TOKYO -- Japan looks to grease the wheels for heavy industry to raise capital for investments that cut carbon emissions, an area that has struggled to attract funding compared with big renewable energy projects.
The government will set guidelines to allow the sale of bonds and other financial products for climate transition projects, with an eye toward areas such as steel, chemicals, electricity and maritime shipping.
Tokyo hopes this will attract cash from environmentally conscious investors who tend to steer clear of smokestack industries. Though so-called green bonds have gained traction as a way to raise money for environmental projects, just 0.5% of these bonds worldwide have been issued by the industrial sector.
Japan has announced a 2 trillion yen ($19.3 billion) fund to support the transition to renewable energy and other low-carbon technologies, as the country aims for net-zero emissions by 2050. In the U.S., President Joe Biden plans to pour $2 trillion into sustainable infrastructure over four years. The European Union's "Green Deal" calls for 1 trillion euros ($1.2 trillion) in public and private investment over a decade.
One priority for funding is industries that cannot jump to zero emissions in the near future. The International Capital Market Association issued guidance on climate transition finance last month with these sectors in mind. Japan will use this report as the core of its guidelines.
Japan's industry and environmental ministries, along with the Financial Services Agency, will release a proposal and solicit comment from financial institutions and industry players, aiming for an official decision in April.
Hong Kong provides an example of how such transition funding can work. A project to build a natural-gas-fired power plant in an area not suited for renewable energy infrastructure succeeded in raising capital in this way.
In Japan, companies will be urged to set emissions reduction targets and disclose capital spending plans. They also may be asked to show their contribution to decarbonization, with scientific evidence to back it up.
The FSA has formed a panel with experts from the banking and insurance industries to discuss changes that companies and lenders can make to promote a shift away from carbon. Banks will be encouraged to support businesses via financing and consulting.
The inclusion of carbon-intensive industries in Japan's sustainable finance effort makes it all the more important to draw clear lines that prevent greenwashing of financial products, or making them look more environmentally friendly than they actually are.
Rules in the EU, which has led the way on environmental regulation, count investments in electric vehicles and renewable energy as "sustainable" while excluding hybrid cars and fossil-fuel power plants that lack carbon capture technology.
Such strict rules would risk blocking some investment in Japan, where the auto industry has spent heavily on hybrids and heavy investment has been made in projects such as "clean coal" power plants.