Green Bond Guidelines
The Ministry of the Environment, in an effort to maintain creditability in the environmental effects of Green Bonds and to reduce the issuer’s costs and clerical load, has created the Green Bond Guidelines in March 2017 to increase Green Bond issuance in Japan.
The Guidelines, in accordance with the GBP, which are widely accepted international Green Bond market, provide issuers, investors, and other market participants with illustrative examples of specific approaches and interpretations which are tailored to Japan’s bond market to aid with decision-making regarding Green Bonds.
At the same time, the Guidelines seek to prevent “green wash” bonds (bonds labeled as “green” despite having no environmental benefits or whose proceeds have not been appropriately allocated to Green Projects) from being issued and invested in while aiming for the further increase of Green Bond issuance in Japan.
In 2020, considering the update of GBP and market change surrounding Green Bonds, the Ministry of the Environment published Green Bond Guidelines 2020.
Basic Concepts of the Green Bond Guidelines
- Ideally, the Green Bond market is to be developed through interaction based on sufficient information between issuers and investors. To classify the expected elements of Green Bonds in the Guidelines will form the foundation for interactions between the issuers and investors.
- It is important for both issuers and investors that the credibility of Green Bonds in general is maintained within the market and society. In particular, it is extremely important to prevent green wash bonds from being issued and invested in as Green Bonds in the market.
- Consideration is given to maintain consistency with the Green Bond Principles which are widely accepted internationally.
- It is important for issuers to disclose information, and for investors and others to use that information in making assessments. Consequently, market discipline can be exercised to avoid greenwashing while securing the diversity of the approaches of issuers.
Elements that Green Bonds are expected to possess and examples of the possible approaches are organized into three levels (“should,” “recommend,” and “to be considered”) to serve as an indicator of applicability.
Structure of the Guidelines
- Chapter 1:
- Chapter 2:
- Overview of Green Bonds
- Chapter 3:
- Expected Elements of Green Bonds and Examples of Possible Approaches
- Use of proceeds
- Process for project evaluation and selection
- Management of proceeds
- External review
- Chapter 4:
- Model cases
- Chapter 5:
- Revisions of the Guidelines
Elements are sorted as follows, and detailed approaches are indicated.
- Sentences described with the word “should”
- Basic elements that bonds labeled as Green Bonds are expected to have
- Sentences described with the word“Recommend”
- Elements that bonds labelled as “green” are optimally expected to have
- Sentences described with the word “to be considered”
- Examples and interpretations