Climate plans in the heavy industries sector: how did Japanese firms perform in 2024?

In the World Benchmarking Alliance’s first Heavy Industries Benchmark, the 91 most influential aluminium, cement and steel companies worldwide were assessed on their alignment to a low carbon world. The findings were consolidated into an insights report published in April 2024. In this blog post, we summarize the main findings and analyze how Japanese firms performed.

What are WBA climate benchmarks?

The World Benchmarking Alliance (WBA) is a global non-profit that creates benchmarks of over 2000 firms by comparing their contributions to the Sustainable Development Goals (SDGs) and publishes assessments of companies’ climate plans across various industries. The assessments are based on the ACT methodology, developed by ADEME and CDP to measure the quality of corporate low-carbon transition plans.

The WBA Heavy Industries Benchmark focuses on assessing companies in this high emitting sector (18% of global CO2 emissions in 2022). The comprehensive assessment of these companies combines ACT assessments and social as well as “just transition” assessments (conducted according to an internal WBA methodology) to provide an overall score covering the environmental, industrial, and social dimensions of each company’s low-carbon transition.

The heavy industries benchmark covers 12 aluminium, 34 cement and 45 steel companies, including five companies from Japan.

A sector not yet aligned with the Paris Agreement and with lacking investments in green technologies

Based on the 91 company assessments, the WBA identified 5 key findings for the heavy industry sector:

Assessed companies have only decreased their greenhouse gas emissions by 0.8% annually between 2017 and 2022. To stay aligned on the Paris Agreement target of keeping global warming to a +1.5℃, companies must triple their emission reduction over the next 5 years.
Investments in R&D for non-mature technologies are very low (10% of the assessed companies): less financing for the development of decarbonized technologies now means achieving net-zero will be harder, or even not possible.
Some of the companies assessed display good practices, meaning a higher standard for the industry is possible: 28% have transition plans covering all business units and 23% include a carbon price in their cost calculations for example.
While some companies are leading the just transition of the sector by fostering resilient workers and communities , many are struggling. Half of the companies have scored 0 in the WBA-set just transition indicators. Even the top company only scores 50% in these indicators, showing that the industry can still take steps to improve.
There is a big lack of commitment regarding working conditions and human rights. Only 55% of companies surveyed say they are committed to the health and safety of their employees and only 45% are committed to respecting human rights. The companies assessed in this benchmark employed more than 2.9 million people in 2022.

How did the Japanese companies perform?

In this benchmark, the highest-ranking company was Cemex (Mexico) with a total score of 56.4/100. The lowest ranking companies were Cemros (Russia), Delong Steel (China) and JiuQuan Iron and Steel Group (China), all with a total score of 0.0/100.

Most of the Japanese companies ranked in the top 50% of surveyed companies, with the exception of Hanwa scoring 72th. Here are their detailed ranks:

#22: JFE Holdings (Total score: 33.7/100) (ACT Score: 5.7 C-) (Social score: 11.3)
#23: Taiheiyo Cement (Total score: 33.4/100) (ACT Score: 5.2 B=) (Social score: 3.1)
#35: Nippon Steel (Total score: 27.1/100) (Total score: (ACT Score: 5.6 C-) (Social score: 4.8)
#41: Kobelco (Total score: 24.8/100) (ACT Score: 4.2 C-) (Social score: 4.5)
#72: Hanwa (Total score: 2.1/100) (ACT Score: 0.8 E-) (Social score: 1.0)

(ACT scores are comprised of three metrics, with the highest possible score being 20, A, +, respectively. The highest possible social score is 40)

Taiheiyo Cement ranks towards the top of the pack when coming to cement companies (10^th out of 34^th). The company ranked high in the “Intangible Investment” module and was praised for dedicating 25% of its R&D expenses to low-carbon technologies. However, it has only decreased its emissions by 0.6% annually between 2017 and 2022, and ranked low in terms of concrete emissions targets. WBA also pointed out a lack of commitment to social dialogue or worker protection.

