This article explains the content of Financial Research Vol. 44 No. 3 published by the Bank of Japan Institute for Monetary and Economic Studies in July 2025, featuring advances in climate finance research.
This issue is structured around the Finance Workshop "Advances in Climate Finance Research" held on November 8, 2024, including three research reports and technical considerations on ledger-free payment methods. In the keynote report, Kazuhiro Hiraki (International Monetary Fund) provides an overview of the latest trends in climate finance research from the perspectives of financial markets' price discovery and risk transfer functions and financial intermediation functions, discussing comparative analysis of stock price returns between low-carbon green stocks and high-carbon brown stocks, theoretical frameworks of CAPM models considering ESG investment, and the impact of sustainable investment on corporate behavior.
Joint research by Takuya Okimoto (Keio University) and Sumiko Takaoka (Seikei University) uses Japanese CDS market data from 2005 to 2019 to empirically analyze the relationship between corporate carbon emissions and credit default swap spreads, showing that carbon risk premiums have expanded since 2006 with increased investor ESG awareness. Sector-wise analysis shows larger premiums in sectors where emission reductions are easier, such as healthcare, telecommunications, technology, and finance, compared to sectors where reductions are difficult, such as energy and materials.
Discussions involved many experts, with active debate on issues including ESG score variation problems, existence of greenwashing, importance of climate-related data development, possibilities of greenium analysis using Japan's GX bonds, and the role of central banks in financial stability. Technical considerations on ledger-free payment methods were also detailed.
The article shows that as climate finance research rapidly advances, empirical research increases in importance through data accumulation and sophisticated analytical methods, requiring solution of challenges for improving ESG investment effectiveness and developing green finance.