Sustainable consumption and the financial sector:analysing the markets for responsible investment inHong Kong and JapanJacob Park

Green Mountain College, Poultney, Vermont, USA

Keywords

Socially responsible investing, sustainablefinance, Japan, China, Asia Pacific.

Correspondence

Jacob Park, Green Mountain College, OneCollege Circle, Poultney, Vermont 05764,USA.E-mail: parkj@greenmtn.edu

doi: 10.1111/j.1470-6431.2009.00757.x

AbstractThe origins of the modern socially responsible investment (SRI) movement can be tracedto the turbulent period in the 1960s when powerful social undercurrents including envi-ronmentalism and anti-war activism fuelled a rise, in a radical change, in the way societyviewed faith, values and commerce.

Today, nearly 1 out of every US$9 under professional management in the US is currentlyinvested using social investment strategies while the European green and ethical invest-ment market is estimated to be €1 trillion or as much as 10–15% of the total funds undermanagement.

While some preliminary figures and analyses exist for countries outside these tworegions, SRI has been, to date, largely explored within the context of North America andEurope. This is unfortunate as the sustainability of SRI as a consumer market is going todepend, to a great extent, to what happens outside of North America and Europe, and mostnotably in the rapidly developing Asian economies. In this article, I will explore thedevelopment of SRI as a mainstream financial consumer instrument in industrialized(Japan) and emerging (Hong Kong/China) economies of the Asia Pacific region.

To fully analyse the SRI market development in Hong Kong and Japan, I will examinethe following three issues and questions: first, how does the sustainable consumptionframework offer a useful lens from which to explore SRI, and why is the Asia Pacificmarket and policy context so important for the broader issue of sustainable consumption?Second, what precisely is SRI and how did it develop into an important global financialinvestment vehicle? Third, how did the SRI market develop in the case of Hong Kong andJapan? I will then conclude the article with some analysis on the important lessons SRImarket development in Hong Kong and Japan hold for market sustainability of the financialsector and sustainable consumption.

IntroductionFor the past 12 years, Merrill Lynch, a financial investmentcompany, and Capgemini, a business management consulting firm,have jointly published an annual survey called the World WealthReport, which tries to better understand the growing global influ-ence of what the two companies refer to as ‘high net worth indi-viduals’ (individuals with at least US$1 million in financial assets).One of the key takeaways of the 2008 World Wealth Report wasthe growing importance of socially responsible investing (SRI) asa financial asset category for individual – albeit very wealthy –consumers around the world. According to the 2008 Report, 12%of the high net worth individuals (HNWIs) and 14% of theso-called ultra-HNWIs (individuals with at least US$30 million in

financial assets) allocated a part of their investment portfolio to anSRI investment strategy that includes green and alternative energytechnologies (Capgemini and Merrill Lynch, 2008).

The most environmentally attuned HNWI and ultra-HNWIpopulations, as measured by the percentage of investors allocatingto SRI investing, were found in the Middle East and Europe, withparticipation rates ranging from around 17 to 21% in 2007. Bycomparison, only 5% of HNWIs and 7% of ultra-HNWIs in NorthAmerica allocated part of their portfolio holdings to SRI investingcompared with 13% of HNWIs and 14% of ultra-HNWIs for theAsia Pacific region, and 15% of HNWIs and 17% of ultra-HNWIsfor the Latin American region. Interestingly enough, the reportalso observed that North America was the only region in whichsocial responsibility (that is, non-financial social or ecological

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concerns) came up the primary driver of HNWIs’ interest in SRI(Capgemini and Merrill Lynch, 2008).

What was so interesting about the 2008 World Wealth Reportwas not that it revealed anything significant about the size orcomposition of the SRI market. A biannual survey documentingthe US SRI market, for instance, has been published for the pastdecade. Rather, the 2008 Report documented how, and to whatdegree, consumers in around the world differ in their attitudes andinvestment habits. Defying the easy categorization as a product ora service, SRI can best be described as an investment process thattakes into account non-financial variables (most often, social andenvironmental issues) in the context of traditional financial analy-sis. Retail (i.e. individual) as well as institutional investors (i.e.public pension funds, university endowments and so on) use SRIto achieve a financial and social/environmental return. For predict-able reasons, the consumer market of SRI developed first in thewealthier countries in North America and Europe, and only nowhas the SRI market development in such as Asia, Latin Americaand Africa been getting any kind of attention.

Using Japan and Hong Kong as case studies and sustainableconsumption (SC) as a theoretical framework, this article exam-ines the market development of SRI and explores the changingconsumer attitudes toward sustainable investing in the most eco-nomically dynamic and rapidly changing region of the world.Despite the growing academic literature on SRI, I argue in thisarticle that we still have little understanding of the SRI marketdevelopment outside of North America and Europe. Using Japanand Hong Kong as case studies, I also argue that the mainstream-ing of SRI into the global consumer marketplace will only berealized when we have a better understanding of non-NorthAmerican and European markets, most notably in the rapidlyevolving Asian emerging economies.