When compared with other steel companies, JFE Holdings is ranked relatively high (10^th out of 45), ranking in the top third for almost all indicators. The company has ranked 3^rd out of 91 for the “sold product performance” module, assessing actions taken to reduce emissions in the company’s value chain. JFE Holdings’ TCFD disclosure was also praised, but WBA pointed out that the company’s emissions reduction targets were not science-based, with no target for scope 3 emissions. It could also improve its disclosure on ethics and gender equality.

Coming a bit lower in the steel company ranking, Nippon Steel (16^th out of 45) ranked high in terms of emission reduction commitment, but was criticized for its fuzzy low-carbon transition plan and its engagement with industry associations against climate policies, leading to a low rank in the “Policy Engagement” module.

Close behind Nippon Steel, Kobelco (17^th out of 45) was praised for its human rights, worker health and corruption engagement as well as for disclosing its low-carbon transition plan, although it lacked data about decarbonization actions. Kobelco communicates little on its policy engagement to support Paris Agreement-aligned targets, leading to its low position in the “Policy Engagement” module.

Despite a very low total score of 2.1/100, Hanwa comes out 30^th out of 45 steel companies, showing that the sector as a whole needs a big push for sustainability. Hanwa has yet to disclose any information, whether it is a transition plan, emissions reductions targets or ethical policy. Moreover, WBA points that Hanwa shows no evidence that it is aiming for a low-carbon business model, leading to a 0.0 mark for most performance modules due to the lack of information.

No Japanese aluminium companies were evaluated in this benchmark.

Recommendations for Japanese Companies

Be more ambitious: All Japanese companies lacked leading practices, indicating a lack of ambition to lead the pack when it comes to decarbonization of the heavy industry sector. All surveyed Japanese companies received an outlook of “=” or “-“ in their ACT evaluation, meaning their score is likely to decrease even more in future benchmarks.
Accelerate Emissions Reduction Efforts: As an overall recommendation of this benchmark, WBA urges companies to accelerate their emissions reduction efforts, through setting more ambitious targets, investing in not-yet market-ready technologies and committing to reducing emissions not just in the surveyed companies, but in their whole supply chain.
More policy engagement towards a low-carbon world: Out of five Japanese companies, three were singled out for their lack of policy engagement or their membership of industry associations lobbying against climate policies. Japanese heavy industry companies would gain to take a leading role in domestic and international setting to advocate for low-carbon policies.
Integrate just transition in the business strategy : The highest score in the Just transition module for Japanese companies is 1.3/20 (Nippon Steel / JFE Holdings), showing a lack of commitment in fostering social dialogue, providing green and decent jobs and social protection to workers. Japanese heavy industry companies would gain to disclose and communicate more about their commitment to a more sustainable society.

Conclusion

In conclusion, the inaugural Heavy Industries Benchmark by the World Benchmarking Alliance sheds light on the urgent need for transformative action within the heavy industries sector to combat climate change. The findings underscore a sobering reality: while some progress has been made, the pace of emission reductions remains far from what is necessary to align with the goals of the Paris Agreement.

Japanese firms, while showing some promise, also face significant challenges in their transition towards sustainability. Although most Japanese companies ranked in the top half of surveyed firms, none demonstrated leading practices, highlighting a crucial need for increased ambition and urgency in decarbonization efforts. As the world grapples with the existential threat of climate change, the heavy industries sector must undergo a profound transformation to align with global climate goals.

As Vicky Sins, World Benchmarking Alliance’s Decarbonisation and Energy Transformation Lead, said in the benchmark’s press release, “Heavy industries provide a massive opportunity to help us reach and ‘cement’ a rapid, just transition – but if the sector does not accelerate action, they will be a significant obstacle to global decarbonisation targets.”

Japanese firms have a pivotal role to play in driving this transition, not only for their own sustainability but also for the well-being of future generations and the planet as a whole.