Thursday, December 15, 2022
Fair Finance Guide Japan released the set of bank assessment scores for the year 2023. Mizuho significantly improved their ESG policy in asset management, giving them the top overall score of 4.1, which exceeded last year’s top-ranker Norinchukin Bank, which scored 3.8. Most of the assessed financial institutions still lag far behind European counterparts in five countries, which scored an average of 6.5.
Regarding Mizuho in the highest rank, Asset Management One, an asset management company under the group, greatly improved their score by having strengthened voting guidelines and introduced international norms such as OECD Guidelines for Multinational Enterprises as a criteria for decision-making (*1). Mitsubishi UFJ also improved their score by having revised tax compliance policy, etc., and moved up from fifth to third place. On the other hand, Japan Post Bank has been in last place for nine consecutive assessments since the assessments started in 2015.
There are steady moves towards achieving zero emissions in the investment and loan portfolio by 2050. Mitsubishi UFJ, Mizuho, SMBC and Norinchukin Bank set interim targets for 2030 (*2). Six financial institutions except Resona Bank announced policies that they will not finance new thermal coal mine projects. Moreover, Mizuho developed a policy to phase-out fossil fuel companies. However, it did not score points due to a number of uncertainties in the policy. Regarding policies on phasing-out from oil and gas projects or fossil fuel companies, further improvements are required with reference to policies of European financial institutions (*3).
There are also growing moves towards seeking consideration when financing forest sectors or palm oil sectors. Mitsubishi UFJ, Mizuho, SMBC, Sumitomo Mitsui Trust and Norinchukin Bank urge forest sectors to get certifications such as FSC, as well as urging palm oil sectors to get RSPO certification. Except Norinchukin Bank, four financial institutions out of five mentioned above have also started to comply with “No Deforestation, No Peat and No Exploitation (NDPE).” However, none of the financial institutions have policies on large biomass power projects using imported timbers, which are concerned for bringing massive GHG emissions and ecological destruction in North America and Southeast Asia. Therefore, it is crucial for financial institutions to urgently develop policies to stop financing for large biomass power projects.
The Fair Finance Guide aims to promote a race-to-the-top between ESG efforts of financial institutions by scoring social dimensions of investment and lending policies of major financial institutions and providing the results to the public in an easy-to-understand manner. Dutch NGOs started this initiative in 2009, and Japan has participated since 2014 (This is the 10th assessment). Currently, the policy assessment is conducted in 15 countries.
*1: Voting guideline is a policy that asset management companies use for deciding approval or disapproval of shareholders meeting proposals of investee companies. In OECD Guidelines for Multinational Enterprises, principles such as transparency, human rights, employment, environment, bribery, consumer interests, science and technologies, competition and taxation are included. We understand that introducing OECD Guidelines for Multinational Enterprises in the voting guideline represents a positive attitude towards engaging investee companies to follow the OECD Guidelines. Therefore, it is subject to scoring points for each theme.
*2: Three megabanks have set numerical targets for 2030 for the amount of CO2 emissions of the financed power sectors. For example, while Mitsubishi UFJ revealed the GHG emission intensity of their financed portfolio for power sectors was 349gCO2e/kWh in 2019, they developed a target to reduce it to 156-192gCO2e/kWh by 2030. Given that emission intensity of coal-fired power is 733-867gCO2e/kWh and gas-fired power is 320-415gCO2e/kWh, there is a limited scope for newly financing these power projects.
*3: For example, as many European banks have already announced to stop financing new fossil fuel (coal, oil and gas) projects or to end financing companies with high reliance on fossil fuel projects, European banks have more comprehensive fossil-free policies than their Japanese counterparts which only announced to stop financing new coal projects.
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