Japan

Green finance state of the market – 2019
March 2020

Cumulative green bond issuance: JPY1875.2bn (USD17bn), 9th in global country rankings
2019 green bond issuance: JPY786.7bn (2018: JPY464.4bn), 7th in 2019 country rankings
Green bond market growth expected from renewable energy and public transport projects

2019 marks record issuance for Japan
1,000

Loan
Local Government
Government-Backed Entity
Development Bank
Non-Financial Corporate
Financial Corporate

800
600
JPY Billions

Buildings dominate use of proceeds

400

2016

25%

2017

2018

Government-backed entities boosted their issuance compared
to 2018 (JPY24.5bn in 2018 vs JPY222.4bn in 2019), reaching
14% of the cumulative market share. Government-backedentities Japan Railway Construction, Transport andTechnology Agency (JRTT) (JPY185.8bn) and Japan Housing
Finance Agency (JPY153.3bn) were the top two 2019 issuers.

90% of issuance has an external review

600

Waste
Unalloc. A&R
Land use
Industry

38%

ICT

Buildings dominate cumulative proceed allocations at 38%.
This has mainly come from non-financial and financial
corporates (28% and 35%, respectively). Significant
contributions in the sector came from the Development Bankof Japan (cumulative JPY188.3bn), while Japan Housing
Finance Agency (JPY70bn) represented the largest greenbuildings issuer in 2019.
Energy (29%) and transport (25%) follow, with financial
corporate Mitsubishi UFG Financial Group (JPY216.3bn) andgovernment-backed entity JRTT (JPY197bn) representing thetop issuers in the respective sectors. The Tokyo Metropolitan
Government is the first issuer to allocate proceeds toadaptation and resilience, with cumulative JPY 13.5 bn
earmarked towards flood prevention mechanisms.

Sustainalytics is the top SPO provider

Certified Climate Bonds (CCB)SPO_Sustainalytics

No External Review
SPO_DNV GL

7%

Rating Only

3%SPO

4%

400
JPY BillionsWater2019

Green bond issuance witnessed a significant increase in 2019
compared to 2018, growing by 70%. Financial corporates
dominate the green bond market, accounting for half of
cumulative issuance (JPY938.8bn) Non-financial corporates
follow at 21% (JPY397.7bn). Both financial and non-financial
corporates also dominate 2019 issuance. The largest green bondin 2019 was issued by Mitsubishi UFG (EUR500 m/JPY60.5bn).

800

Transport

Cumulative
JPY1875.2 bn(USD17bn)

Note: Data Source: Climate Bonds Initiative. All data as at 31 December
2019 unless otherwise stated. Issuer types classified with CBI definitions.

1,000

Buildings

29%

0
2015

Energy

5%200
2014

<1%2%

3%

86%
1%

200

SPO_Vigeo EIRISSPO_ISS-oekom
SPO_and_Rating R&I (Japan)

02014

2015

2016

2017

2018

2019

The Japanese green bond market has an exceptional record of
external reviews: 60% of deals by volume benefit from aSecond Party Opinion (SPO), 21% from at least a green bondrating and 8% from Certification under the Climate Bonds
Standard. To date, DNV GL is the sole Approved Verifier for
Certified Climate Bonds to provide verification services inJapan. JRTT has obtained the largest number of Certified
bonds: four in total for a cumulative amount of JPY152.3bn.

Sustainalytics is the largest SPO provider by both volume andnumber of deals reviewed (86% and 71%, respectively). DNV
GL comes in second with 7% of volumes and just below 10% of
number of deals. Green bond ratings are also widely used inthe Japanese market, with the Japan Credit Rating Agency(JCR) and Rating & Investment Information (R&I) being, so far,the only two rating providers active in the market. CBI will
publish additional research on external reviews and overall
transparency in the green bond market later in 2020.

Japan – Green finance state of the market 2018 Climate Bonds Initiative

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JAPAN – 2019 market update

37% of deals are USD 500m or above

53% of deals are JPY-denominated

100%

2%

80%

16%

60%

AUD

29%

EUR

40%

JPY

20%

USD

0%

53%
Amount (USD)

Up to 100m

100-500m

Deal Count
500m-1bn

1bn or more

The Development Bank of Japan’s USD1bn (JPY113bn) green
bond issued in 2017 remains the largest to date in Japan. It isalso the only deal in the 1bn or more size bracket.
Medium-sized deals come from all issuer types, withgovernment-backed entities taking up the largest share at
42%. Financial institutions, including Mitsubishi UFG andSumitomo Mitsui Banking Corp have issued nine deals of
USD500m or more.
Deals falling within the USD 500m-1bn size bracket are themost frequent by volume with 37% of the total, while 70% ofthe deals by number fall into the USD up to 100m (77 bonds).
In 2019, the USD 100-500m was the most popular size bucketby volume, while the highest share of the deals by number fallin the USD up to a 100m bucket (52 bonds).

