How the Tokyo Metropolitan Government has become a beacon for large urban areas making the shift to sustainable finance

The Greater Tokyo area accounts for one quarter of Japan’s population making it the world’s most populous metropolitan regions. As a result, its drive towards sustainability not only contributes significantly to Japan’s transition to a low-carbon economy, but sets a benchmark for other similarly sized urban areas around the world.

Staying the course on sustainability

This October, the Tokyo Metropolitan Government (TMG) raised ¥40 billion ($271 million) via its seventh green bond. The first since the relaxation of pandemic-related restrictions, the bond issue clearly indicates Tokyo’s commitment to stay the course on sustainability and integrate it within economic activities.

Toshiaki Otani, head of capital markets Japan, BNP Paribas, said: “TMG’s latest green bond highlights the city’s strong commitment to its sustainability agenda, which remains intact despite the disruptions caused by Covid-19.”

Proceeds from the bond will finance or refinance eligible projects as enshrined in TMG’s green bond framework: initiatives on energy conservation, renewable energy, and adaptation to climate change. TMG has a comprehensive framework for governing these debt instruments. Its green bond framework is aligned with the International Capital Market Association (ICMA) Green Bond Principles which clearly delineate how proceeds will be used, project selection criteria, as well as ongoing reporting requirements.

The number of eligible projects has increased from 17 in the last fiscal year to 22. These include installation of photovoltaic power generation equipment at metropolitan public housing projects, and storage battery installation projects for the use of renewable energy sources.

It comes just one year after TMG’s previous issuance – a ¥30 billion ($214 million) green bond.

A longstanding issuer with concrete targets

As an experienced issuer of green bonds, TMG has been at the forefront of Japan’s municipal bond issuers. It first began issuing green bonds in 2017 and has done so every year ever since.

Even as it raises funds for sustainable activities, TMG also revised its Tokyo Environmental Master Plan in 2022, which indicates the concrete targets and measures the city is taking to meet its aim of reaching net zero by 2050 and halving the use of carbon by 2030.

For example, by 2030 TMG intends for its facilities to be completely powered by renewable electricity. TMG also aims to increase the total installed cumulative capacity of solar power generation equipment in its facilities to 74,000kW in 2030, from 27,055kW in 2021.

A renewed focus on sustainable finance

The deal comes alongside a high-level restatement of the criticality of sustainable finance in Japan’s transition. At the PRI in Person forum in October, Japanese Prime Minister Fumio Kishida said “Changing the industrial and social structure to shift away from fossil fuels to one that is oriented towards clean energies is a great challenge, but also an opportunity for growth.”

Speaking to a gathering of major investors, he explained how the Japan Green Transformation (GX) framework aims to channel household savings into green investment, and attract institutional investment to drive economic development through emissions mitigation. Over the next decade, Japan expects to raise more than ¥150 trillion ($1 trillion), via public and private financing to achieve net zero in 2050.

In November, the Ministry of Finance Japan announced that BNP Paribas is one of the marketing supporters for GX Japanese government bonds in 2023. As one of the two foreign institutions marketing these instruments, BNP Paribas is set to leverage its deep expertise in ESG to arrange a series of fixed income investor meetings for international investors.

Nationwide commitment to the energy transition

More broadly, through 2023 several public bodies in Japan have raised capital to finance energy transition-related spending.

In February, the Japan Finance Organisation for Municipalities, a joint funding organisation for all the country’s local governments, raised €500 million ($545 million) from a five-year fixed rate green bond. And more recently in September, the Development Bank of Japan also raised €500 million in sustainability notes that will be used to finance eligible projects and businesses.

These deals were enthusiastically received by investors, with BNP Paribas acting as a joint bookrunner on both transactions.

The steady flow of sustainable debt issuance from Japan shows the country’s commitment to energy transition, as it lays the ground for future deals from public institutions and corporates. Since Japan is the world’s third largest economy, the successful realisation of its green ambitions will have an impact in Asia and beyond.

Further reading:

Transition bonds: evolving across financial institutions and governments in Asia - BNP Paribas CIB

What’s next for sustainable finance and investing in Asia? - BNP Paribas CIB

Tokyo Green Bonds set the standard for Japan’s local governments - BNP Paribas CIB