The Financial Services Agency of Japan (JFSA) published draft amendments to the "comprehensive supervision guidelines for small- and medium-size and regional financial institutions," with the comment period ending on August 09, 2021. Additionally, JFSA finalized amendments to the "comprehensive supervision guidelines for major banks," which will be applicable from November 01, 2021. Also published was the feedback received on the draft guidelines for major banks. Additionally, the Expert Panel on Sustainable Finance, which JFSA had established in December 2020, published a report that summarizes key perspectives and cross-cutting issues on sustainable finance; the report highlights that broad discussion needs to be held on appropriate corporate disclosures regarding sustainability and notes the importance of this dialog among investors and financial institutions.
The key points highlighted in the report include the following:
- Following the revisions of the Corporate Governance Code (June 2021), the quality and quantity of climate-related disclosure should be enhanced based on the Task Force on Climate-related Financial Disclosures (TCFD) recommendations or an equivalent framework.
- Developing a “green international financial center” can contribute to more loans and investment towards sustainable societies in Asia and rest of the world. Institutional investors should enhance environmental, social, and governance (ESG) investments and engagement with investees. Asset managers should carefully explain the characteristics of an ESG-related investment trust at its establishment and distribution and be accountable for ESG aspects of the selected issues on an ongoing basis. JFSA should monitor asset managers in this regard.
- A platform can be developed for practical information of ESG-related bonds, including green bonds and a mechanism that provides objective certification of the eligibility of ESG-related bonds.
- Financial institutions need to support the transition of the real economy, integrating sustainability opportunities and risks into their business strategies and risk management. To support loan recipients and investees’ climate transition, financial institutions are expected to accumulate know-how, improve skills, and develop analytical tools. JFSA should continue to discuss with financial institutions the effective use of scenario analysis and encourage them to develop a risk management system for climate change.
Comment Due Date: August 09, 2021
Keywords: Asia Pacific, Japan, Banking, Securities, SME, Sustainable Finance, ESG, Climate Change Risk, Disclosures, Green Bonds, Transition Risk, TCFD Recommendation, 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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