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1 Innovative Financing Efforts for Sustainability by Development Bank of Japan (DBJ) Atsuhito Kurozumi Development Bank of Japan 36th.

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Presentation on theme: "1 Innovative Financing Efforts for Sustainability by Development Bank of Japan (DBJ) Atsuhito Kurozumi Development Bank of Japan 36th."— Presentation transcript:

1 1 Innovative Financing Efforts for Sustainability by Development Bank of Japan (DBJ) Atsuhito Kurozumi Development Bank of Japan 36th Meeting of the General Assembly of the ALIDE Havana, Cuba May, 2006 This material is distributed on behalf of the Development Bank of Japan (DBJ), Tokyo, Japan. DBJ programs are based on a Japanese governmental financial policy whose principal purpose is to encourage Japanese Economy and Industry. This material is intended to provide general information to promote that objective, not to solicit clients for loans or other financing programs.

2 2 DBJ and its Mission DBJ: Policy-based financial institution owned by the Japanese government Mission: to revitalize the economy and to promote sustainable development mainly through long-term financing Three Focused Areas: (1) Environmental Conservation and Sustainable Societies (2) Community Development (3) Creation of New Technology and Industries

3 3 Outline 1. Trends in DBJs Efforts for Sustainability 2. New Program 1: Loans for Environmentally Conscious Management 3. New Program 2: Coestablishment of Japan Carbon Finance Ltd [Appendix] Some details on the two programs

4 4 Outline 1. Trends in DBJs Efforts for Sustainability 2. New Program 1: Loans for Environmentally Conscious Management 3. New Program 2: Coestablishment of Japan Carbon Finance Ltd [Appendix] Some details on the two programs

5 5 Trends in DBJ Efforts for Sustainability s: End of Pipe Solution Loans for Anti-Pollution Investment (water pollution control, smoke and soot control, waste disposal, noise reduction, energy saving etc.) 1980s-: Process Improvement Loans for Reduce-Reuse-Recycle, Life Cycle Assessment, ISO14001, Renewable Energy, etc 2000s-: Promoting Environmental Management and CSR Loans for Environmentally Conscious Management (the Worlds First Loans using Environmental Ratings) Mitigating Climate Change Establishment of Japan Carbon Finance Ltd to promote CDM/JI

6 6 Key equipment of Eco Town plan of Chiba prefecture (finalized in 2001) Production of cement based on ash (90,000 t annually) from metropolitan waste Source: Eco-cement homepage. Example 1: Eco Cement (Recycling)

7 7 Example 2: Wind Power Plant (Renewable Energy) Eco Power (Yamagata Prefecture) 3,200kw Source: Annual Report of the Development Bank of Japan. Eurus Energy Tomamae (Hokkaido) 20,000kw

8 8 Outline 1. Trends in DBJs Efforts for Sustainability 2. New Program 1: Loans for Environmentally Conscious Management 3. New Program 2: Coestablishment of Japan Carbon Finance Ltd [Appendix] Some details on the two programs

9 9 Loans for Promoting Environmentally Conscious Management Loans for environmentally conscious activities by companies whose management is environmentally conscious using 2-step environmental rating Qualitative Evaluation Governance,Environment Management System, Partnership, Disclosure, etc Quantitative Evaluation Environmentally Efficient: CO2, Waste, etc Monitoring companies activities after loans

10 10 Guarantee on privately placed bonds Loan Firms proved to have highly go-ahead attitude toward environment-friendly activity Policy interest rate III Firms proved to have sufficiently positive attitude toward environment-friendly activity Policy interest rate I Firms proved to have go-ahead attitude toward environment-friendly activity Policy interest rate II (unqualified) Application Companies Environmental screening Monitoring, duty of disclosure Loans for promoting environmentally conscious management

11 Outline of Screening Evaluation (Details) Evaluation Items and Criteria General management (41 items, 80 points) Business activities (27 items, 64 points) Environmental performance (58 items, 106 points) A total of 126 evaluation items for 250 points have been set up. Applicants achieving120 points or more are accepted. Successful applicants are further classified into three ranks (A, B & C) for different interest rates. (Features) (1)Screening items and criteria are mostly made public. (2)Screening is based on the Guidelines for Environmental Performance Indicators by the Ministry of the Environment. (3)Special consideration is given to SMEs. (4)Special items have been set up for different types of manufacturing and non-manufacturing industries. (5)Additional items are available to give special points for excellent business activities.

