Mizuho faces shareholder climate resolution over coal financing

Mizuho aims to stop providing new loans for coal-fired power plants from June. PHOTO: REUTERS

TOKYO (BLOOMBERG) - Mizuho Financial Group is facing a rare shareholder vote on its climate policy at its annual general meeting on Thursday (June 25), putting Japan's third-largest bank in the spotlight for its financing of coal power projects.

The resolution, opposed by the lender, would require it to disclose climate risks and publish a plan to ensure its investments are aligned with the Paris Agreement on reducing the risks from climate change.

While the initiative isn't expected to pass, it has garnered the support of several high-profile global investors and proxy advisory firms.

Nordea Asset Management, a unit of Nordea Bank Abp with €235 billion (S$370 billion) in assets under management, supports the proposal, as do Norwegian investment giants Storebrand ASA and Kommunal Landspensjonskasse.

Japanese banks, among the world's biggest lenders to coal power developers, have faced criticism for continuing the practice as global rivals withdraw in a bid to combat climate change. Lenders including Mizuho are financing the construction of plants in South-east Asia that could lock in coal use for decades, though climate scientists are advocating more immediate action to halt usage of the fuel.

Mizuho's coal lending puts "the company at great risk of exposure to businesses that face devaluation in a transition to decarbonised economy", according to the resolution from the anti-coal activist group Kiko Network.

"The proposal will allow shareholders to see how the company is managing risks of this nature."

Mizuho says the proposal is "inappropriate" and it already discloses goals including those based on the Paris Agreement.

Kiko Network said it filed the resolution in March because at the time the group believed Mizuho had the weakest climate policy among Japan's megabanks, which include Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group. Mizuho strengthened its policy in April and Kiko says it now believes it is the strongest among its domestic peers, while still lagging behind those of global rivals.

Mizuho said in April that it plans to halve its 300 billion yen (S$3.9 billion) in outstanding coal energy project finance by the year starting April 2030 and bring it to zero by 2050. It also aims to stop providing new loans for coal-fired power plants from this month.

For investors, the concern is that if global regulations on greenhouse gas emissions get stricter, it could force such plants to close before they pay off their debt.

Institutional Shareholder Services Inc, a proxy advisory firm, supports the climate initiative because it would "place market discipline over management for continued improvement of climate-related disclosure practices" and allow investors to better evaluate the bank's risk profile.

Glass, Lewis & Co, which also supports the resolution, said it could help mitigate "potential reputational risks on account of the company's significant coal financing".

In 2015, nearly 200 countries voted in favour of the UN's Paris Climate Agreement, which commits nations to cutting greenhouse gas emissions and ensuring global average temperatures are kept well below 2 deg C above pre-industrial levels and ideally capped at 1.5 deg C.

The world is presently on a path to warm about 3 deg C by 2100 based on present commitments to reduce emissions.

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