Asia’s energy transition: the evolving regulatory picture
Asia’s ability to curb carbon emissions will be critical in the global battle to tackle climate change, but there is no one-size-fits-all solution.
With green finance gaining traction globally, the Tokyo Metropolitan Government (TMG) recently provided an inspiring example of how Japan’s cities can use sustainable finance to drive decarbonisation – and promote the wider adoption of sustainable finance by local government entities.
TMG, which has issued green bonds in the domestic bond market every year since 2017, is a pioneer among Japan’s municipal bodies. Its comprehensive Tokyo Green Bonds Framework, updated in 2022, is aligned with the International Capital Markets Association (ICMA) Green Bond Principles, setting out how proceeds will be used, project selection criteria and ongoing reporting requirements.
Embedding sustainability is key to Tokyo’s commitment to becoming a global financial city. TMG’s green bonds programme is incentivising other issuers and engaging investors, attracting more funds to sustainable finance.
Toshiaki Otani, Head of Debt Capital Markets Japan, BNP Paribas
“Embedding sustainability is key to Tokyo’s commitment to becoming a global financial city,” says Toshiaki Otani, Head of Debt Capital Markets, Japan at BNP Paribas. “TMG’s green bonds programme is incentivising other issuers and engaging investors, attracting more funds to sustainable finance.”
Supporting carbon reduction goals
With 14 million inhabitants, Tokyo aims to reach net zero emissions by 2050 and “half-zero” by 2030. To reach these goals, it is pursuing a 50% reduction in energy consumption, and will source 50% of energy from renewables by 2030. TMG’s aim is that, by that time, buildings and facilities will use 100% renewable power, and it will have phased out 100% of internal combustion-powered vehicles.
In the meantime, funds from TMG’s green bonds are financing solar energy installations, the adoption of greener fuels for public transport, and pollution control through new wastewater recycling and treatment facilities. The city is also investing in green real estate development, clean transport infrastructure and climate change adaptation, including flood prevention measures.
“Tokyo can do a great deal to help drive the global journey toward net zero,” said TMG Kazumichi Saga, Director, Bond Section, Budget Division, Bureau of Finance, Tokyo Metropolitan Government. “In addition, Tokyo Metropolitan Government has a responsibility to its citizens and institutions to respond to climate change by embedding sustainable best practices into its funding programmes.”
These ambitions are working. TMG’s October 2022 issuance was its sixth annual sustainable issuance, setting an example for other cities to follow: Osaka Prefecture issued its inaugural green bond in October, and the City of Kyoto announced its plan to sell green bonds in December this year.
Strong credit rating and structure
TMG’s JPY15 billion (US$107 million) 30-year Tokyo Green Bond, at a coupon of 1.568%, priced alongside a five-year tranche of the same size. The book was twice oversubscribed mainly by insurance companies who are core players in the green bond market.
“TMG’s robust credit as a leading issuer in the municipal market had definitely helped attract investor demand,” says Tatsuro Uesugi, Head of Primary Markets and Syndicate, Japan at BNP Paribas. “In addition, a history of previous green issuance has given it a strong record of reporting on allocation and impact, meaning investors can draw on tangible transparency and detailed follow up disclosures.”
For BNP Paribas, the transaction was significant as the first time the bank has participated as a Joint Lead Manager on a local-currency sustainable financing for TMG. Japanese banks lead the country’s green bond market and have served issuers well, but the participation of global counterparties ensures the arrangements undergo fresh due diligence against the most recent international standards. The transaction further adds to BNP Paribas’ credential as the leading global sustainable house where the Bank was awarded 2022 World Best Bank for Sustainable Finance by Euromoney.
We were delighted to be included as a Joint Lead Manager on the 30-year tranche and the only European bank in the offering. Tokyo is an international financial city and is well placed to engage international investors as it works towards a net zero future.
Tatsuro Uesugi, Head of Primary Markets and Syndicate Japan, BNP Paribas
“We were delighted to be included as a Joint Lead Manager on the 30-year tranche and the only European bank in the offering,” said Uesugi. “Tokyo is an international financial city and is well placed to engage international investors as it works towards a net zero future.”
Japan’s local government sector is playing a leading role as global action to counteract climate change gathers pace. Through its example, Tokyo illustrates the pivotal role cities can play in mitigation and adaptation, and is spurring others to adopt financial tools to meet their sustainability goals.
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