Weekly News | 8th to 14th May 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 | Climate: board members and investors raise pressure on CEOs

• Responsibility of CEOs in guiding companies in their transition strategies is becoming essential for boards and climate-sensitive investors who are increasingly pushing for corporate climate actions.
• In its study on the matter, IBM reports that sustainability challenges are the most urgent ones but also the hardest to tackle within an enterprise-wide strategy, as regulation and geopolitics-based disruptions are making the environment incredibly uncertain in the 2-3 years to come.
• Most of the surveyed CEOs identify sustainability as a priority to invest in, as it is expected to be a key critical factor in business growth. Yet, the early stages of sustainable strategies implementation are the most difficult ones, and many CEOs lack confidence in their ability to achieve the sustainability targets they defined.
• Read more about this story: ESG today, IBM Newsroom

Codo’s comment: This study confirms what was already demonstrated by the UN Global Compact at COP26 – pressure from investors on CEOs is growing. The new finding here is that board members are also starting to take an active role in pushing CEOs to define stronger corporate sustainability plans. This implies that the board itself is aware of climate-related challenges. Education of companies’ top management is therefore essential.

World | Oil and gas companies still lenient on their new climate policies

• Despite revising their climate targets for 2022, the largest oil and gas companies still lack fundamental policies to transition toward net-zero appropriately: many of them do not include Scope 3 emissions (85% of the total for this sector) in their targets, do not set interim targets that ensure emissions cuts before 2050, or are not comprehensive enough about their strategy on fossil fuels.
• Consequently, most of the commitments made by these companies are not recognized by renowned certification providers such as the Science Based Targets initiative.
• Carbon Tracker identifies Eni (Italy) has a good role model for climate policies. According to Eni, decisions for acting on climate change have been made based on what could be considered red flags to shareholders.
• Read more about this story: Reclaim Finance, Ansa

US | BlackRock to reduce support to climate resolutions in 2022  

• BlackRock announced it will support fewer climate resolutions submitted by activist shareholders, from this year. The world’s largest asset manager considers that climate resolutions have become too severe on companies and impractical, especially in a tense geopolitical context that “requires more short-term investment in traditional fuel”, reports the Financial Times.
• The group defends that its position has not changed overall. It will part away from activists but will keep promoting green energy and business models for companies, as long as it allows them to “capture the opportunities” of the energy transition.
• Read more about this story: ESG Today, The New York Times

France | EDF climate plan gets support from 99% of shareholders

• EDF, the largest electricity provider in France, submitted to its shareholders a proposal that acknowledges climate-related risks the group faces and introduces a transition strategy to cut emissions.
• The proposal, supported by 99.87% of shareholders, is based on a plan that includes the reduction of core CO2 emissions through the decrease of fossil-based assets, with defined targets for 2023 and 2030 to reach carbon neutrality by 2050.
• It also makes support for customers’ decarbonization a central part of this plan, along with salary incentives for top management linked with the group’s progress on reducing its carbon intensity.
• Read more about this story: EDF’s transition plan, Les Echos

Codo’s comment: Instead of waiting for a climate resolution to come from activist investors, EDF decided to adopt a proactive approach and submit its own climate proposal to shareholders. This strategic move was facilitated within the company by continued efforts to educate staff, board members and CEO on climate action, through internal workshops and educational activities.

Japan | Japan lagging on responsible financing trend in Asia

• While Asia was identified as the largest debt issuer for responsible financing in 2021, Japan’s investing was the least sustainable compared to the rest of the world, according to recent research. According to the Climate Bonds Initiative, Japan is also lagging in terms of green bond issuance.
• Other Asian countries are focusing on climate change as the most central essential ESG theme, and investment is clearly aligning with these objectives. According to the Asia Investor Group on Climate change, this proactive behavior may allow the region to leapfrog the rest of the world.
• Read more about this story: Bloomberg

Japan | J-Power under pressure from European asset managers on coal

• European institutional investors Amundi (France), HSBC (UK) and Man Group (UK) submitted shareholder proposals to push J-Power, one of Japan’s largest electricity producer, to engage in decarbonization. J-Power operates 12 thermal power plans in Japan, including 10 coal-fried.
• The proposals request the group to “set and disclose a business plan with science-based short-term and midterm greenhouse gas emissions reduction targets aligned with the Paris Agreement.” Regarding the recent efforts made by J-Power in its attempt to align with global decarbonization trend, the investors point out that these fall short of was is expected to be done.
• Read more about this story: Nikkei Asia, Nikkei

Codo’s comment: Until now, only the banking sector in Japan had to face climate resolutions from shareholders, and these initiatives came from NGOs. This new case with J-Power is the first one involving major foreign asset managers. For global stakeholders sensitive to climate-related risks, reliance on coal is the most critical issue of Japan’s climate and energy strategy.

Japan/Europe | Japan late on green hydrogen standards, Europe leading

• While Europe and the US are becoming increasingly strict on hydrogen production, paving the way for future international standards, Japan is at risk if not swiftly adapting to these regulatory trends.
• As the Western rule, giving priority to green hydrogen (produced from renewable sources), is already a reference for many global investors and companies, it is agreed that Japan is relying too heavily on blue hydrogen (produced from fossil sources with carbon capture), preventing the introduction of renewable energy in the country.
• As a result, Japanese hydrogen projects not fulfilling Western standards will face difficulty in the future to finance themselves and most certainly lose resources in eventually adapting to these exigent taxonomies, which can only lead to a decrease in global competitiveness.
• Read more about this story: Japan Times, Nikkei

World | Climate tech start-ups funding increasing but key sectors still underfunded

• Start-ups are hosting most of the promising next-generation technologies for decarbonization, an important part of the needed transformation of our economies. Climate tech includes the development of lower-carbon fuels technologies and optimization tools, to be used in a variety of sectors such as mobility and the food industry, that are pressured to decarbonize, because of stricter regulations and sky-rocketing fossil fuels prices.
• However, these technologies show a lot of disparity in their promises: some offer decarbonization strategy while others only help to make incremental gains through improved efficiency. More concerning is the fact that innovation is lacking in the largest emitting industries, like steel, construction, and concrete. These sectors remain critically underfunded while they are the hardest to decarbonize.
• Read more about this story: Financial Times, Carbon Pulse