JFSA Updates Address Crypto-Asset and ESG Investment Guidelines

JFSA recently proposed changes to the guidelines for ESG investment management business. JFSA conducted a survey of 225 publicly offered investment trusts managed by 37 asset managers in Japan and identified seven expectations for asset management companies managing ESG investment trusts. Based on these seven expectations, JFSA is proposing revisions to the "comprehensive supervisory guidelines for financial instruments business operators to define specific points for supervisors to check disclosure of information on publicly offered investment trusts and organizational resources and due diligence of asset managers regarding ESG." The proposal document states that, among others, where an ESG investment trust has a target or guideline ratio of investments (on a market value basis) that are selected by ESG as a main factor out of its net asset value, or where it has other target or guideline indicators for evaluation of key ESG factors in the investment strategy, supervisors will check whether the ratio or other figures is disclosed in the "Objective and Characteristics of the Fund" section of the delivery prospectus. When ESG ratings provided by a third party are used in the investment process of publicly offered investment trusts, or when data provided by a third party is used in own ESG assessment by an investment trust management company, supervisors will check whether the investment management trust company conducts appropriate due diligence, which could include an understanding of its organizational resources, what is being rated or assessed by its product, how it is being rated or assessed, and limitations and purposes for which its product is being used.

Another related development involves the publication of the final Code of Conduct for ESG evaluators and data providers. This Code of Conduct is designed to be a voluntary code on a “comply or explain” basis, where JFSA calls for organizations to express their support for the Code via public announcement and the organizations supporting the Code will either comply with the principles and guidelines of the Code or explain the reasons why they do not comply with a particular principle or guideline. When implementing the principles or guidelines of the Code, it is important to provide easy-to-understand explanations so that readers can understand the status of compliance with each item of the principles and guidelines. Based on the received notifications of endorsement of the Code of Conduct from evaluation organizations, JFSA will publish the list of status of endorsement of the Code of Conduct by June 2023 and the status of endorsement regarding data provision by June 2024.

Keywords: Asia Pacific, Banking, Regtech, Climate Change Risk, Japan, Sustainable Finance, Code of Conduct, Securities, ESG, Data Providers, Low-Carbon Economy, Crypto-Assets, JFSA