Japan Sustainable Finance Policy Update March 2021 – May 2021

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This IGES Issue Brief is an update of policy developments related to sustainable finance in Japan between March 2021 and May 2021.

March to May was a busy period for Japan’s sustainable finance policy, as several key outputs likely to shape Japan’s sustainable finance were issued. The Ministry of Economy, Trade and Industry (METI), the Financial Services Agency (FSA) and the Ministry of the Environment (MOE) issued the ‘Basic Guidelines on Climate Transition Finance,’ which are meant to provide guidance on transition-labelled financial instruments, in early May. MOE announced the ‘Green Impact Assessment Guide’ as an outcome of the Positive Impact Finance Taskforce (established under the ESG High Level Panel) and the ‘ESG Regional Finance Practice Guide 2.0’ as an outcome of the Regional ESG Finance Taskforce (also established under the ESG High Level Panel) in late March.

The FSA continued its work on multiple fronts. The ‘Expert Panel on Sustainable Finance,’ established under the FSA, continued its work and has produced a draft outcome report, which is helpful in understanding the Panel’s most up-to-date thinking on key aspects of sustainable finance policy. The FSA also created a ‘Social Bonds Study Group’ under the Expert Panel, which is mandated to produce practical guidelines for the issuance of social bonds. The FSA presented the draft of the revised Corporate Governance Code and Stewardship Code in early April, based on the recommendations issued by the ‘Council of Experts Concerning the Follow-Up of Japan’s Stewardship Code and Japan’s Corporate Governance Code.’ The proposed revisions would make the guidance stronger and clearer on sustainability-related disclosure. The FSA closed the call for public comments in early May.

Several ministries also launched new initiatives. The Cabinet Secretariat set up an ‘Expert Panel on Climate Change’ to conduct cross-sectoral discussion on climate change, identifying sustainable finance as one of the issues to be addressed. METI established the ‘Dialogue towards Long-Term Management and Investment for Sustainable Corporate Value Creation Study Group’ (SX Study Group). The Study Group will discuss disclosure and engagement regarding non-financial information. METI also announced the ‘Asia Energy Transition Initiative (AETI)’ to ensure continued cooperation on transition (finance) in the wider Asian region. The FSA and MOE announced the establishment of a ‘Joint Team for Enhancing Sustainable Regional Economies’ to move forward on regional ESG finance.