March 2021

JAPAN

Green FinanceState of the Market –2020

Cumulative green bondissuance: USD26.15bn,
9th in global country rankings
2020 green bond issuance:
USD10.6bn, 7th in 2020 country
rankings
Green bond market growth
expected from public transport
projects and land use

Japan green bond market grows by a third in 2020A
12

Industry <1%
Unallocated A&R 1%

Waste 4%
Water 3%Financial Corporate

10

Buildings dominate use of proceeds

Non-Financial Corporate
Government-Backed Entity
Loan

8

Energy28%

Local Government

6

ABSTransport
29%

Development Bank

USD Billions

4
2
Buildings
35%

0
2014

2015

2016

2017

2018

2019

2020

The Japanese green bond market continues to expand. Financial
corporates and government-backed entities led green bond issuance in
2020, with 32% (USD3.4bn) and 29% (USD3bn) of market share, respectively.
Non-financial corporates followed at 26% (USD2.8bn). The largest deal in2020 was issued by Toyota Motor Credit Corporation (USD750m).
Government-backed entities play an increasingly important role. In 2020,
repeat issuers Japan Housing Finance Agency and Japan Railway
Construction, Transport and Technology Agency (JRTT) continued
issuing green bonds in 2020 for a total of USD1.8bn and USD680m,
respectively.
Debut issuer Japan Finance Organization for Municipalities came tothe market with a EUR denominated benchmark size deal (EUR500m/
USD546m) financing water projects for local governments.

Green Finance State of the Market: Japan Climate Bonds Initiative

Buildings dominate cumulative proceed allocations at 35%. Japan
Housing Finance Agency (USD2.5bn) represents the top issuer in the
sector, followed by Mitsubishi UFG (USD800m). Other contributions to thesector came from financial and non-financial corporates.
Transport and energy account for an almost equal cumulative share of themarket, with financial corporates including contributing the most to bothcategories. Government-backed entity JRTT (USD3.15bn) remains the
top issuer for transport, while non-financial corporate Renewable Japan(USD553m) ranks second after Mitsubishi UFG (USD2bn) for renewable energy.
Most green bond proceeds in 2020 were also allocated to buildings (36%),transport (32%) and energy (23%). The top 2020 debut issuers include Japan
Finance Organization for Municipalities and Central Nippon Expressway.
The latter issued a bond financing climate resilience infrastructure.

1

86% of issuance has an external review

Most issuers favour tenors up to 10 years

12
10

SPO Vigeo Eiris

8

Non-Financial Corporate
Government-Backed Entity
Loan

10-20YSPO DNV GL

Local GovernmentABS

SPO ISS ESG

6Financial Corporate

Perpetual

Certified Climate Bonds
SPO Sustainalytics>20Y

SPO JCRA

Development Bank

SPO and Rating R&I

USD Billions

4

Rating

5-10Y

No external review

2

Up to 5Y

0
2014

2015

2016

2017

2018

2019

2020

0
USD Billions

5

10

15

The Japanese green bond market continues to have an outstanding record of
external reviews: 50% of cumulative deals by volume benefit from a Second
Party Opinion (SPO), 24% from at least a green bond rating (including R&I)
and 12% from Certification under the Climate Bonds Standard. The latter has
increased by 4% in 2020, with a cumulative USD1.7bn of new Certified Climate
Bonds. In addition to DNV GL, Japan Credit Rating Agency has gained thestatus of Approved Verifier for the Climate Bonds Certification scheme. JRTT
has obtained the largest number of Certified bonds: 13 in total for a cumulative
amount of USD2.7bn. SPOs were the most popular review form in 2020 too.

Japanese issuers prefer short tenors: 50% of deals mature in up to five
years, while 30% fall within the five-to-10-year tenor bucket. Longer tenors,
including those grouped into 10 to 20 years and more than 20 years eachaccount for 10% of cumulative volumes. Financial corporates favour
shorter tenors as 97% of their volumes fall in the up to 10 years bucket; thisis similar to the 75% of volumes from non-financial corporates with suchterms. ABS deals tend to have longer tenors (more than 20 years), suchas deals from AEON Product Finance (USD383m). Government-backed
entities favour different ranges of tenor, with example from JRTT .

