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Japan to develop green bond standards and transition guidelines

Other measures being considered include updated disclosure requirements and climate guidelines for banks

Japan's Financial Services Agency (FSA) and the Tokyo Stock Exchange are creating a framework to certify green and transition bonds ahead of the launch of a dedicated segment on the exchange.

It is not yet known whether the upcoming standards will be aligned with international expectations for green and transition bonds, such as the Green Bond Principles, or whether bonds which meet existing standards will be allowed to trade on the new market.

In addition, the FSA said it will collaborate with Japan’s Ministry of Economy, Trade and Industry, and the Ministry of the Environment to develop low-carbon transition guidelines for key industries and technologies in the country, such as electrification and hydrogen ironmaking, in a bid “to attract investments”. 

The financial regulator confirmed that it will also look at aligning the Japanese Corporate Governance Code with the recommendations of the Taskforce for Climate-related Disclosures or “an equivalent framework” in its upcoming revision. The updated Code is due to be published in June.

Finally, financial institutions will be provided with new guidelines on conducting scenario analysis and client engagement on climate-related risks and opportunities, the FSA said.

The proposed measures are aimed at developing Japanese capital markets as an “international financial centre open to the world”, it explained yesterday at a meeting of the Japanese government’s new Climate Change Office, headed by Environment Minister Shinjirō Koizumi. At the same event, Prime Minister Yoshihide Suga said that the global market for sustainable investments – sized at 3,000trn Yen ($27bn) – was indispensable for Japan’s continued economic growth.

The move comes after Chinese central bank governor Yi Gang announced that the supervisor was planning to set up a mandatory climate disclosure system which would allow for greater information sharing between financial institutions and companies.

According to remarks made at a green finance event hosted jointly by the People’s Bank of China (PBOC) and the International Monetary Fund, the PBOC is also looking at including climate factors in financial stress tests, and gradually incorporating climate risks into its macro-prudential policy framework.