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【News】Climate-related shareholder proposals submitted again to J-POWER

Continuing from last year, Amundi (France) and HSBC Asset Management (UK), and The Australasian Centre for Corporate Responsibility (ACCR), an Australian environmental non-profit organization, co-filed shareholder proposals to Japan’s Electric Power Development Co., Ltd. (J-Power), to strengthen the company’s decarbonization strategy. These proposals were also supported by the public hedge fund Man Group (UK).

On June 28, at J-POWER’s 71st annual general meeting of shareholders, shareholder proposals were put to a vote along with company proposals. The climate-related Shareholder Resolution 1 and Resolution 2 received 21.2% and 15.0% support, respectively, but were rejected. It was also noted in the investor briefing that investors had expressed their intention to vote against the proposal to reappoint Representative Director and Executive Vice President Hitoshi Kanno, who is responsible for J-POWER’s decarbonization strategy, to the Board of Directors. The reappointment of Mr. Sugano as Representative Director and Executive Vice President was approved in the second item of the General Meeting’s agenda, but this intention received a certain amount of support from other investors, who voted against the reappointment approximately 3 to 8 times more than the other directors, excluding the President (see the J-POWER’s Voting Results here).

Based on the ACCR’s investor briefing, JBC will introduce the contents and reasons for the shareholder proposals, and what aspects of J-POWER’s decarbonization strategy were found to be problematic by both investors and NGOs.

Contents and reasons for the shareholder proposals

・Resolution 1

Details of the proposal

The following clause shall be added to the Articles of Incorporation:

To promote the long-term value of the Company, the Company shall set and disclose a business plan to achieve science-based short- and medium-term GHG emissions reduction targets aligned with the goals of the Paris Agreement.

The Company shall report, in its annual reporting, on its progress against such targets at reasonable cost and omitting proprietary information.

Reason for the proposal

Long-term institutional investors in the Company see its corporate value depending upon a credible decarbonisation strategy and short-, medium- and long-term GHG emissions reduction targets aligned with the goals of the Paris Agreement and investor expectations.

While we welcome the Company’s intention to achieve carbon neutrality by 2050, the Company’s targets are not yet aligned with the goals of the Paris Agreement. In particular, the Company has presented no indicative schedule for the retirement of its coal-fired power assets and has instead presented a plan that involves capital expenditure into speculative technology prolonging the life of these assets. This presents a range of material financial risks to shareholders, including the risks arising from anticipated changes in GHG emissions-related public policy.

Setting science-based targets, and disclosing a business plan to achieve them, would best manage these risks and protect corporate value. A disclosure of the Company’s assessment of how material capital expenditure aligns with those targets in such a business plan would assist shareholders.

・Resolution 2

Details of the proposal

The following clause shall be added to the Articles of Incorporation:

The Company shall disclose, in its annual reporting, details of how the Company’s remuneration policies will incentivise progress against the Company’s science-based short- and medium-term GHG emissions reduction targets, at a reasonable cost and omitting proprietary information.

Reason for the proposal

Long-term institutional investors in the Company consider a direct linkage between remuneration and achievement of GHG emissions reduction targets to be in the Company’s interests, as an important mechanism to incentivise executive performance against decarbonisation goals and protect corporate value.

・Opposition to the proposed reappointment of the Representative Director

In addition to the two proposals, based on the fact that there was a lack of a sufficient response to the last year’s vote (26%) supporting the shareholder proposal for stricter emissions targets for J-POWER, and the significant risks to the long-term value of the Company of J-POWER’s current climate plan, each member of the co-engagement group has this year individually indicated their intent to vote against the proposed reappointment of Representative Director Hitoshi Kanno, who holds responsibility for J-POWER’s decarbonisation strategy.

Issues and concerns about J-POWER’s decarbonization strategy

Based on ACCR’s investor briefing and the reasons for these shareholder proposals, the following are some of the issues and concerns that institutional investors and NGOs have pointed out with J-POWER’s decarbonization strategy.

・J-POWER’s emission reduction targets

J-POWER’s short- and mid-term emission reduction targets are not in line with the Paris Agreement’s goal of striving to limit global temperature rise to 1.5°C, and its short-, mid-, and long-term emission reduction targets are not applied to its overseas operations.

・J-POWER’s decarbonization strategy and related capital investment

J-POWER’s decarbonization strategy “Blue Mission 2050” relies heavily on costly and unestablished coal-fired power plant life extension technologies such as fossil fuel-derived ammonia, coal gasification, and carbon capture, utilization, and storage (CCUS). It is unclear how capital investment in these “innovative coal technologies” will be aligned with decarbonization goals, and while focusing on extending the life of coal-fired power plants, the strategy does not indicate a phase-out plan for the coal-fired power plants it owns in Japan.

・Plan on Renewable Energy

J-POWER’s targets for the expansion of its renewable energy holdings are low compared to the pace of increase anticipated in Japan’s Strategic Energy Plan. Additionally, the majority of its planned renewable energy projects are overseas, limiting their contribution to decarbonization in Japan.

・Remuneration policy

Transparency of the current remuneration policy is insufficient regarding how it will promote the achievement of J-POWER’s emissions reduction targets.

Japan’s Decarbonization Efforts Questioned by Foreign Institutional Investors

Following last year’s submission of climate-related shareholder proposals, the shareholder proposals from institutional investors and NGOs question the feasibility of J-POWER’s decarbonization efforts. This also means that the feasibility of the core of the Japanese government’s current GX (Green Transformation) initiative – to decarbonize the power sector by depending heavily on technologies to extend the life of coal-fired power generation – is also in question. J-POWER released a Notice of Opinion of the Board of Directors (May 24), opposing the proposal. In response to this, ACCR updated its investor briefing (June 8) and reiterated the inadequacies of J-POWER’s climate change measures.

If J-POWER and the Japanese government consider foreign investment essential to their decarbonization efforts, they should heed the warnings of foreign institutional investors and NGOs expressed in shareholder proposals; develop and disclose short- and medium-term emission reduction targets in line with the Paris Agreement as required by the international community and institutional investors; and disclose details of how its remuneration policy will facilitate the achievement of emission reduction targets.

For more information on this shareholder proposal, please see ACCR’s news release and investor briefing.

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