70% of deals are up to USD100m

66% of volume is JPY-denominated100%

AUD 1%
0-100m80%

100-500m

USD
9%500m-1bn

60%

EUR
23%

40%
20%
JPY
66%

0%
Amount (USD)

Deal count (206 total)

In cumulative terms, smaller-sized deals are the most frequent by number (150),
with USD8.2bn of volume (32%) falling within the ‘up to100m’ size bucket. Theseare popular amongst financial and non-financial corporates which haveissued 60 and 55 deals, respectively. Proceeds from small-sized deals havemostly been allocated towards low-carbon buildings and renewable energy.
Deals within the USD100-500m size bucket are the most frequent by volume
with almost 40% of the total (USD10.3bn). JRTT and Japan Housing FinanceAgency have issued USD2.6bn and USD1.8bn falling within the above size
bucket. Benchmark-size deals are rarer, with only 13 deals by number and
USD7.7bn by volume. These are favoured by financial corporates, with
Mitsubishi UFG and Toyota Motor Credit Corporation being the top two
issuers by volume. Last year’s debut issuer Japan Finance Organization
for Municipalities is the only government-backed entity to have issued abenchmark-sized deal (EUR500m/USD546m). In 2020, almost 50% of volumes
fell within the ‘100-500m’ bucket, with 74% of deals being ‘up to100m’-sized.

Green Finance State of the Market: Japan Climate Bonds Initiative

JPY-denominated deals prevail at 66% of cumulative issuance. Nonfinancial corporates account for a third of the total JPY denominatedissuance, followed by government-backed entities. JRTT is the top entity
issuing in local currency (JPY341.4bn).
Financial corporates issue in different currencies, favouring EUR (42%) andJPY (38%). Mitsubishi UFG has issued two thirds of its cumulative volumes
in EUR, with the remaining amounts in JPY, USD and AUD. Sumitomo
Mitsui Banking Corp has favoured issuance in foreign currency, with EUR
and USD accounting for 95% of its issuance, and the remaining 5% in AUD.
2020 follows similar trends to cumulative amounts, with JPY being themost favoured currency at almost 80%. EUR and USD follow, each withapproximately 10% of market share. 2020 debut issuer Central Nippon
Expressway is the only non-financial corporate issuing in foreign currency,with USD400m.

2

Post-issuance reporting in JapanB
Impact reporting only
No reporting

Climate Bonds has developed a methodology to assess how green bondissuers report post-issuance. The following section focuses on resultsfrom the Japanese market only. More details on the methodology will beavailable in the upcoming updated edition of the Climate Bonds ‘PostIssuance Reporting in the Green Bond Market’ report.
Nearly three-quarters (73%) of green bond volume benefits fromboth use of proceeds as well as impact reporting; 15% of volumes
benefits from use of proceeds reporting only, while 10% has no
post-issuance reporting.
Financial corporates perform better at post-issuance reporting, with
84% of their deals by number having at least one form of post-issuancereporting. Non-financial corporates follow at 70%.

Top 5 underwriters for Japanese GBs
Underwriter

UoP
only

UoP and impact reporting

0

20%

40%

60%

80%

100%

Top 5 trading venues for Japanese GBs

Numberof deals

Amount(USD)

Mitsubishi UFJ Morgan Stanley

50

5bn

Mizuho Securities

49

SMBC NIKKO Securities

Trading venue

Numberof deals

Amount
(USD)

LuxSE

8

1.7bn

3.8bn

All German SE

5

1.3bn

46

3.2bn

SGX

3

846.1mNomura Securities

31

2.5bn

LSE

4

741.6bn

Mitsubishi UFJ Financial Group

8

1.3bn

Stuttgart

4676.1bn

Source: Refinitiv; cut-off date: 31 December 2020.

