Lending to banks alone will not be enough to promote green activity, even if the maturity of these loans can be renewed unlimitedly, Shirai told the Reuters Global Markets Forum (GMF) on Monday.
"Banks are not green and will take time," said Shirai, now a professor at Keio University.
Japan's corporate bond market as a whole is small, Shirai said, and until the "government clarifies the definition of green activities and greater disclosure", the green bond market will remain insignificant.
Former Reserve Bank of India governor Raghuram Rajan told GMF last week the onus of promoting sustainable investments should lie with governments and not central banks.
Shirai agreed with Rajan's view.
"The government should be the first. The central bank is supporter," she said.
Central banks around the world are figuring out ways to incorporate climate change in their core policy decisions.
Governor Haruhiko Kuroda recently said the BOJ would roll out steps deemed important in dealing with climate change, and modify them as needed.
Shirai believed the BOJ would continue implementing the market neutrality principle, as it did not want to be involved in "micro-level credit allocation."
This is the polar opposite to the European Central Bank (ECB), which is considering climate risk disclosure conditions in its criteria for buying corporate bonds and accepting lending collateral.
Shirai said the BOJ "wanted to show some green activities," being a member of the Network for Greening the Financial System -- a group comprising 74 central banks and regulators except the U.S. Federal Reserve.
(This interview was conducted in the Reuters Global Markets Forum.)
(Reporting by Divya Chowdhury in Mumbai; Editing by Bernadette Baum)
By Divya Chowdhury
