Tokyo, London team up on transition finance
Tokyo and London are collaborating on transition finance as the two global financial centres join forces to develop the fledgling transition bond market.
The initiative is part of a broader move by Japan's Financial Services Agency to transform the country into a leading asset management centre as it returns to growth after decades of deflation.
Following prime minister Sanae Takaichi's historic election win on February 8, Japan is also hoping to be a potential beneficiary of global financial flows amid geopolitical turbulence.
The country's US$1trn GX Green Transformation programme has already driven ¥1.4trn (US$9.5bn) of transition bond issuance by 23 high-emitting Japanese companies in 88 deals, according to FinCity Tokyo, a public-private partnership launched in 2019 to establish Tokyo as a leading global financial hub.
"I hope our experience proves useful for the UK's own designing of transition finance," Hiroshi Nakaso, chairman of FinCity Tokyo and a former deputy governor of the Bank of Japan, said in a speech at the Japan Securities Summit in London on February 11 organised by the International Capital Market Association.
The City of London's Transition Finance Council is working on guidelines that will be published on March 26 that will assess the credibility and quality of entity-level transition plans for issuers and complement project-level standards published in October by loan and bond market trade associations.
Collaboration between the two cities and countries is already underway. In July, FinCity Tokyo co-hosted the Transition Finance Forum with the TFC in London, which was followed by a series of UK-Japan Transition Planning Dialogues, the third of which took place in London on February 11.
Japan is sharing its transition expertise in the run up to the UK's G20 presidency in 2027 to help the UK play a leadership role in reorienting pathways to net zero goals.
"Japan has put a lot of thought into its transition strategy and framework," said Anna-Marie Slot, co-founder of advisory firm Transition Value Partners and former global sustainability partner at law firm Ashurst.
Tokyo is keen to explore two topics with London: "upgrading" the market for transition bonds and creating interoperable voluntary carbon credit markets, which it sees as another form of transition finance.
Upgrading the markets for transition bonds means creating sector-specific pathways similar to those created by Japan's government under the GX programme that allow hard-to-abate companies to decarbonise.
"Japan illustrates how the sovereign can work alongside other public and private issuers to develop the transition bond market through the combination of official guidance for sectoral transition roadmaps and pioneering sovereign issuances," said Nicholas Pfaff, deputy CEO and head of sustainable finance of the ICMA.
The UK's Transition Plan Taskforce launched a Disclosure Framework in October 2023 and the UK government is also working on pathways for sectors including battery storage.
Tokyo is also keen to collaborate on interoperable voluntary carbon markets that could help Asia to decarbonise faster. The Asia Pacific Economic Cooperation Finance Ministers group is working to align standards and practices and connect registry data from participants across the region.
"The initiative could in the future be expanded to connect with carbon markets in Europe. That is where I see potential for new collaboration between FinCity Tokyo and London's Transition Finance Council," Nakaso said.