Weekly News | 14th to 27th April 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 | Japanese Companies and Climate Groups Call on Government to Accelerate Renewable Energy and Carbon Pricing Adoption 

• Japan Climate Initiative (JCI) calls on the government to accelerate the adoption of renewable energy and carbon pricing to address climate change ahead of the G7 climate ministers meeting. 
• The JCI urges faster development of offshore wind power and mandatory installation of solar power generation in new buildings to achieve G7’s goal of decarbonizing most of the power sector by 2035. 
• Japan aims to cut emissions by 46% by boosting renewable energy in its electricity mix to 36%-38%, double of 2019’s levels. However, its G7 allies themselves have already reached or exceeded Japan’s 2030 targets, and JCI demands Japan to introduce carbon pricing earlier and more effectively. 
• Other climate groups also express frustration with Japan’s slow action on climate, emphasizing the need for a transition to clean energy and decarbonization. 

Read more about this story: The Japan Times, Financial Post, Reuters 

Codo’s comment: Japan is under rapidly increasing international pressure to greatly accelerate their decarbonization activities. As advanced economies meet or exceed mid- and long-term goals through incentives and regulations, Japan risks being excluded from its current place in the global economy. The government will need to align to international standards. Companies should anticipate these demands, and demonstrate decarbonization on an accelerated, international, timeline as compared with the domestic, government mandated one.  

World | Coal exit timeline proves challenging for G7, allowing for investment in natural gas and potentially undermining the agreement with a fossil fuel loophole 

• The Group of Seven energy and environment ministers failed to set a deadline to stop new coal investments or make firm commitments to limit global warming at their recent meeting. 
• The Group of Seven made commitments to combat climate change, including reducing emissions from power generation and vehicles by 2035, expanding offshore wind power capacity, while leaving some room for new investment in natural gas and the continued use of fossil fuels. 
• Critics say that the statement falls short of what is needed to combat climate change and undermines the group’s global authority. 
• The new communique appears to weaken at least one previous commitment made by the group, specifically their pledge to halt new public support for the international unabated fossil fuel energy sector by the end of 2022. 

Read more about this story: Bloomberg Green, The Japan Times 

Codo’s comment: In line with the above news, a lack of imperative to halt unabated fossil fuel energy and new coal development further limits Japan’s ability to meet international pressures. Coal power itself, while experiencing a boom in demand following Russia’s invasion of Ukraine, will likely be naturally phased out due to economic pressures from other cheaper, more efficient, and easier to access fuel sources as coal mines get deeper and deeper. However, this gradual, rather than accelerated, phase out will result in a diversion of investment to the struggling industry instead of to future-focused alternatives and stranded assets. Similar but longer-term risks apply to natural gas fossil fuels. Rather than invest heavily in depleting resources, it is necessary to anticipate the business risks and pivot early – capitalizing on the opportunities of changing energy ecosystems. 

World | Legal & General Investment Management and Christian Brothers Investment Services team up to demand greater climate transparency from ExxonMobil 

• Legal & General Investment Management and Christian Brothers Investment Services have filed a shareholder resolution at ExxonMobil’s 2023 shareholder meeting. 
• They are demanding greater climate-related transparency from the company, seeking full disclosure of the quantitative impact of net zero emissions scenarios on all Exxon’s asset retirement obligations. 
• The coalition of investors cite fears on the costs linked with decommissioning Exxon’s assets in the event of an accelerated transition to cleaner energy. 
• Last year, many Exxon shareholders backed a similar resolution seeking an audited report assessing the financial impact of net zero emissions assumptions. 

Read more about this story: The Japan Times, Financial Post, Reuters 

Codo’s comment: Exxon now faces yet another shareholder resolution, in line with the surge in climate-related stakeholder resolutions we have seen in the past five years. Critical to note: investors are not concerned from a moral perspective, they are concerned about the risk their investments are exposed to. This resolution is focused on risk from “stranded assets” – infrastructure and technologies that become obsolete due to market demand shifts. All companies face these risks and must address them.  

Asia-Pacifique | Australian Foreign Minister Penny Wong Visits Pacific Islands to Boost Climate Cooperation and Counter China’s Influence 

• Australian Foreign Minister Penny Wong is visiting New Caledonia and Tuvalu to discuss climate change, which is seen as the biggest threat facing the Pacific islands.  
• Wong’s visit to Fiji aims to strengthen the partnership between Australia and Pacific countries including tackling shared challenges such as climate change, pandemic recovery, economic development, and regional security.  
• Australia aims to host the COP31 climate conference in 2026 with the help of Pacific Island nations, and this trip is seen as an opportunity to build closer cooperation on environmental issues.  
• The visit comes amid growing concern over China’s expanding influence in the region, including its support of the pro-independence side in New Caledonia’s 2021 referendum, and its interest in nickel mining, which could have significant environmental impacts. The Australian government reaffirm its intention to be the partner of choice in the region. 

Read more about this story: The Japan Times, The Guardian 

Codo’s comment: Climate action is not just about mitigating business risk and capitalizing on opportunities. Diplomacy, soft power, and thought leadership are critical components. Climate change is most strongly driven by large, highly developed countries and most strongly impacts small, less developed countries unable to respond to these impacts. The geo-political “Climate Race” opens funding opportunities for corporations from developed nations to support the mitigation and adaptation of more at-risk nations. Corporations that take advantage of these opportunities need to ensure they invest in the development of local capabilities and education to continue to manage and expand the supplied machines and infrastructure after the initial project is completed. 

Europe | For an allegedly greener future, Germany is retiring its nuclear plants. 

• Germany will shut down its three remaining nuclear plants, including the Isar-2 plant near Munich. 
• The three plants collectively provided Germany with 6% of its power last year. 
• The country will need to secure its energy supply without nuclear or Russian natural gas and with renewables expanding at a slower pace than needed. 
• Critics worry that the country will rely more heavily on polluting fuels like coal to compensate for the loss of nuclear power until sufficient clean-energy infrastructure is in place. 
• Germany may need to import more nuclear power from neighboring France and seek power from other neighbors, or to burn more coal, to avoid a possible electricity shortfall. 

Read more about this story: Bloomberg Green, The Japan Times