Japan’s finance ministry to use foreign reserves for ESG investments

October 8, 2021

TOKYO (Reuters) – Japan’s finance ministry will start using foreign reserves to buy securities that meet environmental, social and governance (ESG) criteria, it said on Friday, joining a global tide of investors focusing on such issues.

Japan’s $1.4 trillion in foreign reserves are predominantly held by the Ministry of Finance (MOF) and are believed to comprise mainly U.S. dollars due to past interventions in foreign currency markets to weaken the yen.

For years, the MOF has been trying to diversify the make-up of the world’s second-largest reserves after China’s.

The latest plan will be put into effect as soon as possible, making Japan the first country among the Group of Seven (G7) nations to use foreign reserves for ESG investments, a MOF official said.

“While adhering to the basic principle of ensuring safety, liquidity and profitability, we will make investment taking environment, social and governance (issues) into account,” the MOF said in a statement, adding it hoped other countries would do the same with their reserves.

The move comes as some major central banks also use their institutional heft to help tackle global warming.

The Bank of Japan said in July it would start buying green bonds using its foreign reserves in a bid to promote global investment in activities aimed at combating climate change.

The MOF’s special account that manages foreign reserves tends to make profits from managing the reserves, which often become sources of funding for supplementary budgets.

(Reporting by Tetsushi Kajimoto; Editing by Mark Potter)

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