A Japanese government-backed bank is set to spend about US$40 billion for sustainable purposes, and it will scrutinise the use of funds to ensure companies aren't greenwashing.
The Development Bank Of Japan (DBJ), which has supported companies with funding during the pandemic, is gearing up to boost sustainable financing. It earmarked about 40 per cent of its total lending and investment, or 5.5 trillion yen (S$61.6 billion), for environmental, social and governance (ESG) purposes over the 5 years started April 2021.
"We suspect that there will be some financing plans whose goals are sketchy down the road," said Fumiyo Harada, an executive officer and chief manager of the sustainability management office at the DBJ, in an interview. "We are planning to look at each financing plan strictly to make sure that washing claims won't arise."
The lender's stance is in line with a global push by regulators to step up scrutiny for sustainability credentials. Goldman Sachs Group is facing a US investigation into its funds offering investments using ESG criteria, while police looking for evidence of misleading claims raided DWS Group's Frankfurt offices.
Sustainability-linked and transition-linked loans are growing in popularity in Japan, where carbon-intensive manufacturing is an integral part of the economy. Such lending sets goals for borrowers rather than detailing projects for which funds will be used, as is the case with green bonds. Some investors say that the linked debt may leave borrowers with more scope to use ESG funds inappropriately.
Japanese issuers have sold US$2.2 billion of transition bonds, about 40 per cent of the global total, according to Bloomberg-compiled data.
"Sustainability-linked financing or transition financing deals could contain things that are questionable in terms of their purpose," said Harada. BLOOMBERG