To fully analyse these two related arguments, I will examine thefollowing three issues and questions: first, how does the SC frame-work offer a useful lens from which to explore SRI, and why isthe Asia Pacific market and policy context so important for thebroader issue of SC? Second, what precisely is SRI and how did itdevelop into an important global financial investment vehicle?Third, how did the SRI market develop in the case of Hong Kongand Japan? I will then conclude the article with some analysis onthe important lessons SRI market development in Hong Kong andJapan hold for market sustainability of the financial sector and SC.

Theoretical frameworkSustainable consumption (SC) has served as an effective theo-retical framework to contextualize many issues related toenvironment/social dimensions of business, economics and policy(Spaargaren, 2003; Fuchs and Lorek, 2005; World BusinessCouncil for Sustainable Development, 2008), and I argue in thisarticle that SC also serves as a useful scholarly narrative to frameSRI as a sustainable business and development issue (O’Rourke,2003). SC is conceptually different from its theoretical cousin,ecological modernization (EM), in that SC does not state categori-cally (like the EM advocates) that it is possible for a society todevelop economically and at the same time protect its environ-mental welfare. At the same time, it does not also support manycritics of the EM theory who tend to view economic developmentas an agent of more intensified environmental deterioration.

Traditional social science approach to SC can be classified intotwo major streams: the first stream, typified by Veblen’s book, TheTheory of the Leisure Class (1899), tends to regard consumptionas morally suspect if not morally corrupting while the secondstream looks at consumption less moralistically and focuses moreon the social-institutional factors and the psychology of consumerbehaviour that shape consumption (Hertwich, 2005). The secondresearch approach to SC is, I argue, where academic scholars needto spend more time on, and the context by which the focus on SRIcan be best examined.

While building on the traditional SC framework (at least interms of the second stream), the analytical focus on SRI also offerstwo opportunities for more focused scholarly inquiry into two gapsin traditional SC research. First, traditional SC research tendsto emphasize tangible goods over services, that is, consumingdurable goods such as furniture over the functions or servicesconnected to that particular piece of furniture. While there hasbeen some good recent works on servicizing products or trans-forming products as services (Heiskanen and Jalas, 2003), weneed further elaboration and analysis that connect SC with an actsuch as financial investment (or in the context of this article, SRI)that does not literally use something up in the literal sense of howone traditionally defines consumption.

Second, similar to its theoretical cousin, EM, the literature onSC tends to be dominated by examples, case studies and researchon the wealthy OECD countries in North America and Europe.While this approach can be justified on the basis that SC researchneeds to focus on where, and who, does the most consuming (i.e.relatively wealthy consumers in North America and Europe whoare situated in the top of the global population pyramid), thisapproach is becoming less salient in terms of overall impact withthe intense consumption bubble that is occurring outside NorthAmerica and Europe, and in particular, whom Myers and Kentrefer to as the ‘new consumers’ in the so-called Brazil, Russia,India, China and South Africa (BRICS) countries and elsewhere(Myers and Kent, 20041).

Specifically, I argue in this article that the Asia Pacific regionrepresents an important spatial lens through which to analyticallyexamine the SC theory as well as SRI market development as acase study in SC because of the growing economic and sustain-ability footprint of this region. The ability of the internationalcommunity to achieve deeper roots of SC may be determined inlarge part by what happens – or not – in this region. With thecentrality of the global economic engine being shifted to China,India and other countries in the Asia Pacific region, SC as ananalytical/explanatory framework and SRI as a financial assetcannot be considered truly global without a more nuanced under-standing and taking into account the socio-environmental changesthat are taking place in Asia.

Nowhere is the challenge of shifting to patterns of energy-efficient and environmentally friendly economic developmentmore urgent and critical to the future of global economic andenvironmental governance than the rapidly industrial economiesof Asia. Some of the critical macro-sustainability trends shapingAsia and the world at large include the double-digit rate increases

1For additional analysis on the links between consumption, sustainabilityand market forces, see Worldwatch Institute (2004) and Princen et al.(2002).

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in Asian industrial production, the introduction of 300–400million new middle class consumers from India and China aloneand the 80% of the Asian industrial stock that will be built in thenext 20 years (Angel and Rock, 2000; Lebel, 2005). Asian path-ways on economic development and their impacts on the globalenvironment may well chart the path for other less advancedeconomies of the world. Consequently, the experiences of Asiancountries are critical to understanding the overall concept of SC aswell as the necessary trade-offs that may exist between growth,equity and poverty reduction. The Asian region offers a plausibleroadmap for how, and to what degree, emerging and developingeconomies may best integrate to the global economic value chainwhile meeting the basic human development needs of their respec-tive societies.

