Weekly News | 1st to 17th May 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 | European asset managers push for climate action at J-Power, Japan’s largest coal-fired power operator 

• Amundi and HSBC Asset Management have filed a shareholder resolution at J-Power, Japan’s largest operator of coal-fired power stations, for the second consecutive year to set and disclose credible emissions reduction targets aligned with the goals of the Paris Agreement.  
• Shareholder activism in Japan has been growing, leading to policy changes in targeted companies. The resolution is supported by Man Group, and the asset managers intend to vote against Hitoshi Kanno, J-Power’s representative director, and executive vice president in charge of the decarbonization plan.  
• The resolution also comes after the G7 nations agreed to accelerate renewable energy development and phase out fossil fuels. 

Read more about this story: Reuters, The Sustainable Brands Journal 

Codo’s comment: This is the first time a shareholder climate resolution targets a specific person within a Japanese company, indicating a new level of pressure that climate-sensitive shareholders wish to apply. In 2021 in the US, three directors of the board of ExxonMobil were similarly targeted by climate resolutions from a small activist fund, and ended up losing their seats after most shareholders supported the resolution against them. Amundi, one of the two European asset managers behind this new move to J-Power, will be speaking at an event co-hosted by Codo at the end of May. 

Japan | Japan to require EV manufacturers to report battery emissions for subsidy eligibility 

• The Japanese government plans to require EV manufacturers to report the amount of carbon dioxide emitted during the production of batteries to determine eligibility for subsidies to be introduced in fiscal year 2024. 
• EV manufacturers will report battery emissions to the Ministry of Economy, Trade and Industry and eventually to consumers through a third-party certification body. 
• EVs emit twice as much carbon dioxide as gasoline vehicles during manufacturing, with up to 60% of all CO2 emitted during the EV manufacturing process coming from batteries. The move by Japan reflects growing scrutiny of the full carbon footprint of EVs, assessing the emissions created at every step of production, from raw materials to disposal and recycling. 

Read more about this story: Nikkei Asia

Codo’s comment: These increased regulations planned by the government of Japan are relevant for batteries, but not only. Ultimately, all products should be evaluated against the totality of their carbon footprint, from production to destruction. In this regard, Japan could benefit from equipping itself with a green taxonomy that defines rules shared across all sectors and stakeholders rather than moving product by product.  

World | The intensifying El Niño phenomenon poses a threat of increased extreme heat 

• This year is shaping up to be one of the top four warmest years on record, with a modest chance of becoming the warmest year ever recorded. The exceptionally warm conditions are driven by a rapid transition into warmer El Niño conditions. 
• La Niña and El Niño are opposite phases of the El Niño-Southern Oscillation (ENSO) cycle, a natural climate phenomenon that occurs every few years. La Niña is characterized by cooler than average sea surface temperatures in the equatorial Pacific, while El Niño is characterized by warmer than average sea surface temperatures in the same region. 
• Based on the forecast of El Niño, it is estimated that 2023 is very likely to end up between the warmest year on record and the sixth warmest, with a best estimate of the fourth warmest. 

Read more about this story: Carbon Brief, Bloomberg Green 

Codo’s comment: Climate change is intensifying natural weather phenomena, and this intensification affects developing regions that are already vulnerable and have less contributed to climate change. Beyond this issue of climate justice, many of these regions also serve as manufacturing hubs; disruptions caused by extreme weather events represent increased financial risks for companies downstream along the supply chain – including Japanese firms. 

World | Regulatory concerns over the rapidly growing market of ESG exchange-traded funds 

• Exchange Traded Funds (ETFs) that use ESG (environmental, social and governance) metrics have grown substantially over the past two years, more than doubling to almost 1,300 by the end of 2022. 

• However, the proliferation of ESG ETFs and their varied approaches has led to concerns of greenwashing by regulators, who are worried that fund managers are using misleading environmental claims to attract investors. The number of sustainable ETF launches in Q1 2023 decreased significantly compared to last year. 
• Investors need to be careful and conduct their due diligence to ensure they choose an ESG ETF that matches their needs and expectations. 

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

United States | US FTC considers major changes to Green Guides after receiving 60,000 comments on environmental claims 

• The US Federal Trade Commission (FTC) is considering major changes to its Green Guides, a set of standards for companies making environmental claims. 

• The regulator received nearly 60,000 responses to questions it posed about several frequently used environmental claims. 
• The FTC sought feedback on carbon offsets and climate change claims, the term ‘recyclable,’ ‘recycled content,’ and other claims like “compostable,” “degradable,” ozone-friendly,” “organic,” and “sustainable.” 
• The submitted comments addressed what should be considered “recyclable” and claims of a product’s recyclability should reflect where a product ultimately ends up. 

Read more about this story: Reuters, Bloomberg 

Codo’s comment: After active efforts in Europe to tackle greenwashing with stronger regulations and policies, the US regulator is also increasing its scrutiny on the matter. These new moves will most likely have consequences for Japanese companies selling products in the US market, but also present in supply chains of companies from other countries also selling in this market. 

United States | Biden administration faces hurdles in implementing carbon capture technology to combat climate change 

• The Biden administration’s plan to reduce greenhouse gases from the electricity sector depends heavily on carbon capture technology, which is barely in commercial use. 
• The Environmental Protection Agency (EPA) is finalizing a plan to limit carbon dioxide emissions from coal and gas-fired power plants based on the “best system of emission reduction” under the Clean Air Act. 
• Carbon capture systems are critical to the administration’s strategy, but the limited technology deployment so far reflects a lack of policy support and legal and logistical hurdles. This measure is crucial for achieving Biden’s climate goals and his commitment to halve US climate emissions by 2030 under the Paris Agreement. 

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

Codo’s comment: The US was one of the first countries to develop CCUS technologies in the 1980s. The fact that technology is still facing hurdles in this country is a sign that relying on CCUS to decarbonize the global economy is a risky bet. Companies should prioritize other solutions and focus on cutting emissions at the source, for example, through increased energy savings and further introduction of decarbonized energy sources.