Most issuers favour tenors up to 10 years
Financial Corporate
Non-Financial Corporate
Government-Backed Entity
Development Bank
Local Government
Loan

10-20Y>20Y

JPY-denominated deals prevail at 53% of total issuance. Greenbond issuance in local currency started 2016, with Nomura
Research Institute’s JPY10bn debut green bond. The second
most popular currency is EUR, including Japan’s very firstgreen bond from the Development Bank of Japan(EUR250m/JPY34.2bn) in October 2017. Financial institutions
issue in the largest number of different currencies: forexample, Mitsubishi UFG has issued two thirds of its
cumulative volume in EUR, with the remaining amounts in JPY,
USD and AUD.
In 2019, JPY remained the most popular currency with 88% of
total annual issuance; EUR and AUD follow with 8% and 5% ofmarket share, respectively. Green bonds in USD have not been
issued in 2019.

Spotlight: Corporate issuers
100%50%

5-10Y0%Financial Corporate

Up to 5Y0Energy
Waste
Industry

1,500

JPY Billions
Japanese issuers prefer shorter tenors: 57% of bonds have atenor of up to five years, while 27% fall in the ‘five-to-tenyears’ category. Only 10% of volumes have a tenor of morethan 20 years, with examples from non-financial corporate
Renewable Japan (five bonds) and financial corporate AEON
Product Finance (two bonds).
Issuance from the Development Bank of Japan and around
50% of non-financial corporates volumes have tenors of up tofive years. The same tenor bucket is also the most popularamongst financial corporates, with almost 60% (JPY178.7bn) ofproceeds from Mitsubishi UFG maturing within five years.
Government-backed entities have a preference for slightly
longer tenors: they dominate the ‘ten-to-twenty’ tenor bucket,and feature issuance from JRTT, Japan Housing FinanceAgency and Konan Ultra Power.

Non-Financial Corporate

Buildings
Water
ICTTransport
Land Use
Unalloc. A&R

Half of the proceed allocations from financial institutions go
towards energy, while buildings account for just under a third(30%). The remaining proceeds are earmarked towards avariety of sectors: this reflects the nature of commercial banks,
non-bank lenders and asset managers, which usually own
diversified loan and/or project portfolios. Mitsubishi UFG is
the top financial corporate issuer, with JPY216.3bn and
JPY87.6bn allocated to energy and buildings, respectively.
Non-financial corporations allocated half of their proceeds tobuildings and 30% to energy. Sumitomo Forestry Co., Ltd isthe only non-financial corporation earmarking proceeds
towards the acquisition of FSC certified timberlands. Tokyo
Tatemono is the top non-financial issuer, with JPY50bn
allocated to buildings certified with top level of industry
certification schemes, i.e. DBJ Green Building and BELS (4 starsor more) and A in or higher in CASBEE.

Japan – Green finance state of the market 2019 Climate Bonds Initiative

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JAPAN – 2019 market update

Top 5 underwriters for Japanese GBUnderwriters

Number of deals

Mitsubishi UFJ Morgan Stanley Securities
Mizuho Securities
SMBC NIKKO Securities
Nomura Securities
Mitsubishi UFJ Financial GroupTop 5 trading venues for Japanese GB

Amount (JPY)

Trading venue

Number of deals

Amount (JPY)382618175LuxSE
LSEAll German SEBerlinFrankfurt

95455

193.7bn111.6bn
108.5bn
81.1bn64.2bn449.6bn
219.5bn
160.5bn
130.4bn
120.5bn

Source: Refinitiv; exchange rate as of 31 December 2019.

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

All the underwriters of Japanese deals are headquartered inJapan. Mitsubishi UFJ Morgan Stanley Securities (MUMSS)
ranks first, accounting for around 26% of underwritten
volumes and with participation in 38 deals. Apart fromNomura Securities, the other top underwriters based in Japan
have entered the country’s green bond market issuers as well.

