By Leika Kihara and Takahiko Wada
TOKYO (Reuters) - Japan's burgeoning green bond market will keep growing next year as Prime Minister Yoshihide Suga's pledge to make the country carbon-neutral by 2050 boosts investor and issuer appetite, said Mana Nakazora, a member of a key government policy panel and chief credit analyst at BNP Paribas (OTC:BNPQY) Japan.
Japan saw its market for green bonds - used to finance clean energy and environment projects - expand to 824 billion yen ($7.95 billion) last year, 24 times its size five years ago, environment ministry data showed. Globally the market has boomed with about $250 billion sold last year - 3.5% of the world's total bond issuance.
Nakazora said green bonds and other ESG (Environmental, Social and Governance) assets may eventually make up 20% of Japan's 60-trillion-yen corporate bond market. ESG has become big business for the investment industry with tailwinds coming from U.S. President-elect Joe Biden's campaign pledge to make climate change a policy priority.
"More investors want to put their money in ESG assets, while an increasing number of companies feel they need to issue green bonds," said Nakazora, who also oversees ESG investment in Japan.
"Achieving a carbon-neutral society would also require more funds," she told Reuters, speaking in an interview on Wednesday.
But she warned that Japan's government must set a clearer timetable on how to achieve its carbon-neutral target for companies to make a smooth transition towards a greener society.
The Bank of Japan can also promote green finance by setting ESG guidelines for its asset management, which would send a message to private banks that they should do so too, she said.
"Central banks across the globe are starting to change with some already managing assets under ESG guidelines," said Nakazora, who is currently a member of a finance ministry panel that discusses fiscal and economic policy.
"It's time for Japan's government, central bank and financial regulator to follow suit."
($1 = 103.6100 yen)