Japan beats the rest of the world with transition debt

It means that Japan is different from the rest of the world in developing environmental financing because of the push to encourage transition debt to help high emitters clean up their act.

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The government has drawn up detailed roadmaps to help companies shift to cleaner technology, which has resulted in more of the country s issuers selling transition bonds than elsewhere. Eneos Holdings Inc., Japan's largest oil refiner, is preparing to sell a novel transition-linked bond that is pinned to its long-term carbon-dioxide reduction targets.

Japan may be able to skirt around some problems that have arisen with environmental, social and governance debt in Europe because of the moves by Japan. Some oil companies there have decided to sell green bonds, fuelling skepticism among investors and potentially devaluing the market.

Motoko Ogawa, deputy director of the ministry's environmental economy office in Tokyo said that Japan s trade and economy ministry wants to avoid getting claims of greenwashing by getting companies to explain to investors that their technology transition is realistic and science-based.

Five Japanese borrowers have sold yen-denominated transition debt, after power generators Jera Co. and Kyushu Electric Power Co. priced such bonds this week, and more are in the pipeline. That compares with just one issuer from France and Italy and a couple from China and Hong Kong.

Two Japanese utility companies sell their first transition debtt.

In July of last year, Nippon Yusen KK sold the first yen transition bond. The shipper s note has lost 0.4% year-to-date, compared with 0.7% for Japanese corporate debt with five to seven years left to maturity in a Bloomberg index.

The funds raised from deals have been allocated for specific projects until now. One of the goals of Eneos potential transition-linked offering is to reduce its C 02 emissions by 46% by the end of fiscal 2030 compared with 2013 because of the fact that the refiner would have to make donations or take other steps if it doesn't meet its targets. The oil company could sell the bond early in the month of June.

Kamran Khan, head of the ESG for Asia-Pacific at Deutsche Bank AG, said that transition bonds have stumbled elsewhere in the world because of the extra burden of demonstrating and substantiating how the transaction contributes to sustainable practices.

Oil companies sold green bonds in Europe and the Middle East, leaving investors unconvinced by the issuers climate-friendly credentials and adding more grist to concerns of greenwashing.

Noriaki Nomura, head of debt capital markets at Mitsubishi UFJ Morgan Stanley Securities Co., one of the banks on the Eneos deal, said he excepts transition-linked bonds in large amounts because it allows companies to focus on longer-term carbon reductions.

The economy ministry said heavy industries such as utility, steel and chemical sectors are responsible for about 70% of the nation's greenhouse gases.

There are grounds for caution.

In Europe transition bond sales stalled because it became extremely difficult to define, said Bram Bos, head portfolio manager for green bonds at NN Investment Partners.

Nneka Chike-Obi, the Asia-Pacific head of ESG research at Fitch, shared that scepticism.

She said the transition label is very unclear. A bond is green or not, based on the perspective of an investor. None Used Cars Become An Expensive Problem for Online Dealers Like Carvana

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