JAPAN Trends and Developments Contributed by: Satoshi Inoue, Yuki Kohmaru, Hikaru Naganuma and Masahiro Yamamoto, Anderson Mori & Tomotsune
cial trust licence. Needless to say, industry play- ers are closely monitoring these developments. ESG finance ESG finance is getting more attention in the Jap- anese finance market. For example, according to the Ministry of the Environment (the “MOE” ), the number of domestic green loan deals increased from one in 2017 to 221 in 2023. The Japanese government is also encouraging the expansion of ESG finance transactions through various ini- tiatives, including the issuance of MOE guide- lines for green loans, green bonds and sustain- ability-linked loans and bonds.
So far, the impact of ESG-related issues on the terms and conditions of acquisition finance doc- umentation in Japan has been limited. However, this is expected to change as ESG concerns grow in significance. One feature of ESG finance is linking the financial terms with the borrower’s performance against the pre-agreed sustaina- bility performance targets (SPTs). For example, some loan agreements introduce a margin ratch- et mechanism, where the interest rate fluctuates depending on the borrower’s operational perfor- mance against ESG-related criteria. The lender also often requires information undertakings that oblige a borrower to submit ESG-related key performance figures.
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