A UK-based think tank is calling on the Bank of Japan (BoJ) to adopt stronger climate-focused financial policies, warning that its current approach risks slowing the country’s transition to a greener economy.

In a briefing released Monday, Positive Money outlined a four-step roadmap that would steer financial flows away from carbon-intensive industries and toward renewable energy and other sustainable investments.

The recommendations follow the group’s 2025 assessment, which ranked Japan sixth out of 13 ASEAN+3 economies in integrating environmental considerations into central banking and financial regulation, despite the country’s strong economic and institutional capacity.

While the report acknowledged the BoJ’s expansion of its Climate Response Financing Operations (CRFO), it argued that the central bank’s commitment to “market neutrality” and reliance on private-sector initiatives have become self-imposed constraints that limit progress.

According to Positive Money, market neutrality disproportionately benefits established high-carbon industries, making the policy far from neutral. The report also warned that allowing financial institutions to define what qualifies as climate-friendly investment weakens standards and increases the risk of greenwashing.

To strengthen Japan’s climate finance framework, the think tank recommended tightening the BoJ’s climate refinancing rules, establishing a green collateral framework that excludes fossil fuel expansion projects, adopting climate-resilient portfolio management, and shifting to a “double materiality” approach that considers how the financial sector contributes to climate risks — not just how climate change affects financial markets.

Joe Herbert, senior researcher at Positive Money, said the BoJ’s heavy reliance on voluntary market action is unlikely to deliver the speed or scale of investment needed to address climate change.

He argued that adopting stronger climate-focused financial policies would remain consistent with the BoJ’s mandate of maintaining price and financial stability while aligning Japan with evolving international standards for green central banking.