Transition power, a JGB SLB, prints in USD

10 minute read

The Japanese government is powering up its ambitious climate transition program by issuing Climate Transition Bonds. We believe this is an excellent opportunity to issue Sustainability-Linked Bonds tied to the transition program, which will drive down the cost of capital, attract global investors, and propel Japan towards net-zero.

By issuing a complementary SLB alongside its Climate Transition Bond, Japan can take a global lead in sustainable finance and bolster its chances of reaching its ambitious 2030 carbon emissions reduction target. The SLB structure would deliver considerable benefits for both the issuer and the potential investors.

For investors, the SLB structure allows a hedge against climate exposure, as it will increase returns if the issuer is not able to reduce climate risk in the form of carbon emissions. The general corporate purpose format of the SLB shifts the focus from potentially controversial or legacy technologies in the Use-of-Proceeds format towards the ultimate goal of the transition financing. Over time, we would expect SLB issuance to become as standardised as green bond issuance, and even easier to manage, as it requires that headline targets are monitored rather than capex on a diverse set of projects.

For the issuer, embedding strategy into a bond contract signals substantial commitment to climate targets, and an expectation that investors will diligently track progress. As investors are compensated if the issuer goes off target, recurring issuances will be smoother as there will be less debate around previous commitments and their fulfilment.

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