Investors threat overlooking Japan’s inexperienced funding alternatives | USAEMALL.com

Happy Monday, and welcome back. In today’s newsletter, we look at two emergent opportunities in the environmental, social and governance space, amid a hunt for new investment plays.

First, I have a piece on Japan’s green transition bonds and how one year on, awareness may be slowly growing beyond the domestic market. Also today, Patrick looks at a resurgence of investor interest in mental health start-ups. 

Thanks for reading, and see you on Wednesday. — Kaori Yoshida, Nikkei

TRANSITION FINANCE

The largely untapped potential in Japan’s green transformation strategy

Roughly a year has passed since Japan’s inaugural sovereign climate transition bond issuance. While the bonds attracted attention domestically, foreign investor interest has been meagre. But a shake-up in the green investment space may be changing that.

Aniket Shah, global head of sustainability and transition strategy at investment bank Jefferies, argues that investors should be paying more attention to Japan’s Green Transformation (GX) strategy, an initiative aimed at achieving net zero greenhouse gas emissions nationwide by 2050. Over the next 10 years, the Japanese government will issue ¥20tn ($129bn) in GX transition bonds to spur more than ¥150tn of public-private investments towards this green transformation.

“Client interest in our work [on Japan’s GX strategy] has been exceptional,” Shah told me, adding that he felt that he had been a rare voice in the international financial community writing about the topic.

Until now, awareness of GX had been shockingly low, Shah said. Only four people had heard of GX in a global survey he conducted in the second half of 2024 with 400 clients, which included senior portfolio managers and ESG professionals. “People just missed this important development in the world” and are now rushing to learn more, he said.

In the past couple of years, “the US was sucking so much oxygen out of the room” with the Inflation Reduction Act, he said. And with Europe seething with concern about its economic competitiveness, the region is not being viewed as an exciting place to invest. Investors are now “looking to Japan for new opportunities because of this pivot away from the US and Europe”, he explained. 

Shah argued that ultimately President Donald Trump’s anti-green policies may turn out to be a tailwind for Japan, helping it attract capital from green-minded international investors. “My inkling is that we’re not going to see any slowdown in Japan,” he stressed.

But this rush of green investment to Japan has yet to materialise in earnest. Just last week, Japan’s Treasury held another auction round where it sold roughly ¥350bn worth of five-year transition bonds.

The outcome was disappointing. Issuers of green and transition bonds typically aim for a “greenium”: a lower cost of borrowing, as green-minded investors agree to accept a slightly smaller yield than for conventional bonds. But no greenium was seen at last week’s GX bond auction; nor on three of the five sales that were held last year.

A rising interest rate environment and liquidity risks due to the GX bond’s small market size appear to be weighing on investors’ minds. Insufficient investor demand means a large portion of GX bonds are being purchased by the Bank of Japan and Japan’s Government Pension Investment Fund (GPIF). Of the five-year transition bonds issued in February last year, roughly half were purchased by the two entities.

Whether a pivot away from the US will translate to a boost in demand for Japan’s GX bonds remains to be seen. Deployment of proceeds from these bond issuances will probably be a point of focus for investors. While the government announced plans for the funds, “if they can start getting money out the door to companies to start research and development, that would be an important sign of success”, Shah said. (Kaori Yoshida, Nikkei)

Mental health

How the Trump era could give health start-ups a shot in the arm

Robert F Kennedy Jr is poised to join the Trump administration as the president’s top health official after his contentious hearings in the Senate last week. Kennedy’s “make America healthy again” agenda — aimed at chronic disease, dietary and environmental health concerns — may offer a way for investors to play health aspects of the “S” in ESG.

Morgan Stanley recently published a report titled “Has the time come for social investing to take centre stage?” While climate change investing has struggled amid Trump’s return to the White House, a renewed interest in personal health could support social investing, including in mental health sectors from sleep to nutrition and stress, the investment bank said.

The giant venture capital firm Andreessen Horowitz, led by Trump donor Marc Andreessen, has started this year with a bet on this area. Last month it announced an investment in Slingshot AI, which has built the mobile app “Ash” to offer health support and coaching services.

One of the other investors in Slingshot was TMV, a venture firm with $200mn of assets under management. Slingshot is part of TMV’s new $25mn “Lifecycles” fund, which launched last month to focus on start-ups addressing global mental health problems. The fund’s general partner is Azzi Agnelli (the Italian Agnelli family co-founded the Fiat car company).

Agnelli said the make America healthy again concept needed to include a strong focus on mental health. “It [has] never been more apparent that people want change and have a conversation that five to 10 years ago people were not willing to have” because mental health was more stigmatised, she said.

Mental health has drawn investor interest before. Talkspace, an online therapy company that matches users with therapists, went public in 2021 amid a stock market mania that year. But its share price quickly dropped, and is now trading down 67 per cent from its initial 2021 pricing.

Other such businesses include Open, backed by Twitter co-founder Jack Dorsey and raised $14.5mn in a 2022 funding round, which charges $20 a month for guided meditation. Headspace, another meditation app provider, has raised $285mn since it was founded in 2010.

Now, the addictive effects of social media have drawn renewed attention to mental health. The Anxious Generation, a 2024 book alleging that social media and gaming are having disastrous effects on teens, remains on the New York Times bestseller list. As concern grows about these risks, investors are likely to find opportunities in the sector — whatever the position taken by the new US health secretary. (Patrick Temple-West)

Smart reads

Dim outlook The future of the main US agency for foreign aid is in doubt after its website went dark and President Donald Trump said it was run by “radical lunatics”.

Alarm bells The EU’s top insurance regulator said governments and banks will struggle to cope with the rising costs of disasters such as floods and wildfires.

Under the sea Investors have been slow to appreciate subsea cable makers as a promising bet on the green transition.