Weekly News | 21st to 27th June 2022

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.

World | Steel industry’s $518bn worth of investment turned into stranded assets

• With more and more national pledges for carbon neutrality, new coal-based plants and factories are most likely to become either unnecessary or inoperable in the decades to come.
• As a result, steel makers would be left with $518bn worth of stranded assets. Most of it would be concentrated in Asia (China and India) in particular, hosting 80% of the new coal-based steelmaking capacity.
• The steel industry is, to this day, responsible for about 9% of all direct emissions from fossil fuels. World’s largest manufacturer are making efforts to improve their processes by making them less polluting and reducing energy consumption. Analysts say that there is no longer a future for coal-based steelmaking.
• Read more about this story: Financial Times, Business Standard

Europe | Commission pushes for renewables and against fossil fuel “backsliding”

• European Commission President called member states to not give up on fossil fuels use reduction objectives to compensate for decrease in Russian imports. Instead, she urged them to massively invest in renewables.
• European countries are experiencing mounting pressure due to energy shortfalls and consequent surges in prices. Gas has become about six times more expensive than the pre-pandemic benchmark.
• Besides energy saving measures and the diversification of its liquified natural gas supply, through the RepowerEU plan, the EU is also actively working on the expansion of its wind and solar capacities. This is “not only good for our climate, but also good for our energy security and independence” declared the President.
• Read more about this story: Financial Times, Reuters

Comment from Codo: In addition to further pushing renewable energy deployment, Europe is also advocating more actively for energy efficiency. Even energy suppliers, which primary mission is to sell energy, are now calling individual and corporate consumers to reduce their consumption; it was recently the case in France, where the 3 largest energy companies – EDF, ENGIE and TotalEnergies – issued a very clear joint call for energy saving efforts.  

Europe | Biodiversity loss to be tackled through binding targets

• The EU intends to find solutions to the biodiversity crisis in spite of the political turmoil over measures’ impact on agricultural activities. Legally binding targets will rule the cut of pesticides use and the improvement of natural ecosystems.
• Among the targets presented last week: growth of bee populations, restauration of drained peatlands, greening of cities, increase in farmland’s biodiversity. By 2030, current pesticide consumption also will have to be reduced by a half.
• While European farmers warn that they won’t be able to meet food demand without current intensive methods, in a context where imports from Ukraine are prevented, the EU environmental commissioner emphasized that further deteriorating ecosystems is a bigger threat to the European food supply.
• Read more about this story: Financial Times, European Commission’s official website

Asia | How biodiversity loss increases financial risks in the developing world

• A recent study shows how the loss of biodiversity could trigger default in developing economies and massive downgrades in China and India especially. This research brings groundbreaking evidence of environmental harm’s impacts on governments finances.
• Cambridge University researchers explain that the collapse of fisheries’ ecosystems, tropical timber production and substantial decrease in pollination would result in an annual surge of $53 billion in national borrowing. As a result, China’s credit rating would drop 6 notches and average GDP losses worldwide would exceed those caused by the Covid-19 crisis.
• Developing nations are the more at risk of facing sovereign debt default, especially in South Asia where climate change-related risks are the highest worldwide. Another report showed that the region’s economic output was 10 times more under threat than in Europe.
• Read more about this story: Bloomberg, Reuters

Comment from Codo: The attention of policymakers and companies has been focused on climate change, with the Paris Agreement as a milestone. However, a global crisis can also be triggered by biodiversity collapse. Pressure on companies to work on biodiversity will increase the same way it grew (and keeps growing) on climate. One illustration of this is the preparation of the TNFD framework, that will help companies disclose their nature-related financial risks the same way TCFD is guiding them on climate-related financial disclosure.

Japan | Financing of coal projects to be ended in South Asian countries

• Under global pressure to align on collective efforts on coal phase-out, Japan will stop the financing of power plants fired by the dirtiest of all fossil fuels. This includes the cancellation of low-interest development loans that were to be used to build new coal-fired power plants in Bangladesh and Indonesia.
• G7 group already agreed on stopping international financing of coal projects, with the exception of Japan, which used to stubbornly oppose that move. The country was accounting by itself for half of the G7 financing on this matter. As a result of the sharp criticism from its counterparts, Japan eventually agreed to align.
• The funds receiving countries declared themselves that they would not go forward with new coal plants any longer. Japanese companies and banks, including Toshiba and Sumitomo groups, are also moving away from ordering new coal-fired projects in the midst of investor activism.
• Read more about this story: Bloomberg, Nikkei Asia

Comment from Codo: For years, Japan has tried to resist the growing international pressure against its financial support to coal-fired plants in developing countries of South-East Asia. Instead of anticipating the outcome – a position that became impossible to maintain – and work on an earlier withdrawal plan, it damaged its reputation by advocating a so-called concept of “clean coal” that many international observers found highly controversial.

Japan | Government-led financing of ESG projects raises scrutiny on greenwashing

• Japanese government is about to support the spending of $40 billion (5.5 trillion yen) for ESG purposes. As an accompanying measure, it will also scrutinize the ways these funds are used and if the benefiting companies are not greenwashing.
• The financing arm of the government, the Development Bank of Japan (DBJ), is “suspecting” that there are already “sketchy” plans, but that close institutional overlook of financial plans will prevent misusage of the funds.
• This stance is aligned with the global regulatory trend for stricter scrutiny of sustainability credentials. At the same time, demand and supply for sustainability-linked and transition-linked loans are growing. The current lack of regulatory standards worries investors who say that borrowers can easily use sustainability funds inappropriately in Japan.
• Read more about this story: Bloomberg