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October 13, 2023
Financial Services Agency

 “Addressing the Challenges of Financed Emissions” Announced

In October 2023, the Japan Public and Private Working Group on Financed Emissions to Promote Transition Finance compiled a paper titled “Addressing the Challenges of Financed Emissions,” and Financial Services Agency (FSA) hereby releases the paper.

1. Background

In order to achieve 2050 carbon neutrality, it is essential to provide finance for the transition of hard-to-abate sectors which face technological or economic difficulties in decarbonizing in one step (transition finance). Japan has led the world in creating an environment to promote transition finance by formulating basic guidelines, developing sector-specific technology roadmaps, and supporting the creation of model cases.

International financial alliances such as Glasgow Financial Alliance for Net Zero (GFANZ), endorsed by major financial institutions, require ambitious targets for financial institutions to reduce their emissions to net zero, including the indirect emissions come from their borrowers/investees (financed emissions).

Some financial institutions may refrain from financing hard-to-abate sectors based on their concern of a temporary increase in financed emissions, which could result in hindering the transition of such sectors.

With this problem awareness, FSA, METI, and MOE, in February 2023, jointly established the “Japan Public and Private Working Group on Financed Emissions to Promote Transition Finance” ("working group"), consisting of 10 members from globally-operating financial institutions and other entities (see the Appendix), under the Taskforce on Preparation of the Environment for Effective Transition Finance.

The working group examined and discussed possible solutions to the challenges above, including effective approaches to the specific calculation and disclosure of financed emissions, and the utilization of indicators other than financed emissions, and compiled discussion results into a paper titled “Addressing the Challenges of Financed Emissions.”

2. Overview

This paper organizes the role of financial institutions in achieving carbon neutrality and the characteristics of financed emissions, and, based on these, it presents possible solutions to the challenges of financed emissions by categorizing such solutions into the two groups of (1) approaches on calculation and disclosure of financed emissions and (2) use of multiple metrics, which are expected to help readers to appropriately evaluate and promote financing towards innovation and transition efforts by hard-to-abate sectors

PDF Addressing the Challenges of Financed Emissions(PDF:1.26 MB)

Strategy Development Division, Strategy Development and Management Bureau, Financial Services Agency

Tel +81 -(0)3-3506-6000(Ext. 2770, 2893, 3515)

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