Expectations for Tokyo as a Global Financial City, and the Future of ESG Investment

What are the keys to Tokyo's growth as a leading global financial city? Fujino Hideto, Representative Director, Chairman, President & CEO, and Chief Investment Officer (CIO) of Rheos Capital Works Inc., a leader in Japanese equity investment, talks about the challenges and expectations involved in realizing this goal, as well as trends in green finance and ESG investment.

High Hopes for Tokyo's Rebirth Through Financial Strategizing

As the head of a Tokyo-based fund, I am naturally hoping that the "Global Financial City: Tokyo" vision*, which aims to transform Tokyo back into a financial hub for Asia and the world, will be successful. And I believe it is quite possible, because Japan has a huge amount of "dormant assets" that hold great potential.

Of the approximately 2,000 trillion yen in personal financial assets in Japan, approximately 1,000 trillion yen is held in cash and deposits. In other words, about 50% of these assets are lying idle at zero interest. This ratio would be outstandingly high anywhere in the world, and promoting asset management and creating a more vibrant society will contribute to Tokyo's appeal.

Our company's mission is to narrow the gap between those who benefit from financial services and those who do not. We want to convey the appeal of investment to every corner of the nation, reduce disparities, and make Japan richer. To this end, I am hopeful that Tokyo will regain its position as a global financial city, enhancing Japan's financial value.

Don't Miss out on the Trend Toward ESG Investment

The "Global Financial City: Tokyo" vision has three cornerstones: green finance, the digitalization of finance, and the accumulation of finance-related players. All three of these are important if Tokyo is to gain recognition as a global financial city.

Let's consider the first aspect: green finance.

The issuance of ESG investments, which are investments in companies that are environmentally, socially, and governance-conscious, and "green bonds," which are bonds issued to raise funds specifically for environmental initiatives, is spreading rapidly around the world.

This is because momentum is growing, particularly in Europe and the USA, behind the idea that climate change must be taken seriously. In other words, massive flows of money driven by two major centers of the world economy are now being selected based on ESG and SDGs (Sustainable Development Goals) criteria--and at the same time, these are being watched closely as investment themes both for countries and for individual companies.

In Japan, however, this movement has been slow to build, and some seem to believe it is just a passing fad. However, when Japan's GPIF (Government Pension Investment Fund), the world's largest institutional investor, signed the United Nations' Principles for Responsible Investment (PRI) in 2015, which requires the incorporation of ESG issues into investment, momentum quickly picked up in Japan too.

The number of PRI signatories has now surpassed 4,000 worldwide. In this way, global finance is pivoting towards ESG investment and green finance. Because Tokyo presents itself as a global financial city, "financing for solving environmental problems" is a theme to be emphasized.


Diversity Is the Core of the Growth Strategy

As for the second aspect, the digitalization of finance, Japan has certainly been behind the curve. That's why the Japanese government has created the Digital Agency, which drives forward the digitalization of finance in both private and public sectors.

I also believe that diversity, which lies at the heart of the SDGs, has a crucial impact on the third aspect: the accumulation of diverse finance-related players. Positioned as it is on the eastern edge of Asia, Japan enjoys the particular geographical advantage of being able to attract investors and wealthy individuals from elsewhere in Asia.

If the Global Financial City: Tokyo vision can be realized, high-level foreign talent and wealthy individuals will be drawn to Japan, so it's important to ensure an environment that supports them in English and enables their children to be educated in multiple languages. Since their assets will be located in Tokyo, the tax system will also need to undergo review. In addition, the hurdles to establishing an asset management firm in Japan are very high, so the way we change this system is of crucial importance.

Thus, it is essential that the Tokyo Metropolitan Government promotes diversity in all its aspects, creating an environment that facilitates the work of global investors as they take on challenges--not in a single aspect, but in all aspects. In this sense, ESG, SDGs, and the promotion of diversity are growth strategies to make Tokyo the city of choice as a global financial center, and these are tremendously important issues for the Japanese financial market.

Witness Major Changes in Tokyo as It Seeks to Become a Global Financial City

You often hear it said that "Japanese people don't like risky investments," but I have my doubts about that. Why? Because our Hifumi Fund--which primarily invests in companies that are not yet well known and are in niche industries but are creating value for the world--is experiencing significant growth. A need certainly exists in Japan for investments that are a little more exciting, as well as investments in companies likely to create a brighter future, even if they are a little risky**.

I have high hopes for Japanese entrepreneurs in the future. This is because I feel that young entrepreneurs and managers are now emerging capable of radically changing their industries and winning hearts, such as Ohtani Shohei, who continues to rewrite the history of U.S. Major League Baseball, and Fujii Sota, who is similarly dominating the world of shogi.

Furthermore, if young people can bring change to companies, investments, and society by focusing on ESG and the SDGs, dramatic changes are bound to occur in Tokyo, and in Japan.

That moment when something large and old collapses and something new is born looks very different depending on where you are standing at the time. People mired in old values may have a difficult time 20 years from now. But for those in the middle of the new changes, it will be the most exciting 20 years of their lives.

I have high hopes for the bright future that the younger generation will open up, and I look forward to witnessing Tokyo evolve.

Fujino Hideto

Representative Director, Chairman, President & CEO, Chief Investment Officer (CIO), and Fund Manager of Rheos Capital Works Inc. Founded Rheos Capital Works in 2003 following a career at Goldman Sachs Asset Management, Jardine Fleming (currently JP Morgan Fleming Asset Management), and Nomura Asset Management. Has abundant experience as a fund manager with deep expertise in small-, mid-cap, and emerging growth equity investments. Also dedicated to investment education, he is a JPX Academy Fellow, a Senior Specially Appointed Professor at Tokyo University of Science, and a part-time lecturer at the School of Political Science and Economics, Waseda University. He is also a member of the Board of Directors of The Investment Trusts Association, Japan. He is the author of many books.

* The "Global Financial City: Tokyo" vision was launched by the Tokyo Metropolitan Government (TMG) in 2017. A revised version, Vision 2.0, was announced on November 1, 2021.

** TMG is promoting efforts to improve the financial literacy of the citizens of Tokyo, such as holding a financial seminar for the citizens of Tokyo at the "Tokyo Sustainable Finance Week (TSFW)."

Photos by Suzuki Mayumi
Interview by Onodera Fukumi / Translation by Amitt