SRI’s historical and market typology

Understanding the genesis of the modernSRI movement

The origins of the modern SRI movement can be traced to theturbulent period in the 1960s when powerful social undercurrentsincluding environmentalism and anti-war activism fuelled a rise,in a radical change, in the way society viewed faith, values andcommerce. SRI funds were once primarily known as ethical funds,and given their strong Judaeo-Christian roots, this is not at allsurprising. The notion of an ‘ethical business enterprise’ has strongroots in Judaeo-Christian traditions, and one can find examples ofsuch notion in the book of Deuteronomy dating back more than3000 years. However, it is arguably the Quaker faith that has madethe greatest impact in making the connection between commercialactivities and ethical values in the modern age (Kreander, 2001).

The Quakers were the first group to practice ‘negative screen-ing’ of investments when they avoided investments in the arma-ments sector for more than 140 years by faithfully applying theirpeace traditions to commercial activities. One of the earlyexamples of what we might now call a SRI-like activity was aninvestment fund established by the Methodist Church in the 1960sthat avoided investments in armaments, alcohol, gambling andtobacco. As the fund managed by the Methodist Church wasclosed to outsiders, the first modern example of what we now callan SRI fund was the US Pax World Fund established by twoMethodist ministers in 1971. The first investment fund that spe-cifically addressed ecological concerns was the Ecology Fundestablished by Merlin/Jupiter Company in 1988 (Kreander, 2001).

The political unrest in South Africa in the 1960s and 1970s setthe stage for another major policy push for SRI and the importantconnection between ethics and business practices. Reverend LeonSullivan helped draft a code of conduct (subsequently known asthe ‘Sullivan Principles’) for companies doing business in SouthAfrica. By the early 1980s, the Sullivan Principles became therallying cry for anti-apartheid activism. By 1982, the State ofConnecticut adopted the Sullivan Principles and other social cri-teria to guide its investment decision-making, and just 2 yearslater, the California Public Employees Retirement System, thelargest public pension fund in the world, and the New YorkEmployee Retirement System developed their own investingguidelines in South Africa. Contemporary corporate divestmentand boycott campaigns, ranging from Darfur to ExxonMobil, got

started, thanks in large part to the success of the South Africananti-investment campaigners, many of whom were also active inthe SRI industry at that time (International Finance Corporation,2003).

SRI and the ecology of financial consumerism

At the most simplest level, SRI can be defined as integratingpersonal values and societal concerns with investment decisionswhile both the investor’s financial needs and an investment’simpact on society. The most easily understood and common waysocial and environmental factors have been incorporated into theSRI process is through portfolio screening, which is the process ofusing social and/or environmental criteria to include (positivescreen) or exclude (negative screen) shares of a certain companyfrom an investment portfolio. Although the weighting of the indi-vidual screens differs from one SRI fund to another and from oneSRI asset management company to another, most SRI funds typi-cally screen, positively and/or negatively, individual firms basedon the following criteria: environment (energy intensity, carbonemissions, environmental management system, etc.), workplacepractices (equal opportunities, employee welfare and opportuni-ties, anti-discrimination policies, etc.), stakeholder relations(charitable contributions, human rights, engagement with non-profit/community groups), and in some cases, corporate gover-nance and related board practices (Social Investment Forum,2008a).

Over the course of the past four decades, SRI has become anestablished global financial market instrument in the US, Europeand other advanced industrialized countries. The US Social Invest-ment Forum estimates that US$2.7 trillion or 11% of the US$25trillion in total assets under management has been invested accord-ing to an SRI strategy in 2007. Assets in all types of socially andenvironmentally screened funds – including mutual funds andexchange-traded funds – rose to US$202 billion in 260 funds in2007, a 13% increase over the US$179 billion in the 201 trackedin 2005 (Social Investment Forum, 2008b). Comparable figuresfor Europe (representing the individual country markets ofAustria, Belgium, France, Germany, Italy, the Netherlands, Spain,Switzerland and the United Kingdom) show that the European SRImarket has reached the €1 trillion mark in 2006 or as much as 15%of the total European funds under management (European SocialInvestment Forum, 2006).

Unfortunately, the relative healthy SRI market developments inNorth America, Europe, and to a lesser degree, Asia, overshadowalmost the complete lack of SRI activity in many emerging anddeveloping economies where more than two-thirds of the worldpopulation live and work. According to a 2003 report by theInternational Finance Corporation (2003), the total SRI assets inemerging markets is approximately US$2.7 billion or 0.1% of theUS$2.7 trillion global SRI market. The emerging market assetsheld by SRI investors in industrialized countries may be anywherebetween US$1.5 and US$2 billion while SRI assets as a percent-age of the total emerging market capitalization is likely to be nolarger than 0.1%. Although the economic disparity between theindustrialized and the developing worlds is always stark, it isnevertheless startling to such a gap between the wealthy FirstWorld and less developed Third World. This is undoubtedly one ofthe most important market development hurdles if SRI is to realize

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its potential to bring triple bottom line sustainability to the bottomof the economic development pyramid.

