Shareholders push Japanese companies to toughen climate targets

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TOKYO — Some of Japan’s biggest companies will get judgment from investors on their climate targets at a series of shareholder meetings in the coming days, as pressure for greater action from the corporate sector spreads across- beyond environmental activists.

Five major companies — three electric utilities and two financial groups — face votes calling for new information or tougher carbon emissions targets. One of the proposals was submitted by individual investors, a first for Japan. Another was submitted by overseas asset managers – also a first.

The executives have defended their existing policies and asked shareholders to reject the motions, so the size of any protest vote will draw particular attention.

Japanese investors have been slower than those in Europe and the United States to use annual meetings to push companies on the impact of fossil fuels, but while shareholder proposals have become more common, energy security raises also growing concerns.

“The Russian-Ukrainian war has highlighted climate change as just one of many other issues facing the world, leaving many to wonder if environmental activists’ ‘monotheistic’ demands to value the environment are really helping businesses to run sustainably,” said Sumiko Takeuchi, a senior fellow at the International Institute of Environment and Economics.

Among the companies targeted is Sumitomo Mitsui Financial Group (SMFG), where the eight shareholders who jointly submitted proposals to the June 29 meeting include individual shareholders as well as climate groups. Among them are a university student who says she is alarmed by the slowness of Japanese companies to tackle climate change and a mother of two who says her hometown was once known for its cool summers but has recently suffered unprecedentedly hot temperatures.

This is the first time that “ordinary citizens” have participated in a climate shareholding proposal, according to 350.org Japan, a campaign group.

SMFG is the latest of Japan’s three megabanks to face shareholder proposals over its financing of fossil fuel projects, following Mizuho in 2020 and Mitsubishi UFJ Financial Group last year.

In April, SMFG announced that it would stop funding new thermal coal mining projects, as did Mitsubishi UFJ. Mizuho has committed to a similar policy change in 2021.

However, shareholders say SMFG’s efforts are weak compared to its counterparts. Both submitted resolutions call on him to set targets in line with the Paris Agreement or an even tougher International Energy Agency plan last year that paved the way to net zero emissions.

SMFG responded in May with additional commitments, including excluding funding for the expansion of existing thermal coal mining projects and related infrastructure developments.

Yutaka Suzuki, chief researcher at the Daiwa Research Institute, said the growing number of proposals in Japan follows a trend started in the United States “Japan … is a country where shareholders can obtain the right to submit proposals with a relatively affordable amount of money,” he said.

Climate proposals submitted to four major Japanese companies in 2021 won an average of 18% shareholder support, with asset managers split on the issues, according to Daiwa.

Support from all four fell well short of 34% for Mizuho Financial Group’s 2020 proposal, which urged the banking giant to align its investments with Paris Agreement goals.

But this year’s talks could win more support from overseas-based institutional investors, Suzuki predicted.

On June 28, three shareholder showdowns will take place at Japan’s major power companies, including Electric Power Development, Japan’s largest coal-fired power generator. All have climate goals aligned with the Japanese government’s approach to climate change, which encourages power plants that burn fossil fuels to gradually add cleaner fuels such as ammonia and hydrogen to the mix, emissions being offset by carbon capture, use and storage. Campaigners say this relies on unproven technologies and will not reduce emissions fast enough.

Electric Power Development, commonly referred to as J-Power, is the first Japanese company to receive climate-related proposals from a group of global asset managers.

UK-based Man Group, France’s Amundi and HSBC Asset Management want the company to set credible emissions reduction targets, disclose plans to achieve them and report annually on its progress, including how whose objectives its capital expenditures and executive compensation policies reflect.

J-Power, with a fifth of the country’s coal-fired capacity, is responsible for 5.6% of national greenhouse gas emissions, according to an analysis by UK think tank TransitionZero.

Since February 2021, the company has committed to reducing its carbon dioxide emissions by 40% by 2030 and reaching net zero by 2050, with a focus on the use of hydrogen . The investor group questioned the feasibility of J-Power’s approach.

Tokyo Electric Power Co. Holdings (TEPCO) and Chubu Electric Power are facing shareholder demand to disclose more details about the long-term viability of their fossil fuel assets, including at JERA, their energy utility joint venture. electricity. JERA has 26 thermal power plants across the country, representing half of Japan’s thermal power generation capacity, according to the company, and has expanded into natural gas by investing in an Australian gas field in December 2021.

The climate activists behind the shareholder proposals, Australia’s Market Forces and Japan’s Kiko Network, say they risk becoming so-called stranded assets with no viable future. A 2021 International Energy Agency report said no new gas fields or coal-fired power plants would need to be approved for development if the world is to reach net zero by 2050.

TEPCO and Chubu rejected the proposals, pointing to their current climate efforts and the importance of an energy transition that does not compromise the availability of electricity.

The first of the scheduled votes will take place at trading house Mitsubishi Corp., which faces two shareholder proposals at its June 24 meeting. Investors are demanding that it set short- and medium-term emissions reduction targets aligned with the Paris agreement and outline how its capital spending plans for oil and gas assets align with an emissions plan net zero by 2050.

The company says the proposals’ requirements are unnecessary because it already sets such targets and has a risk management framework in place to ensure its operations are sustainable in a net-zero emissions environment.

Takeuchi, of the International Institute of Environment and Economics, said this year’s votes would strengthen Japanese companies’ awareness of climate issues and hoped they would open the door to a wider variety of proposals in years to come, particularly on human rights and energy security.

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