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Results of the First Market Functioning Survey concerning Climate Change- Progress in the Improvement of Market Functioning and Challenges for the Future -


August 5, 2022
Financial Markets Department
Bank of Japan

Executive Summary

As the efforts to tackle climate change accelerate globally in recent years, financial markets are expected to play a greater role in terms of financial intermediation. Specifically, financial markets are expected to support industries' efforts to address climate change by reflecting risks and opportunities arising from climate change (climate-related risks and opportunities) in the prices of financial instruments such as stocks and corporate bonds, providing a more conducive environment for the issuance of ESG bonds related to climate change (hereinafter "the ESG bonds"), thereby facilitating funding and investments.

The Bank of Japan has launched the Market Functioning Survey concerning Climate Change with a view to assessing the functioning of Japanese financial markets in tackling climate change and understanding the challenges for improvement. Since climate change is a long-term issue involving various economic stakeholders, the survey will collect views from a broad set of market participants on an annual basis. The first survey was distributed to 663 entities including issuers, investors, financial institutions, and rating agencies, and more than 40 percent of those responded.

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. In order that climate-related risks and opportunities will be reflected more in the prices, many respondents raised issues regarding the availability of information and also the assessment methodologies of climate-related risks and opportunities. The former included "enhancing and/or standardizing information disclosure" and "bridging data gaps on climate-related data," and the latter included "improving transparency in ESG evaluation" and "further developing analysis methodologies." These issues were also raised by many respondents as challenges for increasing the size of the ESG bond market in Japan.

Looking at supply and demand in the ESG bond market, the survey found solid demand for the ESG bonds. As for the motivation behind the ESG bond issuance, respondents emphasized strategic interest for their businesses and investor relations (e.g., improving their reputation, diversifying the investor base) rather than favorable issuing conditions of the ESG bonds. On the investor side, making social and environmental contributions was the most important reason for investing in the ESG bonds. These results suggest that Japan's ESG bond market would further expand with a broader base of issuers and investors by raising their awareness of those benefits and by reducing the cost of issuing as well as investing in the ESG bonds with more enhanced and standardized information disclosure.

Market stakeholders have already been making efforts to overcome the issues identified in the first survey, such as the availability of information and the assessment methodologies of climate-related risks and opportunities, to further develop the market. The Bank will provide information on the status of market functioning concerning climate change and challenges for the future by continuously conducting this survey while improving its contents. The Bank also intends to contribute to advancing financial markets by following up on efforts made outside of Japan, conducting additional research and analyses on the functioning of financial markets concerning climate change, and communicating and coordinating with relevant stakeholders to develop market infrastructure.


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Financial Markets Department, Bank of Japan
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Coordination and Market Analysis Division and Market Infrastructure Division
Financial Markets Department

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