Eco-friendly Investors and Sustainable Corporate Performance: Insights from Japanese Data

Abstract

Background: Eco-friendly investors and sustainable corporate performance have embraced the Environmental, Social, and Governance (ESG) rating system as a global standard. Government-led eco-friendly investor advocacy and the growing need for investment in sustainability have resulted in the emergence of a distinct group of institutional-level investors named eco-friendly investors. Aim: This investigation explores how eco-friendly investors influence the sustainable performance of corporations. Further analysis explores the impact of eco-friendly investors on corporate sustainable performance, drawing on data from publicly traded companies in Japan from 2010 to 2023. Methods: This study evaluates corporate sustainable performance using ESG ratings from the JPX ESG Knowledge Hub, categorized into nine tiers based on various performance metrics. Corporate sustainable performance is evaluated on a low to high scale, specifically between one and six, yielding a median score of 3.8 and an SD value of 1.2. Japan’s corporate sustainable performance is approximately at the B-BB level, indicating that it still requires development. Results: The results suggest that eco-friendly investors have the potential to improve corporate sustainability by tackling internal funding restrictions and responding to external public ecology fears. Moreover, the beneficial impact of eco-friendly investors on the sustainability performance of non-state enterprises, especially in competitive sectors in northern Japan, is notably significant. Study provides important insights from an in-depth analysis of eco-friendly investors’ impact on corporate sustainability. Conclusion: The participation of eco-friendly investor leads to improvement of sustainable corporate performance from the perspective of internal and external viewpoints. Institutional investors must create an investment philosophy dedicated to green development in accordance with their supervisory and governance roles, for which market regulators must provide direction that is constructive.