Japan’s climate bonds focus on clean technology and energy

In response to the climate crisis, Japan is leveraging its technological prowess as its biggest asset. The country is the global pioneer in issuing sovereign bonds to attract private investments into the green transition. Japan has introduced climate bonds, with the recent auction of 800 billion yen ($5.33 billion, €4.95 billion) in 10-year bonds and plans for further tranches later this month. 

This marks the start of a larger initiative, with the government aiming to sell 20 trillion yen in sovereign bonds to finance its green transformation, known as GX. Japan is the only nation offering sovereign bonds to support climate change mitigation. These government-issued debt securities are available for private investors, who receive interest payments at intervals and the total bond value at a later date. Through this approach, the government can attract private funds to achieve its climate targets without straining its budget. The funds from these bonds will be channeled into various projects, including low-cost wind power generators, carbon recycling technology, and eco-friendly aircraft. 

Developing cutting-edge batteries and microchips is paramount to achieving long-term emission reductions. Before the initial bond sale, the Japan Securities Dealers Association chairperson, Toshio Morita, highlighted Japan’s vulnerability to energy shocks due to its lack of natural resources but emphasized the nation’s strong technological capabilities. He underlined that the Green Transformation initiative is pivotal for shifting towards a clean energy-based society and industry, ultimately enhancing corporate and national competitiveness.

Prime Minister Fumio Kishida’s plan to finance Japan’s industrial and societal transformation heavily relies on climate bonds, aiming to reduce greenhouse gas emissions by half by 2030 and achieve zero emissions by 2050, requiring substantial investments of around 150 trillion yen. While some sectors, like Dai-Ichi Life Insurance Co, express strong support for the bonds, others, like Nikko Asset Management Co, remain cautious, citing the bonds’ novelty and ongoing analysis. Despite positive responses, demand during the initial sale fell slightly short of high expectations, indicating a need for realistic assessment and continued scrutiny of this new financial instrument.