Japanese financial firms are pulling out investments in coal

The project pipeline for coal plants has dropped from 50 in 2012 to 35.

Investor and financier support for the coal industry in Japan is draining away at an increasingly rapid rate, the Institute for Energy Economics and Financial Analysis (IEEFA) said.

“Japan has seen criticism of its pro-coal policies from within its own government, specifically from its environment and foreign ministers, and from its financial sector, too, where assessments against coal are increasingly being made by its banks and insurance companies,” said IEEFA energy finance analyst Simon Nicholas.

A group of major international investors with a cumulative US$26t of assets under management called for a phase-out of coal-fired power. About 288 investors signed the statement. Notably, some of the signatories like Nomura are part of the largest shareholders in coal company Marubeni.

Amundi, Europe’s largest asset manager, has stated that global investment has reached a clear “tipping point” with regard to climate change as major investors increasingly take the issue seriously in their decision-making. It has created low-carbon indexes that are outperforming the market as a whole, and the Japanese Government Pension Investment Fund is one of the major investors moving their portfolios into such indexes.

Japanese banks are also now indicating a change in their outlook toward coal—and the largest ones are coming under increasing opposition-campaign pressure as they are amongst the biggest funders of coal globally, the report noted.

Insurance assets get shielded from coal
IEEFA cited Sumitomo Mitsui Financial Group’s announcement that it may rethink its stance towards coal, which is a move “almost certain” to be followed eventually by major Japanese coal financiers Mizuho Financial Group and Mitsubishi UFJ Financial Group. In June 2018, Mizuho released a statement that recognized the need for action to tackle climate change and noted global concern about the role coal-fired power plays in carbon emissions

Before Sumitomo Mitsui’s acknowledgement, in May 2018, Japan’s second-largest insurer, Dai-ichi Life Insurance, announced it would no longer provide financing for overseas coal-fired power projects.

“This announcement was the first time a Japanese financial institution committed to restricting coal finance,” Nicholas said. “It was not the last.” Nippon Life Insurance, Japan’s largest insurer, announced in July 2018 that it will cease financing all coal-fired power stations in Japan and overseas.

Moreover, Japan’s trading houses are beginning to recognize the risks associated with coal. Mitsubishi Corp. has moved to sell its stake in Australian thermal coal mines. Mitsui and Co. stated in 2017 that, due to environmental concerns, it had no plans to invest in new thermal coal mines. Sojitz Corp. is also planning to reduce its exposure to thermal coal.

On a global scale, insurance giants like Allianz and Dai-Ichi are joining the likes of Zurich and Axa in dropping coal. This implies that about 10% of all insurance assets have already been shielded from coal. That figure could double by the end of 2018, Nicholas noted.

“The initial effect will leave coal-fired power plants and coal mines seeking coverage from a smaller pool of insurers, and at a higher price,” he said. “With an increasing number of banks also refusing to finance coal, reaching financial close on any coal-fired power plants will get progressively more difficult.”

Japan lags G7 in abandoning coal
Whilst four of the G7 members have joined the Powering Past Coal Alliance, Japan has been lagging and indeed is the outlier with its intention to build a new generation of coal-fired power plants, Nicholas further noted.

Since 2012, 50 new coal-fired power plants have been proposed in Japan. However, an increasing number of these proposals have been taken off the table and the number of projects in the development pipeline has dropped to 35.

“With Japan’s electricity demand in decline, renewables continuing to be rolled out, and the government determined to restart nuclear power plants, that number looks set to decline further,” the analyst added.

Moving forward, public and private financiers in Japan are already moving into renewable energy, and more such activity is likely. Several years of strong domestic investment in solar PV—amounting to US$20-30b per year—have given Japanese technology firms and investors important expertise in the renewables sector.

Japanese FIs move into renewables
Consequently, Japanese companies are now taking this expertise overseas. Softbank is seeking to develop 20 GW of solar projects in India, whilst Japanese technology companies have also recently become active in Vietnam’s growing solar market

Japan’s financial institutions have also placed significant emphasis on renewables projects overseas. Mitsubishi UFJ Financial Group (MUFJ) and Sumitomo Mitsui Financial Group have risen to become two of the largest lead arrangers globally for clean energy asset financing.

They have moved into the offshore wind in Europe and are now moving into the growing Taiwan market

“Banks especially have been attracted to renewable energy infrastructure investments abroad based on their strong annuity yields backed by long-term PPAs from mostly highly-rated utilities,” Nicholas said.

Japan can still answer to this as it is home to a number of companies that have the potential to become world leaders in renewable energy and the nation’s clean energy champions.

IEEFA cited Panasonic, which, in partnership with Tesla, manufactures at the Gigafactory in the US state of Nevada. The company is planning to double automotive revenues by 2022 and is scaling up its battery manufacturing capacity globally.

Softbank is also intending to pursue a “highly ambitious” project in Saudi Arabia involving the construction of 200 GW of solar power capacity. This continues the bank’s plans for a northeast Asia “supergrid” involving Japan, South Korea, China, Mongolia and Russia.