A recently released report has found that 75 percent of Japanese financial institutions surveyed were effectively “funding climate change and nuclear risk.”
“Energy Finance in Japan 2018,” a research paper commissioned by climate change-focused NGO 350.org, shows that 113 of the 151 Japanese financial institutions surveyed, including such giants as Mitsubishi UFJ Financial Group (MUFG), Nippon Life Insurance (NLI) and Nomura Holdings, have funneled US$92 billion into coal and nuclear energy development over the past 5 years — a sum that is equivalent to the combined gross domestic products of Cameroon, Bolivia and Paraguay.
The objective of the report was “to identify Japanese financial institutions with no record of financial relations with Japanese companies engage in coal development, fossil fuel ownership and nuclear power, while profiling the financial institutions (banks, asset managers and insurance companies) with the highest exposure to fossil fuels and nuclear power in Japan.”
In order to achieve this goal, researchers utilised financial databases to calculate all known corporate loans, underwritings, bondholdings, and shareholdings from 151 financial groups and their subsidiaries provided to 26 Japanese companies engaged in fossil fuel and nuclear power generation between January 2013 and July 2018, according to the report.
The study, which was conducted by Amsterdam-Based Profound, found that those companies gave US$80 billion in loans and underwriting services, the lion’s share of which ($67 billion) went straight to coal and fossil fuel development/ownership, with the remainder going to nuclear. A further US$12 billion was invested in bonds and shares in those same industries, 65 percent of which went to coal development and 23 percent to fossil fuel owners.
It was also revealed that 59 parent companies of the financial institutions surveyed held shares in companies engaged on coal development; 22 held bonds and shares in companies engaged in fossil fuel ownership; and 48 held bonds and shares in companies engaged in nuclear power.
Despite the “even greater momentum” for decarbonising the energy sector and transitioning to renewable energies since the Paris Climate Agreement in 2015, and despite the worsening impacts of climate change and nuclear risk, “Japanese financial institutions continue to support fossil fuel and nuclear projects at home and across the globe” through such investment strategies, the report states.
However, “most consumers in Japan do not realise how financial institutions invest their finds due to a lack of information disclosure regarding climate and environmental risks.”
Should the pattern continue Japan would find it difficult to reach the greenhouse gas emission reduction targets pledged in 2016, the report concludes.
In addition to MUFG, Nomura and Nippon Life, other top investors included Sumitomo Mitsui Trust, Meiji Masuda Life and Mizuho Finance.
The top three creditors of the 55 finance institutions providing loans and underwriting services to coal development companies were Mizuho Financial Group, Sumitomo Financial Group and MUFJ. The three companies listed as being the top three creditors of fossil fuel owners were Sumitomo Mitsui, Mizuho and MUFG.
Among the 151 Japanese financial institutions analyzed, only 38 of them were not involved with coal or nuclear energy projects, though the report pointed out that not all financial relationships are publicly disclosed in company publications, in financial institution publications, or through financial data service providers. There may also be links to companies involved in coal development and fossil fuel ownership that the survey was unable to unearth, the report added.
The figures in the report indicate the continuation of a huge turnaround for Japan, which until March 2011 sourced roughly 40 percent of its energy mix through nuclear power and renewables, against 25 percent sourced through coal. In 2012, nuclear and renewable contributions plummeted to 11 percent of that energy mix, while coal rose to 48 percent, according to Japanese government data. Japan has vowed to increase nuclear (to 22 percent) and renewables (to 24%) and reduce coal (to 26%) by 2030. In 2016 Japan generated its power using 82 percent conventional thermal sources (gas, coal, fuel oil), 8 percent hydro, 4 percent biomass and waste, and 2 percent nuclear, according to the International Energy Agency. The remaining 4 percent came from wind, geothermal and solar, meaning a total of 16 percent came from renewables - well below the IAE average.
There was, of course, a reason for this imbalance. On March 11, 2011 a massive earthquake and tsunami crippled one nuclear plant in Fukushima, causing multiple meltdowns and explosions at three of its six reactors.
Japan subsequently switched off all of its 54 reactors and ordered utilities to implement safety checks and upgrades where necessary. Over the seven and a half years since the disasters — which forced the evacuation of 160,000 residents living near the plant — only half a dozen of those reactors have been restarted and Japan has looked to coal to bridge the gap in energy demand.
A feed-in tariff to encourage renewable projects was introduced in the aftermath of the disasters, but has by-and-large proven to be unsuccessful. Solar development in Japan has failed to keep up with other nations, and has even been referred to as a "shambles".
And while financial institutions have spied a chance in coal and fossil fuels, Japanese banks, which are some of the world’s biggest backers of coal-fired plant projects overseas, especially in emerging economies, have created stricter financing guidelines that would disqualify new credit-seeking coal-fired plant projects that failed to implement advanced air-pollution technologies. Some of those banks, such as Sumitomo Mitsui, have suggested that they may make exceptions to some overseas projects.
Sumitomo is one of a few of the institutions listed in the 350.org report have started to tighten up their coal-financing policies. Meanwhile Nomura announced in July that it would no longer invest in coal-fired plants for environmental reasons and Dai-ichi Life has pledged a similar move to cease its financing of overseas coal plants.
Some argue that in the wider scheme of things these changes are nothing more than token gestures and will not prevent the continuation of massive Japanese investments into coal as long as suitable alternatives — to both coal and nuclear — are ignored.
Sources: IAE; Bloomberg; Energy Finance in Japan 2018