Japan: First institutional investor group-led climate shareholder proposals received by J-Power

It is becoming increasingly common in certain markets – notably the UK, Europe, US and Australia - for shareholders to put climate change-focused resolutions on the agenda of listed oil and gas companies' AGMs. The last few years saw more of these climate proposals and increasing investor support for them, as well as resolutions being put to banks for financing carbon-intensive businesses (see here). This year’s AGM season in the UK is off to a lively start on the ESG front, with climate change and other social and governance issues, such as board diversity and human rights in supply chains, still riding high on shareholders' and investors' agendas (see here).

Last week, in Japan we saw large institutional investors calling on Japan’s largest coal plant operator to disclose a plan for how their business model will be compatible with a net zero economy and how this plan is incorporated into the company’s long-term strategy.

Electric Power Development Co., Ltd  (known as J-Power) received shareholder proposals co-filed by three of its major European institutional investors urging it to put in place a credible transition plan with science-based short, medium and long-term targets. Man Group Plc, Amundi SA, and HSBC Asset Management are calling on the company to strengthen its decarbonisation strategy ahead of J-Power’s annual general shareholders’ meeting in June. These are reported to be the first institutional investor group-led climate shareholder proposals in Japan.

The proposals call on J-Power to:

• set and disclose a business plan with science-based short and mid-term GHG emissions targets that are aligned with the Paris Agreement and report on progress against these targets on an annual basis;
• disclose in its annual report, details of how it assesses alignment of capex with its GHG emissions targets; and
• disclose, in its annual report, details of how the company's remuneration policies facilitate the achievement of J-Power’s GHG emission reduction targets.

These proposals have been made on the basis that the institutional investors see J-Power’s corporate value contingent on a credible decarbonisation strategy with science-based short, mid and long-term GHG emissions reduction targets aligned with the Paris Agreement and investor expectations (see the English translation of the proposal here). 

The proposals have been co-filed with the Australasian Centre for Corporate Responsibility (ACCR) who, in its press release (see here), has said that the proposals follow significant engagement between J-Power and the investor group about J-Power’s current decarbonisation strategy. ACCR also points to analysis published by TransitionZero (see here), which indicates that, although J-Power has set a ‘carbon neutrality’ 2050 ambition, its targets are not approved under the Science-Based Targets initiative (SBTi) and its current emissions targets do not cover its international assets.

Although not at the same rate as those observed in Europe, the UK or the US, Japanese companies are increasingly receiving ESG-related proposals from investors. In March 2020, the Japanese NGO Kiko Network submitted the first ever climate-related shareholder proposal in Japan to Mizuho Financial Group, calling on it to disclose its climate risks and publish a plan to ensure its investments align with the goals of the Paris Agreement. In March 2021, Sumitomo Corporation and Mitsubishi UFJ Financial Group also received (similar) proposals calling on them to adopt and disclose business strategies that were consistent with the Paris Agreement, with particular focus on exposure to coal, oil and gas assets. And although each of these resolutions were voted down, they did receive considerable support (35%, 20% and 23% respectively). Last month, Sumitomo Mitsui Financial Group, Tokyo Electric Power (Tepco), Mitsubishi Corp and Utility Chubu Electric Power received climate-focused resolutions from climate activist groups (including Kiko Network and Market Forces, who were involved in the proposals referred to above).

Japanese law requires that such shareholder proposals are put forward as amendments to the company's articles of incorporation (as only matters to be resolved at the general meeting of shareholders may be the subject of shareholder proposals), which has led to some proxy advisors counselling that the language of such proposals is not appropriate to be incorporated into the company’ articles. However, such proposals can result in increased dialogue with key stakeholders and have, in some cases, led to voluntary policy change (for example, last year, Sumitomo Corporation revised its policies to incorporate its plan not to pursue new coal-fired power generation business and to end all coal-fired power generation business in late 2040, see here).

Is this a sign of things to come in the region? It will be interesting to see how this develops. In the APAC region more broadly, investor activism remains firmly on the agenda for Australian boards in 2022, with growing shareholder support, global initiatives such as the “Say on Climate” campaign have garnered corporate attention in Australia, particularly in the mining and energy sectors. 

For more information, see:

• Hotting up - Investor activism on climate and ESG (Linklaters)
• The 'Say On Climate' - what do boards need to know? (allens.com.au)
• ESG activism is growing – what should boards do? (allens.com.au)