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A New Type of Bond Could Help Japan Utilities Cut Emissions

Ayai Tomisawa

(Bloomberg) -- Japanese power producers have been emitting more carbon dioxide since a nuclear disaster in 2011 led to an increased reliance on fossil fuels, but a new kind of bond could help them reverse that trend.

So-called transition bonds can pay for not-so-green companies to move toward cleaner business models, and Japanese electrical utilities could issue them to help reduce carbon emissions, according to Mana Nakazora, chief ESG and chief credit analyst at BNP Paribas SA. Companies overseas such as Hong Kong’s Castle Peak Power Finance Co. and Brazil’s Marfrig Global Foods SA have already sold such notes.

Read a QuickTake about transition bonds

The introduction of transition bonds in Japan could provide investors with more opportunities to put their money in environmentally-friendly debt at a time when its Japanese market is expanding fast. Japan aims to reduce emissions from fossil-fuel generated power 34% by 2030, as part of a broader commitment to cut total emissions by 26%, according to BloombergNEF. However, those cuts are being measured against the highest levels in decades, set in 2013.

In the meantime, companies abroad are pushing ahead with issuance of debt they call transition bonds.

Castle Peak, a subsidiary of CLP Holdings Ltd., issued $500 million of notes in July 2017 to pay for a natural gas plant that it said was critical to Hong Kong’s efforts to cut emissions. Marfrig, the world’s second-largest beef supplier, sold $500 million of bonds last year that it said will fund the purchase of cattle from ranchers in the Amazon region who comply with non-deforestation and other sustainable criteria.

Read more: Europe’s ‘Taxonomy’ May Set Global Standards for Green: Q&A

(Updates with link to story on one-day record bond sales in Japan)

To contact the reporter on this story: Ayai Tomisawa in Tokyo at atomisawa@bloomberg.net

To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Ken McCallum

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