Japanese
July 21, 2023
Financial Services Agency

 "Formulation of the Transition Finance Follow-up Guidance" Announced

The Financial Services Agency (FSA), jointly with the Ministry of Economy, Trade and Industry (METI) and the Ministry of the Environment (MOE), has held repeated meetings of the Study Group for Discussing Development of Environment for Climate Transition Finance (Chair: Dr. Ito Kunio, Director, Hitotsubashi CFO Education and Research Center). The study group, aiming to improve the credibility and effectiveness of transition finance, has formulated a Guidance on Follow-ups Involving Transition Finance - Toward Better Dialogues with fundraisers as a guide to secure the steady accomplishment of transition strategies and the improvement of corporate value particularly after the provision of funds.

1. Background

Since the adoption of the Paris Agreement in 2015, a growing number of countries and regions have put forward goals for carbon neutrality (referred to as “CN”), thereby raising global momentum for decarbonization. Amid this situation, Japan has also proposed ambitious international commitments for a 46% decrease in greenhouse gas (GHG) emissions by FY2030 toward achieving of CN by 2050.

Achieving CN worldwide requires innovations on top of efforts that have already been established as clean technologies. To this end, it is imperative to supply funds to certain efforts involving transition by hard-to-abate sectors (those facing difficulties in accomplishing decarbonization in one bound), or in other words, to support transition finance.

Japan’s markets have been developing environments for the utilization of transition finance ahead of other countries, reaching a level of about 1 trillion yen in total at the end of FY2022. To encourage financial institutions to promote efforts that contribute to decarbonization in the actual economy through such transition finance, the key elements are for companies to build and disclose highly credible transition strategies and to encourage financial institutions to support and facilitate the steady accomplishment of the strategies through dialogues with those companies.

To this end, the study group, aiming to improve the credibility and effectiveness of transition finance, formulated the Guidance on Follow-ups Involving Transition Finance - Toward Better Dialogues with Fund Raisers for financial institutions (in particular, bond investors) as a guide for the steady accomplishment of transition strategies and the improvement of corporate value, particularly after financing.

2. Outline of the basic guidelines

The guidance focuses on what happens after implementation of transition finance. It aims to help financiers follow up with companies they have financed and thereby encourage fundraisers to propel their efforts in accordance with the transition strategies for decarbonization. In this context, the guidance provides well-organized basic ideas and key points for following up these matters as a reference for personnel in charge of practically handling such tasks. Specifically, the guidance explains key points to note in confirming the progress of strategies, goals, and target projects for transition finance.

The guidance is composed of two chapters. Chapter 1 presents definitions and purposes of follow-ups as well as basic ideas, and Chapter 2 provides actions to be taken and key points in conducting the follow-ups. These are organized in accordance with the flow of the follow-ups, and it also presents some case studies to help readers picture specific situations. In addition, the guidance has three Appendices as supplementary sections at the end. Appendix 1 provides a well-organized list of key points to be considered and items to be checked as shown in Chapter 2, Section 2 and subsequent sections as a quick-reference sheet. Appendix 2 focuses on the difference in relationships between fundraisers and financiers in terms of loans and bonds and, in light of this, it presents well-organized approaches to carrying out follow-ups that are limited to bonds. Appendix 3 summarizes key points of characteristics in certain sectors that financiers should take note of; these points are taken from the technology roadmaps for each sector.

 Transition Finance Follow-up Guidance
 Transition Finance Follow-up Guidance(Overview)
 Results of the call for public comments (in Japanese)