Japan turns sustainable finance ambition into delivery

Japan’s sustainable finance agenda moved from vision to execution in 2025, marking a year in which policy intent, market standards and capital mobilisation began to align at scale, Climate Bonds Initiative (CBI) writes. What had previously been framed as aspiration increasingly took on the characteristics of a functioning market, supported by clearer rules, stronger institutions and a growing pipeline of investable projects.

The country’s progress reflected a broader effort to position climate action not as a constraint but as a driver of competitiveness, energy security and industrial renewal. Across the year, government agencies, financial institutions and corporates worked more closely with international standard-setters and domestic partners to ensure that Japan’s green and transition finance frameworks were both credible and practical. The result was a period of consolidation, accompanied by targeted acceleration where policy and market readiness converged.

A central anchor for this shift was the Green Transformation strategy, which set out an ambition to mobilise more than JPY150 trillion ($958bn) in climate-related investment over the coming decade. The strategy placed sustainable finance at the heart of economic policy, linking decarbonisation with supply chain resilience and long-term growth. Engagement between policymakers and market participants intensified as the focus moved from headline targets to delivery mechanisms capable of supporting projects across energy, infrastructure and industry.

Institutional capacity was also strengthened during the year according to CBI. The appointment of senior figures with deep experience in global financial governance and sustainable finance signalled a determination to embed international best practice within Japan’s domestic market. This added weight to efforts to align national approaches with global standards while retaining flexibility to reflect Japan’s energy mix and industrial structure.

Partnership-building also emerged as a defining feature of 2025. Collaboration between international climate finance bodies and Japanese institutions deepened, with renewed agreements focused on capacity building, market development and knowledge sharing. These partnerships were not limited to Tokyo though.

Regional engagement gained momentum as local governments and financial institutions sought to position themselves as hubs for green and transition finance, linking national objectives with regional revitalisation.

Outward looking

Japan’s outward-facing role also expanded. New cooperation arrangements with development agencies reinforced the country’s ambition to project its transition finance expertise beyond its borders, particularly across Asia-Pacific markets where energy demand growth, climate vulnerability and infrastructure needs intersect. By linking domestic standards with international investment opportunities, Japan strengthened its claim to leadership in the region’s sustainable finance landscape.

The year’s most visible market milestone came through a transaction that illustrated how policy frameworks can translate into investable assets. Tokyo’s metropolitan government issued a resilience-labelled bond that set a global precedent by applying climate certification to adaptation-focused investments. Investor demand was strong, demonstrating appetite for clearly defined resilience assets at a time when climate risks are becoming more tangible for cities and infrastructure owners. The bond’s success underscored the role that credible criteria and transparent use-of-proceeds frameworks can play in unlocking new segments of the sustainable finance market.

Open to all

Beyond landmark transactions, considerable effort went into making sustainable finance guidance more accessible to domestic issuers and investors. Key materials were made available in Japanese, lowering barriers to adoption and supporting more consistent application of international standards. Updated policy briefings also examined Japan’s progress against a backdrop of geopolitical uncertainty and continued reliance on imported fossil fuels, highlighting the importance of grid investment, renewable energy deployment and methane abatement in strengthening energy security.

Regional frameworks also took shape. In northern Japan, a green finance framework designed to support regional revitalisation introduced clearer benchmarks for sustainable investment. By referencing both international climate criteria and established taxonomies, the framework aimed to provide investors with comparable, decision-useful information while channelling capital towards projects aligned with local economic priorities. Such initiatives reflected a growing recognition that the success of Japan’s transition will depend on mobilisation beyond major financial centres.

Wider engagement

Market engagement was another aspect that intensified throughout the year. A series of roundtables, seminars and workshops brought together policymakers, investors and financial institutions to address the practical challenges of transition finance. Discussions focused on issues ranging from geopolitical risk and energy security to bottlenecks in renewable deployment and emissions across liquefied natural gas value chains. Resilience investment and adaptation financing gained prominence, reflecting both physical climate risks and the need to protect economic assets.

These exchanges served to contribute to a more coherent market narrative. While large-scale solar, offshore wind and hydrogen remained central to Japan’s decarbonisation plans, 2025 saw a broader understanding emerge of the role that transition finance, resilience projects and grid infrastructure must play alongside pure green assets. Alignment between domestic frameworks and international standards was increasingly viewed as a competitive advantage rather than an external constraint.

The underlying market data further pointed to progress. Capital allocation to sustainable assets became more diversified, and issuers showed greater confidence in bringing labelled products to market. At the same time, challenges remained. Energy transition pathways continued to be shaped by global fuel markets, technology costs and political risk, underscoring the need for policy consistency and long-term signals to investors.

Taken together, the developments of 2025 suggested a market that is maturing. Japan’s sustainable finance ecosystem moved closer to a state where policy ambition, market infrastructure and investor demand reinforce one another. As such, this convergence strengthened the country’s position as a regional leader while supporting broader objectives around economic resilience and energy security.

Looking ahead to 2026, further progress is expected as Japan advances its ‘Green Transformation’ agenda and scales up investment in renewables, resilience and transition technologies. The experience of 2025 indicates that the foundations are now in place for sustained delivery. To this end, the challenge for the coming years will be to maintain momentum, manage execution risk and ensure that capital continues to flow at the speed and scale required to meet Japan’s climate and economic goals.