In the banking sector, Sumitomo Mitsui Trust Bank has decided, in principle, not to finance new coal-fired power plant projects. This decision, which represents the most radical change in policy among the Japanese banks, is clearly stated in its 2018 Integrated Report. Japan’s Big Three megabanks, which substantially finance fossil fueled power sources among other banks in the world, are now showing caution as well. Sumitomo Mitsui Banking Corporation (SMBC) has announced it will consider financing only projects using the ultra-supercritical (USC) technology or more efficient ones.
In the insurance sector, Nippon Life Insurance Company says it will stop extending new loans in both Japan and other countries. Dai-ichi Life Insurance Company, Limited will cease financing coal-fired power plants abroad only, at least for now. While Nippon and Dai-ichi Life Insurance will terminate project finance, Meiji Yasuda Life Insurance will reportedly stop corporate finance as well for maintenance firms and other related companies. Although this applies only for non-USC level coal generation, this has implications not only for projects but also for the business entities involved.
Apart from these financial institutions, Marubeni Corporation, which has the largest installed generation capacity as a Japanese trading house, has recently announced that it will no longer enter into any new coal-fired power generation business in principle. Marubeni is the first Japanese trading company and project developer to do so.
Coal-fired Power Related Investment Policy Announcements
It seems that Japanese financial institutions can no longer ignore the global trend of divesting from coal-fired generation as the world is now moving toward a decarbonized society as called for by the Paris Agreement. A case in point is the Global Climate Action Summit, held in San Francisco from September 12-14 this year for non-state actors. Reflecting a keen interest on the part of Japan’s financial industry, 50 officials from the industry attended the summit, which was held alongside a conference on Principles for Responsible Investment (PRI). It is quite possible that more and more such announcements will be made in Japan and that more stringent commitments will be made in them.
It is worth noting, however, that the announcements are made with consideration of the current stance of the Japanese government who advocate for coal. In their new finance policy announcements exceptions were made claiming some are high efficient or government supported. Question remains how the institutions implement or apply their coal financing policies now and what implications it has on ongoing domestic project plans.
Despite the domestic policy however, major Japanese financial institutions made their first step described earlier on the back of the plummeting cost and wider deployment of renewables in the world. For institutional investors, relying on thermal power plants for about 80% of the country’s electricity demand and the government policy of sticking to coal generation even in the future, fails to dispel concerns that the gaps in carbon productivity and energy cost will widen between Japanese businesses and their foreign competitors. Over the mid- to long term, there are few reasons to be optimistic about coal business in terms of competitiveness, electricity demand forecast, and policy cost.
In the absence of government policy, financers’ policies will become de-facto standards. In light of these policy announcements by financial institutions, the Japanese government should follow and set the clear deadline for an early phasing-out of coal-fired power sources in its long-term low-emission strategy for 2050 and foster domestic markets toward a de-carbonized society.