Will Japan's carbon clean-up plan work?

Hong Kong

JAPAN'S financiers face a carbon clean-up. New Prime Minister Yoshihide Suga wants to cut greenhouse gases to zero by 2050. That's ominous for Mitsubishi UFJ, Mizuho Financial and peers - especially as powerful investors can crack the whip.

After the 2011 Fukushima disaster, policymakers in the world's third-largest economy were reluctant to go green because more than 90 per cent of its nuclear reactors were shut down, forcing fossil fuels to become a fixture. Coal and natural imports both rose despite sluggish economic growth.

Japan's banks played along, providing some US$166 billion in loans and underwriting for fossil fuel industries across Asia in the period 2014 to 2019, according to Fair Finance Asia.

Mizuho, Mitsubishi UFJ and SMBC together accounted for more than 80 per cent of that total, and the same trio were labelled the world's top financiers of new coal plants in a separate study last year.

Big investors are now ready to factor in climate change. The Government Pension Investment Fund (GPIF) has reduced its US$1.6 trillion portfolio's carbon intensity by some 15 per cent in the last financial year, the fund said in October. Activists are on the case too. In June, a group of Mizuho shareholders asked the bank to align its business with the Paris Agreement - the first ever climate motion put to a Japanese company, according to Reuters.

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With coal, oil and gas entrenched in the economy, efforts to pivot have lacked a sense of urgency. Despite being a relatively progressive asset owner, GPIF's 94-page report on climate risk and reward only mentioned stranded assets once. So banks' reactions have been measured too.

Take coal, the most carbon-intensive of fuels - Mizuho and MUFG say they will stop lending to all coal projects by 2050 and 2040, respectively. SMBC no longer lends to new projects.

Policymakers' plans will prompt change. They could use a carbon price, renewable energy, or other more meaningful measures to curtail emissions, all of which would give agitating investors momentum.

And as the 10th anniversary of Fukushima approaches, radical ideas might find traction too. Just a day after the new administration outlined its greenhouse gas goal last month, a senior official called for more nuclear plants to be built.

It may yet be too soon for that, but it's clear that Mr Suga is serious. Climate conscious shareholders will soon be heard more easily in banks' boardrooms. REUTERS