Nearly half of Japan’s financial institutions expect demand for environmental, social and governance (ESG) financing to grow over the medium to long term as companies increase spending on decarbonisation, according to a new survey.
The survey, conducted between August and October last year by Japan’s Ministry of the Environment, gathered responses from 456 financial institutions in the country including major banks, regional banks, credit unions and credit cooperatives, representing a response rate of 90.1 per cent from the 506 institutions approached.
Around half of respondents said they expect demand for ESG-related funding to increase over the medium to long term, reflecting growing corporate investment in decarbonisation initiatives.
At the same time, ESG-linked financial products are becoming more widespread. About 70 per cent of financial institutions said they already provide ESG-related financing such as green loans, sustainability-linked loans (SLLs), transition loans or other ESG lending products developed internally.
The ministry said the findings from its survey suggest that low-carbon investment is increasingly being viewed by lenders not as a difficult sector to finance but as a potential growth area for lending.
It added that the phase in which companies struggled to find financial institutions offering ESG finance is largely ending as such products become more common.
Manufacturing companies were identified as having the strongest demand for ESG-related financing, with 65.5 per cent of lenders citing the sector. Construction firms followed at 33.6 per cent and transport and logistics companies at 29.1 per cent.
Financial institutions also expect these sectors to drive future demand, with 77.3 per cent of respondents pointing to manufacturing, 63.3 per cent to construction and 48.5 per cent to transport and logistics.
The ministry noted the trend reflects pressure from large corporations pushing suppliers to decarbonise supply chains, as well as the capital-intensive nature of emissions-reduction investments such as energy-efficient equipment, electric vehicles, energy-saving buildings and logistics optimisation.
Discussions between companies and lenders around ESG financing are often focused on practical business issues rather than environmental principles, the survey showed.
The most frequently raised topics included government subsidies and support schemes (50.1 per cent), ESG requirements from business partners (29.8 per cent), the impact of ESG initiatives on corporate earnings (23.6 per cent) and management issues such as workforce shortages (20.9 per cent).
Among smaller companies, financial institutions said bespoke ESG loan products tailored by regional lenders are often used instead of internationally standardised products such as sustainability-linked loans.
These customised loans typically offer more flexible key performance indicators, simplified procedures and designs better suited to small and medium-sized enterprises, the survey said.
Despite growing interest in ESG finance, lenders also cited internal challenges in expanding such services. The most common issues identified were insufficient understanding of ESG among branch-level staff (51.5 per cent) and staffing shortages (30.3 per cent).
Only about 40 per cent of financial institutions said they have dedicated ESG departments, hinting that specialised expertise remains limited within the sector.
The ministry said companies seeking ESG financing may benefit from preparing detailed information on emissions data, energy-saving impacts and investment plans to facilitate discussions with lenders.
