Sustainable finance in Japan
Sustainable finance refers to the consideration of environmental, social, and governance (ESG) factors in financial and investment decisions. It encompasses a range of financial products that address issues of sustainability to varying degrees and can thus contribute to sustainable economic growth.Japan’s sustainable bond market has grown significantly over the past years. Sustainable bonds are financial products used to raise funds for projects related to achieving sustainability goals; while the proceeds of green bonds are used to finance environment and climate-related projects, social bonds fund projects with positive social impact. In 2022, Japan was the 8th largest issuer of green, social, and sustainability (GSS) bonds in the world, with green bonds accounting for the largest share of issuances. Japanese companies have also begun to launch newer types of bonds, such as sustainability-linked bonds and transition bonds.
Green transformation (GX) financing
In October 2020, Japan declared its commitment to achieve carbon neutrality by 2050. The world's fifth-biggest carbon emitter also pledged to cut its greenhouse gas emissions by 46 percent by 2030 compared to fiscal year 2013 levels. To achieve these targets, there is a growing need for capital to finance green projects and the decarbonization of greenhouse gas-intensive industries. Japan views the green transformation of energy and industrial sectors as a key measure in achieving a carbon neutral society and as an opportunity for economic growth. The Green Growth Strategy formulated by the Ministry of Economy, Trade and Industry (METI) provides action plans for the transition towards carbon neutrality for key energy and industrial sectors.Japan estimates that around 150 trillion yen of public and private investments in green transformation are required over the coming decade. As part of the Green Transformation (GX) Plan approved by the Cabinet in 2023, the government intends to issue the first sovereign green transformation (GX) bond worth 150 billion yen in fiscal year 2023. Over the span of the next 10 years, the government plans to issue 20 trillion yen in transition bonds.