Case study discussion: SRI marketdevelopment in Hong Kong and JapanOne explanation for the diverging SRI market development is thediffering financial sector development between the advanced indus-trialized OECD countries and many Asian countries includingJapan. There are still limited number of large (in terms of marketcapitalization) publicly-traded companies from Japan and otherAsian countries that can meet the transparency and listing require-ments of the major stock exchanges such as NewYork and London,although this is slowly changing. Although business awareness ofenvironmental and social responsibility concerns lag that of NorthAmerica and Europe, SRI represents a growing, if not thriving,financial instrument in the Asia Pacific region (see Table 1).According to a 2005 Association for Sustainable & ResponsibleInvestment in Asia report, ‘while Asian markets in general tend tobe higher risk than their developed market counterparts, the moststriking feature of the market for new funds is the predominanceof variable annuity products, bond funds, and products with eitherregular distributions or guaranteed principle provisions. There arepockets of interest in new equity products, including SRI which hasbeen successful in attracting new investors’ (Brown, 2005).

Hong Kong

More than 19 investment funds (see Table 2) that can be classifiedas SRI are currently based in Hong Kong. The first SRI fund waslaunched in 1997, the first of its kind in the Asia Pacific region, and

2 years before the first such fund got its start in Japan. While thetotal number of SRI funds in Hong Kong is not as impressive ascompared with South Korea (45 funds, which were all started onor after 2001), and it is technically not even a country (rather it isa special administrative region of China), there are a number ofreasons why SRI developed first in Hong Kong and why thedevelopment of sustainable investing in this city-state is importantregionally as well as globally.

First, Hong Kong has an established economic foundation fromwhich SRI has the potential to become a mainstream consumerfinancial product. This ‘special’ Chinese city-state with 7 millionpeople has a globally-linked local financial market (more thanUS$416 billion in financial assets is currently under management)(Securities and Futures Commission, 2007), investment-savvyconsumers (1.1 million or nearly 20% of the Hong Kong popula-tion traded at least once in the local stock market in the past year)(ASrIA, 2004), and has one of the highest per capita incomes inthe world [Hong Kong’s 2007 per capita gross domestic productpurchasing price parity (PPP) of US$42 000 is only slightly lowerthan of the US figure of US$45 800 and higher than a numberof countries in the European Union, including Denmark(US$37 400), Sweden (US$36 500) and the United Kingdom(US$35 100)] (CIA, 2008). In a recent survey of the World Eco-nomic Forum’s global ranking of countries that did the best interms of promoting enabling trade and free flow of goods andservices, Hong Kong came up first in the world in a survey cov-ering 118 economies (World Economic Forum, 2008). It needs tobe stressed, however, that the high per capita PPP does not meanthat there is no, or little, poverty in Hong Kong. According to oneOxfam 2007 report, one in six of Hong Kong’s 7 million people isclassified as living at, or below, the poverty line, and this figure has

Table 1 Socially responsible investment (SRI) funds in Asiaa

Total number of SRI funds in Asia (including faith-based funds) 243

Total number of SRI funds in Asia (excluding faith-based funds) 148

Public fundsPrivateequity

SRI pensionmandates Faith-basedb

Countrytotalc

China 2 0 0 0 2Hong Kong 19 0 0 1 20Japan 59 1 0 0 60Korea 37 2 6 0 45Taiwan 3 0 0 0 3Singapore 3 1 0 10 14Malaysia 2 0 0 81 83Indonesia 0 1 0 1 2India 1 1 0 1 3Thailand 2 0 0 1 3Segment total 128 6 6 95 235

Number of SRI funds by country 235

Asia hedge funds 8

aSRI funds in Australia and New Zealand are not counted here because they are no longer tabulated by the Association for Sustainable & ResponsibleInvestment in Asia (http://www.asria.org). For information on SRI funds in Australia and New Zealand, please consult Responsible InvestmentAssociation Australasia (http://www.responsibleinvestment.org).bMostly shariah funds.cCountry total figure includes private equity funds.Source: Association for Sustainable & Responsible Investment in Asia (2008; http://www.asria.org; accessed October 2008).

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worsened considerably since the city reverted from British toChinese rule in 1997 (Pomfret, 2008).

Second, Hong Kong has come relatively late to the sustainabledevelopment discussion in part because of its unique political andinstitutional history, a ‘history which has left it devoid of many ofthe core competencies required to achieve sustainable develop-ment . . . (including) committed leadership and transparent, demo-cratic, inclusive, and accountable governance . . .’ (Mottershead,2004). However, there is no mistaking the fact that there is anactive civil society culture in Hong Kong. This active civil societyculture (which is a sharp contrast to mainland China) is bestcaptured in the presence of nearly 3000 non-governmental orga-nizations (NGOs), with many of the leading international environ-mental and civil society groups (most notably, Oxfam, WorldwideFund for Nature, Greenpeace and others) having offices in, oraround, Hong Kong (ASrIA, 2004).

