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Bank of Japan Governor Haruhiko Kuroda speaks at a news conference in Tokyo, on Dec. 19, 2019.Kim Kyung Hoon/Reuters

The Bank of Japan is ready to modify the steps it is rolling out on climate change as needed, Governor Haruhiko Kuroda said on Tuesday, calling for a “learning by doing” approach in helping companies and banks transition towards a greener society.

Kuroda highlighted differences between the BOJ’s climate approach and those of some European counterparts, saying it had no plans to hand-pick “green” bonds in its asset-buying program.

Instead, the Japanese central bank will offer cheap funds to financial institutions that boost green loans and investment, leaving commercial banks to decide which loans are “green,” he said in an address on tackling climate change.

Following other major central banks in using their institutional heft to take on climate change, the BOJ this month edged closer to uncharted territory, detailing a scheme aimed at funding activities to combat climate change.

“Green bonds may naturally be part of the corporate bonds the BOJ purchases as part of its monetary policy. But we won’t prioritize green bonds over others,” Kuroda said. “Offering funds to financial institutions is probably most effective under Japan’s economic and financial system.”

Kuroda said climate change has become a crucial theme for central banks, as increasing natural disasters and a transition towards a carbon-free society could affect economic, price and financial developments in the long run.

Uncertainty over what is considered “green” and debate over how best to deal with climate change should not discourage central banks from acting now rather than later, he said in a speech focusing on the BOJ’s approach on climate change.

“Waiting until specific guidelines and ideas are fixed will only delay our response to the urgent global challenge of dealing with climate change,” Kuroda said.

“In responding to climate change, it’s best to kick off with steps that are deemed important, then modify them as needed. The key is to take the approach of ‘learning by doing’,” he said.

In announcing its new approach on climate change, the central bank released a list of steps it will take, including a plan to start buying green bonds using its $70-billion slice of Japan’s $1.4-trillion in foreign reserves.

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