Shareholders & NGOs unite, demanding action from Japan’s financial giants

On 11 April, individual shareholders, alongside representatives from both domestic and international environmental NGOs, stepped forward with a unified message, submitting shareholder proposals that urged six major financial, trading, and power companies in Japan to adopt stronger climate change measures. The companies targeted included Mitsubishi UFJ Financial Group, Sumitomo Mitsui Financial Group, Mizuho Financial Group, Mitsubishi Corporation, Tokyo Electric Power Holdings, and Chubu Electric Power, with the former deeply entwined with the management of Japan’s largest power generation company, JERA.

The previous year’s shareholder meeting season saw Japanese companies inundated with a record number of climate change-related proposals. This growing tide of concern originated not just from environmental NGOs, but also from foreign institutional investors and local governments. Stakeholders from all walks of life felt a shared sense of urgency about the sluggish climate change measures adopted by high-carbon-emitting companies and, as a result, took action. Institutional investors widely supported these proposals, amplifying their collective impact.

In the lead-up to the G7 Hiroshima Summit, chaired by Japan, the nation’s advocacy for recognizing the necessity of investment in fossil fuels (such as LNG) and promoting technology introduction based on continued fossil fuel usage in the power sector met with resistance from fellow G7 member countries. Government officials from the United States, the United Kingdom, and others scrutinized the draft communique for the climate, energy, and environment ministerial meeting in Sapporo, arguing that not enough emphasis was placed on accelerating climate change measures.

While the Japanese government’s policies wield considerable influence over private companies’ climate change measures, the international community demands industry-specific or company-specific measures to expand businesses and earn trust. The companies targeted by these shareholder proposals – the three mega banks, Mitsubishi Corporation, and others, including JERA under Tokyo Electric Power HD and Chubu Electric Power – continue to invest in and engage with fossil fuel businesses both domestically and internationally. In particular, the development of LNG pipelines, the construction of new power plants, and the promotion of ammonia and hydrogen co-firing technologies that extend the life of existing coal-fired power plants present considerable challenges.

In a joint press release by the NGOs, they outlined the critical issues confronting companies in the industry.

Mega banks: Mega banks, whose climate-related policies, goals, and transition plans fall short of alignment with global standards-setting initiatives like the International Energy Agency (IEA) Net Zero Scenario or the Net Zero Banking Alliance (NZBA). The banks’ plans, lacking credibility, fail to demonstrate a path to net-zero emissions by 2050, especially when juxtaposed with foreign competitors who restrict support for new oil and gas development projects.

Experts urge the mega banks to take immediate action to establish short- and medium-term targets and financing policies consistent with their long-term net-zero goals. Furthermore, though the banks may adhere to the Japanese government’s GX policy by investing in ammonia and hydrogen co-firing for high-efficiency thermal power, the international community increasingly focuses on renewable energy development to achieve more direct emission reductions.

Finally, addressing climate change also necessitates action in the land use sector, where Japanese mega banks have yet to establish emission and intensity reduction targets in the carbon-intensive agricultural sector, nor do they disclose CO2 emissions from woody biomass fuel combustion.

Electric Power companies: They examined Tokyo Electric Power and Chubu Electric Power, highlighting that these companies and their high-carbon-emitting joint venture, JERA, cannot claim to be net-zero while continuing to invest in new fossil fuel projects. These companies need to establish credible transition plans and align their capital allocation with a pathway to limit global warming to 1.5 degrees. They also underscored JERA’s commitment to a low-carbon society through its “JERA Zero Emission 2050” initiative, emphasizing that European and American counterparts are making steady progress towards zero emissions, and Japan’s current approach is both scientifically and economically questionable. The focus should be on accurately and timely disclosing information to assess the true effectiveness of their efforts.

Mitsubishi Corporation: Lastly, the press release scrutinized Mitsubishi Corporation, asserting that its current climate change targets and disclosures are woefully inadequate for investors to conclude that the company has a viable pathway to achieve its net-zero target by 2050. Mitsubishi Corporation’s Scope 3 emissions exceed the annual fossil fuel emissions of countries like the United Kingdom and France. Setting Scope 3 emission targets is essential for investors to verify how the company will fulfill its net-zero commitment.

These companies face significant risks to their future corporate value, such as stranded asset risk, litigation risk, and damage to brand value. Moreover, their continued pursuit of misguided strategies may also hinder efforts to combat climate change.