Japanese bank chief says bridging funds essential for climate

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Helping big polluters transform into greener businesses is one of the biggest challenges facing Japanese banks, and simply cutting funding to ‘brown’ businesses could undermine these transition efforts, the chief said. of the country’s banking group.

“The discussions often lead to a rather dualistic thinking of lending money to green businesses and not to brown businesses,” Makoto Takashima, president of the Japanese Bankers Association, said in an interview. “We need to provide financial support for the transition. “

Takashima’s push to support companies making this pivot underscores the delicate balance facing global lenders as they shift from financing fossil fuel industries to greener businesses and projects. Green bonds and global banking sector loans exceeded the value of fossil finance for the first time this year, an unprecedented reversal since the signing of the Paris Agreement in 2015.

This shift is playing out more slowly in some Asian countries like India, Japan and Indonesia, whose economies and energy supplies are still tied to coal, one of the dirtiest fuel sources. About 70% of Japan’s electricity is produced by fossil fuels.

Takashima, who is also Managing Director of Sumitomo Mitsui Banking Corp. – a unit of Japan’s second-largest lender – said some banks in Europe and elsewhere had stopped funding companies considered large issuers. These measures could stifle the investments needed to achieve carbon neutrality, he said.

“Without the necessary investments, there will be stranded assets and no one will be able to do anything about it,” said Takashima, who took over as head of the banking group on Thursday until March 31.

The Bank of Japan this month expressed a similar cautiousness with regard to ESG policy. The central bank has discussed the need for its new climate change agenda to be flexible as there is still no general agreement on which projects will be considered environmentally friendly.

Prime Minister Yoshihide Suga has set the goal for Japan to reach net zero emissions by 2050. According to Shunsuke Oshida, head of credit research at Manulife Investment Management, the costs of the transition will amount to approximately $ 3.2 trillion (356 trillion yen). .

Engagement, rather than outright divestment, is the primary approach for lenders and regulators in Japan. Earlier this year, the Japanese government issued guidelines on financing the transition, stressing the need to support decarbonization efforts in “hard-to-reduce sectors,” such as energy.

Japan’s three biggest banks, including Sumitomo Mitsui, have long been criticized by environmental groups and others for funding coal-fired power generation projects in emerging Asian markets.

Responding to growing investor demand for sustainable loans, banks are now adopting stricter environmental policies and increasing their green finance targets. In May, Sumitomo Mitsui said he would not fund new coal-fired power projects and pledged around $ 180 billion in green funding over 10 years.

Kimiko Hirata, international director of environmental group Kiko Network, said Japanese banks are moving in the right direction, but “there is still a big gap for their overall business operations to be in line with tackling the climate crisis or complying with it. of the Paris Agreement “.

His group is among those who made shareholder proposals to Japan’s largest lender Mitsubishi UFJ Financial Group Inc. this week, demanding that it include an annual disclosure of environmental goals in its articles of association.

Hirata said that while divestment is not the only viable approach and that inducing large issuers to make a green transition could be an option, Japanese banks do not have sufficiently specific targets to justify such measures. .

“Transition (finance) and engagement without clear measures and targets runs a big risk of only prolonging the status quo,” she said.

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