TOKYO – Japan’s megabanks have announced commitments, of varying degrees, to stop financing new coal power projects as global pressure ramps up on the world’s third largest economy for stronger climate action.

Mizuho Financial Group, the second-largest lender, unveiled its pledges last Wednesday (April 15), followed by the third-largest Sumitomo Mitsui Financial Group (SMBC) one day later.

They join Japan’s largest bank, Mitsubishi UFJ Financial Group (MUFG), which decided last year that it will stop providing new investments and loans to coal power plants in principle, and is expected to announce tighter policy revisions in this regard within the next month.

The moves come amid criticisms of Japan’s continued dalliance with coal, by not just building new plants at home but also exporting them to South-east Asia.

Last month, the country drew flak from environmentalists for keeping to its “unambitious” 2030 carbon target – a 26 per cent emissions cut from 2013 levels – in updates made to its pledges under the Paris Agreement.

Its emissions had already fallen by 12 per cent as of March last year.

Environment Minister Shinjiro Koizumi vowed to tighten Japan’s approval requirements for state assistance for exports of coal-fired power plants, and said that he aims to submit a more aggressive target by the COP26 climate summit in Glasgow which has been postponed to next year.

Observers, however, pointed out that setting this target is not entirely up to him.

The Ministry of Economy, Trade and Industry (Meti) holds sway over the country’s 2030 energy mix, up for review next year.

Dr Kimiko Hirata, international director at the Japan-based climate action group Kiko Network, told The Straits Times that while the COP26 delay “creates a bit of space to consider and discuss the target” with the energy mix review in mind, she was pessimistic about the bottom line-focused Meti changing its goals, if at all.

In this regard, the shift by Japanese banks, which had continued backing coal projects even as their global peers cut exposure to fossil fuel, could send a positive message to the government.

“These Japanese financial sector shifts away from coal need also to be met with Japanese government policy shifts, given the billions of public finance destined for coal at home and abroad,” said Ms Jeanett Bergan, head of responsible investment at Norway’s pension fund KLP.

“The direction of travel is right and this is what matters,” Dr Hirata added, while noting that the banks’ commitments are still far from being aligned with the Paris Agreement goal of holding the increase in the global average temperature to well below 2 deg Celsius above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5 deg C above pre-industrial levels. 

“I hope we will see an acceleration of sustainable finance from fossil fuels to clean energy.”

Coal makes up over 30 per cent of Japan’s power supply, and there are plans to build about 20 new coal-fired thermal power plants. Japan continues to maintain that renewable energy sources are still too unreliable and expensive.

The Kiko Network, as a shareholder of Mizuho, had raised a climate resolution against the bank on March 13 in the first such motion for a Japanese listed company.

A shareholder resolution refers to a motion filed by shareholders for a vote at a company’s annual meeting.

The climate resolution, in this regard, calls for more climate change disclosures, with Dr Hirata urging Mizuho, which has been identified as the world’s largest private lender to coal developers, to clearly draw out a plan and set targets to bring its business practices in line with the Paris Agreement.

Last Wednesday, the bank said it will stop investing in, and lending to, new coal power plants from June.

It also aims to halve its outstanding balance in loans to coal power projects of 300 billion yen ($3.9 billion) as of March this year by 2030 and reduce it to zero by 2050.

It added that it may, however, consider loans to upgrades of existing coal power plants into facilities that lower carbon dioxide emissions.

SMBC announced its plans a day later, saying it “would not provide financial support in principle to new coal-fired power plants”, with exceptions for coal projects using technology it deems environmentally-friendly.

It also plans to continue supporting projects that involve deforestation, so long as they do not involve illegal logging and incineration.

The US-based Rainforest Action Network said SMBC’s revisions were “half-hearted”, while Dr Hirata noted that they were “weaker than Mizuho’s, which is really disappointing”.

Still, Mr Anders Schelde, chief investment officer of Danish fund MP Pension, said: “Once East Asian financiers back away from new coal developments, this will support clean power like solar and wind energy which should be able to thrive in the vacuum left by coal.”

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