

  • the impacts and financial returns that are intended to be achieved through the investments shall be made clear in advance of the investments (Principle 1: intentionality);
  • the specific expected impacts and financial returns shall be identified and explained (Principle 2: additionality);
  • once an investment is made, the impacts and financial returns shall be identified, measured and managed on an ongoing basis quantitatively or qualitatively (Principle 3: identification, measurement, and management of the impacts); and
  • it is necessary to identify and support the novelty and innovation of the investee companies and businesses that could accelerate any transformation in the markets or customers, so that the investee companies can generate tangible social or environmental impacts as well as financial returns (Principle 4: innovation/transformation/acceleration).

The proposed Guidelines have been formulated so as to be consistent with the existing definitions and discussions presented by various organisations, including the Global Impact Investing Network, the Global Steering Group for Impact Investment (the GSG), the International Finance Corporation and the Government of France.

On the surface, Principle 4 appears to be new to the Guidelines proposed by the Working Group. However, it is explained in the report that, in practice, Principle 4 has already been considered as an important feature of impact investments (e.g., in discussions by the GSG and the Government of France, respectively).

Recommendation to establish a “Consortium”

In addition, the report by the Working Group strongly recommends establishing a forum for dialogue, namely a “Consortium” where various stakeholders, including investors, financial institutions, companies and local governments, gather to discuss a wide range of practical issues on an ongoing basis.

The public consultation is open until 10 October 2023.


asset managers & funds, climate change & environment, corporates, sustainable finance, asia, japan, blog posts