Source: Bloomberg, Refinitiv. Note: Amount is split equally among venues

Four of the top five underwriters of Japanese deals are headquarteredin Japan. US-based Morgan Stanley, however, ranks first, accounting foraround 25% of underwritten volumes and with participation in 50 deals.
Mizuho follows with 49 deals.

Cumulatively, USD8.6bn worth of Japanese green bonds have been listed ona variety of trading venues. This accounts for around 33% of total issuance.
Luxembourg Stock Exchange tops trading venue rankings with eight listed
deals worth USD1.7bn. All German SE follow with five listed deals.

The broader labelled universe

Cumulative labelled issuance in Japan70

The labelled green bond market has witnessed an increased level of label
diversification in recent years. Lately, social and sustainability bonds havedrawn particular attention with governments increasingly focusing on
green recovery plans and the transition to net-zero economies by 2050.

Social and sustainability themed bonds issued in Japan haveexperienced exceptional growth, reaching 16% of the labelled universe,
not considering excluded bonds. This is a remarkable achievement and apositive signal with regards to building back after the Covid-19 pandemic:
funding for social and environmental projects is key for building aresilient society and economy to withstand similar shocks in the future.
Certified Climate Bonds (CCB) are also growing, with 14 new deals beingcertified in 2020. JRTT is the top issuer (9 deals, USD1.3bn) followed by
Tohoku Electric Power (2 deals, USD140.6m).

Methodology
Climate Bonds assesses green, social and sustainability bonds andevaluates which activities their proceeds are allocated to:Green Finance State of the Market: Japan Climate Bonds Initiative

50
Green
themed26.15

40
30
USD Billions

The overall Japanese labelled bond universe amounts to USD64.8bn,
including bonds which have been excluded from the Climate Bonds
Green Bond Database.

68.4

60

20
10
0

CCB
3.15

Excluded
11.47

Pending
0.23

Social &Sustainability
23.84
Total

• Only bonds with 100% of net proceeds dedicated to green projects thatare aligned with the Climate Bonds Taxonomy are eligible for inclusionin the Climate Bonds Green Bond Database. If net proceeds are
partially allocated to non-eligible categories, or if there is insufficient
information, the bond is classified as excluded.
• Labelled bonds whose proceeds are mostly allocated to social andsustainability projects are captured in the Climate Bonds Social andSustainability Bond Database and reported on separately.
• Pending bonds are deals in the process of being evaluated, namely due
to missing information which prevents inclusion or exclusion of a bond.

3

Unlabelled climate-aligned bonds
MethodologyCTransport is the top climate-aligned theme

The unlabelled climate-aligned (CA) universe highlights investment
opportunities which are not explicitly labelled as ‘green’ by the issuer,
but finance climate-aligned assets and activities. Climate-aligned
bonds are identified at the issuer level:

Waste 1%

Energy 1%

Land use &agriculture11%• bonds from fully-aligned issuers that derive 95% or more ofrevenues from climate-aligned business lines,• bonds from strongly-aligned issuers that derive 75-95% of revenue
from climate-aligned business lines
The identification of such instruments is crucial to shed light oncapital flows financing green assets which may not be as visible andtransparent as labelled bonds, as well as to identify opportunities toscale-up the labelled green bond market.
Climate Bonds has identified eight climate themes: renewable energy,transport, buildings, water, waste, land use & agriculture, climate
adaptation, and ICT.

Maturity profile

With 114 bonds issued, Japan’s climate-aligned outstanding debt
amounts to USD13.3bn. Transport is the top climate-aligned themewith three issuers being responsible for the whole sector’s climatealigned debt: Central Japan Railway Co (USD7.4bn), Tokyo Metro Co(USD3.7bn) and Kansai Rapid Railway Co (USD467m).