Cumulatively, JPY868.4bn worth of Japanese green bonds havebeen listed on a variety of trading venues. This accounts foraround 46% of total issuance. Luxembourg Stock Exchange
tops trading venue rankings followed by LSE. Four deals arelisted on all German Stock Exchanges, while five deals havebeen listed on both Berlin and Frankfurt Stock Exchange.

Other labelled bonds
Only bonds with at least 95% proceeds dedicated to greenprojects that are aligned with the Climate Bonds Taxonomy1 areeligible for inclusion in the CBI Green Bond Database2. If morethan 5% of proceeds are used for general corporate purposes,
working capital, social projects or projects that do not alignwith the Taxonomy, or if there is insufficient information, thebond will be classified as excluded.
Two Japanese green labelled deals have been excluded for thefollowing reasons:••

One issuer allocated over 5% of the deal’s proceeds
to energy efficiency in buildings targeting a 10%
improvement. Such target falls short of the KPIs in
the Climate Bonds’ Taxonomy, which require aminimum 20% improvement in energy efficiency.
The other entity earmarked green bond proceeds tofinance methanol-fuelled ships. The envisaged CO2emission savings have been identified at 8%.
Unfortunately, the target is not compliant with theeligibility metrics set out in the Climate Bonds
Taxonomy.

Japan has also witnessed issuance of bonds with diversifiedlabels, including sustainability/ESG and social bonds.
Social bonds raise funding for projects with positive social
outcomes, while sustainability/ESG bonds allow proceeds tobe allocated to both green and social projects.
While social bonds have been a feature of the debt capital
market in Japan for some time, there are increasing
opportunities to issue bonds specifically linked to adaptation
and resilience. This would fit the bill especially for local
governments given their infrastructure pipelines andassociated funding needs. To date, only the Tokyo
Metropolitan Government has allocated part of the proceedsfrom a green bond issuance for such purposes.

2,541.5

Climate-aligned companies

Potential green bond issuersThe climate-aligned universe highlights investment
opportunities to finance low-carbon assets and includes:

There are substantial opportunities for scaling up the Japanesegreen bond market. Many companies operating in thetransport sector could issue green bonds to finance rail
infrastructure. Tokyo Metro Co Ltd is an example of a stronglyaligned issuer, which could enter the green bond market tofinance railway projects. Future green bond market entrants
could also include strongly-aligned companies Central Japan
Railway Co, Tobu Railway Co Ltd and Kansai Rapid Railway Co
Ltd. Opportunities for green labelling exist also across othersectors: for example Stanley Electric Co Ltd manufactures LEDrelated products for use in buildings and transport, and is alsoa fully-aligned bond issuer. Many Japanese climate-alignedissuers operate in the land use sector: fully-aligned companies
Japan Pulp & Paper Co Ltd, Hokuetsu Corp and Wood One Co
Ltd have not issued green labelled bonds yet, while companies
such as Sumitomo Forestry Co Ltd and Daio Paper Corp
entered the green bond market in 2018 with JPY10bn andJPY20bn deals, respectively.

•••bonds from fully-aligned issuers that derive 95% or moreof revenues from ‘green’ business lines
bonds from strongly-aligned issuers that derive 75-95%
of revenue from ‘green’ business lines; andlabelled green bonds.

Climate-aligned issuers are discovering the value of the greenlabel: some have already entered the green bond market,including Sumitomo Forestry Co Ltd. However, the green label
can be even more powerful for companies looking to transition
to low-carbon business lines to signal their sustainability
aspirations. For example, Suncor Energy Inc., a top Canadianemitter from the oil and gas sector, generated 1% of its 2017
revenues from ethanol and wind production. Sustainablebiofuels are aligned to the Climate Bonds Taxonomy.

Japan – Green finance state of the market 2019 Climate Bonds Initiative

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JAPAN – 2019 market update

Companies in transition
In the aftermath of the Paris Agreement, pressure has been
mounting for companies to manage, limit and eventually halt
their impact on climate change. This calls for companies tounderstand and evaluate the risks posed by climate change on
their business activities, assets and liabilities. In 2017, the Task
Force on Climate-Related Financial Disclosures3 (TCFD)
developed recommendations on corporate disclosure withrespect to climate-related physical and transitional risks. The
initiative is aimed at providing investors and otherstakeholders with information which enables the formulationof informed investment strategies while allowing companies toidentify and act on their risk exposure.

