Japan will ramp up efforts to promote sustainable finance such as by nurturing its green bond market and analyzing financial institutions’ resiliency to climate risks, according to the government’s new regulatory guideline.
In collaboration with the central bank, the Financial Services Agency (FSA) will conduct scenario analyses on Japan’s three mega-banks and top three non-life insurers to measure their resilience to risks posed by climate change.
The analyses will be based on common scenarios on climate risks and conducted as a pilot exercise through June next year, Japan’s financial regulator FSA said in its fiscal 2021 regulatory guideline released on Tuesday.
Japan will also set up a scheme to certify green bonds and work with Japan Exchange Group – the operator of Tokyo Stock Exchange – on a common platform that issuers and investors can tap for information on green bonds, according to the guideline.
“It’s important to create an environment where market participants can smoothly and accurately make investment decisions that contribute to decarbonization,” the FSA said.
The moves follow the Bank of Japan’s decision in June to boost funding for efforts to fight climate change.
Japan is among the world’s most disaster-prone countries with a history of big typhoons. It has been hugely affected by climate change, with floods causing many casualties.
But many Japanese banks have dragged their feet on climate issues compared to their European counterparts, partly due to the country’s heavy reliance on thermal and coal power energy.
Prime Minister Yoshihide Suga last year set a goal to make Japan carbon neutral by 2050, bringing it more in line with other countries as global attention to climate change heightens.
Japan’s green bond market is growing but still small with a size of around 775 billion yen ($7 billion), against the world’s $300 billion market for the assets.