Weekly News | 1st to 13th March 2023

Codo Advisory keeps an eye for you on the latest events and trends in climate finance and corporate sustainability, in the world and in Japan. Here’s what caught our attention last week. 

Japan | Japan to offer 220 billion yen to support Australia’s hydrogen production 

• The Japanese government has offered Australia $1.6 billion (200 billion yen) for its hydrogen production plan that can help support the transition away from carbon emitting coal and biomass usages. 
• J-Power Latrobe Valley, a unit of Japan-based Electric Power Development, and Sumitomo have conducted tests, including the delivery of the first liquid hydrogen shipment from southeast Australia to Kobe last year. 
• Imports of clean hydrogen are seen as a viable option for assisting countries such as Japan, which has limited space for wind and solar equipment, in decarbonizing their energy systems. However, liquefying hydrogen is still expensive, and the fuel is currently difficult to transport, putting its viability into question. 
• Read more about this story: Bloomberg, The Guardian, Japan Times

Codo’s comment: We should be cautious of the term ‘clean’ hydrogen being greenwashing – especially when used by Japan. It often refers to ‘blue’ hydrogen produced using fossil fuels, but with much of the resultant carbon emissions captured and stored in what is referred to as CCS/CCUS. ‘Green’ hydrogen produced using water and energy from renewable sources such as wind or solar requires different equipment and set up, as such continued investment in fossil fuel hydrogen production plants delays and limits the transition while maintaining our reliance on fossil fuels. Rather than investing in ‘clean’ hydrogen – domestically or abroad – Japan needs to invest in ‘green’ hydrogen in order to meet expanding corporate demand for low-carbon energy to support their net zero transition. 

Asia | Asia Zero Emissions Community (AZEC) kicks off with Japan and 11 other countries participating 

• March 4 (2023) was the 1st of AZEC annual meetings for a cooperative Southeast Asia transition in advancing towards low-carbon energy technologies, initiated by Japanese Prime Minister Fumio Kishida in January 2022. 
• Participating member countries pledged to transition towards advancing less carbon emitting energy sources and technologies such as hydrogen, carbon capture, and carbon storage. This would allow them to environmentally accommodate for the foreseen growing energy demand which plays a crucial role in Asia’s global economic growth. 
• Through this pledge, both private and public sectors in Japan will be asked to cooperate in transitioning away from fossil fuel usage. Japan will play a role in providing financial support for projects in energy infrastructure.  
• Read more about this story: Nikken Asia, Carbon News 

Codo’s comment: As a leader in carbon capture and storage (CCS) technology and hydrogen/hydrogen carrier shipping technology, Japan has been spearheading the efforts to establish a robust international hydrogen/CCS ecosystem to mitigate geo-spatial challenges in production and sequestration/utilization capacity for both carbon and hydrogen. CCS is a valuable tool in ‘hard to abate’ industries like cement, aluminum, and chemical manufacturing whose processes require high heat and/or carbon emissions. However, when applied to general industries such as hydrogen production, CCS does not propel industry away from fossil fuels. Rather it prolongs the reliance upon them. CCS is a tool only suitable for specific cases. It will be important to see how the AZEC applies this tool in their operations. 

Europe | Greenwashing in the EU to be faced with even harsher penalties 

• A new EU legal directive still being drafted will have companies justify the green claims to their products within 10 days or face harsh penalties to combat greenwashing.  
• According to surveys conducted under the European Commission in 2020, more than 50% of products with environmental claims are “vague, misleading or unfounded.” The EU also found more than 200 eco-labels being used which have varying methodologies and unreliable verification procedures. 
• The draft currently outlines that it will require companies to include more detailed environmental impact analysis and undergo regular investigations by new agencies that the EU proposes to set up. This law will impact businesses outside of the EU that are exporting products into Europe as they must also comply with this new green law.  
• Read more about this story: The Guardian, Bloomberg 

Codo’s comment: As with most European regulations, this affects not only European companies, but also any company that sells into Europe. Corporations that position themselves anywhere along the European supply chain need to take note of these developments. Expect client companies to ask for more extensive due diligence on component pieces in order to back up their environmental impact claims.  

Europe | EU outlines the world’s first comprehensive rules for issuing green bonds 

• The European Commission has outlined the world’s first regulations for issuing green bonds within the EU to make it easier for investors to identify high quality green bonds and companies which will consequently help to prevent greenwashing issues.  
• The regulation aims to help the EU reach its net-zero goals and allow its large market to transition towards becoming more environmentally sustainable. 
• Although the rules are still on a voluntary basis, they represent an important step toward better reporting of bond quality and alignment with EU’s green objectives. 
• Read more about this story: Reuters, European Commission 

Codo’s comment: Green bonds are an emerging and important way for companies to finance low-carbon transitions. With widespread governmental support and public interest, they are a potentially highly lucrative investment for financial corporations. As the maturity of this offering develops, we expect to see increasing scrutiny upon who qualifies for such bonds. In order to access the available capital, companies will need to be able to show robust proof of their plans and actions towards a green transition.  

Europe | Germany to launch subsidies-for-emissions-cuts plan in April 

• Germany plans to launch a subsidy program for industries in April to help them transition to carbon-neutral production, as Europe’s largest economy considers ways to make industry carbon-neutral by 2045. 
• Last year, Economy Minister Robert Habeck said he was aiming to set up so-called “climate protection contracts” from 2023, with 15-year subsidies for energy-intensive sectors such as steel, cement and chemicals industries in exchange for decreasing carbon emissions in their production. 
• Companies can apply for subsidies through an auction process under the scheme, demonstrating how much capital they require to transition to green production. Businesses with low-cost plans would be first in line for the subsidies, according to a draft of the program’s funding guideline. 
• Read more about this story: Reuters 

Canada | Canada’s financial watchdog introduces climate risk disclosure guidelines 

• A set of guidelines for evaluating and disclosing climate risks has been published by Canada’s financial industry regulator for banks, insurance companies, and other regulated businesses. 
• Financial firms will be required to make climate-related financial disclosures at least once a year. The standards go into effect for larger banks and insurers at the end of fiscal 2024, and for smaller firms in 2025. 
• The Canadian regulator is moving forward with the development of its first climate framework as international financial organizations put pressure on business to get ready for the risks associated with climate change. 
• Read more about this story: Bloomberg, Reuters 

Codo’s comment: Canada has now joined the ever-growing ranks of countries requiring climate risk disclosure. At present, this is a single materiality requirement (only the risk to the company from the environment is required), but it shows how apparent the immediate climate risk is, and how strong the international pressure is to disclose to it. We expect most countries with developed financial systems to follow this trend of making climate risk disclosures mandatory.