Green Bond Debut of Japan Utilities Up to Renewables Push
Japanese utilities are among the biggest issuers of yen corporate bonds but have been absent from the green note market so far. Their debut may depend on progress in the country’s usage of naturally replenishable energy sources.
That’s the view of Reiko Hayashi, director and deputy president of Merrill Lynch Japan Securities Co., who said that if renewables become a bigger part of the nation’s energy source, which is now dominated by coal, utilities may issue green notes to finance environmentally-friendly projects. Those firms sold 15% of the 11.4 trillion yen ($105 billion) in yen corporate bonds issued in the year ended March 31, but they haven’t offered green notes yet, according to Bloomberg-compiled data.
“Renewable energy demand is not necessarily big at this point,” Hayashi said in an interview in Tokyo. “But there are discussions everywhere on how fast we can turn around the current situation and how fast the industry can shift to renewable energy sources from coal-fired energy.”
Japan has fallen behind other advanced economies in the use of renewables as an energy source, with those making up 8.1% of the country’s power output in 2017, compared with 30.5% in Germany, 27.9% in the U.K. and 25.5% in Spain, according to Ministry of Economy, Trade and Industry data. To increase use, Japan needs to find ways to deploy renewables at an affordable rate even as incentives are phased out, and to more efficiently manage output from solar power.
Environmental, social and green yen-denominated bond sales in Japan are expected to expand to over 1 trillion yen in 2020. That compares with 353 billion yen in 2018, according to Bloomberg-compiled data. The nation’s green note issuance is still limited to a few sectors such as finance, construction and leasing.
In the Samurai bond market, French power utility Electricite de France SA raised 137 billion yen in 2017 from a deal that included two green tranches.
“This is my personal opinion but we shouldn’t discourage companies that emit carbon from issuing green bonds,” said Hayashi at Merrill Lynch Japan. The market shouldn’t shun companies that are trying to come up with technologies to reduce emissions, she said.
Hayashi said climate financing in Asia must grow further considering that massive cuts to greenhouse gas emissions in the region will be needed to meet temperature targets outlined in the Paris accord on climate change.
“We can’t rely entirely on the public sector so we need to depend on the capital markets and the private sector,” she said. “Whether it’s bonds or loans or equities, green financing should grow further.”
Source: Bloomberg L.P.
