Financing Japan’s energy transition

With its seventh green bond issuance, Tokyo Metropolitan Government is cementing its leading position at the forefront of Japan’s energy transition.

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As the world’s most populous metropolitan area, and home to around one quarter of Japan’s population in Greater Tokyo Area, Tokyo’s sustainability drive not only makes a major contribution to the country’s overall transition to a low-carbon economy, but also sets a benchmark for the world’s other largest urban areas. 

Sustainability strategy on track  

Tokyo’s most recent green bond issuance is a clear sign that the city’s long-term strategy to integrate sustainability into its economic activities remains on track. In October, the Tokyo Metropolitan Government (TMG) raised JPY40 billion (US$271 million) via its seventh green bond, and the first since pandemic-related restrictions were removed in Japan earlier this year.  

Toshiaki Otani, Head of Capital Markets Japan, BNP Paribas, explained: “TMG’s latest green bond highlights the city’s strong commitment to its sustainability agenda, which remains intact despite the disruptions caused by Covid-19.”  

Toshiaki Otani

TMG’s latest green bond highlights the city’s strong commitment to its sustainability agenda, which remains intact despite the disruptions caused by Covid-19.

Toshiaki Otani
Head of Capital Markets Japan, BNP Paribas

The bond’s proceeds will be used to finance or refinance the eligible projects listed in TMG’s Green Bond framework, such as the initiatives on energy conservation, renewable energy and adaptation to climate change. The number of eligible projects increased to 22 projects from 17 projects in the last fiscal year. These include installation of photovoltaic power generation equipment at metropolitan public housing projects and storage battery installation projects for the use of renewable energy sources. 

It comes just one year after its previous issuance – a JPY30 billion (US$214 million) green bond.  

A longstanding issuer  

As an experienced issuer of green bonds, TMG has traditionally been at the forefront of Japan’s municipal bond issuers. It has issued green bonds in the domestic bond market every year since 2017, and has a comprehensive framework for the governance of these debt instruments. The Tokyo Green Bonds Framework is aligned with the International Capital Market Association (ICMA) Green Bond Principles, setting out how proceeds will be used, the project selection criteria, and ongoing reporting requirements. 

As TMG continues to raise funds for sustainable activities, it also revised its Tokyo Environmental Master Plan in 2022, which indicates the concrete targets and measures the city is taking to meet its aim to reach net zero by 2050 and “Carbon Half” by 2030.  

For example, TMG intends to have all of its facilities to be powered by 100% renewable electricity by 2030. TMG also targets the total installed cumulative capacity of the solar power generation equipment in its facilities to 74,000kW in 2030, from 27,055kW in 2021. 

Renewed focus on sustainable finance  

The deal comes alongside a high-level restatement of the important role that sustainable finance will play in Japan’s transition. At the PRI in Person forum in October, Japanese Prime Minister Fumio Kishida said that “changing the industrial and social structure to shift away from fossil fuels to one that is oriented towards clean energies is a great challenge, but also an opportunity for growth.” 

Speaking to a gathering of major investors, he explained how the Japan Green Transformation (GX) framework aims to channel household savings into green investment and attract institutional investment to drive economic development through emissions mitigation. Over the next ten years, Japan expects to raise more than JPY150 trillion (US$1 trillion), via public and private financing to achieve net zero in 2050. 

In November, Ministry of Finance Japan announced that BNP Paribas is one of the marketing supporters for GX Japanese government bonds in 2023. As one of the two foreign institutions marketing these instruments, BNP Paribas is set to leverage its deep expertise in ESG to arrange a series of fixed income investor meetings for international investors.  

Nationwide commitment to the energy transition 

More broadly, in 2023 Japan’s public bodies have been raising capital to finance energy transition-related spending.  

In February for example, the Japan Finance Organisation for Municipalities, a joint funding organisation for all of the country’s local governments, raised €500 million from a five-year fixed rate green bond. And more recently in September, the Development Bank of Japan also raised €500 million worth sustainability notes that will be used to finance eligible projects and businesses.  

These deals were well received by investors, with BNP Paribas acting as a joint bookrunner on both transactions. 

The steady flow of sustainable debt issuance from Japan shows the country’s commitment to the energy transition, as it lays the ground for future deals from public institutions and corporates. And since Japan is the world’s third largest economy, its successful realisation of its green ambitions will have an impact in Asia and beyond.