Big in Japan Inc: environmental pressure

The extreme heat in England has barely relented, but the concern has now shifted to drought. England suffered its driest July since 1935 last month, according to the Met office. Now, millions of citizens face water rationing. Drought problems have gotten worse across the continent too. Our colleagues reported on water shortages from Portugal to Italy earlier this month. In the Swiss Alps, military helicopters were called on to lift water into the mountains to keep cow herds from dying of thirst.

It is grim news. But on the climate investing front, there are two reasons to be hopeful.

First, I teamed up with Tamami today for a look at the recent shareholder petitions filed at Japanese companies. Already, the rubber stamp for Japan Inc has diminished. Now, environmentalists are teaming up to play offence and use their ballots to fight global warming.

Second, investors who clung to their solar and wind investments this year amid a harsh sell-off have been rewarded by Washington. I have a break down of the companies that are poised to benefit from landmark climate legislation in the US.

Thanks again to our readers who commented last week. Keep sending us feedback and we will continue to publish some of your thoughts. Reach us at moralmoneyreply@ft.com. (Patrick Temple-West)

Record year for climate pressure on Japan Inc

It has been a historic year for environmental activism at Japan Inc. For the first time in Japan, a trio of institutional investors teamed up to pressure Electric Power Development (J-Power) to get serious about cutting carbon emissions.

Asset managers Man Group, HSBC Asset Management and Amundi filed three shareholder proposals asking J-Power to align emissions reductions with the 2015 Paris Agreement, to align the company’s operations spending with its emissions reductions and disclose how executive pay targets would help hit emissions targets. It was a rare move for institutional investors, who have historically rubber stamped corporate behaviour.

The proposals failed to pass at the company’s June 29 meeting in part because it lacked the support of the world’s biggest asset manager. In a voting memo, BlackRock said the three shareholder proposals were “overly prescriptive” and limited management’s ability to make decisions.

Still, the activists who spearheaded the shareholder proposals told Moral Money they were optimistic. “We anticipate that this will be an ongoing engagement,” said Brynn O’Brien, executive director of the Australasian Centre for Corporate Responsibility (ACCR), a shareholder advocacy group.

The J-Power case illustrates a shift in environmental pressure on boardrooms in Japan. With the increased awareness of ESG investing, climate resolutions have become the norm at Japan Inc’s annual meetings in the past two years, said Chieko Matsuda, professor at Tokyo Metropolitan University. But the companies receiving such proposals were mostly concentrated in the energy and financial industries, Matsuda added.

Overall, 292 proposals were filed this year, with a record 77 companies facing shareholder proposals. The total number of proposals filed was up 80 per cent from 2021, and surged past the previous record of 212 logged in 2017, according to Mitsubishi UFJ Trust and Banking.

A climate resolution against Kansai Electric Power (Kepco) won 36 per cent support of shareholders this year. And a similar petition at SMBC this year drew 27 per cent support. Votes scoring 30 per cent are considered strong enough that corporate management cannot shrug off the petition’s underlying demands.

After the vote at SMBC, one of Japan’s biggest financial companies, the group relented to shareholder pressure and changed its coal policy to stop financing new thermal coal projects, including projects in Indonesia and Australia, said Meg Fukuzawa, a campaigner at Market Forces, which filed the petition.

The situation in Japan should be closely watched by companies worldwide. Investors are co-ordinating more frequently on climate voting. More shareholders are announcing how they will vote before an annual meeting — a new strategy that can build momentum and take boards by surprise.

“Shareholder proposals have significant impact on the climate and energy policies of these large corporations, although the results can take time to become visible,” Fukuzawa said. (Tamami Shimizuishi, Nikkei, and Patrick Temple-West)

Solar and carbon capture companies win big in US climate bill

Washington politicians are well known for hot air, but in recent days they blew some serious money into the alternative energy sector.

After a dour start to the year for the US renewables sector, clean energy companies outperformed the S&P 500 last week, driven by the historic Senate legislation pouring funds into solar and carbon capture technologies. The legislation includes a host of tax breaks for solar technology, down to the pivots that aim solar panels at the sun.

Sunrun, for example, a provider of residential solar panels, was down 40 per cent for 2022 in mid-May. As of yesterday, its shares were down just 5 per cent for the year, a stunning turnround fuelled by the new legislation.

DC’s largesse boosted clean energy companies worldwide. Vestas, the world’s biggest wind turbine manufacturer, said in May that Russia’s Ukraine invasion was hurting demand. Its shares are now up more than 10 per cent since the Democrats’ deal with West Virginia senator Joe Manchin was announced on July 27.

The legislation broadened tax breaks for direct air carbon capture facilities, which are seen as an emerging tool to clean the atmosphere. “This is a very significant benefit for direct air capture companies, most of which are early stage, and undergoing technological development,” said John MacDonagh, senior emerging technology analyst at PitchBook, told Moral Money. The threshold for the projects that qualify for tax credits has been lowered, he added.

There has not been much to celebrate this year as global warming has increasingly demonstrated its terrifying effects worldwide. But with this climate legislation, the US has steered investor interest towards the renewables sector. (Patrick Temple-West)

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