May 24, 2021
Financial Services Agency
"Basic Guidelines on Climate Transition Finance" Announced
In order to achieve carbon neutrality by 2050, it will also be essential to secure financing for industries' transition efforts toward decarbonization. Together with the Ministry of Economy, Trade and Industry (METI) and the Ministry of the Environment, the Financial Services Agency (FS) held a "Taskforce on Preparation of the Environment for Transition Finance" (chaired by Prof. Kunio Ito, Director of the Hitotsubashi CFO Education and Research Center at Hitotsubashi University), and formulated the "Basic Guidelines on Climate Transition Finance" as a handbook for conducting transition financing.
In order to achieve a carbon-neutral, decarbonized society by 2050, it will be important to promote financing for projects such as renewable energy that are already at the level of decarbonization, and in addition, financing for transition efforts to move industries that emit large quantities of greenhouse gases toward decarbonization. Japan has declared that it aims to become carbon neutral by 2050. As a step toward achieving this, it will continue to promote transition financing on the domestic front while watching the progress of international efforts. To that end, the FSA, METI, and the Ministry of the Environment jointly held a "Taskforce on Preparation of the Environment for Effective Transition Finance" (hereinafter the "Taskforce") to consider the formulation of basic guidelines for conducting transition financing.
Between April 5 (Monday) and April 16 (Friday), 2021, public comments were called for regarding the "(Draft) Basic Guidelines on Climate Transition Finance" compiled by the Taskforce. At the same time, opinions were also sought from the International Capital Market Association (ICMA), which is developing international principles regarding matters including transition finance.
In addition to compiling the results of the public comments, etc., a third review meeting was held, and the "Basic Guidelines on Climate Transition Finance" were compiled in light of the opinions received.
2. Outline of the basic guidelines
The aim of these basic guidelines is to contribute to the achievement of the Paris Agreement and carbon neutrality in Japan by 2050 through the introduction of more funding, by establishing a position for transition finance as a means of financing for transitions particularly in sectors where emissions are difficult to reduce. The guidelines intend to promote the spread of climate transition financing which has just started and increase the credibility of financing conducted under the name of "transition finance".
Transition finance focuses not only on individual projects that require funding (the targets for the funding), but also makes a comprehensive judgment of the project operators' "transition strategies" toward decarbonization, and the reliability and transparency with which those strategies are implemented.
ICMA publishes the Green Bond Principles, etc., and published the "Climate Transition Finance Handbook" (hereinafter the "Handbook") in December 2020. The Handbook presents the following elements: (1) transition strategy and governance, (2) business model environmental materiality, (3) "science-based" strategy, and (4) implementation transparency. Based on these, the guidelines cover points to discuss regarding disclosure, matters to be disclosed and supplementary information, and issues related to independent reviews. ICMA confirmed that it welcomed the proposed alignment with its Handbook.
Basic Guidelines on Climate Transition Finance (Overview)
Strategy Development Division, Strategy Development and Management Bureau, Financial Services Agency
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