JAPAN Trends and Developments Contributed by: Reiko Yoshida, City-Yuwa Partners
and effectiveness of individual borrowers’ transition strategies. In addition to these policy initiatives, a performance- linked interest subsidy scheme has been introduced pursuant to the Act on Strengthening Industrial Com - petitiveness of Japan to facilitate the provision of funding for transition finance. The scheme applies to loans extended to businesses that have formulated business adaptation plans with a duration of ten years or more, aimed at reducing CO₂ emissions towards the achievement of carbon neutrality by 2050, and that have obtained approval from the competent min - ister. To qualify for application of the scheme, the approved plan must include, in addition to end-of-period tar - gets, at least three interim targets serving as mile - stones for monitoring progress. Following certification of the plan, an interest rate reduction of up to 0.1% is applied up to the first interim target. Thereafter, where the borrower achieves the interim targets specified in advance during the plan period, additional interest rate reductions of up to a maximum of 0.2% may be applied. The funds for such interest rate reductions are pro - vided through interest subsidies granted by the gov - ernment, via the Japan Finance Corporation, to des - ignated financial institutions. To receive financial support under this performance- linked interest subsidy scheme, the relevant business adaptation plan must satisfy certain criteria, including: • the setting of ambitious targets; • the soundness and reasonableness of the transi- tion strategy; • appropriate monitoring and reporting arrange - ments; and • an expectation of enhanced competitiveness. With respect to target-setting, transition strategy, and monitoring and reporting, external verification is required to confirm consistency with the Guidelines and with the Guidance on Sustainability-Linked Loan Principles published by LMA, APLMA and LSTA,
thereby ensuring alignment with market-based evalu - ations. For plan certification, it is essential that the plan be structured in an integrated manner, encompassing not only environmental objectives but also targets relat - ing to productivity improvements and enhanced com - petitiveness. Designing long-term and interim targets coherently, satisfying the four elements set out in the Guidelines – strategy and governance, materiality, a science-based approach, and transparency – and articulating a concrete pathway for steadily reducing CO₂ emissions consistent with international frame - works constitute key requirements for plan certifica - tion and the application of financial support. Cases in the maritime sector Within the maritime sector, transition-linked loans have increasingly been adopted by Japanese ship - ping companies, particularly major operators. The performance-linked interest subsidy scheme has been applied within this framework, under which the follow - ing business adaptation plans have been approved. Case 1 • Implementation period of the business adaptation plan – ten years. • Environmental objectives – wWith a view to achiev - ing net-zero emissions by 2050, the company aims, through initiatives in the environmental field, to reduce GHG emissions from transportation by an average of 1.4% per year by 2030 compared with the 2019 level, and by 45% by fiscal year 2035 compared with fiscal year 2019. Through these initiatives to reduce environmental impact, the company seeks to enhance corporate value while simultaneously strengthening its competitiveness. • Financial performance objective – to improve consolidated adjusted return on assets (ROA) by at least 2% points. • Actions to be taken to achieve the objectives – (a) introduction of clean energy; (b) further deployment of energy-saving technolo - gies; (c) more efficient operational practices; (d) development of business models enabling net- zero emissions; and
323 CHAMBERS.COM
Powered by FlippingBook