Japanese report offers recommendations on promoting sustainable finance

A report by a panel set up by Japan’s Financial Services Agency (FSA) has provided recommendations on how to promote sustainable finance in the country.

According to Regulation Asia, the Expert Panel on Sustainable Finance was set up by the FSA in December last year and was tasked with creating measures that could ensure financial institutions and financial and capital markets channel investment into Japanese firms that support the carbon-neutral transition.

In May, the FSA published guidelines on climate transition finance with the aim of promoting financing for projects such as renewable energy as well as transitioning industries in the direction of decarbonisation.

The panel said that a ‘wide range of approaches’ need to be sought in order to raise awareness and accumulate business practices regarding impact finance.

The report detailed that institutional investors should enhance ESG investments and investee engagement in order to ensure capital market functions promote sustainable finance. It also highlighted that asset managers explain carefully the characteristics of an ESG-related investment trust at its establishment and distribution and subsequently be accountable for these areas on an ongoing basis under FSA monitoring.

The panel also encouraged the FSA to promote discussion of issues linked to ESG rating and data providers, involving a code of conduct for such companies. Furthermore, the panel noted a platform for innovation of ESG-related bonds should be created in tandem with a mechanism that offers certification of the eligibility of such bonds.

The panel detailed, “Financial institutions need to support the transition of the real economy, integrating sustainability opportunities and risks into their business strategies and risk management. Financial institutions should also accumulate know-how, improve skills, and develop analytical tools – in order to support borrowers and investees in their climate transition efforts.”

The panel concluded that developing a ‘green international financial center’ could contribute to more loans and investment towards sustainable societies in Asia and across the world.

The People’s Bank of China (PBOC) recently revealed it will begin quarterly assessments of the green finance performance of 24 major Chinese banks starting 1 July this year.

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