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

June 30, 2023
Financial Markets Department
Bank of Japan

Executive Summary

There is an increasing recognition that financial markets should play a greater role in terms of financial intermediation to expedite efforts in tackling climate change. Specifically, financial markets are expected to support industries' efforts to address climate change by pricing risks and opportunities arising from climate change (climate-related risks and opportunities) into financial instruments such as stocks and corporate bonds. This integration, combined with providing a more favorable environment for the issuance of climate change-related ESG bonds, would facilitate funding and investments in this area.

Last year, the Bank of Japan launched the Market Functioning Survey concerning Climate Change. The objective of this survey was to evaluate the functioning of Japanese financial markets in relation to climate change and gain insights into challenges that need to be addressed for further improvement. This year, the Bank conducted the second round of the survey, involving more entities. The questionnaire for the second survey was distributed to 816 entities including issuers, investors, financial institutions, and rating agencies. This marks an increase from the first survey, which reached 663 entities. Of the distributed questionnaires, 380 entities provided responses, indicating a response rate of 47 percent. In comparison, the first survey received responses from 290 entities, resulting in a response rate of 44 percent.

Similar to the findings of the first survey, respondents in the second survey viewed that climate-related risks and opportunities were priced into both the stock and corporate bond markets in Japan to a certain degree. At the same time, there was still perceived potential for further incorporation of these factors in the markets. To enhance the incorporation of climate-related risks and opportunities into market prices, many respondents raised issues regarding the availability of information and the assessment methodologies for evaluating these factors. The former included "enhancing and/or standardizing information disclosure" and "bridging data gaps on climate-related data," while the latter included "improving transparency in ESG evaluation" and "further developing analysis methodologies." Additionally, "increasing investors and/or issuers that place a high value on climate-related risks and opportunities" was reiterated, echoing issues raised in the first survey.

That being said, the results of the second survey implied positive changes in certain areas. For instance, continuous respondents, who participated in both the first and second surveys, reported that climate-related risks and opportunities were better priced in corporate bonds compared to the time of the first survey. Additionally, although the proportion of respondents raising issues about the availability of information such as "enhancing and/or standardizing information disclosure" remained high, it decreased slightly compared to the first survey. These findings align with the responses to an open-ended question, where many respondents highlighted changes that took place in the past 12 months. These changes included advancements in the development of climate-related disclosure standards, the introduction of mandatory disclosure requirements for certain items, and progress in discussions surrounding transition finance.

Market stakeholders have demonstrated their commitment to addressing the issues highlighted in the survey and have been actively working towards the development of the market. In line with this, the Bank will continue conducting the survey, improving its contents, and providing information on the state of market functioning related to climate change, as well as highlighting future challenges. Furthermore, the Bank aims to contribute to the advancement of financial markets by not only monitoring developments outside of Japan but also conducting additional research and analyses on the functioning of financial markets in relation to climate change. Additionally, the Bank will engage in communication and coordination with relevant stakeholders to foster the development of market infrastructure in this domain.


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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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