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Green Finance
Japan to issue US$11 billion climate bond
Proceeds to fund renewable energy, hydrogen use in steelmaking, storage batteries
The Asset 16 Feb 2024

Japan will issue the first tranche of its 1.6-trillion-yen (US$11 billion) climate transition bond with proceeds being used to fund Japan’s ambitious Green Transformation programme.

The programme promotes public and private investments of 150 trillion yen (US$1 trillion) over the next 10 years in advanced, sustainable technologies that support national emissions reduction. It underscores Japan’s commitment to its 2030 greenhouse gas reduction goals, and to its vision for carbon neutrality by 2050.

The bond is certified under the Climate Bonds Standard, offering investors assurance on the environmental objectives of the use of the proceeds and signifying alignment with best practice global standards.

“Transition is the theme for the year: corporates, cities and countries need to do transition plans in line with global emission reduction targets,” says Sean Kidney, CEO of Climate Bonds Initiative (CBI), a global non-profit organization working to mobilize capital for climate action. “Under the Paris climate agreement countries are working on ambitious new Nationally Determined Contributions – transition plans – to be tabled at next year’s COP [United Nations climate change conference].

“This bond shows clearly how governments, and others, can raise funds to invest in that transition. It marks a significant milestone in transition finance.”

Of the bond’s proceeds, 55.5%, CBI states, are allocated to support for research and development initiatives aligning with Japan’s efforts to limit temperature increase to 1.5 degrees Celsius in areas ranging from renewable energy to hydrogen use in steelmaking. And the remaining 44.5% of the proceeds are for subsidies for activities ranging from the manufacturing of electricity storage batteries to energy efficiency measures in buildings.

The bond strictly delineates its use of proceeds, excluding any allocation towards gas-fired power generation or operational activities involving ammonia co-firing in coal-fired plants. The bond’s independent verification report was prepared by Japan Credit Rating Agency (JCRA), a climate bonds approved verifier since 2019.

“Since 2020, JCRA has been contributing to the government’s efforts to develop Japan’s transition pathway towards net zero by 2050 and alignment to the Paris agreement,” says Atsuko Kajiwara, the agency’s managing executive officer, head of sustainable finance evaluation group. “JCRA hopes the government’s strong initiative will help various Japanese corporates which struggle to find a way to attain both carbon neutrality and business expansion in the coming decades.”

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