Mizuho Securities' head of its Sustainability Promotion Department Osamu Morishita outlines how the topic of transition finance has become a top priority as Japan leads the way on the global stage.

Environmental Finance: How has the topic of transition finance evolved in Japan and beyond over the past year?

The importance of transition finance has been rapidly increasing. In Japan, under the leadership of the Ministry of Economy, Trade and Industry (METI), the topic of transition in Japan and overseas is being discussed, and activities to promote transition finance are being implemented as appropriate.

In June 2023, METI formulated the Transition Finance Follow-up Guidance for financial institutions and investors to secure the steady accomplishment of transition strategies and the financing of corporate transition journeys.

The guidance aims to achieve carbon neutrality by engaging in regular dialogue between financiers and fund providers on the progress made and how future progress should be made.

The international community is also increasingly discussing and understanding transition finance.

The Glasgow Financial Alliance for Net Zero (GFANZ), A group that formed during the COP26 climate conference in Glasgow, issued a consultative document on transition finance in September 2023, while the International Capital Market Association (ICMA) and Japan Securities Dealers Association (JSDA) hosted an Annual Sustainable Bond Conference 2023 in Tokyo focusing on transition finance in October 2023.

At the conference, Mizuho Securities emphasised the importance of transition finance and avoided emissions. In addition, the Japanese government recognises that JPY150 trillion yen ($990 billion) will be needed over the next 10 years to meet the Japanese GX (Green Transformation) roadmap, jointly by the public and private sectors, and plans to finance JPY20 trillion of this amount through Climate Transition Interest-Bearing Bonds, the world's first transition-labeled government bonds. The first issue of these bonds was issued in February 2024, and through this issuance, interest in transitions has increased dramatically.

EF: How is Mizuho responding to these trends and changing client needs?

Mizuho, as a leader in transition in Japan, has laid the foundation for the decarbonisation of high-emissions companies.

Mizuho has provided strategic planning and financing support for transitions in a wide range of sectors, including power, gas, aviation, machinery, and non-ferrous metals. In fact, Mizuho Securities ranked first in Japan in terms of transition bond underwriting and structuring agent from FY2021 to FY2023.

In the course of these experiences, Mizuho Securities has focused on convincing not only issuers but also investors through in-depth discussions on the use of proceeds, strategies, and scientific rationale. High-emissions industries are often large companies, such as heavy and chemical industries that require large amounts of capital to drive decarbonisation.

We have been engaged in discussions that take into account the impact on the real economy, while also acting as a broker between investors and issuers.

We also exchange views with foreign investors and with foreign NGOs to provide information on transitions in Japan, while keeping abreast of developments overseas to gain a timely understanding of global trends.

We also communicate regularly with the METI, the Ministry of the Environment, and other government agencies, and by sharing information on private initiatives overseas, we also contribute to transitions in Japanese industries.

EF: Mizuho has achieved its third win for Lead manager of the Year, green bonds – local authority/municipality – can you outline your approach and strengths in this area?

Mizuho Securities has been the top underwriter of ESG bonds for five consecutive years and the top structuring agent for four consecutive years in Japan. We have a proven track record of engaging in many innovative and spillover deals, and we use the knowledge and experience we have gained from these deals to assist local authorities solve their challenges.

Last year, we received the Award for innovation - use of proceeds (green bond) for our support of Maruha Nichiro's Blue Bond issuance. By incorporating Blue elements into the sustainable finance framework developed by local authorities in Japan, we can offer a broader range of solutions to the challenges they face. Japan is a maritime nation, and at the same time, 75% of its land area is mountainous. The area inhabited is limited, and rivers run through this limited space. Water management is very familiar to local authorities in Japan.

In the example of blue finance that we supported, we created benefits from blue projects such as maintaining water quality through watershed sewerage projects; improving the water environment in fishing grounds by improving seaweed beds; increasing fishery resources by restoring productivity and contributing to a stable supply; reducing waste in ports and coastal areas by building cleaning ships and promoting efforts to form carbon-neutral ports. Having said that, local authorities have a wide variety of blue issues, and we try to provide solutions that are tailored to local conditions.

EF: How else is Mizuho adapting to international trends in the sustainable bonds market?

We participate in various initiatives and provide input and recommendations to accelerate understanding of transitions while keeping abreast of the latest trends. In Japan, as joint-lead of the Partnership for Carbon Accounting Financials (PCAF) subcommittee on the methodology for Facilitated Emissions, we have led Japanese financial institutions in identifying practical issues and challenges related to the methodology for Facilitated Emissions.

In addition, as one of the active contributors to the ICMA's Green Enabling Activities Task Force, Mizuho Securities has been participating in discussions and contributing to international rule-making by introducing and sharing our knowledge and the actual situation in Japan.

We also believe that human resources are extremely important. At the time of establishing Mizuho's Sustainability Promotion Department three years ago, the number of members was 15, but since we have actively recruited people with knowledge of ESG and sustainability from outside the company, including an automotive engineer and a strategy consultant, the number has doubled to 48. By actively recruiting people from different industries with knowledge other than finance, we are able to solve a wide range of ESG and sustainability issues faced by companies and help them implement their BX (Business Transformation) strategies.

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