Paper Released on Creating an Enabling Environment to Scale-up Transition Financing to Accelerate Decarbonization of Hard-to-Abate Sectors

1. Background

In order to achieve 2050 carbon neutrality, it is essential to provide finance for the transition of hard-to-abate sectors which face technological or economical difficulties in decarbonizing in one step (transition finance).
Japan has led the world in creating an environment to promote transition finance by formulating basic guidelines, developing sector-specific technology roadmaps, and supporting the creation of model cases.
International financial alliances such as GFANZ, endorsed by major financial institutions, require ambitious targets for financial institutions to reduce their own emissions net zero, including the emissions of their borrowers/investees (financed emissions).

Some financial institutions may refrain from financing hard-to-abate sectors based on their concern of a temporary increase in financed emissions, hindering the transition of such sectors.

METI, FSA, and MOE, together with ten financial institutions and other organizations developing globally (see appendix), established the Japan Public and Private Working Group on Financed Emissions to Promote Transition Finance (hereinafter referred to as the Working Group) under the Taskforce on Preparation of the Environment for Effective Transition Finance, under which issues related to financed emissions have been examined. To begin with, in February this year, the Working Group recognized the importance of transition finance and identified issues related to financed emissions, and compiled a paper on issues to be addressed to private initiatives and intergovernmental tracks including the G7 and G20.

The Working Group will continue to examine and discuss specific methods of calculating and disclosing financed emissions, and thereby contribute to international rulemaking in this field.

2. Summary

The paper first summarizes the expected roles of financial institutions in achieving carbon neutrality and the characteristics of financed emissions. It also notes the necessity to consider methods of disclosure, including those for financed emissions, that encourage financial institutions to provide finance toward decarbonization. The Working Group will communicate their findings through intergovernmental tracks including the G7 and G20, as well as through discussions in international initiatives by the private sector.

Related Material

• Creating an Enabling Environment to Scale-up Transition Financing to Accelerate Decarbonization of Hard-to-Abate Sectors(PDF:322KB)

Related Links

• Transition Finance
• Japan Public and Private Working Group on Financed Emissions to Promote Transition Finance (in Japanese)

Division in Charge

Environmental Economy Office, Industrial Science and Technology Policy and Environment Bureau