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Mitsubishi Heavy Industries issuing transition bonds: fossil fuels by another name?

Mitsubishi Heavy Industries, Ltd. (MHI) will issue its first transition bonds on September 8th, via a public offering in the domestic market.

Whilst MHI would have investors believe such finance is a key part of Japan’s strategy to a decarbonized society, its financing of “blue” hydrogen and ammonia, in fact extends the life of coal and gas assets. Packaging up what are fossil fuels by any other name into so-called transition bonds represents a risk to investors looking to decarbonize their portfolios. “Blue” hydrogen and ammonia are risky and polluting technologies; “blue” hydrogen is typically made from fossil gas and its manufacture results in significant greenhouse gas emissions. It’s more emission intensive and costly than renewable energy, whilst the cost-effectiveness and climate credibility of these technologies is being vastly overstated. It is no cleaner than simply burning fossil fuels.

What are transition bonds?

Transition bonds are a newer type of bond that are, in theory, mean to fund a companies transition towards carbon emission reductions or reduced environmental impact. They are typically used to finance specific transition projects and support an issuer’s commitment to becoming greener. Transition bonds often issued by companies that would not qualify for green bonds, such as in the coal, oil, gas, iron steel, chemical, aviation and shipping industries, as the issuer only needs to ensure the proceeds are used for climate transition-related activities. For example, a coal company could issue a transition bond to fund a carbon capture and storage project.

Popular in Japan

Transition bonds are an emerging market phenomenon and Japan has the world’s largest number of issuers of transition bonds. Japan’s Ministry of Economy, Trade and Industry (METI) created a framework for transition finance to achieve its carbon reduction targets. But the bonds still lack an international definition and requirements – and investors are rightly unsure of how to evaluate them.


Investors keen to proceed with these bonds therefore face significant potential risks, including lower returns, stranded assets and failing to meet their own net-zero commitments. The Toxic Bonds network demands investors steer clear of dodgy brown bonds and across emerging markets, and perform their due diligence to only invest in bonds credibly financing the clean energy transition.