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4 minutes, by BOJ’s climate drive is complicated by a lack of definition on “green”* BOJ may include transition finance as eligible loans – sources* BOJ may forego interest reward in climate scheme – sources* BOJ’s climate drive is complicated by a lack of definition on “green”* BOJ may include transition finance as eligible loans – sources* At its meeting on July 15-16, the BOJ will present a sketch of its climate plan. (Reuters) – TOKYO, July 8 (Reuters) – According to individuals familiar with Japan’s thinking, the central bank would likely offer zero-interest long-term funds to commercial lenders who provide loans or investments for climate-change-related operations. The concept will be included in an overview due next week that lays out the specifics of the Bank of Japan’s new green finance credit scheme. The BOJ would join a growing number of central banks in stepping up efforts to address the economic consequences of climate change. While the details are still being worked out, the climate scheme would work in a similar way to existing BOJ loan programs that use the banking sector to pump money into the economy. However, the BOJ’s efforts are hindered by the lack of a precise definition of what constitutes a “green” loan, leaving it in a bind if some of the loans turn out to be less ecologically beneficial than the banks claimed. According to five sources familiar with the BOJ’s thinking, policymakers are leery of providing extra incentives, like as paying interest to banks that use the plan, as it does for another loan program geared at helping coronavirus pandemic-affected enterprises. “Climate change is a subject fraught with ambiguity. The new plan is simply going to be a beginning point “four other sources agreed, according to one of the sources. The BOJ will announce its plan at its next policy meeting on July 15-16, with the first batch of loans expected to be disbursed before the end of the year. According to the sources, the BOJ is likely to set aside zero-interest, long-term funding for banks that increase loans or investment for climate-related initiatives. They added that “transition finance,” or funding to help polluting companies migrate to greener operations, will be considered among the loans eligible for the scheme. The BOJ, however, may forego paying 0.1 percent or 0.2 percent interest to banks that use the program, instead offering longer-than-usual loans that last many years as an inducement, according to the sources. “Given the ambiguous meaning of green,” a second source added, “it may be difficult for the BOJ to offer too many incentives.” Because the BOJ has yet to reach an agreement on the parameters of the funding, discussions are still preliminary and subject to change. Due to a paucity of data on Japan’s green finance market, which remains modest compared to that of Western nations, the BOJ may not reveal the scheme’s size next week, they added. The plan is in line with Prime Minister Yoshihide Suga’s commitment to make Japan carbon-neutral by 2050, a lofty target for a country that relies largely on imported energy. It also comes at a time when central banks throughout the world are debating how to address climate change. Later on Thursday, the European Central Bank will announce its position on climate change. As governments and businesses throughout the world march toward decarbonization, Japan’s megabanks are under increasing pressure to stop financing coal-fired power plants. The BOJ’s plan is the first among central banks to focus on bank loans, as opposed to other concepts that involve using collateral or asset-buying programs to send funds to environmentally friendly enterprises. The BOJ already has many credit schemes in place, including one that pays banks 0.1 percent to 0.2 percent interest if they increase lending to pandemic-affected small businesses. (Leika Kihara and Takahiko Wada contributed reporting; Sam Holmes edited the piece.)/nRead More

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