Nippon Shareholders Demand Green Steel Plan
LGIM, Amundi and Nordea are asking the Japanese steel giant to set stricter targets and disclose its climate lobbying activities.
A group of investors has filed resolutions calling on Japanese steelmaker Nippon to overhaul its decarbonisation strategy, challenging the assumption that carbon capture, use and storage (CCUS) can clean up this notoriously dirty industry.
British asset manager Legal & General Investment Management (LGIM) co-filed the resolutions with activist groups the Australasian Centre for Corporate Responsibility (ACCR) and Corporate Action Japan (CAJ). Major investment management firms Amundi, Nordea Asset Management and Storebrand Asset Management also backed the resolutions.
Nippon is one of Japan’s top polluters, and the resolutions demand more transparency on its political lobbying on climate policy. They also request more detail on how decarbonisation will be achieved, calling for detailed short- and medium-term emission reduction goals, and ask that Nippon links executive pay to success in achieving those.
The resolution comes as steelmakers around the world look for alternative production methods that don’t rely on coal. While many technologies show promise, few have yet been tested at commercial scale, and there is still wide disagreement on which technology will win out.
Nippon has said it aims to be “carbon neutral” by 2050 using a “multi-aspect” approach that would include hydrogen-based steel, CCUS and carbon credits. But this plan has proved too vague for the investors backing the proposal. The ACCR estimates half of Nippon’s emission reduction will come from unproven CCUS technology.
“Nippon Steel has been too slow to embrace the opportunities built into the green steel transformation,” ACCR Executive Director Brynn O’Brien said. “The company needs to do more to provide confidence to shareholders that it can remain competitive in the future.”
She also said Nippon Steel was “looking to flex its muscles” on the global stage with its likely acquisition of competitor US Steel, arguing that such ambitions meant the company needed to have a credible decarbonisation strategy. “Right now, this is undermined by its over-reliance on CCUS,” she added.
CCUS vs hydrogen
The steel sector is one of the world’s top polluters, contributing around 8% of global emissions. Along with cement – another vital building material that is also a top polluter – it is considered one of the hardest sectors to abate, and a prime candidate for CCUS.
Many established steelmakers like CCUS because it allows them to continue using their existing coal-burning blast furnaces. Capturing the waste carbon dioxide and either pumping it into underground reservoirs or using it for industrial purposes would theoretically make their activity carbon neutral.
However, a growing number of critics argue CCUS is too pricey and complicated a technology to be rolled out at scale, and that other emerging green steel technologies would be more cost-effective. Hydrogen-based direct reduction of iron ore is the most advanced technology – and has been proven to work by steelmakers in Europe, including Swedish joint venture HYBRIT – but other methods using electricity are also promising.
The majority of the world’s steelmaking blast furnaces are in China, where they are run by state-owned enterprises. This gives climate-conscious asset owners limited influence over China’s steel emissions – although some have been targeting them indirectly through listed iron ore miners that supply Chinese mills – including BHP, Rio Tinto and Vale.
Asset owners who want a direct influence on steelmakers must look to public companies in Japan, such as Nippon and Mitsubishi, and South Korea, such as the Pohang Iron and Steel Company.
Separately, the Institute of Energy Economics and Financial Analysis (IEEFA) argued in a report last month that CCUS was unlikely to play a major role in decarbonising the steel section.
“It is increasingly obvious to many, including the International Energy Agency (IEA), that the uptake of direct reduced iron (DRI)-based steelmaking – which can run on green hydrogen with very low emissions – is accelerating,” the report read. “This technology – along with electric arc furnaces (EAFs) associated with renewable electricity – offers steelmakers a far more promising pathway to reduce their emissions than CCUS.”
A spokesperson for the World Steel Association, which represents sector players globally, told ESG Investor the industry was not technology-prescriptive on green steel.
“What works well for one producer, may not be the optimal solution for another,” she said. “While CCUS would be viable in geographies with access to natural underground storage, hydrogen-based methods are more appropriate in areas with access to abundant renewable energy.”
Lobbying targeted
Japan is one of the world’s top polluters, having emitted just under 1.1 billion tonnes of carbon dioxide equivalent (CO2-e) last year – behind only China, the US, India and Russia. According to the ACCR, Nippon’s combined Scope 1, 2 and 3 emissions in 2021 represented 103.29 million tonnes of CO2-e – around 10% of Japan’s total emissions.As a key contributor to Japan’s emission, Nippon’s lobbying activities on climate policy are of particular importance.
“It is clear that there is a growing need for transformative policy developments aimed at accelerating the transition to a net-zero economy,” said Aina Fukuda, Head of Japan Investment Stewardship at Legal and General Investment Management (LGIM), arguing that transparency around climate policy had become increasingly important in LGIM’s engagements with companies worldwide.
“Japan, too, is at a pivotal juncture in its climate and energy policies,” she added. “We now call on Nippon Steel to lead by example and enhance accountability and transparency in its efforts to influence these policies as they take shape.”
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