Tax breaks and special zones for foreign firms: How Tokyo is transforming into a global green finance hub #JapanFinance

When Mr Patrick Buergi, one of the co-founders of South Pole, a Swiss-based climate consultancy and carbon asset developer, moved to Tokyo in 2022 to establish a new office, his team faced the typical challenges of adapting to a new language and business culture. Despite these challenges, the Japanese capital’s growing support for sustainability-related businesses assured him it was the right place to expand his company.

In particular, he was convinced that establishing a presence in Japan would allow South Pole to scale the climate impact of its activities in Asia and beyond.

“Japan’s ambitious decarbonisation plans and its role as a global hub for sustainable finance make it an extremely attractive location for any climate consultancy and carbon asset developer,” says Mr Buergi, South Pole’s co-founder and Japan managing director.

“We see extraordinary potential to not only contribute to climate action in Japan but right across Asia.”

For many companies, Tokyo’s position as a world-class financial centre provides a strong foundation for the city to play a leadership role in sustainable finance. While South Pole launched their Japanese office based on market drivers, others have tapped on the city’s deep and sophisticated capital markets, which offer businesses access to the financing needed to fund sustainability initiatives. This financial infrastructure, combined with targeted policy support, enables Tokyo to excel in areas like transition finance, which are key to achieving global decarbonisation goals.

Mr Hideki Takada, director of the GX Acceleration Agency and the former director of strategy development at Japan’s Financial Services Agency (FSA), noted that Tokyo’s large financial market is backed up by a big real economy, the rule of law, and support from the authorities.

“Particularly in the area of sustainable finance, there are very strong policy initiatives by the national government and the Tokyo Metropolitan Government,” says Mr Takada, speaking in his personal capacity.

Dedicated initiatives for companies

In recent years, Tokyo has rolled out several government-backed initiatives like the Green Transformation (GX) framework to drive Japan’s transition to carbon neutrality by 2050. The framework accelerates private sector investments in green technologies by offering financial incentives, subsidies for clean energy projects, and mechanisms like carbon pricing to encourage decarbonisation.

Led by Mr Hiroshi Nakaso, FinCity.Tokyo – Japan’s first public-private international financial promotion agency established under the leadership of Governor Yuriko Koike – also works to help companies of various sizes enter the Japan market.

This organisation plays a crucial role in enhancing Tokyo’s appeal as a global financial hub by organising various international events such as the FinCity Global Forum and Tokyo Sustainable Finance Week, where stakeholders can exchange insights and strategies.

The government has also introduced Special Zones for Financial and Asset Management Businesses in four areas that provide regulatory flexibility, tax incentives and administrative support in English, making it easier for foreign businesses to set up and operate in the city.

Furthermore, the annual Japan Weeks series of events, promoted by the FSA, serves as a platform for global stakeholders to engage in discussions and networking opportunities centred on sustainable finance. The event features panel discussions and workshops that explore topics such as transition and impact finance. In the 2023 edition, over 10,000 financial stakeholders participated, as noted by then-Prime Minister Fumio Kishida. This year, FinCity hosted Tokyo Sustainable Finance Week for the first time as part of Japan Weeks, highlighting the importance the government is placing on sustainable finance.

Connecting through business networks

For South Pole Japan, their prior relationship with Mitsubishi Corporation helped them establish the NextGen CDR Facility as a joint venture between South Pole and Mitsubishi Corporation, which connects businesses across Asia, Europe and North America to scale high-quality, certified carbon removal projects. Mitsui OSK Lines (MOL) has been among the five founding buyers of carbon removals under NextGen, thereby becoming the first company in Japan to make a significant financial commitment towards carbon removal projects.

“Thanks to the NextGen CDR Facility we were able to build on established partnerships and networks when we decided to open our office in Tokyo,” says Mr Buergi, who moved to Japan with his family from Switzerland.

The interconnectedness of Tokyo’s financial ecosystem with the rest of Asia also enables businesses to have a regional impact. “It is increasingly clear that decarbonising Asia will be key to decarbonising the world. Japan’s role as a financial hub in Asia means that we can have a significant impact from Tokyo,” explains Mr Buergi.

He added: “The beauty and opportunity of Japan’s financial sector lies in its influence over businesses right across Asia. Just one financial institution ensuring sustainable lending practices or encouraging climate action in its portfolio companies multiplies the climate impact many times.”

Support for traditional industries

Tokyo’s robust framework for sustainable finance also provides vital support for traditional industries like shipping, where ambitious decarbonisation goals require collaborative solutions and innovative funding mechanisms.

“Sustainable finance plays a vital role in advancing our sustainability initiatives. It not only helps secure the funding needed to achieve our goals but also provides an external evaluation of our efforts by financial institutions,” says Mr Tatsuro Watanabe, chief sustainability officer at MOL.

MOL has leveraged financial instruments such as transition loans and blue bonds to fund sustainability-related projects. One such project is the introduction of clean fuels and wind propulsion assistance devices to ships.

From slow starter to global leader

Mr Takada recalls that when he joined the OECD Green Finance Team in 2015, sustainable finance was still an emerging concept in Japan.

“At that time, relatively few people in Japan even knew the concept of sustainable finance and Japan was a slow starter. However, in both public and private sectors, sustainable finance has evolved in Japan at a very rapid pace over the years and the landscape has completely changed,” he says, adding that Japan is today seen as one of the leaders in the field of sustainable finance.

“Foreign companies looking to relocate to Japan stand to gain unparalleled access to a thriving ecosystem of innovation in sustainable finance,” says Mr Takada.

He adds: “It’s a unique opportunity to be at the heart of where cutting-edge strategies and meaningful collaborations are shaping the future of finance.”

For more information on Tokyo as a global financial city, visit the FinCity.Tokyo website.

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