Japan has become the first country in the world to sell so-called sovereign climate transition bonds on the market. The auction was successful, although with slightly lower interest than expected, Reuters reported in February this year.
Climate bonds are a new class of securities aimed at financing measures by companies, and in this case the Japanese government, aimed at reducing the negative impact on the environment. They differ from so-called green bonds, the proceeds of which are most often earmarked for a specific project.
The 10-year bonds worth 800 billion yen ($5.3 billion) sold are the first in Prime Minister Fumio Kishida’s plan to sell 20 trillion yen worth of climate bonds over the next decade with the aim of achieving climate neutrality by 2050.
Proceeds from the bond sale will be invested, for example, in the construction of wind farms and aircraft using alternative fuels.
The yield on the bonds is 0.74 percent, or lower than expectations.
“I would say expectations before the auction were too high. Still, the yield on climate bonds was slightly lower than the yield on 10-year JGBs, which means the bonds enjoyed a premium,” said Keisuke Tsuruta, fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities.
Japan’s Finance Ministry plans are to sell 800 billion yen in five-year transitional bonds on February 27, which will be followed by 1.4 trillion yen in transitional bonds in the fiscal year starting in April.
Until Japan’s landmark $11bn issuance last February, transition bonds were the niche preserve of mostly Asian corporates, accounting for only a tiny percentage of global issuance of sustainability bonds. Outside of Japan and China, the only other transition bond issuers were the European Bank for Reconstruction and Development and Italian energy infrastructure company, Snam, though both were repeat issuers.
Unlike green bonds, which finance projects with immediate environmental benefits, climate transition bonds are specifically designed for industries that are carbon-intensive but committed to long-term decarbonisation.
Japan’s issuance is the part of the government’s green transformation (GX) plan to raise a total of $134bn in transition sovereign bonds over the next ten years. The use-of-proceeds span 22 different fields – including hydrogen and ammonia, next-generation innovative reactors, food, agriculture, forestry, and fisheries, among others—and cover all seven carbon-emitting sectors.
On May 9, 2025, the Climate Bonds Initiative hosted the “GX & Sustainable Finance Roundtable” in Tokyo, bringing together key stakeholders from Japan’s financial sector and relevant ministries. This roundtable served as a platform for open and strategic dialogue on how transition finance can support Japan’s Green Transformation (GX) and broader sustainable finance goals.
Sapporo’s Vision for a Green Future
One segment of the roundtable spotlighted the City of Sapporo’s efforts to position itself as a hub for green innovation. Ms. Kaori Nishiyama, Director of GX Promotion for the CIty of Sapporo, outlined Sapporo’s recent initiatives, including the development of a GX project certification scheme based on the Climate Bonds Standard aimed at attracting international investors. Ms. Nishiyama also introduced a new tax incentive scheme launched in April to support foreign businesses and startups, showcasing Sapporo’s commitment to becoming a hub for green finance and innovation.
As Japan continues to scale its GX ambitions, Climate Bonds remains committed to supporting both domestic and international actors in accelerating sustainable finance efforts. Continued dialogue and coordinated action will be key to unlocking green investment opportunities and driving a resilient, low-carbon future.
Illustrative Photo by Tien Nguyen: https://www.pexels.com/photo/sign-hanging-on-tree-with-blossoms-20376142/
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First published in this link of The European Times.
