Environmentally-themed Uridashi bonds (non-JPY denominated bonds sold directly to Japanese individual investors) have been popular in Japan for some time, making it by far the biggest market for such bonds. We've now seen issues by everyone from the World Bank and the ADB to Norway's Kommunalbanken, who have just issued USD180 million worth. Nikko AM has two retail funds that predominantly invest in World Bank Green Bonds collectively now at half a billion US dollars.
SIF-Japan data shows the total volume of bonds linked to the environment and SRI was US$5 billion at September 2010, with the bulk of them being environment-themed bonds. This dwarfs green retail product in other retail markets.
While this obviously suggests a strong interest in green themed products among Japanese retail investors, there is a contrary view that says thematic bonds simply provide a novel story for retail bond salesman talking with their regular clients.
I asked Yu Iwata, of Nikko AM, about this and he thinks it's a bit of both: "If it didn't resonate with investors, the broker has little to gain from a nice talk."
"I do think there is a genuine interest in being environmentally friendly among the Japanese, especially the elder generation who faced hardship right after WW2 and the oil shocks and water/ air pollution problems we had during the 60s and 70s."
"There's a word in Japanese - 'Sho-ene' - that is widely used to refer to 'less-energy' for mainly electric appliances and cars. All thing equal, consumers will prefer a 'Sho-ene' product because there is a strong sense among Japanese that when it comes to energy consumption, we are all in it together. The Japanese import all their oil and coal, so they are very sensitive to such issues."
"The eco investment theme resonates more broadly among Japanese, I think, than other socially responsible themes such as social responsibility and governance."
Given the massive amount of low-carbon investment required around the world in the next few years, I suspect that means we're going to see a lot of retail green and climate Uridashi bonds.