Japanese regional bank spearheads drive for greener finance

Shiga Bank

17/12/2020 01:58

By Leika Kihara and Takahiko Wada
    TOKYO, Dec 17 (Reuters) - In a country only starting to
embrace green finance, a small lender based near picturesque
Lake Biwa, Japan's largest freshwater lake, is making the most
of its early push into environmentally friendly banking.
    While Japan's mega banks are among the biggest lenders to
the global coal industry, regional Shiga Bank has long supported
its local community's efforts to preserve the region's natural
habitat.
    With Prime Minister Yoshihide Suga pledging to make Japan
net carbon-free by 2050, it is broadening its green activities
beyond its local prefecture, looking to earn new fees and
differentiate itself in a crowded sector, while other small
lenders are also chiming in.  urn:newsml:reuters.com:*:nL4N2HH1AC
    "There's clearly more momentum and awareness in Japan on the
need to get serious about green finance," said Yoshinobu
Shimazaki, general manager of Shiga Bank's sustainable strategy
office.
    Japan has lagged Europe in promoting green finance due in
part to its heavy reliance on fossil fuel, while policymakers
are still coming to grips with regulatory standards.
    Shiga Bank, however, established its environmental
credentials in the 1980s, donating money to local projects such
as a water quality research vessel for the 670 sq km (259 square
mile) lake in western Japan.
    A decade before the United Nations set out its Sustainable
Development Goals (SDGs) in 2015, the bank launched its own
rating system to gauge how well borrowers were doing with
environmentally friendly goods and services.
    Nearly 60% of its borrowers now receive loans under the
system, which grants lower interest rates for firms with higher
grades.
    As regional banks suffer from years of ultra-low interest
rates, an ageing population and a drift to urban centres, Shiga
hopes its green expertise will give it an edge as Japan rushes
to meet its carbon-neutral target.
    "It's not just about helping the environment but breaking
out of traditional banking," said Shimazaki, who is recognised
as one of Japan's top experts in the field. "Sustainable finance
needs to be profitable. Otherwise, it won't work."
    In September, Shiga became Japan's first regional bank to
extend a sustainability-linked loan (SSL), which offers rate
discounts for promoting green business, with a 500 million yen
($4.8 million) loan to a local firm. SSLs set a higher hurdle
for borrowers than Shiga's own ratings system, with targets
screened by a third-party.
    It also led a 2.5-billion-yen syndicated SSL with 15 other
regional banks in November and is currently working on more such
loans, bank officials said.
    Such efforts have helped Shiga boost its advisory fees,
pushing fee earnings up 12% to 2 billion yen ($19 million) in
the year to end-March. Fee income was its fastest growing profit
centre, making up nearly 26% of total profits.
    Japan's environment ministry is now taking steps to promote
the sector, setting aside about $1 million in SDGs including to
help 11 regional lenders support sustainable finance projects.
    Nara Chuo Shinkin Bank, based in western Japan, was chosen
for a loan scheme targeting construction of low-emission homes
using solar power and built with local cedar trees.
    The goal is to revitalise the local forestry industry and
support builders of traditional Japanese wooden homes, which are
losing market share to cheaper, western-style houses.
    "Many small, local companies know little about SDGs. But
that needs to change for all of us to survive," said Akio
Yamada, who oversees the scheme at Nara Chuo Shinkin. "By
affecting the flow of money, banks can help people think green."
    ($1 = 103.4600 yen)

 (Reporting by Leika Kihara and Takahiko Wada; editing by
Richard Pullin)
 ((leika.kihara@thomsonreuters.com; +813-6441-1828; Reuters
Messaging: leika.kihara.reuters.com@reuters.net))