BoJ climate loanbook grows to $26bn

November 15, 2022|Written by David Clarke|Bank of Japan

The Bank of Japan (BoJ) has now dispersed climate loans totalling nearly $26bn, governor Haruhiko Kuroda said today.

The BoJ conducted the first auction in its climate response financing operations (CRFO) in December last year and carried out a second round in July. The facility provides zero-interest financing towards loans and investments for sustainable projects.

The latest figures confirm that the CRFO is the second-largest such programme in the world. The People’s Bank of China’s carbon emission reduction facility was reported in July to have delivered $31bn in support, although doubts have been raised over the credibility of emissions reductions claims made by the scheme’s beneficiaries.

In order to draw on the CRFO, banks are required to publish information in accordance with the recommendations of the Taskforce for Climate-related Financial Disclosures. The BoJ has now deemed 63 institutions as eligible for participation. The loans are for an initial duration of 12 months but can be rolled over until 2030.

Banks may use the funds to issue green or sustainability-linked loans and bonds, and to provide transition finance. They must show that the activities they are supporting comply with relevant national and international standards, such as the International Capital Market Association guidelines on green bonds.

Kuroda said the requirement for participating banks to disclose information would have a disciplining effect on the market, adding that the operations will “continue to function as a catalyst” and encourage decarbonisation efforts in Japan.

Bank lending plays a greater role in Japan’s financial system than some of its G20 counterparts, and Kuroda expressed a hope that the CFRO would support the transition efforts of large firms as well as small and medium-sized enterprises.

However Sayuri Shirai, a former BoJ board member, recently wrote on Green Central Banking that the bank’s efforts are undermined by the lack of a robust review and reporting framework for green finance instruments. She warned that in the absence of a green taxonomy, it is unclear how activities financed under the CRFO will contribute towards Japan’s legally-binding carbon neutrality target.

Kuroda has justified taking action on climate by arguing that doing so falls within the BoJ’s price stability and financial stability mandates. This progressive interpretation of the interaction between climate change and the BoJ’s core responsibilities is unusual among G20 central banks.

“From a central bank standpoint, with its mandate of achieving price stability and ensuring the stability of the financial system, supporting the private sector’s efforts on climate change will help stabilise the macroeconomy in the long run,” he said when announcing the scheme.

This page was last updated November 15, 2022

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