3

Transport
Land use & agriculture

Land use and agriculture follow with USD1.4bn of climate-aligned
outstanding bonds; Oji Holdings Corp is the top issuer, which accounts
for 66% of the sector’s climate aligned outstanding debt.

2

Waste
Energy98% of the CA universe is investment gradeD

4

USD Billions

Transport
87%

110-20Y

0>20Y
20202024

20252029

20302034

20352039

20402044

2045- Beyond
2050
2050

Opportunities to scale up labelled issuance
There are substantial opportunities for Japanese issuers to refinancetheir debt with labelled green bonds in the short term. Almost 30%(USD3.6bn) of the country’s climate-aligned outstanding debt will matureby 2024, offering climate-aligned issuers operating in transport, land use,
waste and energy the ability to refinance their operations with labelledgreen bonds. More opportunities arise from 2025, with additional
USD3.4bn maturing by 2029.
Public transport is the top avenue to scale up green bond issuance inJapan, followed by land use. The latter, which accounts for only 1% of thelabelled green bond market, shows significant opportunities to grow andto benefit from the extra visibility and transparency offered by the greenlabel, as well as to attract investors with a clear green mandate.
Hitachi Zosen Corp, the largest issuer of climate-aligned debt in the waste
sector, has already entered the labelled green bond market to raise funds
for their waste to energy plant business.

5-10Y
Up to 5Y

A

NR

AA
A+

BBB
BB+

A-

0
2
USD Billions

4

6

8

Almost the entire Japanese unlabelled climate-aligned universe isinvestment grade, with 98% of all bonds issued having obtained at least a
BBB rating. Only 2% of the universe is non-rated.
Just below 60% of the climate-aligned universe is A-rated, followed by AA
at 29%. Almost 60% of the universe has been rated by international rating
agencies, with USD9.3bn receiving an A grade. Such bonds exclusively
finance transport projects and tend to have shorter tenors (up to five years).
Climate-aligned issuers favour longer tenors, with the 10 to 20 years
category being the most popular at 48%, and the more than 20 years
bucket accounting for 16% of the climate-aligned universe. Bonds withshorter tenors are found across all the climate themes, with land use
accounting for 13% of the proceeds maturing within five years.

Top Japanese climate-aligned issuers
Top 3 issuers

Sector

1. Central Japan Railway Co, Tokyo Metro Co Ltd, Kansai Rapid Railway Co Ltd

Transport

11.5bn86.8%

3

2. Oji Holdings Corp, Hokuetsu Corp, Nippon Paper Industries Co Ltd

Land-use &Agriculture

1.4bn

10.6%

4

3. Hitachi Zosen Corp, Takeei Corp, Shintokyo Group Co Ltd

Waste

<1bn

1.6%

3

Green Finance State of the Market: Japan Climate Bonds Initiative

Amount (USD)

Market share No. of issuers

4Japan Green Finance Policy Landscape
In October 2020, Japanese Prime Minister Yoshihide Suga announced
Japan’s commitment to net-zero emissions by 2050. This represents a
key milestone for the country which aligns its climate ambition with that of
the UK and other European countries. Japan is also one of three East Asian
countries – accompanying South Korea and China – to formally commit tonet-zero targets.1
In the pursuit of carbon neutrality, a Green Growth Strategy was laid out
in December 2020 by the Ministry of Economy, Trade and Industry (METI).2
The strategy sets an action plan for 14 priority areas with the objectiveof boosting green power generation. The latter includes the developmentof hydrogen as a source of energy, as well as the expansion of offshore
wind power generation to generate annual green growth worth
approximately USD2 trillion.3
In the run to carbon neutrality, METI also intends to phase out new gasolinepowered vehicles by mid-2030, perhaps suggesting the government
support for road transport electrification.4 Japan’s climate commitment has
prompted efforts on several fronts, including the establishment of market
development taskforces, an intention to boost green finance, as well as
recognition and proper management of climate change related risks.

