Osamu Morishita, Mizuho Securities head of sustainability promotion, tells Environmental Finance how sustainable bond trends in Japan have evolved as the nation sets its sights on a net-zero economy

Environmental Finance: Can you outline what Mizuho Securities have achieved in the sustainable bond space?

Osamu Morishita: Mizuho is proud to have been one of the first movers in the issuance of ESG bonds in Japan. Since we first entered the market, we have developed our offering to go beyond green bonds and now we work on transition bonds as well. Mizuho underwrote the largest amount of transition bonds and was appointed as structuring agent for the largest number of transition bond deals in Japan among peer companies for 2021 and 2022.

For the last four consecutive years since FY 2019, Mizuho ranked first for issuance amount of ESG bonds in Japan, according to Japanese data vendor CAPITAL EYE. Mizuho also said it has acted as structuring agent on more sustainability frameworks than any other Japanese securities firm for three consecutive years since FY 2020.

We have worked hard to foster an environment that facilitates the widespread implementation of sustainable finance, by working closely with issuers, investors, and authorities. We are also involved in various domestic and international rule-making processes. For example, we have shared our knowledge about financing the low-carbon transition in Japan through the Asia Transition Finance Study Group.

EF: How has the Japanese sustainable bond market evolved since the first green bond was issued?

OM: Compared with just a few years ago, the size and the number of issuances has changed significantly. The domestic market has expanded from about JPY50 billion ($382 million) in 2016 to JPY4.5 trillion in 2022. The figure in 2022 is a JPY1.5 trillion increase on 2021 alone.

The focus of financing themes has also changed, and now transition, biodiversity and natural capital-related issues feature. In addition, interest in social topics and human rights is also increasing. In Japan, the number of public announcements by investors that intend to invest in ESG bonds and follow a particular investment mission has increased dramatically in recent years.

While the market is changing rapidly, Mizuho's approach remains the same. As a financial intermediary, we are communicating deeply with issuers, investors, and authorities. We have awareness of the changing international trends as we communicate closely with Europe, US, and Asia to gather information on bonds around the world. We then integrate this knowledge back into the Japanese market.

EF: You have won two awards in this year's Bond Awards: Lead manager of the Year, green bonds – local authority/municipality and the Award for innovation – use of proceeds (green bond) – could you outline the work you have done in these areas?

OM: The blue bond, which won the Innovation Award, was used to finance a land-based salmon farming project. This requires less feed than raising cattle, swine, etc., which not only reduces GHG emissions, but also has a lower environmental impact on ecosystems. In addition, the production of protein-rich salmon will help meet the demand for protein for the world's growing population.

For the municipal green bond, the use of the proceeds covered environmental improvement of stork habitats, which falls under the category of conservation of terrestrial and aquatic biodiversity; forest road improvement, appropriate forest improvement through thinning, etc.; and improvement and conservation of "Japanese littleneck clam" fishing grounds as part of projects to improve fish reef fishing grounds and riverine environments.

Common to the two awards is the concept of biodiversity and natural capital. We have been quick to grasp what issuers and investors were looking for beyond just pure decarbonisation.

EF: To what do you attribute your success in these areas?

OM: We believe the key to success is structuring with a strong awareness of impact and transparency, while communicating closely with the issuer and taking into account the issuer's intentions.

In structuring the blue bond, we followed ICMA's Green Bond Principles and the International Finance Corporation's (IFC) Blue Finance Guidelines to ensure the project would be globally acceptable. We also focused on the measurement of impact and designed the project to disclose the impact quantitatively by setting KPIs for the amount of production and shipments from the project.

In the structuring and consultation phase of the municipal green bond, we facilitated the selection of the use of proceeds that were aligned with the municipality's basic environmental plan and global warming countermeasures promotion plan. We are able to apply our knowledge and experience of structuring several municipal ESG bonds while considering the uniqueness and impact of the municipality in question.

EF: What is the future for transition bonds and sustainable finance in Japan?

OM: Japan now has the largest number and volume of transition bond issuances in the world. Only Mizuho has been appointed as underwriter for all the domestic transition bond deals so far – helping Japan grow and become the world's largest transition bond market. Mizuho is working to support decarbonisation pathways in a wide range of industries, including gas, power, steel, and machinery.

In order to avoid any doubts of "transition washing", we ensure that the issuer's transition strategy is transparent, science-based, and consistent with the Ministry of Economy, Trade, and Industry's (METI) roadmap for each sector, thereby ensuring a sound Japanese transition bond market that is attractive to international investors.

As we aim to become a carbon-neutral world, credible transitions for hard-to-abate sectors are essential and transition finance will become an important cornerstone of sustainable finance as a result.

For more information, see: www.mizuhogroup.com/sustainability