A new report by Positive Money finds that Japan and the Republic of Korea are underperforming in implementing green central banking policies relative to the size of their economies and historic contributions to global carbon emissions. The East and Southeast Asia Green Central Banking report assessed 13 countries, including ASEAN+3 nations, evaluating how central banks and financial supervisors use their policy tools to address climate and ecological crises. While central banks have the capacity to influence asset prices and lending conditions to support climate goals, Japan and Korea have yet to fully leverage these powers.
In Japan, the Bank of Japan (BOJ) has launched a green lending scheme, integrated government climate transition bonds into liquidity operations, and the Financial Services Agency (FSA) has mandated climate-related disclosures for listed companies. However, these measures are limited by voluntary standards, unclear definitions of green investments, and narrow application. The BOJ’s lending and transition bond programs have also faced criticism for supporting energy projects, such as ammonia co-firing and gas-fired power plants, which could prolong fossil fuel use.
The Republic of Korea has made progress through the Bank of Korea’s (BOK) integration of ESG assets into foreign reserves, exclusion of coal-linked companies, preferential lending to green SMEs, and enhanced climate risk stress testing. The Financial Services Commission’s climate guidelines and the Ministry of Environment’s K-Taxonomy further support green investment. Despite this, Korea’s green central banking efforts remain uneven, with incomplete integration of green securities into core monetary operations and a lack of green government bonds.
The report recommends that both Japan and Korea adopt more binding and measurable standards to strengthen green central banking. Japan should develop a clear national green taxonomy, make climate risk management mandatory, and expand the scope of monetary policy to include more green assets. Korea should link capital requirements to banks’ green loans, integrate green securities into monetary operations, embed climate considerations into supervisory processes, and require disclosure of zero-carbon targets.
By implementing these measures, Japan and Korea, as two of Asia’s largest economies, could lead the region in advancing green finance, setting a precedent for a low-carbon economic transition in the ASEAN+3 region. Experts stress that stronger disclosure rules, conditional public finance, and integration of climate risk into supervision are essential for achieving tangible outcomes.