In terms of the public sector and governance, Hong Kong’sSpecial Administrative Region Government, which has its ownlegislature and many unique self-government policy mechanisms,launched a number of new sustainable development-related policyinitiatives, including the establishment of the Hong Kong Govern-ment’s own Sustainable Development Unit in 2001 and theCouncil for Sustainable Development in 2003 in the past decade(Mottershead, 2004). It should be noted that these sustainabledevelopment policy initiatives were established after the 1997handover of Hong Kong from the United Kingdom to China. HongKong is not only a late industrialized region and one of the earliestAsian economic tigers but also a late policy embracer of sustain-able development as a core governance issue. The Hong Kongexperience confirms the importance of having reached a certainlevel of economic development before there is a rise in the marketinterest of SRI and other sustainable investments/products, whichhas important implications for emerging and developing econo-mies in Asia and elsewhere.

Third, there appears to be a core group of consumers inHong Kong who are ready to embrace SRI as a mainstreamfinancial product. According to a 2004 Association for Sustain-able & Responsible Investment in Asia and University of HongKong’s Corporate Environmental Governance Program survey(Brown et al., 2004) of 884 residents, 61% of the respondentsexpressed interest in investing in SRI funds as part of their Man-datory Provident Fund [a Hong Kong government pension pro-gramme launched in 2000 that requires employees to contribute10% of their earnings (half paid by themselves and half by theiremployers) to a pension investment fund]. Perhaps not surpris-ingly, the survey noted that consumers with interest in socialissues (85.7%), higher income levels (79.4%), postgraduateeducation (73.5%) and religious orientation (73%) had thehighest correlation with interest in SRI funds, while industrialpollution and child labour issues were the most salient individualissues among the respondents with the highest interest in SRIissues.

The interest in SRI funds among Hong Kong consumers isconsistent with other surveys on green consumer attitudes. A2001 survey (Civic Exchange, 2001) carried out by a HongKong-based NGO, Civic Exchange, reported that 44% of respon-dents stated that they always, or sometimes, purchased environ-mentally friendly products when possible, of whom 82% claimedthat their decision was to help improve the environment. Of the28% who stated that they do not buy environmentally friendlyproducts, 61% claimed that this is because those products werehard to find. A 2002 survey (Lam et al., 2003) by the Universityof Hong Kong’s Corporate Environmental Governance reportedthat 38% of the consumers regard social and environmentalissues as the top three factors in purchasing decisions while 70%of the respondents thought that companies should disclose rel-evant corporate information to the public and show care to thecommunity.

Table 2 Socially responsible investment funds in Hong Kong

Fund managers Fund names Launch dates

UBS Global Asset Management UBS (Lux) Equity Fund – Eco Performance B Jun 1997Pioneer Investments Global Ethical Equity Dec 2001Taifook Investment Managers Limited Taifook SRI Asia Fund Oct 2002Credit Agricole Asset Management AIA-JF Green Fund (or CAAM Green Planet Fund) Mar 2006DWS Global DWS Global Agribusiness Sep 2006Schroders Asset Management Schroders ISF Global Climate Change Equity Fund Jun 2007Allianz Global Investors Alliance RCM Global Eco Trends Fund July 2007Schroder Investment Management (Luxembourg) S.A. Schroder Alternative Solutions Agriculture Fund Sep 2007Aberdeen Global Asset Management Aberdeen Global Responsible World Equity Fund Nov 2007ABN Amro ABN Amro Clean Tech Fund Nov 2007HSBC Investment Funds Luxembourg S.A. HSBC Global Investment Funds – Climate Change Jan 2008Credit Agricole Asset Management Aqua Global Fund Mar 2008Allianz Global Investors Allianz RCM Global Sustainability Fund Mar 2008Pictet Funds (Europe) S.A. Pictet Clean Energy Fund Mar 2008Pictet Funds (Europe) S.A. Pictet European Sustainability Fund Mar 2008Allianz Global Investors Allianz RCM Global Agricultural Trends Fund May 2008Allianz Global Investors Allianz RCM Global Water Trends Fund May 2008DWS Investment S.A. DWS Invest Climate Change May 2008KBC Asset Management Limited KBC Water Fund May 2008

Source: Association for Sustainable & Responsible Investment in Asia (2008).

