Japan’s Private Banks

Despite many private banks around the world recognising the risks associated with climate change, Japan’s big banks such as Mitsubishi UFJ Financial Group (MUFG), Mizuho Financial Group (Mizuho) and Sumitomo Mitsui Financial Group (SMBC Group) are still going against this trend.

Private banks are one of the key actors for coal finance in the world. In particular, Japan’s three mega banks –Mizuho, SMBC  Group and MUFG – are the 1st, 2nd, and 3rd largest lenders to coal industry globally, providing nearly  USD 61.3 billion over last two years. Furthermore, according to the Fossil Fuel Finance Report Card 2021, MUFG is the world’s 12th largest investor for 30 top coal power companies over the last 5 years, followed by Mizuho which is the 13th and SMBC which is the 22nd largest in the world.

In order for the world to achieve the Paris Agreement goal of limiting global temperature rise to 1.5 degrees celsius, the banking sector must stop funding any new coal plant. Yet Japanese banks are still actively supporting coal, which is the most carbon-polluting fuel.

Small steps have been taken by these banks but more must be done. In 2018, all three banks published policies in coal funding and in 2019, MUFG and Mizuho, and in 2020, Mizuho and SMBC, and in 2021, all the three banks revised their coal policies again. Nevertheless, these policies are riddled with loopholes and leave the door open for continuing to invest in coal plants equipped with new technologies such as CCUS or mixed combustion. As these technologies won’t contribute to GHG emission reductions by 2030, it will only lead to prolonging the operations of coal plants, and not be aligned with the goals of the Paris Agreement. They can also continue to support coal developers although Mizuho announced its new policy to enhance engagement on transition risk with companies reliant on coal-fired power generation as their main business.

Banks locking developing
countries into coal

Japanese banks are backing coal power plants in countries such as Indonesia and Vietnam, as well as supporting coal mining in Australia.

Scientists have shown this having deadly consequences. A study conducted by a Harvard University team has estimated approximately 70,000 people in Southeast Asian countries will face premature death annually just from the air pollution from coal expansion by 2030.

In Indonesia, local people affected by Japanese-funded coal plants have reported issues such as land grabbing, loss of livelihoods, and health impacts. Some are even going to court to challenge and stop projects. The Batang coal power project in Java is funded by Japanese banks among others. The project was originally presented as a so-called model case of Japanese ‘Clean Coal’ technology exports. However, as the project progressed, it was revealed the technology was not up to scratch. The amount of air pollution emitted by the plant would be five times as much as Japan’s domestic coal power plant on average.

Similar issues have been documented in several projects funded by Japanese private banks.

What about Japanese private banks’
new coal policies?

MUFG revised its coal policy in April 2021 which declared that in principle, it would not provide financing for the expansion of existing coal-fired power generation facilities, adding to its previous pledge to not finance the construction of new coal-fired power plants.

However, the policy leaves a worrying exception and states “coal-fired power generations equipped with CCUS, Mixed combustion, and other technologies necessary to achieve the Paris Agreement target may be considered on an individual basis.” It is believed that neither CCUS nor mixed combustion will contribute much to the emissions reduction needed by 2030, and instead only prolongs the life of coal-fired power. MUFG’s support for these technologies is therefore inconsistent with the Paris Agreement.

In May 2021, MUFG announced it would aim to achieve carbon neutrality by 2050 for the first time by a Japanese bank. However, it stated it will announce the mid-term target by 2030 during FY 2022.

In October 2020, MUFG also announced its target to reduce the outstanding credit balance for coal-fired power generation facilities to zero by FY2040 which is the same target set by Mizuho and SMBC.

 

Mizuho revised its coal policy in April 2019. Mizuho declared that it would not provide financing or investment which will be used for the new construction of coal-fired power plants. It also declared its target to reduce the outstanding credit balance for coal-fired power generation facilities to zero by FY2050. (Mizuho announced its commitment to achieving it by FY 2040 during the Annual General Meeting in June 2020, and stipulated in its revised policy in May 2021.) 

However, even after its policy updates in May 2021 some exceptions remain such as “when a proposed coal–fired power plant is essential to the relevant country’s stable energy supply and will contribute to reduction of greenhouse gas emissions by replacing an existing power plant”. 

Regarding coal mining projects, with the policy updates in 2021, Mizuho became the first Japanese bank that banned coal mining in principle but exceptions remain in existing mining projects.  It also announced enhanced engagement with corporations highly involved in the coal power and mining sector. It became the first Japanese bank to refer to a sector policy for corporate finance but they need to improve it by including concrete exclusion policies. 

In June 2021 during its Annual General Meeting, Mizuho also announced that it would aim to achieve carbon neutrality by 2050.

 

SMBC Group revised its coal policy in May 2021, and it states “Support for newly planned coal-fired power plants and the expansion of existing plants are not provided” and removed exceptions such as ultra-supercritical pressure (USC) technology from the previous policy.

However, in an exchange with NGOs, the Group clarified that under the new policy, “support can be considered when (projects) will contribute to transition to decarbonization, such as CCUS and ammonia/biomass mixed combustion.” These technologies have not yet been put to practical use and will not contribute to the achievement of the medium-term goal required for the 1.5 degrees Celsius goal of the Paris Agreement, which is to halve greenhouse gases in 2030. 

In July 2020, it also announced the same target with Mizuho on reducing its credit balance of project finance related to coal-fired power generation to zero by FY2040. This target does not align with the Paris Agreement.

 

Even though Japanese big banks have a restriction for coal finance, all of these banks’ policies are not fully consistent with the goal of the Paris Agreement. In part, because all three banks have exceptions that will enable these banks to continue to support coal projects. In addition, these banks’ coal policies are only applicable for project-tied finance, which means they are allowed to keep funding in corporate finance, shares and bonds under their current coal policy. 

No Coal Japan calls on Japanese private banks to

  • Immediately end project finance and new corporate finance including loan, stock and bond investment for coal developers and
  • Shift all bank financing in line with the Paris Agreement goals.

Japanese banks are already world leaders in financing renewable energy. Given the reality of climate change, all of the money currently flowing to coal and other fossil fuels needs to go into helping just transition to a 100% renewable energy future both in Japan and around the world.