Transition Finance

What’s New

1. Transition Finance Overview

• A "decarbonized society" is a vision of the future that should be pursued on a global scale and requires a large amount of financing.
• In Japan, in order to realize a carbon-neutral and decarbonized society by 2050, it is important to finance the transition toward steady decarbonization, including energy conservation and fuel switching, mainly in GHG-intensive industries, in addition to efforts for projects that are already at a decarbonized level (green), such as renewable energy. Not all countries, regions, and industries can decarbonize at once in terms of both technology and cost, and it is necessary to maximize emission reductions by adopting transitional technologies.
• Transition finance is a new financing approach that aims to support companies that are trying to steadily reduce GHG emissions in accordance with a long-term strategy to achieve a decarbonized society.

2. Basic Guidelines on Climate Transition Finance

(1) Positioning of the Basic Guidelines

• The Basic Guidelines are geared toward operating companies, securities firms, banks, evaluation agencies, investors, etc., to enable such companies to label (name) their low and decarbonization investments as "transition bonds/loans" and raise funds for them.
• As transition finance is relatively new, promoting and ensuring its credibility will help it become established as a financing tool for decarbonization, especially in sectors where emission reductions are difficult. It will contribute to Japan's goal of achieving carbon neutrality by 2050 by introducing more financing.
• The Basic Guidelines were formulated in May 2021 in collaboration with the Financial Services Agency and the Ministry of the Environment, based on the international principles of the Climate Transition Finance Handbook released in December 2020 by the International Capital Markets Association (ICMA), which publishes the Green Bond Principles and other guidelines.

(2) Overview of the Basic Guidelines

• This section summarizes issues related to disclosure, disclosure items and supplements, and matters related to third-party review for the four elements (strategy and governance, materiality, scientific basis, and transparency), as with the ICMA.
• In the Basic Guidelines, transition finance does not focus solely on the use of proceeds and KPIs, but rather on the company's "transition strategy" toward decarbonization and the credibility and transparency of implementing that strategy in a comprehensive manner.
• In addition to internationally recognized scenarios from the IEA and other organizations, the guidelines allow reference to Nationally Determined Contributions (NDCs) and sectoral roadmaps from other countries that are consistent with the Paris Agreement.

(3) Positioning of Transition Finance

• The Basic Guidelines describe the positioning of transition finance as shown in the figure below.
• Although the Use of Proceeds may include a wide range of applications, it can be said that transition finance is for entities that are more ambitious in terms of their future as they are required to have a clear strategy for realizing long-term goals that are consistent with the Paris Agreement.
• Transition finance is therefore positioned, like green bonds, as an extremely important tool for the realization of a decarbonized society.

• Basic Guidelines on Climate Transition Finance (Full)(PDF:3,199KB)
• Basic Guidelines on Climate Transition Finance (Summary)(PDF:538KB)
• ICMA Climate Transition Finance Handbook

3. Roadmap for Promoting Transition Finance

• The Ministry of Economy, Trade and Industry (METI) developed a roadmap to provide a concrete direction for transition toward achieving carbon neutrality in 2050 for GHG-intensive industries.
• It is assumed that companies will refer to this roadmap when considering climate change measures using transition finance.
• The roadmap is expected to assist financial institutions in determining whether a company's strategies and initiatives toward decarbonization qualify for transition finance when the company raises funds.

(1) Economic and Industrial Sectors

Iron and Steel	English	Japanese
Chemical	English	Japanese
Power	English	Japanese
Gas	English	Japanese
Oil	English	Japanese
Pulp and Paper	English	Japanese
Cement	English	Japanese

(2) Other Sectors

In other industrial sectors, there are roadmaps and other documents that show technologies and directions toward decarbonization, which can be used for transition finance.

• Roadmap to Zero Emission from International Shipping (Ministry of Land, Infrastructure, Transport and Tourism) (under review)
• Domestic Marine Transport/Summary of the Study Group for Promoting Carbon Neutral Domestic Marine Transport (Ministry of Land, Infrastructure, Transport and Tourism) [in Japanese]
• Aviation Sector/Procedure Chart for the Promotion of Decarbonization of Aviation (Ministry of Land, Infrastructure, Transport and Tourism) [in Japanese]

4. Transition Finance Model Project

(1) Overview

In order to promote transition finance, this project subsidizes the assessment costs for cases that conform to the Basic Guidelines and are deemed to have model qualities and publicizes information of such cases as a good model.

(2) Model Cases

The following projects were selected as model cases as a result of rigorous screening by a third-party committee (Modelability Model Quality Examination Committee).

(FY2021)

Companies	Overview		Second Party Opinion
1．Nippon Yusen Kabushiki Kaisha	English	Japanese	English	Japanese
2．Mitsui O.S.K. Lines, Ltd.	English	Japanese	English	Japanese
3．Kawasaki Kisen Kaisha, Ltd.	English	Japanese	English	Japanese
4．JFE Holdings, Inc.	English	Japanese	English	Japanese
5．Japan Airlines Co., Ltd.	English	Japanese	English	Japanese
6．Sumitomo Chemical Company, Limited	English	Japanese	English	Japanese
7．Tokyo Gas Co., Ltd.	English	Japanese	English	Japanese
8．JERA Co., Inc.	English	Japanese	English①  English②	Japanese① Japanese②
9．IHI Corporation	English	Japanese	English	Japanese
10．Osaka Gas Co., Ltd.	English	Japanese	English	Japanese
11．Mitsubishi Heavy Industries, Ltd.	English	Japanese	English	Japanese
12．Idemitsu Kosan Co., Ltd	English	Japanese	English	Japanese

(3) Subsidy for global warming countermeasures promotion project

The following companies were selected as recipients of FY2022 subsidy for global warming countermeasures promotion project.
 

(FY2022)

Companies	Overview		Second Party Opinion
1．Hokuriku Electric Power Company	English	Japanese	ー	Japanese
2．TOHO GAS Co., Ltd.	English	Japanese	English	Japanese
3．Tokyo Gas Co., Ltd.	English	Japanese	English	Japanese
4．Kirin Holdings Company, Ltd.	English	Japanese	English	Japanese
5．Japan Airlines Co., Ltd.	English	Japanese	English	Japanese