Market development Committee
Under the ESG Finance High Level Panel, two taskforces have been
established in 2020:• the ESG Regional Finance Task Force with a focus on financial
institutions and the role they can play in the shift towards sustainability
via ESG regional finance programmes;5• the Positive Impact Finance Task Force which aims to promote theimplementation of impact finance by major financial institutions andinstitutional investors.6 It also aims to develop impact assessment
methods.as set in the ‘Concept Note on Impact Finance’.7

Improving climate data
In March 2020, the Japan Exchange Group and Tokyo Stock Exchange jointly
published the Practical Handbook for ESG Disclosure with the objectiveof setting ESG reporting practices for listed companies.8 The Handbook
highlights challenges that companies may encounter on the path to voluntary
ESG disclosure and proposes solutions and processes to overcome them.9
In recent years, pressure has been mounting on companies toproperly account for and report on their environmental impacts. In
Japan, 317 companies have committed to reporting according to therecommendations from the Taskforce on Climate-Related Financial
Disclosures (TCFD). This significant development is partly due tothe establishment of the Japan TCFD Consortium, a public–private
partnership backed by METI, MOEJ and FSA, which supports dialogue
and cooperation amongst organisations to improve their climate-related
financial disclosures.10
The Expert Panel on Sustainable Finance was established by the
Financial Services Agency (FSA) to drive domestic and foreign investments
into Japanese companies to facilitate their transition to carbon-neutrality.11
The panel is composed of business, financial and academic experts as well
as officials from relevant ministries and agencies.

Green Finance State of the Market: Japan Climate Bonds Initiative

Low-carbon transition
Based on the ICMA Climate Transition Handbook, the FSA, METI and
the Ministry of Environment (MOE) jointly organised a Study Group on
Environmental Improvement for Effective Transition-Finance in January
2021 with the objective to formulate basic principles for transition financein Japan. The group focused particularly on raising funds through transition
bonds and loans.

Management of systemic and monetary climate risk
Japan’s FSA and the Bank of Japan joined the Network for Greening the
Financial System (NGFS) to evaluate and address risks posed by climatechange on the Japanese financial system. As part of this commitment, theFinancial System and Bank Examination Department at the Bank of Japan
will hold a virtual International Research Workshop on climate-related
financial risks taking place March 25th-26th 2021.12 The Japanese regulator
FSA has already taken action in this regard, conducting climate stress tests
on the country’s major financial institutions.13

What are Sustainability Linked Loans?
Sustainability Linked Loans (SLLs) support borrowers insustainability performance improvements. These can include forexample significant GHG emissions reductions from manufacturing
processes; or reductions in waste or water usage. If targets are met,
borrowers are rewarded with a reduced loan margin, resulting incheaper cost of capital. SLLs are different from Green Loans in thatproceeds are not linked to green projects/assets, but are intended forgeneral corporate purposes.
Existing market guidance, including the LMA Sustainability-linked
Loan Principles, states that targets should be ambitious, specific andtime-bound. Importantly they should also be linked to sector-wide
decarbonisation pathways and/or other improvement trajectories.
In practice, however, most SLLs relate to the borrowers’ own entityspecific sustainability improvements. A key lesson from the green bondmarket is that it should also be possible to assess ambition against
global targets such as net-zero by 2050 to ensure rapid decarbonisation.

Market development
The Green Finance Portal was introduced to support and educate green
finance stakeholders, including issuers and investors on the latest market
developments.14 A new subsidy scheme has also been launched to boost
issuance of green loans and bond for adaptation project.15 The ‘Financial
Support Programme for Green Bond Issuance’ launched in 2018 continues
to provide subsidies for issuance of green labelled bonds.16
In March 2020, MOE released the Green Loan and Sustainability Linked Loan
Guidelines to set the process for structuring sustainability-linked loans.
MOEJ has identified exemplar sustainability-linked loans and bonds tohighlight good practice and set benchmarks for companies issuing SLL.17,18

Revision of Japan’s Stewardship CodeThe second version of Japan’s Stewardship Code was finalised in March
2020. It lays out a framework to promote the sustainable growth ofcompanies through improved corporate governance.

