The UK and Japan are seeking closer cooperation on transition finance, with policymakers and market participants calling for better alignment between the two countries’ frameworks to help mobilise capital for industrial decarbonisation.
That was the central message from the UK-Japan Transition Finance Forum held in London last week. The forum was organised by Tokyo’s financial innovation hub, FinCity.Tokyo, co-hosted by the GX Acceleration Agency, an organisation established as part of the Japanese government’s GX (Green Transformation) policy initiative, and sponsored by asset manager Nomura Holdings, Inc. and TheCityUK, an industry-led body representing UK-based financial and related professional services.
Representatives from government, financial markets and industry said transition finance has become increasingly important to achieving the green transition and that the UK and Japan have complementary strengths. While Japan helped pioneer transition finance, the UK offers a mature, sustainable finance ecosystem with established climate disclosure frameworks and deep capital markets.
The Tokyo Metropolitan Government also outlined efforts to position Tokyo as a leading city in sustainable finance, citing incentives for international asset managers and investment opportunities in Asia’s transition economies.
Officials also highlighted Japan’s GX Transition Bond programme and the GX Acceleration Agency’s blended finance initiatives, which form part of the country’s plan to mobilise ¥150 trillion of investment towards carbon neutrality.
The Tokyo Metropolitan Government also showcased its resilience bond programme, including what it said was the world’s first resilience bond certified under the Climate Bonds Initiative’s resilience taxonomy. Bond proceeds are being used to finance climate adaptation projects such as flood prevention, underground water storage facilities and coastal defence infrastructure.
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During panel discussions featuring representatives from DBJ Europe, Manulife Investment Management, MUFG Bank, Ninety One, the Financial Conduct Authority and the London Stock Exchange Group, participants said Japan and the UK have made progress in aligning their approaches to transition finance. Japan introduced official transition finance guidelines in 2021 and has continued expanding its sovereign and corporate transition bond market, while both countries are working towards greater interoperability between their frameworks to support cross-border investment.
Transition finance should not be viewed simply as funding for green projects, but as capital that enables carbon-intensive businesses to transform, according to the panellists. Credible transition plans should be backed by measurable targets and science-based pathways, while financing should avoid extending the lifespan of high-emitting assets.
Japan’s GX Emissions Trading Scheme, a mandatory carbon trading scheme that allows companies to trade emissions allowances, and voluntary carbon markets, in which individuals voluntarily buy and sell carbon credits to offset their unavoidable greenhouse gas emissions, could complement each other as the market develops.
Looking ahead, panellists called for improved interoperability between the two countries’ frameworks, more bond issuance in London and Tokyo, and a stronger pipeline of investable transition projects.
