Supporting Japan's transition

Osamu Morishita, head of the sustainability promotion department at Mizuho Securities, reflects on the outlook for sustainability in the Japanese market for 2025.

Environmental Finance: What were the main themes in Japanese markets during 2024?

Osamu Morishita (OM): In local governments, decarbonisation, biodiversity, and blue, along with adaptation, became the main themes. The global market for ESG bonds reached $1 trillion, and with increasing awareness of environmental issues, there is a growing recognition in Japan, particularly as a country prone to natural disasters, that adaptation measures are essential. Japan faces various physical risks such as earthquakes, tsunamis, and floods, and the damages they cause are severe. As achieving the goals of the Paris Agreement becomes challenging, Mizuho Securities remains consistently aware of resilience against climate change risks when supporting green projects for local governments. Specifically, funding is allocated to projects addressing region-specific challenges such as the heat island effect and water disasters through the issuance of green bonds by Tokyo and Kawasaki.

In the field of transition bonds, nuclear power has become the main theme. In the context of the challenging in achieving the Paris Agreement, nuclear power generation is indispensable for stable electricity supply while also achieving decarbonisation. Kyushu Electric Power's transition bond was the first in Japan to use nuclear power generation as a funding purpose. In particular, it emphasises efforts to enhance safety, including seismic reinforcement work, the installation of seawalls and flood barriers, and measures to support the continued safe operation of nuclear power plants.

EF: What trends do you expect to dominate in 2025?

OM: I am confident that the main theme for 2025 will be transition. This year, discussions are underway regarding rule updates for transition finance at both ICMA and LMA. Mizuho Securities participated in ICMA's Climate Transition Finance Working Group and contributed to the dissemination and expansion of transition finance. In Japan, the number of issuers and sectors for transition finance is expanding, and similar trends are expected to continue. Additionally, blue and biodiversity have just begun to spread, and I believe they will expand beyond local governments in Japan. Furthermore, I think that adaptation within Japanese local governments can also be extended to various Asian countries. Many island nations in the Asia region are frequently affected by natural disasters such as typhoons and floods. The importance of measures to adapt to a warming society will increasingly grow, beyond just simple decarbonisation.

EF: Where will Mizuho focus its efforts this year?

OM: As a leading company in Japan's ESG bond market, Mizuho Securities will continue to focus on transition finance. The need to strongly support the transition of issuers is increasing. Additionally, regarding one of the indicators for evaluating transitions, avoided emissions, we published the Mizuho Avoided Emissions Focus Report, detailing its importance and the disclosure status of Japanese companies, thereby supporting the entire market. We are also focusing on international outreach, advocating for the importance of transition finance and avoided emissions alongside stakeholders such as World Business Council for Sustainable Development at last year's ICMA & JSDA conference and COP29. Furthermore, we will actively contribute to advanced initiatives to meet customer needs in diverse areas such as adaptation, biodiversity, blue, and gender, not just decarbonisation. Notably, last year, Fuyo General Lease issued Japan's first hybrid corporate bond (SLB) linked to executive compensation. The hybrid corporate bond has a nature that is intermediate between capital and debt, and by incorporating governance perspectives, it clarifies our commitment to addressing challenges and leads to ongoing engagement with stakeholders. Mizuho Securities supported this groundbreaking design as the structuring agent.

EF: Mizuho has won in three different awards categories this year, what is it that makes Mizuho stand out?

OM: Mizuho Securities continues to achieve number one position in underwriting and structuring agent performance in the Japanese market. We provide high-quality services that are sufficient to compete internationally while carefully considering the contents of ESG bonds and eliminating wash concerns, rather than resorting to easy labelling. I believe it is unprecedented for Japanese underwrites to achieve multiple awards consecutively, and the recognition of our efforts is a step towards realising a sustainable society, made possible by the collective efforts of our entire team. Encouraged by these awards, we will continue to promote projects that contribute to sustainability and meet the expectations of investors and stakeholders.

EF: How will the Japanese sustainable bond market continue to evolve?

OM: We are confident that Japan's ESG bond market will continue to develop. The issuance of ESG bonds is on an upward trend, and the diversification of issuers is progressing. With support from the Japanese government, the framework for transition finance is also being established, and efforts to provide funding to sectors where decarbonisation is challenging are underway. While transition finance has primarily focused on large corporations, it is expected to expand to small- and medium-sized enterprises, continuing to evolve further. Mizuho, as a group, has set a sustainable finance target of JPY100 trillion ($683 billion) and aims to contribute to global sustainability through the expansion of sustainable finance both domestically and internationally.

Osamu Morishita is head of the sustainability promotion department at Mizuho Securities

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