New branch

Asian corporates have a new ESG financing tool to mull over, with the introduction of nature-positive finance in Japan.

In January, Sumitomo Mitsui Banking Corp arranged a nature capital management promotion and analysis loan for Heiwa Real Estate, while the following month Mizuho Bank signed a nature capital impact finance loan for Tokyu Fudosan Holdings.

There are plenty of climate-related labels available already, but this one holds appeal for borrowers. Nature-positive financing does not require a strictly defined use of proceeds, unlike green loans, and does not have targets for the borrower to meet, unlike sustainability-linked loans. All the same, borrowers of nature-positive finance commit to track the impact of their funding. Tokyu Fudosan, for instance, will plant trees in Tokyo and protect endangered forest frogs at a ski resort in Gunma prefecture.

The product is being positioned as a way for borrowers to dip their toes into ESG financing while retaining more flexibility.

Undoubtedly, though, another objective is to raise money for nature schemes without borrowers being exposed to criticism that they are not green enough. Many issuers across Asia have toned down their ESG rhetoric in the past couple of years to avoid the attention of investors and environmental groups that make claims of greenwashing.

And just this month, Sumitomo Mitsui Financial Group followed the lead of US banks and withdrew from the Net Zero Banking Alliance, with other Japanese institutions likely to follow. That’s partly because the NZBA is unlikely to achieve much under a Trump administration, beyond attracting the US president’s ire, and banks like SMFG are already going their own way when it comes to ESG.

The growth of this new branch of ESG finance shows that despite the multitude of labels available, some don’t fit issuers well enough. Japan has already walked its own path when it comes to transition finance, a label which is extremely popular there but rarely seen anywhere else.

It also demonstrates how hard life is becoming for ESG-focused investors and lenders. In the absence of convenient labels, the buyside has to do much more work to analyse the merits of individual borrowers, and take a view of overall businesses rather than checking whether a particular green bond ticks all the boxes.

Though bespoke packages are harder for investors and lenders to study, they can at least judge the end results. Nature-positive finance may not fit into neat categories, but if investors need to measure the impact they can count the frogs at Tokyu Fudosan’s ski resort in a couple of years’ time.