Japan’s First Sovereign Climate Transition Bonds Debut

Last month, Japan issued the world’s first sovereign climate transition bonds, called Japan Climate Transition Bonds. The new model is designed to incentivize the Japanese private sector to transition away from investing in carbon-intensive, fossil fuel-centric production to funding decarbonized manufacturing.

When its Japan Climate Transition Bond Framework was first announced last November, a government statement said, “Through [green transformation, or GX] realization, Japan aims to achieve its international commitment, i.e., 46% reduction of GHG [greenhouse gas] emissions by FY 2030 compared to FY 2013, and carbon neutrality by 2050.”

Japan has committed to issuing some ¥20 trillion ($133 billion) of GX-enabling bonds over the next decade; some ¥800 billion each of five-year and 10-year bonds were to have been issued in February and another ¥1.4 trillion in FY 2025. 

Dai-Ichi Life Insurance Company Limited was an early buyer of the bonds. In a statement last month, Dai-Ichi said, “Through this investment, the company aims to provide financial support for initiatives aimed at realizing carbon neutrality and strengthening the country’s industrial competitiveness.”

As that suggests, backers expect GX-enabling bonds not only to spur economic growth but to finance emerging technologies such as semiconductors and next-generation batteries: important elements in achieving Japan’s emission reduction targets. They also align with the country’s commitment to mitigate risks associated with climate and geopolitics. Both risks have come to the fore in recent years; climate risks such as sea level rise, floods, and even tsunamis are a constant risk for the island nation. Geopolitically, energy-poor Japan has typically relied on the Middle East and Russia to supply its energy needs; 95% and 4% of its crude oil comes from the one and the other, respectively. And Japan is the world’s second-largest importer, after China, of liquid natural gas (LNG).