Japanese lender turns to green bonds to meet demand for climate finance


TOKYO – The Japan Bank for International Cooperation seeks to play a leading role in mobilizing private finance to support the decarbonization of Asia’s energy supply, although its legacy of coal financing persists in Southeast Asia. South East.

Ahead of the COP26 climate summit, the Japanese government lender last week released its first-ever policy on environmental, social and governance standards, targeting a carbon-neutral financial portfolio by 2050 as well as net zero emissions in its operations by 2030.

The bank will also begin issuing green bonds to finance renewable energy, clean transportation and energy-efficient real estate projects abroad.

“Due to the government’s new carbon neutrality policy announced last year, I believe the behavior of Japanese companies has been radically transformed,” Hiroki Sekine, JBIC managing director for ESG, told Nikkei Asia in an interview.

“Now our customers in Asian countries are also looking in the same direction and also looking at carbon neutrality, which affects demand,” he added.

As the world is set to exceed the annual target of $ 100 billion in public climate finance and private finance far behind, JBIC’s green bond framework could redirect capital from developing Asia to electric vehicle manufacturing. , hydrogen supply chains and energy storage systems.

“JBIC’s commitment to achieve net zero emissions in its financial portfolio by 2050 is an important market signal for the region,” said Tom Arup, director of the Asia Investment Group on Climate Change.

The new policy aligns the JBIC with Japan’s commitment, along with the Group of Seven countries, to end public funding for overseas coal projects this year. While JBIC has not funded a coal-fired power plant since Vung Ang 2 in Vietnam in December, Japanese public financial institutions provided $ 10.9 billion for fossil fuels between 2018 and 2020. It was the second highest among G-20 countries, according to a report by Oil Change International and Friends of the Earth.

“Although JBIC’s green bond framework excludes fossil fuels, JBIC will not be applauded if it continues to fund new fossil fuel projects,” said Eri Watanabe, head of the Japan fundraising campaign at 350.org . On the same day as its ESG policy, JBIC announced funding of up to $ 850 million for an LNG project in Canada.

The gas will be part of JBIC’s “realistic plan” to support recipient countries in a more gradual transition from coal, Sekine said.

“Some countries need fossil fuels to embark on the path of a low carbon economy,” Sekine said. “Divestment is not a solution. We want to hear from host countries on what they want to do for these existing projects, and when they want to upgrade or introduce technology to reduce emissions, we would like to propose solutions or financial support. “

The bank plans to work with governments to improve local conditions for low-carbon energy. Many recipient countries, particularly in Southeast Asia, have aging and disconnected grids with minimal energy storage capacity.

“Japanese companies are very keen to invest in this, but host countries should develop an appropriate plan to attract private money by improving transmission lines,” Sekine said.

Because of their mandates, any climate ambition of public financial institutions such as JBIC and the US Development Finance Corporation is limited to proposals from private companies. Sekine said the bank would not set a target number of projects or yen amount for green finance, instead allowing clients to submit plans to potentially align JBIC with a net zero portfolio by 2050.

“They are ultimately trying to catalyze private sector investment, not drive investment,” said Courtney Weatherby, deputy director for Southeast Asia at the Stimson Center, a Washington think tank.

The impact of the new JBIC policy will depend on the share of JBIC’s commitments, totaling 1.68 trillion yen ($ 14.6 billion) in 2019, that will be allocated to green finance compared to other instruments. .

“If this green bond framework is just one of many options on the table, and the other options could support coal projects, then I think that significantly weakens the green bond framework here,” he said. added Weatherby.

The word “relentlessly” in the G-7’s commitment provided an exception to Japanese exports of ultra-supercritical coal technology, which can be up to 45% more efficient than traditional alternatives. Japan also exports carbon capture, use and storage technologies, and plans to export dual-fuel power plants that burn coal with ammonia, which does not emit carbon dioxide.

“JBIC could give more confidence that it will not unnecessarily extend the life of coal power by detailing the conditions under which it would continue to fund new projects with CCUS technology or co-combustion at the ammonia, ”Arup said.

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