Report
Japan’s Trading Houses: Losing the Renewable Energy Race
Key findings
1
Japan’s seven leading “trading houses”, corporate pillars of the Japanese economy, and JERA, the country’s largest power company, are exacerbating energy insecurity in Asia by increasing the region’s dependence on gas. This exposes the region to volatile global gas markets and undermines the transition to clean energy.
2
The claim that lifecycle emissions of gas power are lower than coal power is increasingly being questioned. Yet these companies are pouring investment into new gas power plants in Asia and gas export facilities around the world. If built, the 8 gigawatts (GW) of gas power plants planned by these companies would release greenhouse gases equivalent to 584 million tonnes of CO2 over the plants’ operating lives. This is equal to more than half of Japan’s annual emissions in 2022.
3
96% of the planned 8 GW of gas power generation capacity is concentrated in Asia. In South and Southeast Asia, these companies are planning to build 8.6 times more gas power than solar and wind combined.
4
The eight companies’ contribution to meeting Japan’s 2030 renewable energy target is inadequate, despite their leading position in the energy and power value chain, with their total existing and planned solar and wind capacity making up a mere 5% of Japan’s 2030 target.
5
The eight companies’ contribution to meeting Japan’s 2030 renewable energy target is inadequate, despite their leading position in the energy and power value chain, with their total existing and planned solar and wind capacity making up a mere 5% of Japan’s 2030 target.
6
These companies do not have policies and targets to shift from their reliance on gas. This threatens global decarbonisation. The findings confirm investors must ensure these companies rapidly transition to renewables-focused business plans to mitigate risk and remain competitive in a rapidly decarbonising world.
Executive summary
Trading houses, known as “sogo shosha” in Japanese, are large, diversified trading companies that play a crucial role in Japan’s economy. These companies play a major role in expanding gas infrastructure, including liquified natural gas (LNG) terminals and gas power plants, around the world, exacerbating energy insecurity particularly in Asia by increasing the region’s dependence on gas.
The “big seven” trading houses, consisting of Itochu Corporation, Marubeni Corporation, Mitsubishi Corporation, Mitsui & Co., Sojitz Corporation, Sumitomo Corporation, and Toyota Tsusho, are huge. The average market capitalisation of the seven trading houses is 11 times the size of an average Tokyo Stock Exchange Prime listed company as of the end of October 2024. Itochu’s market capitalisation, the largest of the seven, is comparable to the US-listed Duke Energy and the UK-listed BP. Collectively they employ nearly half a million people across thousands of subsidiaries and affiliates around the globe. They are uniquely positioned to manage complex, multi-industry value chains. This includes a critical role in the global transition towards renewable energy and away from fossil fuels.
Japanese gas infrastructure developers lack adequate policies and targets to transition from their reliance on gas in line with net zero emissions by 2050 pathways (for targets, see Appendix 1).[1] This report investigates the plans of eight Japanese fossil fuel developers – the seven major trading houses and JERA Co. Inc., the largest power generator and LNG trader in Japan – to develop LNG terminals, gas power plants, and solar power and wind power.
Most of these companies are planning to expand gas infrastructure, exposing themselves to stranded asset risk, despite the International Energy Agency (IEA) making clear the world has enough gas capacity under all three scenarios up until 2040. Gas plant capacity utilisation rates are projected to decline under all three of the IEA’s scenarios 2030 onwards.
Apart from JERA whose core business is fuel trading and power generation, “sogo shosha” in general have diversified businesses, yet some trading houses remain heavily dependent on fossil fuels. Mitsubishi and Mitsui have the highest fossil fuel reliance, with at least 30% of FY2023 net profit derived from fossil fuel-related businesses. They do not plan to change this heavy reliance on fossil fuels, risking not only our shared climate but also their business prospects in the rapidly decarbonising economy required to meet global climate goals. The data shows in particular that amid declining gas demand in Japan, the Japanese companies are saddling South and Southeast Asian countries with costly, polluting, and volatile fossil fuel dependence, jeopardising energy transition and energy security needs in the region, as these fossil fuel importer countries are extremely susceptible to supply disruptions and price shocks.
The latter part of this report sheds light on the environmental, social, and governance controversies of projects the Japanese companies are involved in. Case studies highlight that communities and natural environments are being sacrificed for Japanese companies’ financially risky fossil fuel ventures.
A failure to transition to renewable energy has serious consequences for these Japanese companies’ long term business prospects, making it harder for them to remain globally competitive. Given the prominent position of these companies in Japan’s economy and their global outreach, their failures could have massive negative impacts, including on key trading partners in emerging Asia.
References
[1] See corporate disclosures, for example: Itochu; JERA; Marubeni; Mitsubishi; Mitsui; Sojitz; Sumitomo; Toyota Tsusho
[2] Since the companies do not disclose profits based on fossil fuel-related versus non fossil fuel-related businesses, it is impossible to accurately account for the split. In most cases, a segment includes both fossil fuel-related and non fossil fuel-related businesses. For example, “mineral resources” segment can include coal, oil, gas and other minerals such as iron ore. Similarly, the “power solutions” segment can include both thermal power and renewable power. In the analysis, only the segments and investments that are clearly linked with fossil fuels were included.
Disclaimer
The project list compiled by Market Forces is not an exhaustive list of all gas, LNG, solar and wind projects around the world. Market Forces has made every effort to ensure the analysis and information provided in the report are sound, but cannot guarantee the accuracy or correctness of any of the data collected from external sources.
Market Forces is an environmental advocacy group that focuses on financial institutions, and not a financial adviser. This material is provided for general information purposes only and is not to be taken as financial advice.
Market Forces disclaims any liability arising from the use of information provided in this report. Translation of this report to Japanese language was conducted by a third party. For quotes, please refer to the original version in English.
This is a non-commercial product for public dissemination only. Not for sale.
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