The Financial Services Agency of Japan (JFSA) finalized the supervisory guidance on climate-related risk management and client engagement as well as published reports on “financial systems that open up a new sustainable society" and environmental, social and governance (ESG) evaluation and data quality. JFSA is also inviting comments on the Code of Conduct for ESG Evaluation and Data Providers. Additionally, the Bank of Japan (BOJ) published the results of the first market functioning survey on climate change.
Below are the key highlights of the recent updates.
- The supervisory guidance on climate-related risk management and client engagement documents supervisory dialog on financial institutions’ climate-related risk management and engagement with their clients to support the client responses to climate-related opportunities and risks, including possible approaches and case examples of client engagement. This guidance is non-binding and serves as a baseline for supervisory dialog between JFSA and the financial institutions to promote better practices at financial institutions.
- The Expert Panel on Sustainable Finance (EPSF) of JFSA published its second report on “financial systems that open up a new sustainable society." The Expert Panel on Sustainable Finance proposed policies for promoting sustainable finance, framed in the four agendas of "enhancing corporate disclosure," "capital market functions," "the role of financial institutions,” and “overarching issues” in its report published on June 2021. The second report of the Panel was published to communicate the progress of the past year as well as further issues and recommendations. The second report summarizes various issues surrounding sustainable finance, including recent changes over the past year. It also summarizes the implementation status of measures and future issues.
- JFSA published a report of the Technical Committee for ESG evaluation and data providers. The report summarizes the current status of ESG evaluation and data provision and issues in view of future market development. It also summarizes specific actions expected to ESG evaluation and data providers, investors, and companies as recommendations. With regard to ESG evaluation and data providers, the report covers issues on not just ESG evaluations conducted on a stock or company basis (corporate evaluation, ESG rating, etc.), but also ESG evaluations conducted on a bond, loan or project basis (bond evaluation, etc.), as well as data provision related to these two types of evaluation and data provision.
- Since February 2022, the Technical Committee for ESG evaluation and data providers discussed a wide range of issues, including the current status of ESG evaluation and data, challenges faced by stakeholders in the appropriate provision and use of ESG evaluation and data, and future developments. Based on discussions at the Technical Committee, JFSA has compiled the Code of Conduct for ESG Evaluation and Data Providers and is requesting comments until September 05, 2022.
- BOJ launched the market functioning survey on climate change with a view to assessing the functioning of Japanese financial markets in tackling climate change and understanding the challenges for improvement. In the survey, the respondents provided a view that climate-related risks and opportunities were reflected to a certain degree in the pricing of both stock and corporate bond markets in Japan, although there is room for further reflection in both markets.
Keywords: Asia Pacific, Japan, Banking, Securities, Climate Change Risk, ESG, Sustainable Finance, Data Providers, Code of Conduct, Survey Results, BOJ, JFSA
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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