News
Analysis
7x24
Quotes
Economic Calendar
Data
- Names
- Latest
- Prev.
Columns
Trending Topics
Daily News
To quickly learn market dynamics and follow market focuses in 15 min.
Central Bank
Inflation, exchange rates, and the economy shape the policy decisions of central banks; the attitudes and words of central bank officials also influence the actions of market traders.
Traders' Opinions
View trading ideas and learn trading strategies.
Forex
Money makes the world go round and currency is a permanent commodity. The forex market is full of surprises and expectations.
Recent Searches
Trending Searches
View All
No data
ESG Loans Show Promise in Japan
Summary:
Environmental, social and governance-related loans in Japan are poised for further growth after rising to a record in 2022, with sustainability-linked loans and transition finance expected to drive the activity.
Environmental, social and governance-related loans in Japan are poised for further growth after rising to a record in 2022, with sustainability-linked loans and transition finance expected to drive the activity.
Such loans are growing in size and fast becoming mainstream, underscoring the government's efforts in incentivising sustainability and the market's acceptance of these types of financings.
Kirin Holdings is seeking a ¥50bn (US$377m) debut transition financing, which will be the first such loan for a beverage and food company in Japan. It follows a ¥200bn green loan In November for carmaker Nissan Motor – Japan's largest such financing – and a ¥100bn sustainability-linked loan for seasonings maker Ajinomoto in December.
"Over the past year, investors' commitment to ESG has become clearer," said Koji Tanaka, head of the syndication department in the solution product division at MUFG. "I believe that debt-originated ESG governance is finally working in Japan as well. It has become important to incorporate ESG flavours into lending, which is the core business of financial institutions. Some investors have made it clear that they won't invest in products without ESG labels."
Volumes for ESG loans (including green financings) more than doubled to US$20.93bn in 2022 from US$9.87bn in 2021, while deal flow skyrocketed to 133 from 54 transactions, according to Refinitiv LPC data.
The deals included a ¥60bn transition-linked commitment line in December for Mitsui OSK Lines, the third such borrowing for the shipping firm following a debut deal in September 2021, a ¥50bn 10-year transition-linked loan for Kyushu Electric Power in October and a ¥100bn transition-linked subordinated loan for Chugoku Electric Power in September. Government support SLLs are expected to receive a fillip from the government, which is introducing subsidies for third-party evaluation costs related to such financings from April this year, adding to the existing support for green bonds and green loans.
In December 2021, the Bank of Japan launched a climate change scheme offering lenders in Japan long-term loans at zero interest for on-lending through green and sustainability-linked bonds and loans. The scheme lasts until fiscal 2030.
Earlier that year in April, the Ministry of Economy, Trade and Industry introduced a performance-linked interest subsidy for transition projects of up to 20bp over the next three years. Kyushu Electric Power's transition-linked loan completed last October was the first such borrowing to receive the subsidy from METI under an industrial competitiveness enhancement act.
METI has also announced roadmaps for seven high greenhouse gas emitting sectors (steel, chemicals, electricity, gas, oil, paper and pulp, and cement) with more to come later.
As a result of these measures, the investor base for ESG loans is growing with about 80% of Japan's 99 regional banks now compliant with the Task Force on Climate-related Financial Disclosures. They are also eligible for the BoJ's climate change scheme.
"Some financial institutions have set medium to long-term sustainable finance balance targets, but they have not reached a stage where they would provide preferred loan pricing or create a special framework for sustainable finance. On the other hand, there is a gradual increase in the number of financial institutions that find it easier to obtain credit approval if deals have a sustainability flavour," said Takayuki Ishiwatari, joint general manager of the debt finance department at Sumitomo Mitsui Banking Corp.
In October, construction company Toda raised a ¥30bn debut SLL, drawing a whopping 35 lenders, of which most were regional banks. Hurdles to growth While the record volumes in ESG loans provide encouraging signs, the market faces a few hurdles. To begin with, ESG loans have yet to catch up with their bond counterparts, although the gap between the two narrowed in 2022 because of the slowdown in bond issuance arising from rising interest rates and volatility in global financial markets.
Green and ESG-related bond volume in 2022 reached US$28.73bn, up 20.8% from US$23.79bn in 2021, according to Refinitiv data. In 2022, Japanese borrowers raised US$3.19bn from 27 transition bonds, compared with US$2.10bn via six transition loans.
Many top-tier investment grade companies have established sustainable finance frameworks in recent years and already have track records in sustainable financings. But many others remain on the sidelines and are yet to warm up to the concept.
"Although the level of interest in sustainable finance is increasing day by day, the effects of such financings are hard to evaluate and we believe that is the reason some companies are reluctant to step up," said SMBC's Ishiwatari. "Having sustainable components does not significantly reduce the funding cost so we must raise awareness in the market by promoting such financings as one of the IR [investor relations] products that could lead to increases in stock prices, corporate evaluations and expansion of the investor base."
While Japan has been an early mover globally in transition finance, that form of lending is not without its challenges. In December, METI established a sub-working group to tackle growing concerns over financed emissions, which are indirect greenhouse gas emissions attributable to financial institutions because of their involvement in providing capital or financing to the original emitter.
Financial institutions participating in the Glasgow Financial Alliance for Net Zero are required to achieve net-zero financed emissions by 2050, which somewhat counters the objectives of lenders in transition finance.
" Efforts toward decarbonisation by borrowers are accelerating again this year as many companies are recognising the importance of transition strategies toward decarbonisation, but we don't think this led to as many transition-labelled loans as expected," said Tomoko Hirabayashi, joint general manager of the syndicated finance department in the sustainable business promotion office at Mizuho Bank.
"[However] there is a strong demand for transition finance from the investor side such as Japanese regional banks. We are hearing that they would be interested in joining in syndication as they are not capable of assessing the technology by themselves at this point."
Source: Reuters
Risk Warnings and Investment Disclaimers
You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or strategy, or any other product is suitable for you based on your investment objectives and financial situation.
Quick access to 7x24
Quick access to more editor-selected real-time news
Exclusive video for free
FastBull project team is dedicated to create exclusive videos
Follow more assets
You can add more assets to your watchlist to follow more real-time quotes.
More comprehensive macro data and economic indicators
More comprehensive historical data on indicators to help analyze macro markets
Member-only Database
Comprehensive forex, commodity, and equity market data
- Economic Calendar
- Events
- Holiday
BANKS ACT (%) PREV (%) CPI (%)
SYMBOL
LONG SHORT
English
English
العربية
繁體中文
简体中文
Bahasa Melayu
Bahasa Indonesia
ภาษาไทย
Tiếng Việt
Copyright © 2023 FastBull Ltd
Home News AI Signals Analysis Columns 7x24 Economic Calendar QuotesData WarehousePro User Agreement Privacy Policy About Us
Risk Disclosure
The risk of loss in trading financial assets such as stocks, FX, commodities, futures, bonds, ETFs or crypto can be substantial. You may sustain a total loss of the funds that you deposit with your broker. Therefore, you should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.
No consideration to invest should be made without thoroughly conduct your own due diligence, or consult with your financial advisors. Our web content might not suit you, since we have not known your financial condition and investment needs. It is possible that our financial information might have latency or contains inaccuracy, so you should be fully responsible for any of your transactions and investment decisions. The company will not be responsible for your capital lost.
Without getting the permission from the website, you are not allow to copy the website graphics, texts, or trade marks. Intellectual property rights in the content or data incorporated into this website belongs to its providers and exchange merchants.