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Japan

With the second largest economy in the world and most estab-lished market history of personal consumerism in Asia, it isperhaps not surprising that 40% of the SRI funds (excluding faith-based ones) in the Asia Pacific region (see Table 3) is based inJapan. Interest in SRI among Japanese retail and institutionalinvestors has been growing steadily. Total SRI assets, most ofwhich are retail investor-driven, reached US$7 billion or 1.2% ofthe total equity fund assets in 2007 (Adachi, 2007). While small byUS and European standards, Japanese SRI market has been inexistence for only a decade and came to be with the launch of theNikko Eco Fund in 1999. Compared with the SRI markets in NorthAmerica and Europe, what is arguably most noticeable about theJapanese SRI industry is the number of investment funds thatfocus on environmental issues as the primary investment strategy.There are a number of Japanese SRI funds that focus on socialissues, including gender, workplace norms and business practicesin emerging and developing economies, and it would be incorrectto say that the environmental focus of SRI funds is somehowunique to Japan.

At the same time, the negative screening approach used bymany traditional SRI funds (i.e. which screens out companies thatdo not meet a certain environmental and social criteria) in NorthAmerica and Europe remains the exception in Japan, and mostJapanese ‘SRI’ funds rely on a best of sector approach (that is,invest in companies that outperform their industry peers on somesustainability criteria, regardless of the sector). For instance, aJapanese SRI fund might invest in a new type of nuclear energytechnology whereas many, if not all, SRI funds in North Americaand Europe would consider nuclear power one of the exclusionaryfactors (i.e. negative screen) and would not invest in the companyif nuclear power research and development was more than a smallpercentage of its overall business. The negative screen investingmethodology is a key reason why Japanese electric utilities(nuclear power) and beer/beverage (alcohol) companies are rarelyincluded in the SRI funds in North America and Europe, althoughmany of these companies compare well with their Western corpo-rate peers in terms of environmental management performance.

Green mutual funds, which invest in companies that deal withenvironmental technologies and eco-management systems, con-tinue to be very popular with the retail Japanese investors. Accord-ing to a 2007 report by Daiwa Fund Consulting, there are currentlymore than 50 so-called green mutual funds in Japan with nearlyUS$7 billion in assets (please note that not all of these assets counttowards the Japanese SRI figure). Deutsche Asset Management(Japan) launched a US$2 billion global-focused ‘New ResourceFund’ that invests in alternative energy and food businesses inDecember 2006, while Nomura Securities launched its US$1.4billion ‘Global Warming Prevention Equity Fund’ that specializesin companies that specialize in energy-saving technologies in July2007. Between May and July 2007, Nomura Asset Management,Nikko Asset Management and Mitsubishi UFJ Asset ManagementCo. all launched global investment funds targeting the water sector(Nikkei Daily, 2007).

Despite the recent consumer popularity, it remains surprisingthat the first so-called SRI fund did not start until 1999, particu-larly given that Japan is, and has been, home to one of the wealthi-est consumer base in the world for the past two decades. Three

business-related cultural and institutional factors might accountfor the relatively late market entry of SRI funds in Japan. First,changes in the cultural and social norms governing the Japaneseretail investing market. Traditionally, individual Japanese inves-tors account for less than 20% of the trading that takes place in theTokyo Stock Exchange. However, because of the increase in thegrowing attractiveness of the Japanese equity market, rebound inthe overall Japanese economy and the popularity of online trading,the percentage of trading attributed to individual investors doubledto 40% between 1999 and 2003, and it has more or less plateau at40% since that increase (Nomura Research Institute, 2006). Untilthe past decade or around the time of the first Japanese SRI fund,institutional investors rather than individual investors dominatedthe Japanese stock market and asset management industry.

Most notably in terms of SRI, the increase in individual inves-tors was accompanied by a large number of female investorschoosing SRI as their investment strategy of choice. Ninety percent of the money that came in as early as investor Nikko EcoFund came not only from the retail investor side but also, mostprominently, from female, first-time investors, in the 30 to 40-yearage bracket. This was a sharp departure from the typical Japaneseinvestor who is generally male, more than 40 years old, and is aregular investor in the stock market (Jantzi, 2003). One can makea credible argument that the Japanese SRI market would not existhad it not been for this group of novice Japanese female investorswho took a chance on a new investing in Japan called SRI.

Second, both the business and consumer awareness of theimportance of business sustainability-related information disclo-sure came relatively late in Japan as compared with North Americaand Europe. Although the quality, knowledge and energy-management activities of Toyota and other Japanese companiesare well known, an international business survey (DTTI et al.,1993) reported as late as 1992 that it could not find one example ofa satisfactory corporate environmental report issued by a Japanesecompany. Although almost routine in US and other OECD indus-trialized countries, it was not until March 2008 that Japan’s Envi-ronment Ministry, and Ministry of Economy, Trade, and Industry,released a public report that ranked the biggest corporate emitterof greenhouse gases (Nikkei Daily, 2008). The disclosure of suchinformation is regarded as a well-established policy in NorthAmerica and Europe through which companies are encouraged ifnot shamed into improving their climate change-related businesspractices. An American or a European consumer can consult awide range of web sites including government agencies to get theenvironmental information on a wide range of environment andsocial-related corporate information whereas the average Japaneseconsumer has to look harder and be more determined to get thesame type of information and more so to find such information inthe Japanese language.

