JERA: An enhanced SLB proposal for ambitious transition

12 minute read

JERA, Japan’s largest power generation company, has issued a new kind of debt that shares similarities with a Sustainability-Linked Bond (SLB). The development is a notable, albeit cautious, stride towards Japan’s overarching decarbonisation goals.

Like an SLB, JERA’s “transition-linked bond” is tied to a Sustainability Performance Target and does not constrain the use of proceeds. However, the cost to JERA should the company fall short of this target – a 0.1% donation of notional to the public good – is more symbolic than substantive. The emissions intensity reduction target itself is unambitious, falling short of the level required for JERA to align with the Electric Power Council for a Low Carbon Society’s decarbonisation trajectory.

These issues mean the bond is unlikely to reap a material pricing benefit and may not provide a powerful incentive to JERA to cut emissions.

We propose an enhanced SLB structure for JERA, incorporating symmetric coupon step-up and step-down features linked to two targets, one of which is far more ambitious than that used in the transition-linked bond. This would result in a structure with a financially material option value that could make it more attractive to investors and incentivise greater sustainability performance from JERA.

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