Japanese investors seeking to make impact are starting to work more closely with NGOs and communities to improve social and environmental outcomes. 

Japan’s financial institutions have a long history of investing in social and environmental  funding initiatives, but these have tended to target large-scale corporate-level or regional social projects, while scant financing goes to community-level  projects or in direct support of the struggling regional SME sector. It is a situation that impact investing organisations have been striving to change over the last decade.

There is evidence of gathering momentum behind impact investing. A survey of 47 organisations published by the Japan Social Innovation and Investment Foundation (SIIF) indicated an 8% year-on-year rise in Japan’s impact assets under management to ¥18.65trn (€100bn) in fiscal 2025. Most of that increase was attributable to the top ten contributors, mainly major banks and life insurance companies. Some 64% of total impact assets under management (AUM) took the form of debt – mainly to larger companies by banks.

However, Japan’s pensions industry remains hesitant to follow some counterparts in Europe in adopting a wider interpretation of fiduciary duty to their beneficiaries to include impact-focused investing to offset long-term impacts on returns. The view that impact investing is concessionary rather than capable of generating market-level returns still prevails.

Only 2% of impact investing organisations surveyed by SIIF were in the pensions industry, compared to 30% for banks, trust banks, credit associations, and credit unions, and 17% for asset managers.

There are some signs of shifting views. Japan’s Government Pension Investment Fund (GPIF), the world’s largest pension fund, with ¥260trn in AUM, said in 2025 it would adopt a more impact-oriented investment strategy in addition to existing ESG criteria.

However, GPIF’s approach to impact investing remains a cautious one. In its medium-term plan for 2025-2029 the fund stated it would “consider making investments by incorporating the social and environment effects (impact) of investee companies’ business activities” when evaluating their potential for sustainable growth.

“If GPIF can step in and give impact mandates to their fund managers,  it could become a powerful catalyst across the entire investment value chain. We are still waiting to see to what extent they will do it and look forward to seeing GPIF’s continued leadership in this space,” Fumi Sugeno, head of SIIF Global told Impact Investor.

Japan’s commercial institutions have a stronger track record in ESG-themed investment, including participation in green, sustainability and blue bonds. Financial services giant Mizuho launched a $1.4bn green bond in 2023, then the largest ESG bond from a Japanese financial institution. Others have followed suit, maintaining momentum for green investing in Japan at a time when institutions in the US and elsewhere have become more reticent.

However, the type of ground-up impact investing pioneered in Europe and the US, where the community voice and a more holistic approach to impact measurement are incorporated, remains a small fraction of the market and provides limited opportunities for investors.

SIIF was founded in 2017 with support from the Nippon Foundation, as one of the organisations aiming to remedy that situation by developing impact investing templates, often with an eye to what has been working elsewhere. To that end, it has taken a lead from Europe in launching the country’s first social impact bonds (SIBs), as well as looking to the UK to help shape Japan’s dormant assets scheme to funnel money from dormant bank accounts into impactful investment.

In its role as a first mover, SIIF has also set up its own small-scale but trend-setting impact funds to attract institutional funding, as well as supporting  Japan’s underdeveloped  impact venture capital (VC) sector. SIIF also incubates nascent players in the impact sector, for example by investing in fund managers keen to bring citizen participation and local government partnerships into their impact structures.