Third, as compared with the corporate governance structurein North America and Europe (with the possible exception ofGermany), individual shareholders as well as stakeholders do notplay a prominent role in the Japanese system of corporate gover-nance. While this means the Japanese business executives are notconsumed with the pressures generated from rigid quarterlyearning requirements and community activism, it also means theabsence of environment-oriented business groups such as theUS-based Coalition of Environmentally Responsible Economiesto lobby the interests of ecologically minded shareholders and

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Table 3 Socially responsible investment funds in Japan

Fund managers Fund names Launch dates

Nikko Asset Management Co., Ltd. Nikko Eco Fund Aug 1999Sompo Japan Asset Management Co. Sompo Japan Green Open Sep 1999DIAM Eco Fund Oct 1999UBS Global Asset Management Inc. UBS Japan Equity Eco Fund Oct 1999Mitsubishi UFJ Asset Management Co., Ltd. Eco Partners Jan 2000Asahi Life Asset Management Co., Ltd. Asahi Life SRI Social Action Fund Sep 2000Sumitomo Mitsui Insurance Asset Management Co., Ltd. Eco Balance Oct 2000Nikko Asset Management Co., Ltd. Nikko Global Sustainability Fund (without hedge) Nov 2000Nikko Asset Management Co., Ltd. Nikko Global Sustainability Fund (with hedge) Nov 2000Daiwa SB Investments Ltd. Global Eco Growth Fund (with hedge) Jun 2001Daiwa SB Investments Ltd. Global Eco Growth Fund (without hedge) Jun 2001Shinkin Asset Management Co., Ltd. Fukoku SRI Fund Jan 2003UBS Global Asset Management Inc. UBS Global Equity 40 Fund Mar 2003STB (Sumitomo Trust Banking) Asset Management Co. Sumitomo Trust SRI Japan Open Dec 2003Daiwa Asset Management Co., Ltd. Daiwa SRI Fund May 2004Nomura Asset Management Co., Ltd. Nomura Global SRI 100 May 2004Nomura Asset Management Co., Ltd. Tsunagari Morningstar SRI Index Open Jul 2004Mitsubishi UFJ Asset Management Co. Mitsubishi UFJ SRI Open Dec 2004Sompo Japan Asset Management Co. Sompo Japan SRI Open Mar 2005AIG Global Investment AIG-Saikyo Japan CSR Fund Mar 2005AIG Global Investment AIG/Resona Japan CSR Fund Mar 2005AIG Global Investment Japan CSR Fund “Class G” Apr 2005Fukoku Capital Management Inc. Japan SRI Open Aug 2005Commerz International Capital Management (Japan) Ltd. Commerz Asia SRI Fund Nov 2005DIAM High Rated Income Open SRI Fund Dec 2005Invesco Japan Invesco Japan Equity Focus Alpha Fund Feb 2006Daiwa Asset Management Co., Ltd. Daiwa Eco Fund Mar 2006Daiwa Asset Management Co. Ltd. Six Assets Balance Fund (monthly distributed) Mar 2006Daiwa Asset Management Co., Ltd. Six Assets Balance Fund (accumulated) Mar 2006DIAM Natural Environ. Conservation Fund May 2006STB (Sumitomo Trust Banking) Asset Management Co. Sumitomo Trust Japan Equity SRI Fund Jun 2006SG Asset Management SG Woman J Fund Jun 2006Shinko Investment Trust Management Co., Ltd. Global Warming Jun 2006Daiwa Asset Management Co., Ltd. Shigagin Sep 2006Chuo Mitsui Asset Management Mitsui CSR Fund Nov 2006DWS Finance Service GmbH Nikko DWS New Resource Fund Dec 2006Shinkin Asset Management Shinkin SRI Fund Dec 2006SGA Societe General Acceptance N.V. New Generation World Environmental Fund Jun 2007Daiwa Asset Management Co., Ltd. Earth’s Environment Equity Fund – World Bond Balanced Fund Aug 2007Daiwa Asset Management Co., Ltd. Earth’s Environment Equity Fund Aug 2007DLIBJ Asset Management International DIAM World Environmental Business Fund Aug 2007Schroders Asset Management Global Warming Prevention Fund Aug 2007Schroders Asset Management Global Warming Prevention Equity Open Aug 2007Nomura Asset Management SAM (Sustainable Asset Mgt. AG) Nomura Aqua Investment (with hedge) Aug 2007Nomura Asset Management SAM (Sustainable Asset Mgt. AG) Nomura Aqua Investment (without hedge) Aug 2007UBS Global Asset Management UBS Global Warming Prevention Fund Aug 2007Japan Investment Trust Management Global Worming Prevention Equity Open Sep 2007T&D Asset Management Global Sustainability Equity Fund Sep 2007Credit Agricole Asset Management Global Green Balance Fund Dec 2007Shinko Investment Trust Management Environment Preservation Global Balance Dec 2007Toyota Asset Management Co. TA Clean Energy Fund Dec 2007Credit Agricole Asset Management CA Global Water Equity Fund Dec 2007Credit Agricole Asset Management CA Global Environmental Power Fund Dec 2007Credit Agricole Asset Management CA Global Green Balance Fund Dec 2007Sumitomo Mitsui Asset Management Global Food Resources Fund Feb 2008Mitsubishi UFJ Asset Management Co. Global Warming Prevention Fund Mar 2008Sompo Japan Asset Management Co. Aeon Fat Dividend Green Balance Open Apr 2008Sompo Japan Asset Management Co. Sompo Japan Eco Open Apr 2008Russell Investments Japan Co., Ltd. Russell Global Environmental Technology Fund May 2008