12 12 Outline of Evaluation Items Outline of Evaluation Items Example for Manufacturing Industry (processing/assembly) A. Corporate governance B. Compliance C. Risk management D. Partnership E. Employees F. Disclosure of information G. Equipment Investment H. Development of products and services I. Environment-friendly considerations in supply chain J. Recycling of used products K. Measures against global warming L. Measures for effective use of resources M. Measures for water resources N. Management of chemical substances O. Other measures for environmental loads Items for environmental performance Items for business activities Common/additional Items for general management Common/additional

13 13 The Current Status of the Loan and Benefits to Borrowers Loan Provision: 32 companies, $ 370 million boosting $ 1.9 billion investment (as of March 05) Benefits to clients and society: 1.Low interest rates improve a. the financial competitiveness of the company b. the status of the environmental section within each company. 2.Help raise reputation among consumers and investors. 3.Help raise awareness among a. employees (especially in SMEs whose in-house education may not sufficient). b. general public

14 14 Outline 1. Trends in DBJs Efforts for Sustainability 2. New Program 1: Loans for Environmentally Conscious Management 3. New Program 2: Coestablishment of Japan Carbon Finance Ltd [Appendix] Some details on the two programs

15 15 Japan Carbon Finance Ltd. (JCF) Main Business Objective: To Purchase Carbon Credits (CERs and ERUs issued until 2012 from CDM/JI Projects with Assistance to Development of CDM/JI Projects Committed Fund Amount: Approx. US$ 140 million from fund pool called Japan GHG Reduction Fund (JGRF) Establishment: December, 2004 Location: Tokyo, Japan

16 16 Fund Providers: Two Policy-based lenders (Governmental Banks) & 31 Major Japanese Private Enterprises SectorFund Providers Policy-lending Institution Japan Bank for International Cooperation (JBIC) Development Bank of Japan (DBJ) Utility Tokyo Electric Power Co., Inc. Kansai Electric Power Co., Ltd. Chubu Electric Power Co., Inc. Tohoku Electric Power Co., Inc. Hokkaido Electric Power Co., Inc. Hokuriku Electric Company The Chugoku Electric Power Co., Inc. Shikoku Electric Power Co., Inc. Kyushu Electric Co., Inc. The Okinawa Electric Power Co., Inc. Electric Power Development Co., Ltd. (J- Power) Tokyo Gas Co., Ltd. 10 Major Powers & the Largest Gas Firms Oil & Manufacturing Nippon Oil Corp. Idemitsu Kosan Co. Ltd. Japan Energy Corp. Kyushu Oil Corp. Sony Corp. Toshiba Corp. Sharp Corp. Fuji Xerox Co., Ltd. The Japan Iron and Steel Federation Taiheiyo Cement Corp. Toyota Motor Corp. Terumo Corp. Major Companies in Oil, IT, Steel, Cement, Automobile & Medical Equipment fields Trading Mitsubishi Corp. Mitsui & Co., Ltd. Sumitomo Corp. Itochu Corp. Marubeni Corp. Sojitz Corp. 6 Major Investing & Trading Companies Engineering JGC Corp.

17 17 (1) Financial Assistance for Project Development: PDD Preparation Validation Initial Verification Services (2) Purchase of Carbon Credits (CERs, ERUs, AAUs): JCF commits purchase of carbon credits under ERPA (Emission Reduction Purchase Agreement) (at a fixed price). * Payment on Delivery in principle * Purchase Price: to be decided on project-by-project basis

18 18 Benefits for Projects (1) To get Additional Cash Flow: Improvement of Project Viability with additional Cash Inflow by selling CERs in US$ Cash Inflow depends on Type of Project Securing Stable Profitability by getting commitment for purchase of CERs (2) To get Assistance in Development: Saving Development Costs (PDD, Validation, Initial Verification etc.) Getting Assistance and Orientation for development of CDM projects (3)To have possibility to get Financing from JBIC: A) Export Loan B) Overseas Investment Loan C) Untied Loan D) ODA Loan, etc.

19 19 Even in the case of shortage of Carbon Credits in spite of best endeavors by Project Participants: Project Participants are NOT required: to make up for the shortage (with Credits from other projects or sellers); and to pay any penalty to JCF. unless the delivery failure is caused by their willful misconduct. (e.g. Sale of Carbon Credits to some third party) Assistance in Development Project Participants do not have to suffer from unpredictable financial risks in future.

20 20 Fulfillment of Kyoto Rules: Additionality, Methodology etc. Environmental & Social Safeguard Requirements Project Feasibility Purchase Conditions Price: to be decided on a project-by-project basis at a fair & reasonable price Volume: More than 50,000t-CO2e/year is preferable. Delivery Schedule: Early commissioning project is preferable. Key Criteria at Screening of PINs/PDDs

21 21 Key Criteria at Screening of PINs/PDDs

22 22 Benefits to Project Participants (including development banks who have eligible projects) JCF helps improve the project cash flow. JCF assists development of CDM Projects. JCF bears development costs, for not only PDD preparation and Validation but also Initial Verification. JCF takes delivery risks. JCF will not require any penalty or replacement of CERs in principle. Contacting JCF in the early stages is highly recommended. (Send PINs!)

23 23 Thank you


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