Weekly News | 23rd to 29th August 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.

The US | Wall Street alarmed by the global scope of the new EU reporting directive  

• The worldwide scope of the EU’s latest climate change effort, namely the Corporate Sustainability Reporting Directive (CSRD), has received complaints from large American banks. 
• The CSRD, expected to come into force in the coming months, requires all “large” companies that operate in the EU or have listed securities in the bloc to produce extensive new reports on the effects of their business, and of their parent companies, on the environment. 
• Banks feel especially pressed by having the same reporting deadline as non-financial services companies and the new directive extending the requirement to all securities. Policy experts warn that while a standard disclosure covering EU-listed shares is needed, expanding the need to all securities might drive companies away from the European capital markets.  
• Read more about this story: Financial Times 

Comment from Codo: The concerns from US banks are most likely shared by financial players in other non-European regions, facing the same challenges. This situation is a good example of how regulations from advanced countries and jurisdictions can have a direct impact on the operations of foreign companies. Japanese firms and banks, for instance, can not limit their climate plans to a simple alignment with the requirements of the Japanese government, if they want to keep a global footprint, including in decarbonization leading regions such as Europe. 

China | China tightens green bond rules to prevent greenwashing 

• China has upped the bar for issuances in the second-largest green bond market in the world, making significant progress toward implementing international standards. 
• Starting this month, the Shanghai Stock Exchange will require that 100% of the revenues from the issuance of green bonds be used to fund green initiatives, such as renewable energy, as opposed to the previous requirement of at least 70%. 
• Additionally, the China Securities Regulatory Commission (CSRC) has instructed both the Shanghai and Shenzhen bourses to revise rules to bring issuances of such bonds in line with the newly published China Green Bond Principles, a set of self-disciplinary green bond frameworks largely based on international standards.  

• Read more about this story: Reuters, China Economic Review 

Comment from Codo: Pressure against corporate greenwashing and the lack of transparency in green finance is increasing in all regions. Europe is leading the way, now followed by the US with initiatives such as the upcoming climate disclosure rules of the SEC. However, the global fight against greenwashing cannot be won without the involvement of Asian regulators, issuers, and firms. 

EU | Europe to urge major emitters to improve climate pledges prior to COP27  

• A draft document prepared by the EU signals the bloc’s intention to urge the big economies to improve their targets to fight climate change ahead of COP27. 
• The EU stated in the draft that’s set to be approved in October that “global climate action remains insufficient” following a series of new emissions-cutting promises nations made at COP26. 

• After China and the US, the EU is the third-largest emitter in the world and aims to cut its net emissions by 55% by 2030, compared with 1990 levels. 
• Read more about this story: Reuters 

Comment from Codo: Under the Paris Agreement, the national climate targets for 2030 set by each country (NDCs, nationally determined contributions) are supposed to be reviewed every 5 years – with an enhanced ambition at each review. After a gap year and no COP because of the pandemic in 2020, countries submitted their new NDCs at COP26 in Glasgow in 2021. While the next upgrade is in theory expected by 2025, one of COP26’s achievements was an agreement to anticipate on this deadline and ask countries to submit new goals as early as 2022, at COP27. 

Australia | Australia needs massive renewable energy expansion to hit net zero 

• For Australia’s economy to reach net zero carbon emissions by 2050, it will need to make significant investments in renewable energy and carbon capture and storage, finds The Net Zero Australia project. 
• According to the study, the country requires almost 40 times the total generation capacity of today’s national electricity market to achieve this goal, including 1,900 gigawatts (GW) of solar and 174 GW of wind capacity. 
• Additionally, the analysis concluded that increasing power generation in 2050 by 8 to 15 times the current levels would require hundreds of billions of dollars in order to replace Australia’s major exports of coal and gas with clean energy. 
• Read more about this story: Reuters, The Economic Times 

US/Japan | New California regulations: Japanese carmakers race against time 

• As California aims to phase out gasoline-powered vehicle sales by 2035, Japanese automakers are facing the challenge of reaching the initial objective of zero-emission vehicles accounting for 35% of new sales in less than four years. 
• After this first milestone set for 2026, California will enforce automakers to sell 68% of zero-emission vehicles in 2030, and 100% in 2035. Electric vehicles, fuel-cell vehicles, and plug-in hybrids with all-electric driving ranges of 80 kilometers or more are among those that qualify. 
• However, just around 4% of Toyota vehicles sold in California during the first half of this year were zero-emissions, while Honda had a small share of 0.3%. Nissan came in at 6% with its all-electric Leaf, according to data from S&P Global. 
• Read more about this story: Nikkei Asia, Reuters 

Comment from Codo: The global situation on climate change can only make climate regulations accelerate, with earlier application dates and stricter rules. Any firm betting on the opposite – i.e. delayed and lighter regulations – is taking a risk that is increasing at the same time as average global temperatures. Japanese carmakers for instance have delayed their transition to zero-emission for a long time. They are now facing regulatory measures in the US and in Europe with strict limitations and early deadlines, making it challenging for them to meet the requirements in time. 

Japan | Japan to spur Africa’s decarbonization through credit insurance 

• Japan will encourage companies to pursue decarbonization projects in Africa by establishing a new financing and insurance system aimed at mitigating the risks associated with doing business on the continent. 
• Japan’s state-owned Nippon Export and Investment Insurance (NEXI) will partner with the African Export-Import Bank (Afreximbank) and both sides are expected to sign the agreement this month to support the region’s decarbonization efforts. 
• The framework is expected to apply to both Japanese and African state-owned enterprises. It will cover the development of renewable energy, such as solar, wind, and geothermal power, as well as staged emission reduction programs, such as converting facilities in largely coal-dependent countries like South Africa to natural gas. 

·         Read more about this story: Nikkei Asia