5Notes:A. All green bond data as of 31 December 2020 unless otherwise stated. Issuer
type classified with Climate Bonds definitions.
B. UoP: Use of Proceeds. The chart presents analysis of post- issuancereporting for green bonds issued between Q4 2017 and Q1 2019.
C. Note, all unlabelled climate-aligned data as of Q3 2020, starting fromJanuary 1st, 2005.
D. Climate Bonds collects ratings from both international and local
rating agencies; entity-level ratings are used when bonds are non-rated.
Consolidated ratings are used for the chart below.
Endnotes
1. https://www.reuters.com/article/climate-japan-policy-shift-idUSKBN2780RN
2. https://www.meti.go.jp/english/press/2020/1225_001.html
3. https://www.reuters.com/article/us-japan-economy-green-factbox/factbox-japans-green-growth-strategy-to-help-achieve-carbon-neutral-goal-idINKBN28Z0IR
4. https://www.reuters.com/article/us-japan-autos-gasoline/japan-may-ban-sale-of-new-gasoline-powered-vehicles-in-mid-2030s-media-idUKKBN28D044?edition-redirect=uk
5. http://greenfinanceportal.env.go.jp/en/policy_budget/esg_highlevelpanel/esg_taskforce.html
6. http://greenfinanceportal.env.go.jp/en/policy_budget/esg_highlevelpanel/pif_taskforce.html
7. http://www.env.go.jp/press/108151.html
8. https://www.jpx.co.jp/english/corporate/sustainability/esg-investment/handbook/index.html
9. https://focus.world-exchanges.org/articles/japan-esg-disclosure
10. https://www.cdsb.net/task-force/964/leading-framework-provider-joins-japan-tcfd-consortium-“knowledge-partner”
11. https://www.fsa.go.jp/en/news/2020/20201225-2/20201225-2.html
12. https://www.boj.or.jp/en/announcements/release_2020/rel201224b.htm/
13. https://www.fitchratings.com/research/banks/climate-stress-tests-will-eventually-influence-bank-capital-10-09-2020
14. http://greenfinanceportal.env.go.jp/en/
15. http://greenfinanceportal.env.go.jp/policy_budget/activation_poromotion_support/basic_scheme.html
16. http://greenbondplatform.env.go.jp/en/support/subsidy.html
17. http://www.env.go.jp/policy/guidelines_set_version_with%20cover.pdf
18. https://www.env.go.jp/press/108001.html

Authors: Amanda Giorgi and Carlotta Michetti
Design: Godfrey Design© Climate Bonds Initiative, March 2021
www.climatebonds.net

Developed for: The Green Bond Issuance Promotion Platform – Japan

Disclaimer: The information contained in this communication does not constitute investment advice in any form and the Climate Bonds Initiative is not an investment adviser. Any reference to a financial organisation
or debt instrument or investment product is for information purposes only. Links to external websites are for information purposes only. The Climate Bonds Initiative accepts no responsibility for content on external
websites. The Climate Bonds Initiative is not endorsing, recommending or advising on the financial merits or otherwise of any debt instrument or investment product and no information within this communication should
be taken as such, nor should any information in this communication be relied upon in making any investment decision. Certification under the Climate Bond Standard only reflects the climate attributes of the use ofproceeds of a designated debt instrument. It does not reflect the credit worthiness of the designated debt instrument, nor its compliance with national or international laws. A decision to invest in anything is solely yours.
The Climate Bonds Initiative accepts no liability of any kind, for any investment an individual or organisation makes, nor for any investment made by third parties on behalf of an individual or organisation, based in whole
or in part on any information contained within this, or any other Climate Bonds Initiative public communication.

Green Finance State of the Market: Japan Climate Bonds Initiative

6