Japan government to introduce green bond guidelines to help boost market

The Japanese government is working on the introduction of green bond guidelines to help boost its national market.

Responsible Investor understands the country’s Ministry of the Environment is putting together a working group which will spend six months developing official green bond guidelines.

The working group will, according to insiders, comprise 10 people including issuers, arrangers, verification companies, investors and environmental experts. It will be created at the end of October, and aims to launch the guidelines in March 2017.

The development fits into the context of a broader push into environmental, social and governance (ESG) issues in the country, driven by the ‘third arrow’ of Abenomics which has seen leading investors such as the Government Pension Investment Fund embrace ESG.

According to a blog by Japan’s Institute for Research on Environmental Finance the guidelines will be “gentler” than the Green Bond Principles.
Japan’s green bond market has struggled to gain traction so far – especially in comparison with other large Asian markets like India and China.

There have been deals from the Development Bank of Japan, Nomura Research Institute, Mitsui Sumitomo and Mitsubishi.Toyota has issued green asset backed securities (ABS) but this was out of the US, and Credit Agricole has issued small green bonds in Japanese Yen, aimed at retail investors.

Goldman Sachs committed last May to issue $1bn of notes for Japanese renewable energy, but these aren’t expected to be labelled green. Japan International Cooperation Agency (JICA) recently issued social bonds in line with the Green Bond Principles’ guidelines.

According to one market observer, the reason the asset class hasn’t taken off in Japan – despite “quite big investor appetite from institutional and retail buyers” – is partly down to the recent changes to the country’s support schemes for renewable energy, which has slowed down many companies’ plans to build new assets.

As a result, there have been problems for some issuers and potential issuers around having a big enough pool of assets to issue a bond against. The source added that a lack of established environmental experts in the country that would be able to provide second-party opinions, was also an issue.

ESG analysis house and second-party opinion provider Sustainalytics recently opened an office in Japan. RI could not reach Japan’s Environment Ministry for comment.