The Transition Pathway Initiative4 (TPI) has developed amethodology to assess companies’ readiness to transition to a
low-carbon economy.
In Japan, companies such as Oji Holdings and Toyota rank highin the ‘management quality’ assessment; they are also both
evaluated by TPI as ‘aligned with the Paris Pledges’ according
to their carbon performance. Companies issuing green bonds
also signal their commitment to fight climate change as well as
their willingness to transition. Toyota Finance, for example,
has already come to the market with one deal financing lowcarbon vehicles. However, there are still opportunities forgreen bond issuance especially for strongly-aligned issuerssuch as Oji Holdings, which could refinance itself with a green
bond and signal to the market its commitment to transition.

Japan Green Finance Policy Landscape
Green Bond Guidelines

Awareness raising for market development

In 2017, The Ministry of the Environment (MOEJ)
launched the Japanese Green Bond Guidelines5. Green bondguidelines support the expansion of issuance and seek topromote market integrity and transparency throughdisclosure. The Japanese guidelines comply with the ICMA
Green Bond Principles (GBP), and cover identification ofeligible categories, project evaluation and selection,
monitoring and reporting. MOEJ released Green Bond
Guidelines 2020 Revised Version6 in March 2020 in order toreflect the revision of the Green Bond Principles and green
finance trend. The new guidelines broaden its scope tosustainability bond, adds examples of the use of proceeds,
clarify matters related to external review and expectations toinvestors for sound development of green bond market. Inaddition, MOEJ released the Green Loan and Sustainability
Linked Loan Guidelines in March 2020. The latter set theprocess for issuance of sustainability-linked loans.

Market Development Committee
In 2018, MOEJ established the ESG Finance HighLevel Panel7 in order support business and thegovernment to integrate ESG principles in their investments. In2020, the Panel established a taskforce for ESG regional
finance and impact finance.

In 2018, MOEJ set up a Platform for Promoting
Green Bond Issuance8 whereby information related to green
bonds can be collected and disseminated to relevant
stakeholders. In 2019, Green Finance Portal9 was alsoestablished in order to cover green finance broadly.
Information sharing platforms are essential to prevent
greenwashing practices, however, there are opportunities tofurther increase awareness, especially in the context of green
bond pre- and post- issuance reporting.

Financial Support Programme for GreenBond Issuance
In 2018, MOEJ introduced a Financial Support
Programme for Green Bond Issuance10. Subsidies in the form
grants of up to JPY50m per issuance are available for expenses
in respect of external services in the form of granting external
reviews (up to 40 million JPY), consultation on establishing agreen bond framework, etc. Grants are provided to deals withexternal reviews, which confirm compliance with the GBP,ASEAN Green Bond Standard, Climate Bonds Standard, etc.,
taking into account the issuing market and the investor group.
Compliance with Japan’s Green Bond Guidelines is confirmedby an external review organization prior to issuance.

References: 1. Climate Bonds Initiative, 2019, “Climate Bonds Taxonomy” available at https://www.climatebonds.net/files/files/CBI_Taxonomy_Tables-Nov19.pdf ; 2. Climate
Bonds Initiative, 2018, “Green Bond Methodology”, available at https://www.climatebonds.net/files/files/ClimateBondsInitiative_GreenBondMethodology_092018%281%29.pdf ; 3. TCFD, 2017, “Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures”,available at https://www.fsb-tcfd.org/publications/final-recommendations-report/#; 4. The Transition Pathway Initiative, available athttps://transitionpathwayinitiative.org/tpi; 5. MOEJ, 2017, “Green Bond Guidelines” available at https://www.env.go.jp/en/policy/economy/gb/guidelines.html; 6. MOEJ,
2020, available at http://greenfinanceportal.env.go.jp/news/; 7. MOEJ, “ESG Finance High Level Panel”, available at http://greenfinanceportal.env.go.jp/en/high-level-panel/;
8. MOEJ, 2018, “Platform for Promoting Green Bond Issuance” available at http://greenbondplatform.env.go.jp/en/policies-data/japan.html; 9. MOEJ, “Green Finance Portal”,available at http://greenfinanceportal.env.go.jp/en/; 10. MOEJ, “Financial Support Programme for Green Bond Issuance (Subsidy Project) available at
http://greenbondplatform.env.go.jp/en/support/subsidy.html

Authors: Amanda Giorgi© Climate Bonds Initiative, March 2020

Developed for the Green Bond Issuance Promotion Platform – Japanwww.climatebonds.net

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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 orotherwise 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 berelied upon in making any investment decision. Certification under the Climate Bond Standard only reflects the climate attributes of the use of proceeds 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 yo urs. The
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Japan – Green finance state of the market 2019 Climate Bonds Initiative4