Source: Association for Sustainable & Responsible Investment in Asia (2008).

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commercial interests in Japan. While North American and Euro-pean firms are subject to a diverse array of pressures from bothwithin (e.g. environment-minded shareholders and managers) andoutside the company (e.g. regulatory measures like the US’s toxicrelease inventory as well as pressure from environmental NGOs)to release relevant environment-related information, many uncom-petitive, insulated Japanese companies are not bounded by thesame set of stakeholder ties and thus, do not have the same typesof ‘pressures’ for environmental improvement from governmentagencies and the community at large. This explains why the NorthAmerican and European subsidiaries of many Japanese firms tendto pursue greener beyond compliance environmentally policiesthan the global standards and benchmarks adopted by the compa-nies’ worldwide headquarters. Global-minded companies such asSony, NEC and Toyota do not fall into this trap of weak stake-holder outreach and engagement because they operate all over theworld and have a very different set of stakeholder relationships togovernments, communities and NGOs than domestic-focused,market-insulated Japanese companies (Park, 1998).

Future of SRI markets in Hong Kongand Japan, and its implications forglobal SCWill SRI realize its full potential as the means through which thefinancial sector will be able to exercise SC? Hong Kong andJapanese SRI case studies examined in this article offer someimportant perspectives on this question as well as lessons in termsof how SC can be mainstreamed in the financial sector. First, SC islikely to be a global priority as a consumer business only if it canextend its reach outside the advanced industrialized countries ofNorth America, Europe, and to a lesser degree, Japan. It is hard tobe considered a global sustainable consumer product when it isvirtually absent from the market reality of so many emerging anddeveloping economies where more than two-thirds of the worldpopulation live and work.

Second, the current levels of SRI assets represent a small per-centage (in the range of 0.1%) of the total emerging market capi-talization, but there are new institutional and market pressures thatfavour the consumer market development of SRI, most notablyshareholder/stakeholder activism and tightening environmentaland social regulatory pressures, in a growing number of emergingand developing economies. Case in point: the Johannesburg Secu-rities Exchange in South Africa started to require in 2003 that allcompanies listed with the Exchange will have to comply not onlywith corporate governance codes but also required to use theGlobal Reporting Initiative guidelines for disclosing social andenvironmental performance (Baue, 2003). For the next stage ofSRI development, what is going to be critical is the developmentand implementation of innovative policy instruments and public–private partnerships, or what UK Sustainable Development Unitrefers to as ‘choice editors’ (Sadowski and Buckingham, 2008), toguide, if not prod, consumers towards the purchase of SRI andother forms of sustainable investments.

Third, environmental and socially responsible consumer normsmay be, to a certain degree, universal (clustered, say, among thewealthier band of global consumers), but how this value is under-stood and eventually expressed through consumption is filteredthrough a particular set of cultural and normative lens. It is difficult

even within one single relatively homogenous country such asJapan to state with any kind of certainty how to define, or whatconstitutes, environmental and social responsibility consumernorms. The success of the 1999 Nikko Eco Fund is an excellentexample of financial consumerism tied to changing environmentaland social norms (i.e. the economic importance of working Japa-nese women). If one assumes that environmental and sociallyresponsible consumer norms also vary enormously across nationalborders and cultures, and these norms are ‘not just the purview ofwealthy, highly educated females in liberal Western democracies’but rather ‘something embedded in the psyche of individuals’(Devinney et al., 2006), the future discourse on sustainable con-sumer consumption, at least on the global level, will be determinedin large part by how the development of these norms in China andthe BRICS countries follow – or deviate from – the experiences ofthe advanced industrialized OECD countries.

AcknowledgementsI would like to acknowledge the generous support of ProfessorsRichard Welford and Peter Hills, University of Hong Kong, inwriting this article. I did the initial research for this article as aHong Kong University Visiting Professor in 2004, and I am grate-ful for their scholarly and organizational support.

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